Integra Realty Resources

Integra Realty Resources Caribbean Appraisal of Going Concern IGY American Yacht Harbor Marina Mixed Use Property 18A-1, 18-B1,18-B and 18-W Remainder Estate Smith Bay East End Quarter, St. Thomas, Virgin Islands Client Reference: 23559 Prepared For: Banco Popular de Puerto Rico Effective Date of the Appraisal: November 25, 2015 Report Format: Appraisal Report —Standard Format IRR - Caribbean File Number: 172-2015-0181 irr EFTA00803859 GY American Yacht Harbor Marina 18A-1, 18-81,18.8 and 18-W Remainder Estate Smith Bay East End Quarter, St. Thomas, Virgin Islands EFTA00803860 irr® Integra Realty Resources Caribbean December 15, 2015 Roberto A. Soltero Vice President Banco Popular de Puerto Rico PO Box 362708 San Juan, PR 00936-2708 6500 Red Hook Plaza Suite 201 St. Thomas, VI 00802 US. Virgin Islands T 340.714-7325 www.irr.com SUBJECT: Market Value Appraisal IGY American Yacht Harbor Marina 18A-1, 18-B1,18-B and 18-W Remainder Estate Smith Bay East End Quarter, St. Thomas, Virgin Islands Client Reference: 23559 IRR - Caribbean File No. 172-2015.0181 Dear Mr. Soltero: Integra Realty Resources —Caribbean is pleased to submit the accompanying appraisal of the referenced property. The purpose of the appraisal is to develop an opinion of the market value of the leased fee (going concern) interest in the property. The client for the assignment is Banco Popular de Puerto Rico, and the intended use is for Commercial credit administration. The appraisal is intended to conform with the Uniform Standards of Professional Appraisal Practice (USPAP), the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers, the RICS Valuation Professional Standards, the International Valuation Standards, applicable jurisdictional appraisal regulations, and the appraisal guidelines of Banco Popular de Puerto Rico. The appraisal is also prepared in accordance with the appraisal regulations issued in connection with the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). To report the assignment results, we use the Appraisal Report option of Standards Rule 2- 2(a) of USPAP. As USPAP gives appraisers the flexibility to vary the level of information in an Appraisal Report depending on the intended use and intended users of the appraisal, we EFTA00803861 Roberto A. Soltero Banco Popular de Puerto Rico December 15, 2015 Page 2 adhere to the Integra Realty Resources internal standards for an Appraisal Report— Standard Format. This format summarizes the information analyzed, the appraisal methods employed, and the reasoning that supports the analyses, opinions, and conclusions. The subject is an existing 250-slip marina with 5 commercial buildings containing a mixture of retail and office space types. The buildings contain 48,661 square feet of rentable area and were constructed in multiple stages; with the majority of the construction completed in 1993. The commercial space is 85% leased as of the effective appraisal date. The marina docks were constructed in multiple phases between 1991-1995 and are 52.8% occupied as of the effective appraisal date. The total site area is 2.76 acres or 120,226 square feet, which includes 0.64 acre or 27,878 square feet, that is re-claimed land. The property also includes 3.2 acres of seabed under the marina dock structures which is leased to the property owner from the Government of the Virgin Islands. Based on the valuation analysis in the accompanying report, and subject to the definitions, assumptions, and limiting conditions expressed in the report, our opinion of value is as follows: Value Conclusion• Appraisal Premise Market Value Interest Appraised Date of Value teased Fee (Going Concern) November 25, 2015 Value Conclusion $24,360,000 'Values expressed in United States Dollars Allocation of Going Concern Value Amount % of Total Tangible Property land & Improvements $24,250,000 99.5% Tangible Personal Property (FF&E) $110,000 0.5% Total Tangible Property $24,360,000 100.0% I nta nal ble Assets $0 0.0% Market Value' $24,360,000 100.0% *Specificallyexcluded from the valuation are cash and equivalents and current liabilities. The allocation of value components is based on the going-concern premise, which holds that the value of a business as a going-concern is equal to the sum of the values of the tangible and intangible assets. The allocation assumes continued operation of the marina business. Were the marina business to cease operations, the values of the individual components would likely be different from the allocated values of the going concern. EFTA00803862 Roberto A. Soltero Banco Popular de Puerto Rico December 15, 2015 Page 3 Extraordinary Assumptions and Hypothetical Conditions The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. Ni extraordinary assumption is uncertain information accepted as fact if the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modify our value conclusions. 1. The subject property has a fueling dock and four fuel storage tanks located on site; including three diesel and one gasol i ne. There were no signs of contamination during our inspection and we have assumed that there is no adverse environmental impact in connection with the existing fuel equipment used on the subject property. 2. The parking garage at the subject slightly encroaches on the neighboring property to the Immediate northwest This land Is owned by the Government of the Vi rgin Islands and we have assumed that no claim will arise from the encroachments. 3. For this analysis, we have valued the going concern Interest in the subject property and have allocated the value of the personal property from the value of the real property. We were provided with financial statments from ownership that indicates the depreciated book value of these assets. It is beyond our scope to value these assets in use; therefore, we have assumed that the book values of teh personal property items shown in the statments provided by ownership are reasonably accurate for the purpose of this allocation exercise. The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition Is a condition contrary to known fact on the effective date of the appraisal but is supposed for the purpose of analysis. 