REUSE OF S STREET SACRAMENTO, CALIFORNIA. Revised 12/18/15

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1 REUSE OF S STREET SACRAMENTO, CALIFORNIA Revised 12/18/15

2 Property Description Introduction Potter Taylor & Co. is forming a Limited Partnership to acquire and reuse S Street, an existing office building located on the southeast corner of 19th and S Streets in Sacramento, California. This project fits well into Potter Taylor s goal of forming partnerships for acquisition of existing underutilized properties that are prime for redevelopment. Existing Property and Proposed Project S Street is a 13,700 square foot midcentury modern building boasts contemporary finishes with a touch of modern character to produce an outright architectural gem. The elegant brick façade, flat roof and large pane windows accentuate the geometric lines and steel columns, creating an aesthetic of structural transparency. The single story building elicits nostalgia of a creative, simpler time that is difficult to duplicate in midtown. Located on the southeast corner of 19th and S Street, the Subject Property is in close proximity to Sacramento s next path of development, which is led by the emergence of R Street. An eclectic mix of retail users, office tenants and residents have flocked to the area in waves prompting new development to what was once a quiet industrial area. The property sits nearby numerous amenities such as Safeway, Peet s Coffee, Ju Hachi Sushi and Wells Fargo. Come fall 2016, the property will be less than two blocks from Ice Blocks, a mixed use redevelopment project with 200+ new residential units and 160,000 square feet of office and retail space. Due to the recent fire that destroyed the historic building, the above statistics will change. Potter Taylor & Co s plan is to modify the existing building by making some relatively minor changes in the building converting if from the current office use to that of a retail strip center. The Property is situated on the highly traveled intersection of 19th and S Street (9,863 cars per day on 19th Street). Excellent visibility and signage will be available to both 19th Street and S Street.

3 Opportunity This is an opportunity to purchase and redevelop an existing under utilized commercial project in a mature market area. Current tenants include: Lionakis Architecture occupies 5,318 square feet on a lease that expires on 12/31/2021. In addition, Lionakis has a two year extension at a stated rate. Rubitsky and Associates occupies 4,726 square feet on a lease that expires on 12/31/16. In addition, Rubitsky and Associates has a two year extension at a stated rate. Ken Rubitsky has indicated his desire to retire and that he would be willing to terminate sooner. Turley and Associates recently acquired a building nearby and plan to vacate 3,876 square feet shortly. The existing tenant leases contain a provision allowing for the pass thru of increase in operating expenses in the current year over the expenses incurred in the first year of the lease term as additional rent. In addition to the recapture of increased expenses, the attached financial analysis assume that: Tentative Color Scheme Lionakis Architure exercises it two year option and subsequently replaced three months later in April 2024 with a new tenant at $3.00 per square foot, triple net, adjusted for inflation. Rubitsky terminates his lease in June 2016 and is replaced with a new tenant at $2.50 per square foot, triple net, in October The space previously occupied by Turley and Associates is occupied with a new tenant at $2.50 per square foot, triple net, in October 2016.

