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S.A.R.C.

A Luxury Condominium Hotel and Spa on Palm Beach


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South Atlantic Regional Center Palm Beach EB5 Regional Center

EB5 Investor Documents & Process Guide

The South Atlantic Regional Center (SARC) and the United States Regional Economic Authority (USREDA) wishes to thank you for selecting us and our project. We believe you will find our professional team both helpful and experienced in providing you the resources necessary to complete your EB-5 Submissions and help you and your family receive your temporary green card and permanent visa. Our projects are well designed and offer a good rate of return to you the investor. This document is designed to assist you in the EB-5 Application for the investment. If any questions should arise, please feel free to contact one of our agents or our offices. We would be pleased to help you in any way we can. Sincerely,

Joseph J. Walsh President and Managing Partner South Atlantic Regional Center SARC Palm Beach EB-5 Regional Center United States Regional Economic Development Authority USREDA

197 South Federal Highway• Boca Raton • Florida • 33432 • USA t:561-282-6102 • f: 877-309-7287 • info@sarceb5.com • www.usreda.com FINISHED SARC Process Guide.doc © 2012


SARC Regional Center Documentation Requirements: Accredited Investor and Immigration Questionnaire (1) Please fill-out, sign and send the document immediately to: SARC 197 SOUTH FEDERAL HIGHWAY SUITE 200 BOCA RATON, FLORIDA 33432 USA ATTN: INVESTOR QUESTIONNAIRE T: 561.282.6102 F: 877.309.7287 EMAIL: INFO@SARCEB5.COM

Limited Partnership Agreement (1) Please read carefully and fill out and sign the signatory booklet.

Subscription Agreement (1) After reading carefully, please refer to the signatory booklet and: a. Print your name in the blank provided. b. Date and sign. c. Fill out the Wire Instructions.

197 South Federal Highway• Boca Raton • Florida • 33432 • USA t:561-282-6102 • f: 877-309-7287 • info@sarceb5.com • www.usreda.com FINISHED SARC Process Guide.doc © 2012


IM P O R T A N T I N F O R M A T I O N

This information is required by the Escrow Agent. In the event the I!526 immigration application is denied by USCIS, Escrow Agent will return the Investor’s financial investment immediately to the bank account information provided on this page. d. Please fill out the information within the IRS Forms Provided called: The W‐8 Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. e. Complete Instructions regarding the W-8 Form(s) are provided with the W-8 forms. These forms are required by the US Banking System and the USCIS before the I-526 Application process may begin. f. Please complete the WIRE TRANSFER to the ESCROW BANK ACCOUNT: 1.) The amount of the Escrow Investment is $500,000 USD. g. Please complete the WIRE TRANSFER for the Administrative and Legal Fees: 1.) The amount of these fees are $55,000 USD ($40,000 USD for Administrative Fee and $15,000 USD for I-526 Legal Fees). 2.) The petitioner may choose to remit $5,000 USD for the legal fees to complete the I-829 Permanent Status filing. h. Please FAX 877-309-7287 or EMAIL: info@sacreb5.com transfer confirmation when you have completed this transaction. Our US offices will track the wire and confirm receipt with you. Please include your email address in the confirmation document.

197 South Federal Highway• Boca Raton • Florida • 33432 • USA t:561-282-6102 • f: 877-309-7287 • info@sarceb5.com • www.usreda.com FINISHED SARC Process Guide.doc © 2012


IMMIGRATION ATTORNEY INFORMATION Upon receipt of your funds you will be assigned one of our attorneys to help you with the immigration process. Our attorneys are expert at the EB5 Immigration Process. A Legal Service Agreement is provided to you in this portfolio with a complete EB5 Document Checklist. SIGNATURE BOOKLET RECEIPT USREDA has developed a complete automated database to help keep track of the information you provide and the submission requirements of the USCIS. We have trained personnel throughout the world and in the US to help facilitate the process. Our goal is to streamline the paper flow and to provide easy access to the information necessary to expedite your information. Our agents will help you in the initial interview and consultation. Upon receiving your funding and acceptance of your subscription you will be provided a tracking number for your application with a completed Signature Booklet and Receipt of Funds. Please keep this in a safe place for your records. This, along with the complete Subscription Portfolio will be your receipt of your investment.

197 South Federal Highway• Boca Raton • Florida • 33432 • USA t:561-282-6102 • f: 877-309-7287 • info@sarceb5.com • www.usreda.com FINISHED SARC Process Guide.doc © 2012


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USREDA EB5 FEE DISTRIBUTION & Investment Structure The EB5 Investor Applicant will be charged the following fee: $60,000 USD The Initial Administrative and Legal Fee Payment (This amount allows the Investor access to the Investment documents) a) PPM Private Placement Documents A Private Placement Document (PPM) is a legal document required by the United States Citizen Immigration Services USCIS. This document describes the investment and contains all necessary disclosure(s) required by US Law. It is the document that will describe all the risks and benefits of the investment. b) LLLP Limited Liability Limited Partnerships Documents The LLLP will explain the ownership share(s) the investor will own in the partnership. This document will also show the investor the exit strategy and repayment of the investment. c) A Business Plan This document explains the business purpose and the expectations for the business investment. This document will also give a logical reason for the investment and why the investment is financially sound. d) A Subscription Agreement and Escrow Agreement These documents are used to tell the investor at what Banking Institution their money will be held until released to the investment. THE MONEY INVESTED WILL BE HELD IN AN ESCROW ACCOUNT AND RETURNED TO THE APPLICANT IN THE EVENT THAT THE APPLICANT IS DENIED. This is the document that governs this transaction.

UNITED STATES REGIONAL ECONOMIC DEVELOPMENT AUTHORITY 197 SOUTH FEDERAL HIGHWAY • BOCA RATON, FL 33432 • USA INFO@USREDA.COM USREDA EB5 FEE DISTRIBUTION.doc © 2012


A $60,000 USD Regional Administration, Legal Services and Audit Assistance Fee Is Required. This fee is allowed and charged by the USCIS Approved Regional Center to facilitate document preparation, development costs, documents required by our attorney with regard to job creation and general administrative costs associated with the investment. $500,000 USD The Investment amount required by the USCIS. This full amount will be bank wire transferred to ESCROW AGENT BANK. This money will be held in ESCROW. IF THE APPLICANT IS DENIED THE VISA IN THE I-526 APPLICATION THIS MONEY IS FULLY REFUNDED TO THE INVESTOR. * Most applicants are accepted and approved. In fact over 89% of Applicants were approved by the USCIS last year. Our dedicated staff of experienced professionals in the United States will help you with your application and processing. Attorney fees are included in this application. No additional fees will be charged to the Investor except for the application fees required by the USCIS. This must be paid directly by the applicant. The APPLICANT is a member of a Limited Liability Limited Partnership (LLLP), as described fully in the documentation. Also, when the project is sold or refinanced the investor will receive a percentage of the profit split as descried within the PPM (Private Placement Memorandum and the LLLP ) USREDA strives to make the process "transparent" and provides information to the investor in a annual report, as well as provides "on-line" information as to the status of the Escrow Account (much like an online banking account), thereby assuring the investor that the money they have deposited is invested and tracked, as legally required by the USCIS.

UNITED STATES REGIONAL ECONOMIC DEVELOPMENT AUTHORITY 197 SOUTH FEDERAL HIGHWAY • BOCA RATON, FL 33432 • USA INFO@USREDA.COM USREDA EB5 FEE DISTRIBUTION.doc © 2012


Each of our investments is carefully constructed to give a maximum of return while providing a "bankable" financial structure to the investment. Many of our projects have the General Partner invested themselves in either the property or the build-out. In this way both the General Partner and the Limited Partner have risk and both desire the success of the project. Many of our projects have significant Loan to Value relationships. This means the project value is projected to be worth more than the total Partnership Investment. This gives each project an initial equity for all members of the LLLP. Beyond this, USREDA completes full econometric studies on each project and provides them to the USCIS (as required by law) which estimates the jobs that will be created within the project. This is important and essential to the EB5 program, for these estimates will be used by the USCIS adjudicator when processing the I-829 Permanent Visa at months 19 through Month 30 of the investment. USREDA desires that both the investment performs and that the Immigrant Investor receives their Temporary Green Card and Permanent Visa's for themselves and their family with the least amount of personal time and hassle. We have streamlined the system and have provided proprietary document databases to track all necessary compliance requirements. An investor can invest with the confidence that our experienced and professional team will provide assistance through the process and a successful outcome.