1. No hypothetical conditions were employed in this analysis. The opinions of value expressed in this report are based on estimates and forecasts that are prospective in nature and subject to considerable risk and uncertainty. Events may occur that could cause the performance of the property to differ materially from our estimates, such as changes in the economy, interest rates, capitalization rates, financial strength of tenants, and behavior of investors, lenders, and consumers. Additionally, our opinions and forecasts are based partly on data obtained from interviews and third party sources, which are not always completely reliable. Although we are of the opinion that our findings are reasonable based on available evidence, we are not responsible for the effects of future occurrences that cannot reasonably be foreseen at this time. EFTA00803863 Roberto A. Soltero Banco Popular de Puerto Rico December 15, 2015 Page 4 If you have any questions or comments, please contact the undersigned. Thank you for the opportunity to be of service. Respectfully submitted, Integra Realty Resources - Caribbean Mark J. Weathers Certified General Real Estate Appraiser VI Certificate # 1-21738-1B Telephone: 340-714-7325 Email: James V. Andrews, MAI, CRE, FRICS, ASA, CVA Certified General Real Estate Appraiser VI Certificate # 0-14194-1B Telephone: 345-746-3110 Email: EFTA00803864 Table of Contents Summary of Salient Facts and Conclusions 1 Income Capitalization Approach 57 General Information Identification of Subject 3 3 Market Rent Analysis — General Retail Space 59 Sale History Pending Transactions Purpose of the Appraisal 3 3 4 Market Rent Analysis — General Office Space 65 Market Rent Analysis — Restaurant Space 71 Basis of Value 4 Market Rent Analysis — Marina Slip Rentals78 Definition of Property Rights Appraised Definition of Going-Concern Premise 4 4 Reconciliation and Conclusion of Value Exposure Time Marketing Period 106 107 107 Intended Use and User 5 Allocation of Going-Concern Value 108 Applicable Requirements Value of Furniture, Fixtures and Equipment Prior Services (FF&E) 108 Competency Independence 5 6 Value of Intangible Assets Allocation of Going-Concern Value 109 109 RICS Valuer Registration 6 Currency 6 Insurable Replacement Cost 110 Scope of Work 6 Certification 111 Economic Analysis 8 Assumptions and Limiting Conditions 113 Area Analysis 8 Addenda Surrounding Area Analysis 22 A. Appraiser Qualifications Marina Market Analysis 25 B. Financials and Property Information Property Analysis 36 C. Comparable Data Land Description and Analysis 36 D. DCF Reports Improvements Description and Analysis 42 E. Engagement Letter Real Estate Taxes 52 Highest and Best Use 54 Valuation 56 Valuation Methodology 56 ICY American Yacht Harbor Marina EFTA00803865 Summary of Salient Facts and Conclusions 1 Summary of Salient Facts and Conclusions Property Name Address Property Type Owner of Record Parcel ID Legal Description IGY American Yacht Harbor Marina 18A-1, 1841,18.8 and 18-W Remainder Estate Smith Bay East End Quarter, St. Thomas, Virgin Islands Mixed Use - Marina IGY-AYH St Thomas Holdings, LLC 1-07702-0135-00, 1-07702.0134.00, 1-07702-0133-00, and 1-07702-0198-00 Parcel Nos. 18A-1 Remainder, 18B-1 Remainder, 18B Remainder Estate and 18-W Estate Smith Bay, Nos. 1, 2 and 3 East End Quarter, St. Thomas, U.S. Virgin Islands 2.76 acres; 120,226 SF 105 72,808 SF 48,652 SF 85% 1992; N/A W-1, Waterfront - Pleasure Marina oriented commercial use Continued marina and commercial use 12-24 months; 12.24 months November 25,2015 December 15,2015 Leased Fee (Going Concern) land Area Number of Units Gross Building Area Rentable Area Percent Leased Year Built; Year Renovated Zoning Designation Highest and Best Use -As if Vacant Highest and Best Use - As Improved Exposure Time; Marketing Period Effective Date of the Appraisal Date of the Report Property Interest Appraised Market Value Indications Cost Approach Sales Comparison Approach Income Capitalization Approach Market ValueConclusion• Not Used Not Used $24,360,000 524,360,000 •Values expressed in United States Dollars She values reported above are subject to the definitions, assumptions, and limiting conditions set forth in the accompanying report of which this summary Is a part. No pa rty other than Banco Popular de Puerto Rico may use or rely on the Information, opinions, and conclusions contained In the report. It Is assumed that the users of the report have read the entire report, Including all of the definitions, assumptions, and limiting conditions contained therein. IGY American Yacht Harbor Marina EFTA00803866 Summary of Salient Facts and Conclusions 2 Extraordinary Assumptions and Hypothetical Conditions The value conclusions are subject to the following extraordinary assumptions that may affect the assignment results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be false as of the effective date of the appraisal, we reserve the right to modify our value conclusions. 1. The subject property has a fueling dock and four fuel storage tanks located on site; including three diesel and one gasoline. There were no signs of contamination during our inspection and we have assumed that there is no adverse environmental impact in connection with the existing fuel equipment used on the subject property. 2. The parking garage at the subject slightly encroaches on the neighboring property to the immediate northwest This land is owned by the Government of the Virgin Islands and we have assumed that no claim will arise from the encroachments. 