4 Potter Taylor & Co. s plan is to convert what is now an office building to a retail building by making the following changes: Replace the existing window system found on the north and west elevations with clear anodized window system that is typically found on retail projects Raise the canopy of the trees in the planter areas such that the store fronts become visible Develop a sign program for tenant signage over the individual spaces as well as signage on the masonry structure that sits at the corner of S and 19th Street. The 1900 S Street building itself will enjoy a long useful life with minimal maintenance due to: Concrete tilt panel wall system with Concrete slab floor Wood truss roof structure with new single ply roof installed in June of 2014 Concrete parking lot 1900 S Street was constructed in such a fashion that it lends itself for and easy conversion from office to retail due to the following features the include but are not limited to: Two rows of onsite parking totaling 40 spaces or approximately 3 per 1,000 square foot Proximity and orientation towards the Safeway center diagonally across the street Located at a signalized intersection offering strong visibility to both 19th Street (one way headed south and S Street (bi directional) Unlimited time for on off street parking (ie. no one hour parking, etc.). This was negotiated by Lionakis when developing the building allowing for on street employee parking Most importantly is that rents for office space in the area are $1.90 per square foot, full service gross (the landlord pays for property taxes, insurance, and maintenance) as compared to retail rents which are $2.50 to $3.00 per square foot, triple net (where the tenant pays for its share of property taxes, insurance and common area maintenance). Financing Financial Information Potter Taylor & Co. has received an Expression Of Interest (EOI) from F&M Bank for a $3,025,000 loan. The loan will be for Seven (7) years at interest rate equal to the 5 Year T Bill plus 300 pbs (the rate as of today would be 4.65%) amortized over 25 years with month principle and interest payments. A copy of our expression of interest is included in this package. As part of the financing process an appraisal of the property was completed. A copy of the executive summary is included in his package. A full copy of the appraisal can be found on the website referenced below. Entitlements No entitlements are necessary, the City of Sacramento has confirmed that the property is zoned C2 and the proposed project is in conformity with both the zoning and use code. Each tenant s signage will need to obtain approval from design review.

5 Environmental Potter Taylor & Co. has obtained a Phase I Environmental Assessment Report from Taber Environmental Consulting. A copy of the executive summary is attached for your review. A full copy of the report can be found on the website referenced below. Financial Analysis and Investment The investors as Class A Limited Partners will be entitled to an eight percent (8%) preferred return on their investment, plus 75% of any excess cash flow above an annualized eight percent (8%) return. The General Partner, Taylor Building Managers LLC (a Potter Taylor & Co. affiliate) and the Taylor Wittlake Family Revocable Trust, as a Class B Limited Partner will receive the other 25% of the excess cash flow. In the event of a sale or refinance, the Class A Limited Partners first receive back all of the unpaid preferred return, second their initial capital distribution, and third 75% of the profits with the General Partner and Class B Limited Partners receiving the remaining 25% of the profits. The life of the investment is intended to be between nine and ten years unless market conditions dictate otherwise. Based upon the attached projections, over the life of the investment the Class A Limited Partners should receive an average cash on cash return on their investment of approximately thirteen percent (13%) to fourteen present (14%) starting the second year with an estimated nineteen percent (19%) to twenty one percent (21%) internal rate of return if sold in Year 10 based upon the assumptions set forth herein. A greater internal rate of return could be obtained if the project is sold sooner. The exit strategy is to acquire, develop and hold the property for sale unless the market conditions dictate otherwise. In evaluating the present and potential future value of the project, Potter Taylor & Co. looked at both a conservative valuation of the project based upon a conservative capitalization rate (expected rate of return) and an aggressive capitalization rate. The aggressive capitalization rates were based upon recent sale comparables. Information on comparable lease rates and investment sales are included in this package. Please understand that the information contained in this letter, together with the enclosed financial information, is preliminary and intended only as an introduction to the project. We are in the process of preparing a more comprehensive project summary, detailed financial projections, and governing documents for the ownership entity. At your request, we will provide those items to you for your review and consideration when they are ready for distribution. As with any investment of this nature, you should consult with your independent legal and tax advisors regarding such material before making a decision to participate in this project. We are inviting you to explore a possible investment in this project due to our pre existing relationship with you; we will not be offering investments by means of general advertising or solicitation. Accordingly, with your approval, we will be contacting you to discuss this project and determine if you have interest in this investment. We have 29 units of $50,000 available for a total investment of $1,450,000 half units can be purchased providing for a minimum investment of $25,000.

6 Please see our website at for this document, its contents, and the environmental documents available for individual download. If you have any questions about the project, please feel free to contact me by phone or . Thank you, Timothy J. Taylor Phone: taylor.com Jennifer Urias Phone: Ext. 775 taylor.com Included in this packet please find: Aerial Elevations, Site Plan & Floor Plan Future Project Rendering Analysis (revised 12/16/15) Partnership Structure (revised 12/9/15) Expression of Interest (revised 12/15/15) Appraisal Phase 1 Environmental Newspaper Artcles Brochures for Adjacent Property Preliminary Title Report