UNITED STATES REGIONAL ECONOMIC DEVELOPMENT AUTHORITY 197 SOUTH FEDERAL HIGHWAY • BOCA RATON, FL 33432 • USA INFO@USREDA.COM USREDA EB5 FEE DISTRIBUTION.doc © 2012


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South Atlantic Regional Center Palm Beach EB5 Regional Center Federally Approved USD Payment FEE AGREEMENT The EB5 Investor Applicant will be charged the following fee: The Initial Down Payment is FULLY REFUNDABLE (This amount allows the Investor access to the Investment documents) This AGREEMENT is between ______________________________ (“the Investor”) and South Atlantic Regional Center, Llc. (“SARC”) for the purpose of a GOOD FAITH DEPOSIT by the Investor. This FEE will be applied against the full SUBSCRIPTION FEE, ADMINISTRATIVE FEES and LEGAL SERVICES AGREEMENT(s), as described within the forthcoming documents regarding an investment into the EB-5 project. The Applicant Petitioner may desire our legal department to handle their I-829 (Permanent Status Application). An additional $5,000 Legal Fee will be required for processing the I-829. The Total Fees are as follows: ADMINISTRATIVE FEE: I-526 TEMPORARY GREEN CARD: I-829 PERMANET STATUS: TOTAL

$40,000 USD $15,000 USD $ 5,000 USD $60,000 USD

SOUTH ATLANTIC REGIONAL CENTER, LLC. 197 SOUTH FEDERAL HIGHWAY BOCA RATON, FL 33432 USA FN-$60K FEE AGREEMENT -EN 101412 © 2012


The Project: The project is thoroughly described within the following documents: a) PPM Private Placement Documents A Private Placement Document (PPM) is a legal document required by the United States Citizen Immigration Services USCIS. This document describes the investment and contains all necessary disclosure(s) required by US Law. It is the document that will describe all the risks and benefits of the investment. b) LLLP Limited Liability Limited Partnerships Documents The LLLP will explain the ownership share(s) the investor will own in the partnership. This document will also show the investor the exit strategy and repayment of the investment. c) A Subscription Agreement and Escrow Agreement These documents are used to tell the investor at what Banking Institution their money will be held until released to the investment. All subscription funds will be held in escrow prior to closing, in accordance with the escrow agreement attached hereto. The Partnership will receive an administrative fee for payment and reimbursement of expenses incurred in connection with this offering. These are the documents that govern this transaction. These documents are provided to the Investor upon receipt of the deposit (WIRE INSTRUCTIONS FOR FUNDS ARE ATTACHED). The Participant has 30 days in which to decide if they desire to make the investment. If the investor decides they want to proceed with the investment, the $55,000 Deposit is then directly applied to the Administrative and Legal Services fees. If the investor decides they do NOT want to invest after reading the documents the DEPOSIT IS FULLY REFUNDED UPON THE RETURN OF THE DOCUMENTS DESCRIBED ABOVE. *Processing of the refund may take 30 days. SOUTH ATLANTIC REGIONAL CENTER, LLC. 197 SOUTH FEDERAL HIGHWAY BOCA RATON, FL 33432 USA FN-$60K FEE AGREEMENT -EN 101412 Š 2012


Please feel free to call us at any time with any questions or comments you may have. Please also advise us in writing and by telephone of any change in address, telephone and facsimile numbers. If this letter reflects our agreement, kindly sign and return the signed original to SARC or are approved AGENT at your earliest convenience. I have fully read and understand this agreement and accept it in its entirety.

Joseph J. Walsh President SARC South Atlantic Regional Center, Llc. Date日期:_________________ Print Name 署名: __________________________________ Signature

:__________________________________

Address:__________________________________________ City / Province / Postal Code:_____________________________________________ _____________________________________________ Country:___________________________________________ Phone:_____________________________________________ Email:_____________________________________________ SOUTH ATLANTIC REGIONAL CENTER, LLC. 197 SOUTH FEDERAL HIGHWAY BOCA RATON, FL 33432 USA FN-$60K FEE AGREEMENT -EN 101412 © 2012


S.A.R.C.

Wire Instructions Administrative Fees


INCOMING INTERNATIONAL WIRING ! "#$#%&%'(!)*'+,!-./!)*'+!! 01234!/567,!-.//8099! BENEFICIARY: South Atlantic Regional Center, LLC. 197 S. Federal Highway Suite 200 Boca Raton, Florida USA, 33432

Beneficiary Account Numbers: ACCOUNT NAME:

Palm House Hotel, LLLP

ACCOUNT NUMBER:

1205088469 (Checking Account)

PNC Bank ABA Number:

043000096

For tracking purposes, please fax or email a copy of the bank wire receipt to our office.

Note: Should you wish to include additional information with the payment (e.g. the remitter's name), you may include it in the Originator to Beneficiary Field (also referred to as Field Tag 6000), which contains 140 characters for additional remittance information. For assistance from PNC bank please call: (877) 287-2654

Palm House Hotel, LLLP 428 Main Street South Pilgrims Mall Woodbury, CT06798


S.A.R.C.

Wire Instructions Escrow Account


ESCROW BANK WIRE TRANSFER INSTRUCTIONS WIRING INSTRUCTIONS FOR DEPOSITING FUNDS INTO ESCROW ACCOUNT

[INBOUND WIRING INSTRUCTIONS] $500,000.00 USD | ESCROW FUNDS Escrow Bank: PNC Bank LLLP: Palm House Hotel, LLP Subscriber Representative: South Atlantic Regional Center, LLC Funds should be wired directly pursuant to the following instructions: To: PNC Bank 9875 Jog Road Boynton Beach, FL 33437 USA ABA # 043000096 SWIFT Code: PNCCUS33 Credit To: Palm House Hotel, LLLP Escrow Account Account # 1205087626

Subscriber info: ____________________________________ (Name of Subscriber for Account)

CONFIDENTIALITY NOTE: The information contained in this document is legally privileged and confidential information intended only for the addressee(s) named above. If the reader of this document is not the intended recipient, you are hereby notified that any dissemination, distribution or copy of the document is strictly prohibited. If you have received this document in error, please immediately notify us by telephone and return the document to us at the address below via US Mail. We will reimburse any reasonable cost you incur in notifying us and returning the document to us. Thank you.

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USREDA'/'SARC'Service'Agreement' !

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THIS' SERVICE' AGREEMENT' (the! “Agreement”)! is! made! and! entered! into! as! of! this!! _______!day!of!____________________,!20______!by!and!between!USREDA,!LLC,!d/b/a!EB5!Petition! (“EB5! Petition”),! a! Delaware! company! with! principal! place! of! business! in! Palm! Beach! County,! Florida,! and! _____________________________________________________________________________! (“Client”),! a! ____________________________________________________________________,! with! the! purpose! of!providing!legal!immigration!services!as!it!applies!to!the!United!States!EBQ5!Visa!program.! ! This!Service!Agreement!pertains!to!the!___________________________________________________________! Project! (the! “Project”),! under! the! South! Atlantic! Regional! Center! (“Regional! Center”),! a! USCISQapproved!regional!center.! ! WHEREAS,'EB5!Petition!was!formed!to!enable!individuals!to!become!eligible!for!admission! to! the! United! States! of! America! under! the! EBQ5,! fifth! employmentQbased! visa! preference! program!(8!U.S.C.!1153(b)(5)),!and!seeks!to!offer!services!with!regards!to!all!aspects!of!the! EBQ5!program.! ! NOW' THEREFORE,! in! consideration! of! the! mutual! covenants! contained! herein,! and! intending!to!be!legally!bound,!the!parties!hereto!agree!as!follows:! ! 1.'Definitions:' ' EB5' Petition:! EB5! Petition! or! its! affiliated! entity! USREDA,! LLC,! and! all! agents! and! employees!thereof.! ' IG526:!The!USCIS!application!for!conditional!permanent!residency!in!the!United!States.! ! IG485:' The! USCIS! application! form! to! “Adjust! Status”! from! nonQimmigrant! visa! to! permanent!residence!for!aliens!lawfully!present!in!the!United!States!and!otherwise!eligible! for!adjustment.! ! DSG230:!!The!U.S.!Department!of!State!application!package!for!determining!an!applicant’s! “admissibility”!to!the!United!States!for!aliens!unable!to!adjust!status.! ! IG829:! The! USCIS! application! form! for! removal! of! conditional! residency! status! and! transition!into!permanent!residency!status.! !