3. For this analysis, we have valued the going concern interest in the subject property and have allocated the value of the personal property from the value of the real property. We were provided with financial statments from ownership that indicates the depreciated book value of these assets. It is beyond our scope to value these assets in use; therefore, we have assumed that the book values of teh personal property items shown in the statments provided by ownership are reasonably accurate for the purpose of this allocation exercise. The value conclusions are based on the following hypothetical conditions that may affect the assignment results. A hypothetical condition is a condition contrary to known fact on the effective date of the appraisal but is supposed for the purpose of analysis. 1. No hypothetical conditions were employed in this analysis. IGY American Yacht Harbor Marina EFTA00803867 General Information 3 General Information Identification of Subject The subject is an existing 250-slip marina with 5 commercial buildings containing a mixture of retail and office space types. The buildings contain 48,661 square feet of rentable area and were constructed in multiple stages; with the majority of the construction completed in 1993. The commercial space is 85% leased as of the effective appraisal date. The marina docks were constructed in multiple phases between 1991-1995 and are 52.8% occupied as of the effective appraisal date. The total site area is 2.76 acres or 120,226 square feet, which includes 0.64 acre or 27,878 square feet, that is re-claimed land. The property also includes 3.2 acres of seabed under the marina dock structures which is leased to the property owner from the Government of the Virgin Islands. The legal description of the property is shown below. Property Identification Property Name Address Parcel ID Owner of Record Legal Description IGY American Yacht Harbor Marina 18A-1, 18-61,18-B and 18-W Remainder Estate Smith Bay East End Quarter, St. Thomas, Virgin Islands 1-07702-0135-00, 1-07702-0134.00, 1.07702-0133-00, and 1-07702.0198.00 IGY-AYH ST. Thomas Holdings, LLC Parcel Nos. 18A-1 Remainder, 188-1 Remainder, 186 Remainder Estate and 18-W Estate Smith Bay, Nos. 1, 2 and 3 East End Quarter, St. Thomas, U.S. Virgin Islands Sale History The most recent closed sale of the subject is summarized as follows: Sale Date Seller Buyer Sale Price Recording Instrument Number Expenditures Since Purchase January 19, 2007 MOF VI Limited Partnership IGY-AYH ST. Thomas Holdings, Ur $25,500,000 document number 2007000531 Unknown The sale price is consistent with our market value conclusion considering the date of the transaction and the market fluctuation since that time. To the best of our knowledge, no sale or transfer of ownership has taken place within a three-year period prior to the effective appraisal date. Pending Transactions To the best of our knowledge, the property is not subject to an agreement of sale or an option to buy, nor is it listed for sale, as of the effective appraisal date. IGY American Yacht Harbor Marina EFTA00803868 General Information 4 Purpose of the Appraisal The purpose of the appraisal is to develop an opinion of the market value of the leased fee (going concern) interest in the property as of the effective date of the appraisal, November 25, 2015. The date of the report is December 15, 2015. The appraisal is valid only as of the stated effective date or dates. Basis of Value Market value is defined as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: • Buyer and seller are typically motivated; • Both parties are well informed or well advised, and acting in what they consider their own best interests; • A reasonable time is allowed for exposure in the open market; • Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and • The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." (Source: Code of Federal Regulations, Title 12, Chapter I, Part 34.42(g); also Interagency Appraisal and Evaluation Guidelines, Federal Register, 75 FR 77449, December 10, 2010, page 77472) Definition of Property Rights Appraised Leased fee interest is defined as, "A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (i.e., a lease)." Lease is defined as, "A contract in which rights to use and occupy land or structures are transferred by the owner to another for a specified period of time in return for a specified rent." (Source: The Dictionary of Real Estate Appraisal, Fifth Edition, Appraisal Institute, Chicago, Illinois, 2010) Definition of Going-Concern Premise Going-Concern Premise is defined as, "one of the premises under which the total assets of a business can be valued; the assumption that a company is expected to continue operating well into the future (usually indefinitely). Under the going-concern premise, the value of a business as a going concern is equal to the sum of the value of the tangible assets and the value of the intangible assets, which may IGY American Yacht Harbor Marina EFTA00803869 General Information S include the value of excess profit, where asset values are derived consistently with the going-concern premise." (Source: The Dictionary of Real Estate Appraisal, Fifth Edition, Appraisal Institute, Chicago, Illinois, 2010) Intended Use and User The intended use of the appraisal is for Commercial credit administration. The client and intended user is Banco Popular de Puerto Rico. The appraisal is not intended for any other use or user. No party or parties other than Banco Popular de Puerto Rico may use or rely on the information, opinions, and conclusions contained in this report. Applicable Requirements This appraisal is intended to conform to the requirements of the following: • Uniform Standards of Professional Appraisal Practice (USPAP); • Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; • The Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers • The RICS Valuation Professional Standards; • The International Valuation Standards of the IVSC; • Applicable jurisdictional regulations; • Appraisal requirements of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), revised June 7, 1994; • Interagency Appraisal and Evaluation Guidelines issued December 10, 2010; • Appraisal guidelines of Banco Popular de Puerto Rico. Prior Services USPAP requires appraisers to disclose to the client any other services they have provided in connection with the subject property in the prior three years, including valuation, consulting, property management, brokerage, or any other services. The RICS Red Book also contains requirements for valuers to disclose previous involvement with the subject property within twelve months. We have not performed any services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. Competency We hereby confirm that we possess adequate knowledge and skills to perform the assignment competently, including an understanding area/regional market conditions, and factors which pertain to the property type in question. IGY American Yacht Harbor Marina EFTA00803870 General Information 6 Independence We hereby confirm that we have no conflicts of interest or material involvement in the property which is the subject of this valuation; and that we are acting as unbiased, independent, external valuers. RICS Valuer Registration We confirm that we are in compliance with the RICS Valuer Registration program, which is mandatory for RICS members in the Caribbean region. Currency Unless otherwise stated, all financial figures in this report are expressed in United States Dollars. Scope of Work To determine the appropriate scope of work for the assignment, we considered the intended use of the appraisal, the needs of the user, the complexity of the property, and other pertinent factors. Our concluded scope of work is described below. Valuation Methodology Appraisers usually consider the use of three approaches to value when developing a market value opinion for real property. These are the cost approach, sales comparison approach, and income capitalization approach. Use of the approaches in this assignment is summarized as follows: Approaches to Value Approach Cost Approach Not Applicable Not Utilized Sales Comparison Approach Not Applicable Not Utilized Income Capitalization Approach Applicable Utilized Applicability to Subject Use in Assignment The income capitalization approach is the most reliable valuation method for the subject due to the following: • The probable buyer of the subject would base a purchase price decision primarily on the income generating potential of the property and an anticipated rate of return. • Sufficient market data regarding income, expenses, and rates of return, is available for analysis. The sales comparison approach is not applicable to the subject because: • This approach does not reflect the primary analysis undertaken by a typical investor- purchaser. • There are insufficient sales of comparable properties in this market from which to derive a credible value conclusion. The cost approach is not applicable to the subject considering the following: IGY American Yacht Harbor Marina EFTA00803871 General Information 7 • The age of the property makes estimates of accrued depreciation very subjective. • This approach is not typically used by market participants, except for new properties. Research and Analysis The type and extent of our research and analysis is detailed in individual sections of the report. This includes the steps we took to verify comparable sales, which are disclosed in the comparable sale profile sheets in the addenda to the report. Although we make an effort to confirm the arms-length nature of each sale with a party to the transaction, it is sometimes necessary to rely on secondary verification from sources deemed reliable. Inspection Mark!. Weathers conducted an interior and exterior inspection of the property on November 25, 2015. James V. Andrews, MAI, CRE, FRICS, ASA, CVA, also conducted an interior and exterior inspection on November 25, 2015. IGY American Yacht Harbor Marina EFTA00803872 Area Analysis 8 Economic Analysis Area Analysis Location The U.S. Virgin Islands are located in the Caribbean Sea and the Atlantic Ocean, about 90 miles (140 km) east of Puerto Rico and immediately west of the British Virgin Islands. The territory consists of four main islands: Saint Thomas, Saint John, Saint Croix, and Water Island, as well as several dozen smaller islands. The combined land area of the islands is roughly twice the size of Washington, ■. IGY American Yacht Harbor Marina EFTA00803873 Area Analysis 9 A mild tropical climate, scenic beauty, and status as a U.S. territory make Virgin Islands appealing for vacationers from United States and Europe. The islands host over 2.5 million visitors per year, most of whom arrive by cruise ship, and tourism is the dominant economic engine of the islands, accounting for roughly 70 percent of the total gross territorial product. Each district has its own distinct landscape, mix and intensity of land uses, cultural identity, and prospects for future development. St Thomas is home to the capital and the territory's largest city, Charlotte Amalie, which has an estimated population of roughly 19,000 persons. St Thomas is the primary center for resort tourism, government, finance, trade, and commerce, but its rugged landscape limits the land available for agriculture and other types of land-intensive development. Charlotte Amalie is also home to a major deepwater harbor that is along major shipping routes to the Panama Canal, and it is just east of the Cyril E King International Airport—one of the busiest airports in Caribbean. St. Thomas has two cruise ship docks, and is the most frequented cruise ship port in the Caribbean. The island of St John is just under 3 miles to the east of St Thomas. Cruz Bay is located on the western coast of the island and serves as its primary port and link to St Thomas. Nearly two thirds of St John is owned by the National Park Service and is off-limits to commercial development. St Croix is largest of the three islands, in both land