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IG131:!The!USCIS!application!for!travel!document!used!to!apply!for!a!reentry!permit!into! the!U.S.,!refugee!travel!document,!or!advance!parole!travel!document.! ! INVESTOR:! An! individual! that! qualifies! (along! with! their! immediate! family)! for! the! EBQ5! Immigration!Program!offered!by!the!USCIS.' ' USCIS:!United!States!Citizenship!and!Immigration!Services.! ' CLIENT:'A!person!that!contracts!EB5!Petition!for!services!rendered!in!the!legal!consulting! or! processing! of! EBQ5! documents,! which! will! include! individual! EBQ5! Investors,! Brokers,! and!Consultants.! ! 2.'SPIRIT'OF'THE'AGREEMENT:!It!is!the!intent!of!EB5!Petition!to!provide!legal!consulting! and!processing!service!specialized!in!the!EBQ5!Visa!Program.!Services!offered!will!include! the! collection! of! required! immigration! documentation! from! the! Client! and! Investor! for! USCIS! applications,! and! the! comprehensive! completion! of! an! IQ526! application! and! a! corresponding!IQ485!or!DSQ230!application!for!the!Investor!under!the!Regional!Center.!EB5! Petition! will! collect! the! information! and! documentation! required! by! the! USCIS! (these! documents! include! the! Business! Plan,! Economic! Analysis,! PPM,! Limited! Partnership! Agreement,!Loan!Documents,!Escrow!Agreement,!and!Subscription!Agreement,!along!with! personal! information,! financial! information,! and! source! and! path! of! funds! documentation! for!the!Investor).!EB5!Petition!will!help!prepare!the!Investor!for!Consular!Interview.! ! The! IQ829! and! other! documents! that! may! be! necessary! for! completion! of! the! Investor’s! application! and! permanent! status! will! be! billed! separately.! Client! may! choose! these! services!at!the!time!of!application.!Please!see!APPENDIX!B!for!details.! ! EB5!Petition!reserves!the!right!to!accept!or!reject!the!client!at!the!time!of!the!submission!to! our!offices.!We!will!review!the!documentation!provided!and!determine!the!viability!of!the! Investor!Petition.!EB5!Petition!will!have!30!days!to!review!the!documents.! ! 3.'COMMITMENT'OF'EB5'PETITION:'During!the!term!of!this!Contract,!EB5!Petition!agrees! to!perform!following!services:! ! a. Gather!information!required!for!USCIS!applications! b. Prepare! the! complete! IQ526! application! of! the! Investor! for! submission! to! the! USCIS! c. Prepare!the!complete!IQ485!or!DSQ230!application!of!the!Investor!for!submission! to!the!appropriate!agency!(after!IQ526!approval).! !

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EB5!Petition!guarantees!completion!of!all!the!required!materials!and!documents!within!45! days! of! the! receipt! of! the! documents! from! the! Client.! EB5! Petition! will! provide! detailed! information! regarding! any! RFEs! (“Request! For! Evidence”)! that! may! be! forthcoming! from! the! USCIS! regarding! the! submission.! In! the! event! of! such! a! request,! it! will! be! the! Client’s! responsibility! to! provide! EB5! Petition! the! required! information! requested.! EB5! Petition’s! staff!will!send!the!request!to!the!Client!in!an!expeditious!manner.!Since!the!RFE!requests! have!specific!time!limits!for!a!response,!it!is!essential!that!all!parties!handle!these!requests! in!a!timely!manner.!EB5!Petition!will!make!every!effort!to!inform!and!indicate!the!manner! of!information!that!may!be!requested.!Often!these!requests!are!related!to!project!specific! attributes! and! source! of! funds! requirements.! EB5! Petition! will! provide! guidance! throughout!the!process.!Failure!to!provide!timely!response!or!the!information!requested!by! the!USCIS!will!void!the!EB5!Petition!Guarantee.! ! 4.' FEE' STRUCTURE:! The! fee! for! an! IQ526! and! IQ485/DSQ230! application! is! indicated! in! APPENDIX! B.! This! fee! will! be! a! “Money! Back! Guaranteed”! performanceQbased! charge,! returnable!only!if!a!denial!of!the!IQ526!is!issued!by!USCIS!with!no!“cure.”! ! Fees!are!to!be!paid!via!Check!or!Wire!Transfer!(see!APPENDIX!A).!EB5!Petition!fees!do!not! include!USCIS!or!NVC!filing!fees.! ! IG526' GUARANTEE:! EB5! Petition! guarantees! the! approval! of! any! IQ526! application! it! completes.!If!any!such!IQ526!application!is!denied!without!possible!cure,!then!EB5!Petition! will!return!any!service!fees!charged.! ! This!guarantee!does!not!apply!in!the!case!of!fraud!on!the!part!of!the!Client!or!Investor,!or!if! the! Client! or! Investor! furnishes! EB5! Petition! with! false,! misleading,! or! incomplete! information.! ! This!guarantee!covers!the!approval!of!the!IQ526!and!IQ485!applications.!It!does!NOT!cover! the!approval!of!any!IQ829!application.! ' 5.' TERM:' The!term!of!this!partnership!shall!remain!in!effect!until!work!is!completed!and! the!applicant!is!accepted!or!denied!by!the!USCIS.! ! 6.!EXPENSES:'EB5!Petition!agrees!to!be!responsible!for!reasonable!outQofQpocket!expenses! related! to! performing! services! on! behalf! of! the! Client.! Such! expenses! typically! might! include,!but!are!not!limited!to:!phone!calls,!postage,!shipping,!messengers,!travel,!meals!and! lodging.! All! items! that! EB5! Petition! expects! to! be! reimbursed! for! will! be! preapproved! by! the! Client! before! the! expense! is! paid.! EB5! Petition! fully! expects! to! incur! NO! expenses.! However,!if!any!unexpected!expenses!arise,!the!Client!will!be!under!no!obligation!to!repay! those!expenses!unless!agreed!to!by!both!parties!before!the!expense!occurs.!