area and population. It is roughly 45 miles to the south of St Thomas. Its primary towns are Christiansted and Frederiksted. Overall the island is flatter and has more land available for additional agricultural, commercial and residential development than St Thomas. St Croix is also the primary manufacturing center for the Virgin Islands, with rum distilleries, a major watch-assembly plant, and; until February 2012, one of the world's largest petroleum refineries (which recently ceased refining operations). History The Virgin Islands were originally settled by the Ciboney, Carib, and Arawaks. The islands were named by Christopher Columbus on his second voyage in 1493 for Saint Ursula and her virgin followers. Over the next three hundred years, the islands were held by many European powers, including Spain, England, the Netherlands, France, and Denmark-Norway. The Danes developed the islands with plantation estates, and the estates boundaries are still used in legal descriptions for land to this day. The U.S. took possession of the islands on March 31, 1917 and the territory was renamed the Virgin Islands of the United States. U.S. citizenship was granted to the inhabitants of the islands in 1927. Government The U.S. Virgin Islands are an organized, unincorporated United States territory. Even though they are U.S. citizens, Virgin Islands residents cannot vote in presidential elections. Virgin Islands residents, however, are able to vote in presidential primary elections for delegates to the Democratic National Convention and the Republican National Convention. The main political parties in the U.S. Virgin Islands are the Democratic Party of the Virgin Islands, the Independent Citizens Movement, and the Republican Party of the Virgin Islands. Additional candidates run as independents. IGY American Yacht Harbor Marina EFTA00803874 Area Analysis 10 At the national level, the U.S. Virgin Islands elects a delegate to Congress from its at-large congressional district. However, the elected delegate, while able to vote in committee, cannot participate in floor votes. At the territorial level, 15 senators—seven from the district of Saint Croix, seven from the district of Saint Thomas and Saint John, and one senator at-large who must be a resident of Saint John—are elected for two-year terms to the unicameral Virgin Islands Legislature. The U.S. Virgin Islands has elected a territorial governor every four years since 1970. Previous governors were appointed by the President of the United States. Population and Employment In 2008, the residential population of the Virgin Islands peaked at an estimated 115,852 persons. This follows five years of slow but steady growth of 1.0%, slightly slower than the U.S. annual average of 1.15%. Since 2008, population levels have fallen each year, to the 2014 estimated population of 103,961 persons. Among the three islands, St Croix and St Thomas are nearly equally populous with St John having less than 4 percent of the total population of the Virgin Islands. USVI Eanumic Indicators SY( Ann 200$ 2006 2007 2001 2009 2010 2011 2012 2013 2014 Growth 009ulatIon 111.470 111,619 114.74$ 115.152 107,$49 106,405 105,714 105.169 104,563 103,961 -0.6% StOolir 54.635 55,723 56,239 56.763 52.612 50,601 50,247 50.005 49,93* 49,656 H. Moss 52,5213 53.574 54,070 54,592 50,513 $1434 51,266 51,051 50,610 $0,316 43.1% aloha 4,307 4,393 4,434 4,477 4.246 4,170 4,134 4,113 4,015 3,9.9 43% Chaim lebet Nato 51.159 51,159 52,670 52,630 52)61 51,424 50,729 50,577 47.5511 46,714 Oven ompbyroent 47,301 16,640 49,547 49469 45,143 47,272 46,121 14,659 41,207 40,617 Une9010119•04rM4 Meow) 7.1% 6.2% 5.9% 51% 7.6% 5.1% 5.9% 11/6 13.4% 13.0% 14.2% Grossroultorld ProciattIGTP.Millonsi $4,457 54.655 54,1343 54,151 54.510 54,660 $4,351 53,771 $3,791 .44% GM Per Capita 539,984 540,769 $12,146 541,172 542,695 $43,795 541,131 535,923 536265 Penang income Pe 52.723 $2,177 52,964 52.606 $2,602 52,704 52,661 52,516 52,233 Per Gotta personal Worse 1$) 520.620 521,711 522.168 522.641 $23,931 525.603 525)314 $23,313 521.353 Total 0tports GAMbns 945) 510,476 $11,627 512,962 517,249 59,726 511,930 513,314 $2,263 51,216 51671 .16.6% Reined petroleum 59,376 510.463 511.242 513,592 56,327 59,759 $10.446 5932 532 57 -10,0% VS* of canstnctIon pownIts(MIllows$1 5330.20 5442.70 $266.10 527330 516160 $18720 $179.10 514140 5156,60 510160 4.6% Thoress/St John 5274.30 5217.70 $17290 511330 $7300 580.60 07.90 $85.10 $11420 $142.20 16.0% StCrole $21530 5725.00 59220 549.50 $175.90 510650 $92.10 $5620 541.113 559.20 -133% unroo. lime el tense Research The territory's Labor Force has also declined slightly, and there has been a steady increase in the unemployment rate; which was further affected by the closure of the Hovensa oil and gas refinery in 2012. Note that there was a slight dip in unemployement in 2014. IGY American Yacht Harbor Marina EFTA00803875 Area Analysis 11 Population and Employment 125,000 115,000 105,000 95,000 85,000 75,000 65,000 55,000 45,000 35,000 25,000 2007 2008 2009 2010 2011 2012 2013 2014 16.0% 14.0% 12.0% - 10.0% 8.0% - 6.0% - 4.0% - 2.0% 0.0% —Population Civilian employment —*— Unemployment Rate Industry The territory relies heavily on tourism for economic stability. Additional industries include the production and export of rum; and until early 2012, the production of refined petroleum products (the Hovensa Refinery in St. Croix closed in early 2012). The Gross Domestic Product peaked in 2007 at $4.85 million, and declined to $4.14 million in 2012, and further declined to $3.79 million for 2013. Personal income per capita is also in decline from over $25,000 in 2010 and 2011 to just over $21,000 in 2013. IGY American Yacht Harbor Marina irr. EFTA00803876 Area Analysis 12 Economic Indicators $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 2007 $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 • $2,000 2008 2009 2010 2011 2012 2013 2014 —GTP Per Capita Per capita personal income ($) —*—Gross Territorial Product (GTP, Millions) The closure of the Hovensa refinery, which was one of the territory's largest employers, also had a significant impact on exports which were prevously dominated by petrolium products. Otherwise, the territory predominently relies on the tourism industry to support the economy. Commerce and Trade (Millions of $Gess Otherwise Noted) 5-Yr Annual 2007 2008 2009 2010_ 3011 3012 2013 2014 Growth Total exports 512,96111 517.249.4 59,7283 5119293 513,3133 52,263.3 51,28.4.8 $1,671.4 -16.6% To U.S. 512,182.2 514,496.3 58.4953 59092.5 510.9948 51,377.7 5265.4 $2258 -19.5% Relined petroleum $11,242.1 $13,591.9 58,3273 59.759.4 $10.41161 $932.4 $61.6 $6.5 011w' $940.1 $904.4 $1680 $233.1 $508.7 $4453 $2333 $2193 6.1% To foreign $7796 52.753.1 51,2330 51.937A $2.316.7 $385.5 5141195 51,445.6 3.4% Tote' Impor ts 512.251.0 517.861.3 510489.9 512453.9 513.972.7 52.966.7 52,590.1 53.3918 -13.4% From U.S. 51.2614 51.214.6 51.1393 51.5483 51.767.6 51,719.4 $2,119.2 $2.144.5 17.6% Crude petroleum 500 50.0 504 504 $00 $0.0 50.0 50.0 Otree 51.261.0 51.214.6 $1.139.3 51,548.9 51,767.6 51.7194 $2,119.2 52,1445 17.6% From lorriRn 510.9900 516546.7 594505 $1030541 512.205.1 51.2473 $470.9 51.2473 .17.3% Crude petroleum $8.204.7 512.045.4 57.085.9 $7,721.7 510.3409 56603 $0.0 56603 .18.1% Other 52.7853 $4,600.9 $2064.7 $2813.3 $1.864.2 $587.0 $4709 51.2473 Rum exports to U.S.(theus. of .3 528,725.1 $31918.7 538,4453 140.045.1 515,0011 $62,570.0 569335.4 559,4183 10.9% Watch upon. to U3. (thousands) $251.4 $1113.6 $750 $524 $52.7 555.6 560.0 5763 0.5% Oar freight Imports (thousands of taps) 1,092A 1,080.0 10650 1,0910 1,157.0 1,975.0 931.0 866.0 To St.lhoenes/St./ohn 6510 774.0 6859 612A 720.0 13990 564.0 5311.0 To St. Croix (.eluding petroleum' 241.0 306.0 3800 479.0 4360 7760 367.0 308.0 Sowfat:VI Wens el kaaamk Rases rd. IGY American Yacht Harbor Marina EFTA00803877 Area Analysis 13 $20,000.0 $18,000.0 $16,000.0 $14,000.0 $12,000.0 $10,000.0 $8,000.0 $6,000.0 $4,000.0 $2,000.0 $0.0 USVI Commerce 2007 2008 2009 2010 2011 —Total Exports (Millions $) Total Imports (Millions $) —*—GTP (Millions $) Over ninety percent of non-farm jobs are in the service providing industries, with the remaining jobs being in goods producing industries. Government, trade, transportation and utilities, and leisure and hospitality remain the industries with the largest number of jobs. These three sectors account for 69 percent of all jobs. Professional and business services, construction and financial activities account for approximately 9 percent, 4 percent and 6 percent respectively. Manufacturing and information sectors account for about 2 percent each, while educational and health services account for 6 percent. Other services account for the remainder of jobs. Tourism The total number of visitor arrivals to the territory reached over 2.8 million in 2014, including both air and cruise ship arrivals. This represents 4.2% growth over the prior year. Total visitor expenditures are also growing, with annual growth in excess of 6% each of the last three years. USVI visitor Expenditures 200$ 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total visitors (Thousands) 2,601.9 2,570.7 2,606.2 2,435.2 2,245.0 2,548.7 2,687.9 2,642.1 2,701.5 2,814.2 Growth -1.2% 1.4% •6.6% -7.8% 13.5% 5.5% -1.7% 2.2% 4.2% Total visitor Expenditures $1,431.6 $1467.6 $1,512.6 $1,157.1 $1,021.3 $1,012.5 $1,085.3 $1,152.8 $1,232.2 Growth 2.5% 3.1% -23.5% -11.7% 4.9% 7.2% 6.2% 6.9% From Stopover Tourists $863.8 $883.2 $929.8 $686.4 $687.4 $678.2 $740.6 $784.7 $851.0 Day Trip Excursionists $27.2 525.6 $27.7 $29.7 $28.6 $28.0 $35.4 $35.4 $36.1 From Cruise Ship Passengers 5540.6 $558.8 $555.2 $441.0 $305.3 $306.3 $311.8 $332.7 $345.1 $04ItCe: Vi Sun au of Economic Rematch IGY American Yacht Harbor Marina EFTA00803878 Area Analysis 14 USVI Visitor Expenditures $1,000.0 $900.0 $800.0 $700.0 $600.0 3 $500.0 $400.0 $300.0 $200.0 • 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4,000.0 3,800.0 3,600.0 3,400.0 C 3,200.0 8 3,000.0 g 2,800.0 g 2,600.0 2,400.0 2,200.0 2,000.0 —From Stopover Tourists (Mills) From Cruise Visitors (Mills) —a— Number of Total Visitors It is apparent, however, that the amount of visitor expenditures from cruise ship passengers has not increased linearly with arrivals since 2009; whereby the ratio was more linear in prior years. Cruise passenger arrivals grew 4.94% to over 2.08 million in 2014 following growth of 5.37% in the prior year. Total expenditures from cruise ship visitors grew 3.73% to over $345 million in 2013, following growth of 6.7% in 2012. Cruise 5169 Passenger Arrivals 1005 2006 2007 2008 2009 2010 2011 2012 2013 2014 51.116/606/ St.lohn 1.101,144 1,901.275 1,117,371 1,754,557 1.507,623 1,751,328 1.46706 1.790,550 1.106.61715.76,026 GrOikth 446% 025% 4.4916 44.0716 16.16% 7/5% 412% 5.37% 434% 54. Crabs 54402 15,151 7,116 2,510 105/293 149,415 151,016 117,165 116.416 131455 6676/11 -1541% -79.5t% 44.88% 405197% 42.15% 50% slic 442% 1847% Total 1,912419 1101533 1,917.874 1,757,067 1482,264 3154,946 2.006,191 1.904,46$ 3,198479 2083190 Growth .0,47% 0.75% -118% 415% 17,49% 107% -520% 414% 427% Cruise Visitor &pada urn WW1) 66104 555113 55552 $441.0 $3053 $3063 $311/ $3323 $345.1 337% 4.64% -2037% -30.77% 033% 110% 6.70% 3.73% %gra. vl Wm, u te•a•mic Bonn NOP be eachltlandiaclole Islandindowt. altiltlelatifroUSVII•dudipork 3n raNUII IGY American Yacht Harbor Marina EFTA00803879 Area Analysis 15 i 2,400,000 2,200,000 2,000,000 1,800,000 -------USVI Cruise Ship Tourism _.../... 