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! 7.! INFORMATION:! The! Client! acknowledges! that! EB5! Petition! will! rely! on! information! furnished! by! the! Client! concerning! the! Client’s! personal! information,! background! information,! and! source! of! funds! without! independent! certification! and! the! Client! represents!that!such!information!will!be!materially!complete!and!correct.! ! 8.' CONFIDENTIALITY:! Except! in! the! course! of! the! performance! of! its! duties! hereunder,! EB5! Petition! agrees! that! it! shall! not! disclose! any! trade! secrets,! knowQhow,! or! other! proprietary! information! not! in! the! public! domain,! learned! as! a! result! of! this! Agreement! unless! and! until! such! information! becomes! generally! known,! unless! EB5! Petition! comes! under!direct!subpoena!to!disclose!this!information!to!a!court.! ! All! documents! will! be! considered! confidential! in! nature.! Only! EB5! Petition’s! trained! staff! will! handle! the! documents.! Client! may! provide! EB5! Petition! a! list! of! other! personnel! and! interested!parties!that!will!have!the!right!to!access!to!the!documents.!This!will!be!provided! in!the!form!of!a!facsimile!release!or!email!release.! ! All!filings!remain!the!property!of!Client!and!are!provided!in!digital!PDF!format!for!Client’s! review.! ! Our! systems! provide! the! Client! with! complete! digital! files! of! all! submissions,! USCIS! responses!and!RFEs!(if!any).!During!the!course!of!the!contract,!Client!may!request!files!via! either!email!(registered!by!case!number!and!access!code)!or!by!mail!or!facsimile.! ! 9.'SCOPE'OF'ENGAGEMENT:'EB5!Petition!and!its!agents!and!employees!will!advise!only!as! to!U.S.!immigration!matters!necessary!to!the!filing!of!your!IQ526,!IQ485,!DSQ230,!and!IQ829! petitions.!EB5!Petition!has!not!and!will!not!advise!on:! ! • Which! regional! center! or! project! to! invest! in.! Such! a! determination! should! be! made! by! the! Investor,! with! the! assistance! of! other! qualified! counsel,! before! engaging!EB5!Petition.! • The!security!of!your!investment,!timing!of!return!of!your!investment,!or!any!tax! or!financial!aspects!of!your!investment.! • The! accuracy! of! the! business! plan,! economic! analysis,! private! placement! memorandum,!or!other!project!documents,!or!any!attachments!thereto.! • Foreign!country!currency!laws!and!restrictions.! • Immigration!matters!arising!prior!to!the!IQ526!petition,!such!as!nonQimmigrant! visas,!unlawful!presence,!inadmissibility,!and!immigration!strategy!generally.! • Immigration! matters! arising! outside! the! limited! scope! of! engagement,! such! as! naturalization,!removal!defense,!or!criminal!matters.! !

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USREDA'/'SARC'Service'Agreement' !

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By! signing! this! Agreement,! you! agree! that! you! have! been! advised! to! seek! independent! advice! on! these! matters! from! a! financial! advisor,! business! advisor,! business! or! securities! lawyer,! accountant,! or! immigration! lawyer! for! matters! outside! the! limited! scope! of! representation.! ! Once! the! USCIS! or! NVC! petitions! contracted! for! (IQ526,! IQ485! if! applicable,! DSQ230! if! applicable,! and! optional! IQ829! if! specified! in! APPENDIX! B)! are! adjudicated! (approved! or! denied!without!cure),!services!under!this!Agreement!will!terminate.! ! 10.' JOINT' REPRESENTATION' AND' CONFLICTS' OF' INTEREST:' EB5! Petition! will! represent!you!to!the!best!of!our!ability!with!respect!to!processing!your!immigration!matter.!! However,!EB5!Petition!is!also!called!upon!to!represent!the!interests!of!the!Regional!Center! in! connection! with! your! EBQ5! petition,! as! well! as! other! investors! involved! in! the! same! project.! ! By! asking! us! to! process! your! EBQ5! petition,! you! agree! that! you! intend! a! joint! representation!of!you,!other!investors,!and!the!Regional!Center,!where!appropriate.' ! We! believe! that! the! interests! of! all! parties! involved! are! sufficiently! aligned! to! undertake! joint! representation.! ! However,! because! of! this! joint! representation,! there! is! potential! for! conflicts! of! interest! to! arise.! ! We! can! only! undertake! this! representation! upon! your! certifying,! by! signing! this! Agreement,! that! you! are! aware! of! these! potential! conflicts! of! interest!and,!if!applicable,!you!knowingly!waive!them.!!You!should!not!ask!us!to!represent! you!if!you!are!aware!at!the!outset!of!the!matter!that!any!of!your!interests!are!inconsistent! with! those! of! the! Regional! Center! or! any! other! investor! in! a! project! under! that! Regional! Center,!and!you!must!let!us!know!if!you!come!to!believe!that!any!potential!conflicts!develop! after! our! representation! begins.! ! If! significant! conflicts! develop,! we! may! have! to! stop! representing!you!or!some!of!our!clients!in!a!particular!matter,!with!the!result!that!you!or! some!of!our!clients!may!need!to!hire!new!counsel!at!that!time.! ! In!connection!with!your!decision!to!utilize!EB5!Petition!to!process!your!immigrant!petition,! you!should!be!aware!of!the!following:! ! • AttorneyQClient! privilege! only! extends! to! members! of! the! legal! staff! and! the! protection! thus! afforded! does! not! extend! to! communications! you! may! receive! from!the!Regional!Center.! • In!the!event!of!a!dispute!between!joint!clients,!the!attorneyQclient!privilege!will! not!protect!against!the!disclosure!to!all!joint!clients!of!information!shared!during! the!joint!representation.! • The!legal!staff!receives!compensation!for!services!paid!directly!by!EB5!Petition.! • Issues! of! timing! for! purposes! of! petition! filing! between! joint! investors! will! be! resolved!on!a!firstQcome,!first!served!basis.! '

5!

USREDA!/!SARC!Service!Agreement!©!2013!

rev.!06/26/2013!


USREDA'/'SARC'Service'Agreement' !

!

11.'ASSIGNMENT:'This!Agreement!shall!not!be!assignable!by!either!party.! ! 12.'GOVERNANCE:'This!contract!will!be!governed!by!the!laws!of!the!State!of!Florida!(Palm! Beach!County),!USA.! ! ! ! Dated:!______________________________________! ! Dated:!______________________________________! ! ' ' _______________________________________________! ! _______________________________________________! EB5'Petition'' ' ' ' ' CLIENT' ! ' ' _______________________________________________! ! _______________________________________________! Printed'Name'/'Position' ' ' ' Printed'Name'/'Position' ! ! !

6!

USREDA!/!SARC!Service!Agreement!Š!2013!

rev.!06/26/2013!


USREDA'/'SARC'Service'Agreement' !

!

APPENDIX'A' ! ! WIRE!INSTRUCTIONS!! ! This!is!the!wire!instruction!for!South!Atlantic!Regional!Center.! ! The!amount!due!is:! ! ' USD'$15,000!(IQ526!only)!! ! !or! ! USD'$20,000!(IQ526!and!IQ829)! ! Beneficiary:! ! South!Atlantic!Regional!Center,!LLC! 197!S.!Federal!Highway,!Suite!200! Boca!Raton,!FL!!33432!!USA! ! The!wire!instructions!are!as!follows:! ! Bank!Name:!!PNC'Bank! Bank!Address:!!9875!Jog!Road,!Boynton!Beach,!FL!!33437!!USA! Bank!Phone!Number:!!(877)!287Q2654! ! Bank!ABA!Number:!!043000096! ! SWIFT!Code:!!PNCCUS33! ! Bank!Account!Number:!!1205088469' (checking!account)! ! ' '

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rev.!06/26/2013!


USREDA'/'SARC'Service'Agreement' !

!

APPENDIX'B' ! Compensation:! EB5! Petition! shall! be! required! to! perform! the! specified! services! at! the! agreed! price! of! fifteen! thousand! USD! ($15,000)! for! completion! of! all! documents! required! for!a!USCIS!IQ526!application!and!an!IQ485!or!DSQ230!application,!excluding!USCIS!or!NVC! filing!fees,!for!the!Investor!named!herein.! ! Fees!are!due!and!payable!before!EB5!Petition!will!begin!the!work!product.! ! ! Optional' IG829' Application:! The! services! described! above! only! include! the! IQ526! and! IQ 485!or!DSQ230!applications.!At!your!election,!EB5!Petition!can!also!gather!information!for,! process,! and! file! an! IQ829! application! for! the! Investor! covered! hereunder.! The! additional! fee! for! this! service! is!currently!five! thousand!USD! ($5,000),! plus! USCIS! filing! fees.! Should! you!wish!to!elect!to!add!IQ829!processing!at!this!time,!please!sign!below:! ! ! ! _________________________________________________________! ______________________________________! SIGNATURE! ! ! ! ! ! ! DATE! !

8!

USREDA!/!SARC!Service!Agreement!Š!2013!

rev.!06/26/2013!


! ! ! ! ! ! ! ! !

!"#$%&'(!)%*'+',&( +'+-"%,./+(

! " # $ % & ' (( ! ) % * ' + ' , &( (


Strictly Confidential

Palm House Hotel, LLLP

" "

Palm House Hotel, LLLP Private Placement Memorandum "

" " NOTE TO PROSPECTIVE SUBSCRIBERS By accepting this document you agree to maintain in confidence the information set forth in this document, together with any other non-public information regarding the Partnership, obtained from the Partnership or its agents, during the course of the proposed offering and to return this document to the Partnership in the event that you do not elect to participate in the offering." " "

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Private Placement Memorandum This document serves as a record of my receipt of the Private Placement Memorandum dated 12/02/2012, for Palm House Hotel, LLLP, a Florida Limited Liability Limited Partnership (the “Partnership”). I received a copy of the Private Placement Memorandum, containing an investment summary, business summary, accredited investor questionnaire and subscription agreement. I understand that this offering has not been registered with the Florida division of securities, the U.S. Securities and Exchange Commission (“SEC”) or any other foreign securities agency and is not required to be so registered. I agree to maintain in confidence the information set forth in this document, together with any other nonpublic information regarding the Partnership, obtained from the Partnership or its agents, during the course of the proposed offering and to return this document to the Partnership in the event that I do not elect to participate in the offering.

_________________________________ Investor Name

_________________________________ Investor Signature

_________________________________ Date

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Private Placement Memorandum Summary FOR PALM HOUSE HOTEL, LLLP

$39,500,000.00 Securities Offered:

79 Limited Partnership Units

Unit Price:

$500,000.00

Offering:

$39,500,000.00

Administrative Fee:

$40,000.00

The Partnership is offering (the “Offering”) to sell limited partner units in the Partnership (“Units”) to Investors for $39,500,000. The Minimum Investment is $500,000. The administrative fee is $40,000. Neither the Florida division of securities or the U.S. Securities and Exchange Commission, nor any other regulatory body, whether U.S. or foreign, has approved or disapproved these Units or passed upon the accuracy or adequacy of this Memorandum. Any representation to the contrary is a criminal offense. This Memorandum does not constitute an offer or solicitation of Units in any jurisdiction in which such offer or solicitation is not authorized. No action has been taken to permit the distribution of this Memorandum in any jurisdiction other than countries determined by the General Partner. Accordingly, this Memorandum may not be used for the purpose of, and does not constitute, an offer or solicitation by anyone in any jurisdiction or in any circumstances in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Memorandum nor the placing, allotment, or issue, of any Units shall under any circumstances create any implication or constitute any representation that the information given in this Information Memorandum is correct as of any time subsequent to the date hereof. This Memorandum provides a summary of information relevant to investing in the Partnership. THESE ARE SPECULATIVE UNITS WHICH INVOLVE A HIGH DEGREE OF RISK. ONLY THOSE INVESTORS WHO CAN BEAR THE LOSS OF THEIR ENTIRE INVESTMENT SHOULD INVEST IN THESE UNITS.

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Table of Contents Private Placement Memorandum"..................................................................................................................."1! Private"Placement"Memorandum"..........................................................................................................."2! Private"Placement"Memorandum"Summary"..........................................................................................."3! Table"of"Contents"...................................................................................................................................."4! Limited"Partner"Units"(“Units”)"................................................................................................................"5! Jurisdictional"Notes"................................................................................................................................."8! Statement"to"EB5"Investors"..................................................................................................................."10! Summary"of"the"Business"......................................................................................................................"12! THE"OFFERING"TERM"SHEET".................................................................................................................."14! Investor"Suitability"Standards"................................................................................................................"19! Use"of"Proceeds"....................................................................................................................................."22! Return"on"Investment"............................................................................................................................"23! Management"of"the"Partnership"..........................................................................................................."26! Summary"of"the"General"Risk"Factors"...................................................................................................."30! Summary"of"Loan"Terms"........................................................................................................................"37! Summary"of"Limited"Partnership"Agreement"........................................................................................"38! Availability"of"Additional"Information"..................................................................................................."42! Business"Plan"Summary"........................................................................................................................."43!

ATTACHMENTS Business Plan Economic Analysis Limited Partnership Agreement Loan Documents Investor Questionnaire and Subscription Agreement Escrow Agreement Operations & Marketing Plan

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Palm House Hotel, LLLP

Limited Partner Units (“Units”) THIS PRIVATE PLACEMENT MEMORANDUM (THIS “MEMORANDUM”) IS PROVIDED ON A CONFIDENTIAL BASIS SOLELY FOR THE INFORMATION OF THE RECIPIENT NAMED ABOVE SO THAT SUCH RECIPIENT MAY CONSIDER AN INVESTMENT IN THE UNITS OF THE PARTNERSHIP. IT IS NOT INTENDED FOR USE BY ANY OTHER PERSON. THIS MEMORANDUM MAY NOT BE REPRODUCED OR PROVIDED TO OTHERS WITHOUT THE PRIOR WRITTEN PERMISSION OF THE GENERAL PARTNER OF THE PARTNERSHIP. BY ACCEPTING DELIVERY OF THIS MEMORANDUM, EACH PROSPECTIVE INVESTOR AGREES TO KEEP CONFIDENTIAL ALL OF THE INFORMATION CONTAINED IN THIS MEMORANDUM THAT IS NOT ALREADY IN THE PUBLIC DOMAIN AND TO USE THIS MEMORANDUM SOLELY FOR PURPOSES OF EVALUATING A POSSIBLE INVESTMENT IN THE PARTNERSHIP. NO PROSPECTIVE INVESTOR MAY DISCUSS THE CONTENTS OF THE MEMORANDUM WITH ANY PERSON OTHER THAN ITS PROFESSIONAL ADVISERS. THIS MEMORANDUM DOES NOT PURPORT TO BE ALL-INCLUSIVE OR TO CONTAIN ALL THE INFORMATION THAT A PROSPECTIVE INVESTOR MAY DESIRE IN EVALUATING THE PARTNERSHIP. PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS LEGAL, TAX, INVESTMENT OR OTHER ADVICE. EACH INVESTOR SHOULD MAKE ITS OWN INQUIRIES AND CONSULT ITS OWN ADVISERS AS TO THE PARTNERSHIP AND THIS OFFERING AND AS TO LEGAL, TAX AND RELATED MATTERS CONCERNING THIS INVESTMENT. THE PARTNERSHIP, THE GENERAL PARTNER OR ANY OF THEIR RESPECTIVE AFFILIATES IS NOT MAKING ANY REPRESENTATION OR WARRANTY REGARDING THE LEGALITY OF AN INVESTMENT IN THE UNITS BY ANY INVESTOR OR ABOUT THE INCOME OR OTHER TAX CONSEQUENCES OF SUCH AN INVESTMENT. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ENTITY CREATING THE UNITS OFFERED AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS OF AN INVESTMENT IN THE UNITS. THE UNITS OFFERED HEREBY HAVE NOT BEEN RECOMMENDED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER SECURITIES COMMISSION OR REGULATORY AUTHORITY OF ANY JURISDICTION IN ANY COUNTRY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE UNITS OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR SECURITIES AUTHORITY IN OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. THE UNITS OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT, PURSUANT TO REGISTRATION THEREUNDER OR EXEMPTION THEREFROM, AND AS PERMITTED UNDER OTHER APPLICABLE SECURITIES LAWS. THE TRANSFERABILITY OF UNITS IS FURTHER RESTRICTED UNDER THE PARTNERSHIP’S PARTNERSHIP AGREEMENT (AS MAY BE AMENDED, MODIFIED, SUPPLEMENTED OR RESTATED FROM TIME TO TIME, THE “PARTNERSHIP AGREEMENT”).