1,600,000 1,400,000 1,200,000 1,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 —Cruise Passenger Arrivals Cruise Visitor Expenditures (Millions) $800.0 $700.0 $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 In terms of stopover tourists, the U.S. Virgin Islands ranks 7th in the list of the top tourism markets in the Caribbean, with 2014 stay-over arrivals of about 730,000. The year 2014 indicated modest growth in arrivals, with 3.90% growth over the prior period. The chart below illustrates the relationship between arrivals and GDP. We note that the continuing downturn in GDP is likely due to negative influences outside the tourism sector, such as the 2012 closure of the Hovensa oil refinery in St. Croix. IGY American Yacht Harbor Marina irr. EFTA00803880 Area Analysis 16 Stay-Over Arrivals and GDP Per Capita 800,000 780,000 760,000 740,000 720,000 700,000 $60,000 $55,000 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 / 680,000 660,000 640,000 620,000 600,000 2008 683,294 $41,864 2009 666,051 1691,194 $42,712 2010 $43,656 2011 I 2012 i 2013 I 2014 678,962] 737,651 I 702,963 I 730,367 $40,5571 $35,123 I $33,375 ! —Stay Over Arrivals GDP Per Capita Source: Virgin Islands Bureau of Economic Research, WorldBank, Integra Realty Resources Hotel Performance Data from Smith Travel Research indicates 2014 occupancy for reporting hotels of 67.8%, up 3.29% over the prior year. The reported average daily rate (ADR) was $308.98 (up 0.51%), leading to Revenue Per Available Room Night (RevPar) of $209.53 (up 5.63%). Hotel Performance by Country - USVI 2013 2014 Growth Sample Size (Rooms) 1,504 Room Nights Avail able (Supply) $1,775,819 $1,750,284 -1.44% Room Nights Sold (Demand) 51,145,860 $1,186,924 3.58% Occupancy 64.5% 67.8% 3.29% Room Revenues $352,268,119 $366,739,620 4.11% ADR $307.43 $308.98 0.51% RevPar S198.37 $209.53 5.63% Rooms in Active Pipeline 12/31 0 453 Note: Values in United States Dollars Source: Smith Travel Research: Note: Samole Size reflects the number of rooms within the SIR oarticioatina hotels IGY American Yacht Harbor Marina EFTA00803881 Area Analysis 17 Hotel Performance $350.00 $330.00 $310.00 $290.00 $270.00 $250.00 $230.00 $210.00 $190.00 $170.00 $150.00 ADR RevPar —*—Occupancy 2014 2013 $307.43 $198.37 64.5% $308.98 $209.53 67.8% 74.0% 72.0% 70.0% 68.0% 66.0% 64.0% 62.0% 60.0% Source: Smith Travel Research (SIR Inc.) According to STR, there are 453 rooms in the active pipeline, which would add 8.6% to the existing room stock of 4,818 rooms. These projects include the 153-room, proposed Embassy Suites in the mahogany Run area, and the 300-room, proposed Hyatt Regency in Mandal Bay. In addition, a hotel project was recently announced on Water Island; however, the developers have not yet announced a brand or number of proposed rooms. Housing / Property As the supply of housing has increased in the last two decades, homeownership rates have also increased, although only slightly. Rates increased 1.9 percentage points between 2000 and 2010, and increased an additional 3.8 percentage points from 2010 to 2012. Average home prices dropped by 11.8 percent in 2008, but then increased in 2009 and 2010 by 4 percent and 12.3 percent, respectively. In 2012, average home prices fell 17.4% and then rebounded in 2013 with an increase of 22.1%. The average sales price in 2013 was $538,369. Presumably, much of the increased supply of new homes and condominiums has gone to non-residents and vacationers. Over the past decade, housing costs have accelerated at a far greater pace than resident incomes, putting home ownership beyond the reach of all but a few relatively wealthy islanders. In 2013, St. Thomas and St. John had an average home sale price of $713,183, while the average home sale price in St. Croix was $306,083. While prices have not caught up with what they were in 2007, St. Thomas and St. John have seen some recovery in the overall housing market. St. Croix, however, continues to suffer from the closing of the Hovensa refinery. In 2014, the average single family home sales price in St. Croix was $334,167, while in St. Thomas it was $909,839. 2015 year to date averages are show an increase in average single family home price in St. Croix and a decrease in St. Thomas and St. John, with averages of $414,178 and $759,811 respectively. IGY American Yacht Harbor Marina EFTA00803882 Area Analysis 18 The current situation is that the recovering housing market and general economic conditions on the US mainland is slowly having a positive impact in the US Virgin Islands' real estate market in terms of overall average home prices as well as the number of homes sold. Home sales in the territory, while still lower than 2007 figures, have increased annually since 2012. According to statistical data provided by the Multiple Listing Service, the value of real estate sales in the St. Thomas-St. Croix MLS grew by 54% in 2014 to nearly $200 million on 883 transactions; volume seen since 2008 and sales pace not seen since 2007. This growth follows 20% growth in 2013 which came after six years of declines. The average sales price surpassed $300,000, a level also not seen since 2008. $400,000,000 $350,000,000 $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 MLS Sales Volume - St. Thomas and St. Croix 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sales Volume Average Sale Price $350,000 $340,000 $330,000 $320,000 $310,000 $300,000 $290,000 $280,000 $270,000 $260,000 $250,000 Source: St. Thomas/St. Croix MIS Real Estate Ownership and Taxation Ownership is "fee simple", under the U.S. flag. There are no restrictions against purchasing solely for investment, and no laws dictating when, if ever, you must build on undeveloped land. It should be noted that for 2006 there was a reassessment, and the tax rate changed to $3.77 per $1,000 based on 100% of assessed value (for residential property); however, there was an ongoing court challenge to the reassessment, and a federal injunction blocked tax bills until the issue could be resolved. As of December, 2013, the 2006, 2007, 2008, 2009, 2010, 2011 and 2012 tax bills have all been issued under the old 1999 assessed values and tax rates. This federal court injunction regarding the tax reassessment of VI property values had previously prevented the government from collecting property tax for at least four years, resulting in the government losing US$25 million a month. New assessed values as well as amended tax rates were released in conjunction with the 2013 tax bills in August, 2014. Subsequent tax bills were issued at a rate of two per year until August 2015 when the 2015 bill were released and the Virgin Islands became current with respect to its property taxes. IGY American Yacht Harbor Marina EFTA00803883 Area Analysis 19 All real estate transactions also require a Government Transfer Tax (stamp tax), which can be paid by the buyer or seller. 