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ADDITIONAL CONSIDERATIONS AN INVESTOR GENERALLY WILL NOT BE PERMITTED TO RESIGN OR OTHERWISE WITHDRAW, IN WHOLE OR IN PART, FROM THE PARTNERSHIP. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF AN INVESTMENT IN THE UNITS FOR AN EXTENDED PERIOD OF TIME. INVESTMENT IN THE UNITS WILL INVOLVE RISKS DUE TO, AMONG OTHER THINGS, THE NATURE OF THE PARTNERSHIP’S INVESTMENTS AND BUSINESS ACTIVITIES. INVESTORS SHOULD HAVE THE FINANCIAL ABILITY, SOPHISTICATION AND WILLINGNESS TO ACCEPT THE RISKS AND LACK OF LIQUIDITY, WHICH ARE CHARACTERISTICS OF THE INVESTMENT DESCRIBED IN THIS MEMORANDUM. CERTAIN INFORMATION CONTAINED IN THIS MEMORANDUM HAS BEEN OBTAINED BY THE GENERAL PARTNER FROM SOURCES DEEMED RELIABLE BY THE GENERAL PARTNER. HOWEVER, THE GENERAL PARTNER CANNOT GUARANTEE THE ACCURACY OF SUCH INFORMATION AND HAS NOT INDEPENDENTLY VERIFIED SUCH INFORMATION. SUCH INFORMATION NECESSARILY INCORPORATES SIGNIFICANT ASSUMPTIONS AND ESTIMATES AS WELL AS FACTUAL MATTERS. THE GENERAL PARTNER WILL PROVIDE TO EACH PROSPECTIVE INVESTOR, OR SUCH PROSPECTIVE INVESTOR’S AGENT, DURING THIS OFFERING AND PRIOR TO THE SALE OF ANY UNITS OFFERED HEREBY TO SUCH PROSPECTIVE INVESTOR, THE OPPORTUNITY TO ASK QUESTIONS OF THE GENERAL PARTNER CONCERNING ANY ASPECT OF THE INVESTMENT AND TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT THE GENERAL PARTNER POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE. CERTAIN STATEMENTS MADE THROUGHOUT THIS DOCUMENT THAT ARE NOT HISTORICAL FACTS MAY CONTAIN FORWARD-LOOKING STATEMENTS REGARDING THE PARTNERSHIP’S FUTURE PLANS, OBJECTIVES AND EXPECTED PERFORMANCE. SUCH FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS THAT USE FORWARD-LOOKING TERMINOLOGY SUCH AS “MAY”, “WILL”, “SHOULD”, “EXPECT”, “ANTICIPATE”, “PROJECT”, “ESTIMATE”, “INTEND”, “CONTINUE”, OR “BELIEVE”, OR THE NEGATIVES THEREOF, OR OTHER VARIATIONS THEREON, OR COMPARABLE TERMINOLOGY. FORWARD-LOOKING STATEMENTS ARE BASED ON ASSUMPTIONS THAT THE GENERAL PARTNER BELIEVES ARE REASONABLE, BUT ARE SUBJECT TO A WIDE RANGE OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. INFORMATION RESPECTING PRIOR PERFORMANCE OF OTHER INVESTMENTS IS NOT NECESSARILY INDICATIVE OF ACTUAL RESULTS TO BE OBTAINED BY THE PARTNERSHIP. NOTHING CONTAINED HEREIN IS, OR SHOULD BE RELIED ON AS, A PROMISE OR REPRESENTATION AS TO THE FUTURE PERFORMANCE OF THE PARTNERSHIP.

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CONSIDERATION CONCLUSION THIS MEMORANDUM IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE SUBSCRIPTION AGREEMENT RELATED THERETO, THE PARTNERSHIP AGREEMENT AND ALL OTHER RELEVANT AGREEMENTS (IF ANY) PERTAINING TO AN INVESTMENT IN, OR THE OPERATION OF, THE PARTNERSHIP, IN EACH CASE AS MAY BE AMENDED, MODIFIED, SUPPLEMENTED OR RESTATED FROM TIME TO TIME. COPIES OF SUCH DOCUMENTS WILL BE MADE AVAILABLE UPON REQUEST AND SHOULD BE REVIEWED PRIOR TO PURCHASING ANY UNIT. NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OTHER THAN AS CONTAINED IN THIS MEMORANDUM. NO REPRESENTATIONS OR WARRANTIES ARE MADE AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN. STATEMENTS IN THIS MEMORANDUM ARE MADE AS OF 12/02/2012, UNLESS STATED OTHERWISE. NEITHER THE DELIVERY OF THIS MEMORANDUM AT ANY TIME NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY OTHER TIME SUBSEQUENT TO SUCH DATE. THE GENERAL PARTNER AND ITS AFFILIATES RESERVE THE RIGHT TO MODIFY ANY OF THE TERMS OF THE OFFERING AND THE UNITS DESCRIBED HEREIN. THE UNITS ARE OFFERED SUBJECT TO THE RIGHT OF THE GENERAL PARTNER TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART. IF THE GENERAL PARTNER REJECTS A SUBSCRIPTION, THE PROSPECTIVE INVESTOR WILL BE NOTIFIED AS SOON AS PRACTICAL. THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY COUNTRY, STATE OR OTHER JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS UNLAWFUL. ALL “$” AND “DOLLAR” REFERENCES IN THIS MEMORANDUM ARE TO U.S. DOLLARS. ***** FOR MORE INFORMATION PLEASE CONTACT THE PARTNERSHIP. ***** Please direct all inquiries regarding the Partnership to: Palm House Hotel, LLLP 197 S. Federal Highway, Suite 200 Boca Raton, FL 33432 Telephone: (561) 282-6102

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Jurisdictional Notes Prospective Investors are not to construe the contents of this document or any prior subsequent communications from the Offeror as legal or tax advice. Each Investor must rely on his own representative for legal, income tax and related matters concerning this investment. This document is Confidential and contains proprietary information. It is intended for the exclusive use of the recipient. PROJECTIONS MAY BE CONTAINED IN THIS MEMORANDUM AND ANY OTHER PROJECTIONS THAT DO NOT CONFORM TO THOSE IN THIS OFFERING DOCUMENT SHOULD BE DISREGARDED. EVERY INVESTOR SHOULD BE AWARE THAT THE PARTNERSHIP HAS NO OBLIGATION, NOR DOES IT INTEND TO REPURCHASE THE UNITS FROM INVESTORS IN THE EVENT THAT, FOR ANY REASON, AN INVESTOR WISHES TO TERMINATE THE INVESTMENT. FOREIGN (NON-USA) JURISDICTION THESE UNITS HAVE NOT BEEN REGISTERED, FILED WITH, OR OTHERWISE APPROVED BY ANY FOREIGN (NON-USA) REGULATORY AGENCY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. A non-US person or entity considering an investment in the Partnership should consult his/her or its own tax advisors with respect to the specific tax consequences to such person of such an investment under United States federal, state and local income tax laws, and with respect to the treatment of income and gain from such investment under the tax laws of any foreign jurisdiction in which such person or entity is subject to tax. THIS CONFIDENTIAL OFFERING MEMORANDUM DOES NOT SET FORTH COMPLETE INFORMATION RELATING TO THE TAX EFFECTS OF AN INVESTMENT IN THE PARTNERSHIP. EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS OWN COUNSEL, ACCOUNTANTS OR OTHER ADVISORS AS TO THE US FEDERAL (AS WELL AS STATE AND LOCAL) TAX CONSEQUENCES OF ITS INVESTMENT IN THE PARTNERSHIP, WHICH MAY DIFFER SUBSTANTIALLY FOR DIFFERENT TYPES OF TAXPAYERS (INDIVIDUALS, CORPORATIONS, ETC.) IN PARTICULAR, INVESTMENT IN THE PARTNERSHIP BY ENTITIES SUBJECT TO ERISA AND BY OTHER TAX-EXEMPT ENTITIES REQUIRES SPECIAL CONSIDERATION. TRUSTEES OR ADMINISTRATORS OF SUCH ENTITIES ARE URGED TO CAREFULLY REVIEW THE MATTERS DISCUSSED IN THIS MEMORANDUM.

NOTICE TO RESIDENTS OF ALL STATES THE UNITS OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE LAWS. THE UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS The Memorandum includes “forward-looking statements” within the meaning of Section 27A of the Act and Section 21E of the Securities Exchange Act of 1934 which represent our expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with our ability to obtain financing for our current and future operations. All statements other than statements of historical facts included in the Memorandum including, without limitation, the statements under “Business” and elsewhere herein, including the Documents incorporated by reference, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in the Memorandum, including without limitation, in connection with the forward-looking statements included in the Memorandum. All subsequent written and oral forward-looking statements attributable to us or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. -------------------THE FORWARD LOOKING STATEMENTS INCLUDED HEREIN ARE ALSO BASED ON CERTAIN CURRENT BUDGETING CONSIDERATIONS AND OTHER ASSUMPTIONS RELATING TO THE PARTNERSHIP'S ABILITY TO OBTAIN RETURNS FOR ITS INVESTORS, SUCCESSFULLY MARKET ITS SERVICES, PROCURE SUFFICIENT CAPITAL TO EXPAND OPERATIONS AND MAINTAIN STRICT REGULATORY PROCEDURES WHILE CONDUCTING BUSINESS. ASSUMPTIONS RELATING TO THE PROCEEDING AND FOREGOING INFORMATION INVOLVE JUDGMENTS THAT ARE DIFFICULT TO PREDICT ACCURATELY AND ARE SUBJECT TO NUMEROUS FACTORS WHICH MAY MATERIALLY AFFECT THE PARTNERSHIP’S RESULTS. BUDGETING, INVESTMENT AND OTHER MANAGERIAL DECISIONS ARE SUBJECTIVE AND ARE THUS SUSCEPTIBLE TO INTERPRETATIONS AND PERIODIC REVISIONS BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENTS, THE IMPACT OF WHICH MAY CAUSE THE PARTNERSHIP TO ALTER BUDGETS AND AMEND STRATEGIES, ANY OR ALL OF WHICH MAY MATERIALLY AFFECT THE PARTNERSHIP'S RESULTS. THE FOREGOING CONSIDERATIONS, AS WELL AS A VARIETY OF OTHER FACTORS NOT SET FORTH HEREIN, COULD CAUSE THE PARTNERSHIP'S ACTUAL RESULTS AND EXPERIENCE TO DIFFER WIDELY OR MATERIALLY FROM THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS IN THE PARTNERSHIP'S FORWARD LOOKING STATEMENTS.

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Statement to EB5 Investors 1) The Project will be located in Florida, within one or more Targeted Employment Areas (TEAs). Therefore, pursuant to EB-5 guidelines, EB-5 Investors must invest a minimum amount of $500,000.00. 2) The management and staffing projections for the Project show that the Project will create sufficient new direct and indirect jobs to support the number of investors sought. Please refer to the attached business plan and economic analysis for further information. 3) EB-5 guidelines require the investment to be at risk. Investors should consult their own counsel and/or independent advisor for recommendations about this investment. ---------------------------IF YOU LIVE OUTSIDE THE UNITED STATES, IT IS YOUR RESPONSIBILITY TO FULLY OBSERVE THE LAWS OF ANY RELEVANT TERRITORY OR JURISDICTION OUTSIDE THE UNITED STATES CONNECTED WITH ANY PURCHASE OF UNITS, INCLUDING OBTAINING REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER REQUIRED LEGAL FORMALITIES IN RELATION TO THE PARTNERSHIP. EB-5 VISA: CASE PROCESSING PROCEDURES

For"applicants"outside"the"United"States:" •" The"applicant"first"makes"a"qualifying"investment" •" The"applicant"files"a"Form"I[526"petition"(and"supporting"documents)"with"USCIS." •" The"U.S."Department"of"State’s"National"Visa"Center"processes"the"EB[5"immigrant"visa"through" the"local"U.S."consular"post"with"jurisdiction"over"the"place"of"residence." •" The"applicant"uses"the"EB[5"immigrant"visa"to"enter"the"United"States,"which"commences"the" two[year"conditional"lawful"permanent"resident"status." •" Approximately"21"months"later,"the"applicant"must"file"a"Form"I[829"to"remove"the"conditional" status." •" The"applicant"must"provide"supporting"documents"to"establish"that"they"have"satisfied"all"EB[5" qualifying"conditions." •" Upon"approval,"a"new"ten[year"unconditional"green"card"is"issued."" For"applicants"having"lawful"non[immigrant"status"within"USA"and"staying"in"USA:" •" The"applicant"first"makes"a"qualifying"investment" •" The"applicant"files"a"Form"I[526"petition"(and"supporting"documents)"with"USCIS." •" On"approval"of"Form"I[526,"the"applicant"files"a"Form"I[485"(Application"to"Register"Permanent" Residence"or"Adjust"Status)." •" Upon"approval"of"the"Form"I[485,"the"applicant"is"granted"a"conditional"lawful"permanent" resident"status,"which"is"valid"for"two"years." •" Approximately"21"months"later,"the"applicant"must"file"a"Form"I[829"to"remove"the"conditional" status." •" The"applicant"must"provide"supporting"documents"to"establish"that"they"have"satisfied"all"EB[5" qualifying"conditions." •" Upon"approval,"a"new"ten[year"unconditional"green"card"is"issued.""

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" PATRIOT ACT RIDER EACH POTENTIAL INVESTOR HEREBY REPRESENTS AND WARRANTS THAT IT: (I) IS NOT, NOR IS IT ACTING AS AN AGENT, REPRESENTATIVE, INTERMEDIARY OR NOMINEE FOR, A PERSON IDENTIFIED ON THE LIST OF BLOCKED PERSONS MAINTAINED BY THE OFFICE OF FOREIGN ASSETS CONTROL, U.S. DEPARTMENT OF TREASURY; AND (II) HAS COMPLIED WITH ALL APPLICABLE U.S. LAWS, REGULATIONS, DIRECTIVES, AND EXECUTIVE ORDERS RELATING TO ANTI-MONEY LAUNDERING , INCLUDING BUT NOT LIMITED TO THE FOLLOWING LAWS: (1) THE UNITING AND STRENGTHENING AMERICA BY PROVIDING APPROPRIATE TOOLS REQUIRED TO INTERCEPT AND OBSTRUCT TERRORISM ACT OF 2001, PUBLIC LAW 107-56, AND (2) EXECUTIVE ORDER 13224 (BLOCKING PROPERTY AND PROHIBITING TRANSACTIONS WITH PERSONS WHO COMMIT, THREATEN TO COMMIT, OR SUPPORT TERRORISM) OF SEPTEMBER 23, 2001.

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Summary of the Business " The Partnership offers its Investors projected returns with yearly distributions. 1. The General Partner of the Partnership is South Atlantic Regional Center, LLC (“General Partner”). The Managers of the General Partner have a successful history of commercial development, construction, retail, and management experience. 2. Timeline for acquisition of funding is anticipated for early 2013. Construction has commenced using bridge financing, and EB-5 funding is required to complete remodeling work on the facility. 3. The Partnership anticipates that the Project will be open for business by the end of 2014. 4. Anticipated project costs will be $91,000,000. See “Use of Proceeds.” 5. The Project shall provide substantial benefits to the regional economy that exceeds the strict USCIS requirements for job creation that will allow a foreign Investor to qualify for an EB-5 Immigration Visa. 6. The Offering provides the Investors with a projected annual dividend.