2% for property valued up to $350,000 2.5% for property valued from $350,001 to $1,000,000 3% for property valued from $1,000,001 to $5,000,000 3.5% for property valued over $5,000,001 Notable News and Developments • On January 18, 2012, it was announced that the Hovensa refinery would be permanently shut down. This has had a major impact causing an economic downturn on the island, leaving 1,158 former Hovensa workers unemployed and many more employed by the company's contractors according to the United States Department of Labor. Recently, an auction of Hovensa's assets was conducted in New York City with multiple qualified bidders, and the assets were awarded to Limetree Bay Holdings, a subsidiary of ArcLight Capital Partners. Pending approval by the Virgin Islands legislature, ArcLight's operation of the oil storage facility will create a minimum of 80 jobs, with the possibility of more in the future. ArcLight indicated there could be a possibility of a limited restart of some refinery units at some point in the future. • Both the Senate and the US House of Representatives passed the Coast Guard Reauthorization Act, and President Obama signed the act into legislation in the fiscal year 2015 which should help level the charter yacht industry playing field. Prior to 1993 and the imposition of a six- passenger limitation on US uninspected vessels, the charter yacht industry in the US Virgin Islands was thriving, contributing over $100 million in annual revenue and hundreds of jobs to the local economy. A large chunk of the industry moved to the British Virgin Islands after the six-passenger rule limitation was initiated by the US Government. The bill has recently been enacted into law, and the ability of the USVI to compete in this industry should be significantly improved. • After an extensive search and vetting process, the USVI Government has selected a group of local and regional investors to develop a hotel resort on Water Island, just off of St. Thomas. There are apparently eight hotel brands in discussions with the developers for branding the property. • A Texas-based EB-5 Regional Center has announced an EB-5 funded commercial project known as the Port of Mandahl Caribbean Conference Resort. When completed, the development is reportedly planned to include two full-service hotels, a golf course, a state of the art conference center, retail and commercial space, and high-end residential units. EB-5 is a type of economic citizenship program whereby the United States grants citizenship to investors of certain approved projects in areas where the economic boost is needed. Regional Centers are tasked with selling the investments such as limited partnerships to international buyers. • The Margaritaville (Wyndham) Vacation Club is under construction in Water Bay on the East End of the island of St. Thomas. The project is a renovation of the 290-room Renaissance IGY American Yacht Harbor Marina EFTA00803884 Area Analysis 20 Grand Beach Resort into 262 timeshare oriented condominium units. The first phase on this project was completed in September 2015 and is open, while the second phase is currently under construction. • The University of the Virgin Islands has announced plans to develop a medical school on St. Thomas, which will be operated in collaboration between the hospitals on St. Thomas and St. Croix. Conclusions Economic conditions in the U.S. Virgin Islands appear to be slower to recover than many areas of the region, particularly in St. Croix, where industrial development had previously been more of a focus than tourism The closure of the Hovensa refinery and the failure to facilitate a sale to a buyer who can re-open the facility as a refinery will continue to plague St. Croix until other new developments occur that can create new jobs. The assets of the refinery were recently sold at auction, but operating agreement with the USVI Government only states the buyers will use the oil storage portion in addition to constructing an asphalt plant on the property, which projects to only 80 jobs created in the immediate future. There appears to be ongoing resurgence in tourism for St. Thomas and St. John, and real estate activity appears to be improving; however, many businesses — even those catering to cruise ship passengers — continue to struggle. Our forecast is for continued improvement in arrivals and hotel statistics, but only gradual economic improvement for the overall territory. IGY American Yacht Harbor Marina EFTA00803885 Area Analysis 21 Area Map Hans task Crawl lvfountain • • • 414 in 055S IQ • St Thomas.. AL to bing •''' s• • ) ..,Sim_. Water • iskind • 4. • Aftidrz I 7. lost • Von * Dyke Island - Vorwn Nom* Notional Palk . . Cruz Bay •`S/lobo gibUrs, 9F17,1e&rfAlut...0 1Crir ..ztesz @ID@ effitr. IGY American Yacht Harbor Marina EFTA00803886 Surrounding Area Analysis 22 Surrounding Area Analysis Location The subject is located in the town of Red Hook in the East End area of the Island known as Estate Smith Bay. Red Hook is one of the three primary business districts on the island. Access and Linkages Primary access to the area is provided by Route 32 (Smith Bay Road), a major arterial that crosses the east end of the island in a generally east-west direction. This is the primary route through the town of Red Hook, one of the three major commercial centers of the island; with the others being the city of