SUMMARY OF PARTNERSHIP AND HOTEL PROJECT The Hotel Project will seek to accomplish the following: 1. The Partnership will loan funds to the Borrower, with such funds derived from either: (i) foreign Investors through the EB-5 program; or (ii) U.S. Investors. The Borrower will develop and build the Project (please review the Business Plan Summary herein for more details). 2. The Project will serve the greater Florida primary market area (Palm Beach County) by seeking to create jobs and increase U.S. exports by developing a high-end resort hotel. 3. A more detailed description of the Project is included in the full business plan. 4. The Partnership, through investment in the Project, offers the foreign and U.S. investor excellent projected returns with yearly cash distributions. The Investors shall collectively own 99% of the Partnership, and the General Partner shall own 1% of the Partnership. 5. The Partnership is projecting a five (5) year ROI based upon: a one-quarter of one percent (0.25%) preferred non-cumulative annual dividend. These ROI calculations show an annualized rate of return of 0.25%, with an overall ROI of 1.25%. Please review the Return on Investment section in the full business plan for details of the anticipated distributions. 6. Projected dividends and net profits will be distributed to the Investors not less frequently than annually. 7. As determined by the General Partner of the Partnership, in its sole discretion, between the end of the fifth year and seventh year of the operation of the Project, the Partnership will either: (i) market the Project for sale, and the pro rata share of the profits realized from the sale (if any) will

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be distributed to the Partners of the Partnership (including the Investors up to the amount of their then-current investment); or (ii) the General Partner or Partnership may repurchase the interests of each EB-5 Investor for an amount equal to the net capital invested by each EB-5 Investor, if the General Partner has sufficient funds to do so. 8. Upon sale of all of the assets of the Partnership and/or liquidation of the Partnership, the net proceeds (after normal and customary costs of sale) shall be distributed as follows: (i) the Investors shall each receive a pro rata share of the net proceeds, up to a maximum of the net sums invested by each of them in the Partnership; (ii) to the extent there are excess proceeds, such proceeds shall be distributed to the General Partner.

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THE OFFERING TERM SHEET " This summary of certain provisions of this Memorandum is intended only for convenient reference. It is not intended to be complete and is qualified in its entirety by the more detailed information contained elsewhere in this Memorandum and in the Exhibits hereto. The full text of this Memorandum, and the Exhibits, should be read in detail and understood by each potential Investor. The term “Investor” shall mean persons or entities receiving this Memorandum.

THE PARTNERSHIP:"

The Partnership is a Florida Limited Liability Limited Partnership. Its principal office is located at: 197 S. Federal Highway, Suite 200, Boca Raton, FL 33432; Telephone: (561) 282-6102. The Partnership is offering for sale Units of limited partnership interests to Accredited Investors pursuant to the EB-5 Program.

SECURITIES:

Units of limited partnership interests in the Partnership shall be issued to Investors in this Offering, with one (1) Unit issued for each $500,000 investment. The Offering hereunder is 79 Units.

THE GENERAL PARTNER:

South Atlantic Regional Center, LLC is the general partner of the Partnership. The initial Managers of the General Partner and summary background information regarding the Managers of the General Partner appears in the section entitled “Management Team.” The General Partner shall provide overall management and supervision of the Partnership.

BORROWER:

Palm House, LLC (“Borrower”) is a Delaware limited liability company. Borrower seeks financing from the Partnership in order to operate a business involving the renovation and development of a high-end resort hotel. See “Use of Proceeds” below.

EB-5 REGIONAL CENTER SPONSORSHIP:

The Project is sponsored by South Atlantic Regional Center (SARC) (the “Regional Center”), a Florida limited liability company. The Regional Center has been approved by the U.S. Citizenship and Immigration Services (“USCIS”) to serve as an approved regional center under the EB-5 Immigrant Investor Pilot Program to establish and solicit investment from foreign investors in U.S. businesses for the purposes of creating U.S. jobs.

COMPOSITION OF PARTNERSHIP:

The Partnership will be composed of: (i) the General Partner, which will own a 1% interest in the Partnership and (ii) Limited Partners, which will collectively own a 99% interest in the Partnership.

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UNITS OFFERED:

One (1) Limited Partnership Unit (i.e. 1%) will be owned by affiliates of the individuals or Persons who are the Managers of the General Partner (“Promoter Limited Partnership Units”), and 79 Limited Partnership Units (i.e. 99%) (all rounded to the nearest one percent (1%)) will be offered to Investors. The Partnership is offering for sale up to 79 Limited Partnership Units, for a total offering of $39,500,000. Payment for Units of the Partnership must be paid in cash, upon subscription.

MINIMUM INVESTMENT:"

$500,000.00, for one (1) Unit.

USE OF PROCEEDS:

The Partnership will loan ("Loan") the proceeds of this Offering to the Borrower to partially finance the acquisition, development, and operation of the Project. The Partnership will make the Loan to Borrower on the terms set forth in the Loan Documents attached hereto. See Capital Requirements and Estimated Use of Proceeds and Summary of Loan Terms below.

TERMS OF THE OFFERING:

All subscription funds received from Investors will be paid to a special escrow account (“Escrow Account”) maintained by a reputable bank (“Escrow Bank”) under the control of the bank or another entity (“Escrow Agent”) as defined in the Escrow Agreement. The Escrow Agent may invest the subscription funds in investment grade debt instruments of the United States government. All interest earned on the Escrow Account will be the property of the Partnership unless the Offering is unsuccessful, in which event each potential Investor will receive its pro rata share of the income earned, less administrative and other similar costs. To maintain complete security in the payment process for the investor and the partnership, subscription funds will be wired into the Escrow Bank and held in Escrow under the terms set forth in the Escrow Agreement. Separately, the $40,000 administration fee is also wired to the Escrow Bank. The Escrow Account will be released to the Partnership at such time as (a) the Investor’s I-526 application is approved by the USCIS, or (b) as defined in the Escrow Agreement. In the event that a subscription is not accepted, the subscription funds paid by such potential Investor, together with interest earned thereon, if any, shall be promptly returned to the potential Investor.

TERM PERIOD:

The term of the existence of the Partnership will be as set forth in the Partnership Agreement.

DISTRIBUTIONS / DIVIDENDS:

The General Partner will determine, in its sole discretion, the amount, timing (not less than annually) and form of distributions by the Partnership, if any. The Partnership may not make any distributions: (1) In

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violation of the Partnership Agreement; (2) If after the distribution: (a) It would not be able to pay its debts as they become due in the ordinary course of it’s activities; or (b) Its total assets would be less than the sum of its total liabilities plus the amount that would be needed, if it was dissolved, wound up and terminated at the time of the distribution to satisfy the preferential rights upon dissolution, winding up and termination of partners whose preferential rights are superior to those of persons receiving the distribution. The Partnership may base a determination that a distribution is not prohibited under subsection (2) on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances. Distributions of funds from operations of the Partnership shall be made in the following order of priority: 1. To the EB-5 Investors until the annual distributions to those Investors equals one-quarter of one percent (0.25%) of the capital invested by each EB-5 Investor (“EB-5 Preferred Return”). 2. The balance to the General Partner. It is the intention of the Partnership to refinance the project after the fifth year of operations. In such event, the Partnership and/or the General Partner or their designees may repurchase the interests of each EB-5 Investor for an amount equal to the net capital invested by each EB-5 Investor, if they have sufficient funds to do so. The rules and regulations governing the EB-5 Pilot Program prohibit the return of an EB-5 Investor’s investment prior to the approval of the Investor’s I-829 petition. See “EB-5 Immigration Disclosures and Risk Factors” and “Risk Factors.” RESTRICTIONS ON RESALE:

The Investor(s) who purchase any Units pursuant to this Offering will be restricted from selling, transferring, pledging or otherwise disposing of any Units due to restrictions under securities laws and the Partnership Agreement.

HOW TO INVEST:

Each Investor must execute and deliver the Subscription Agreement attached hereto.

WHO MAY INVEST:

The Units of the Partnership are being offered pursuant to this Memorandum solely to persons who are "accredited investors" as defined in Regulation D promulgated under the Act. See the Accredited Investor Suitability Questionnaire attached hereto.

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INVESTOR SUITABILITY:

This Offering will be made pursuant to exemptions from registration provided by Section 4(2) of the Act, Regulation D promulgated thereunder, and exemptions available under applicable state securities laws and regulations. Persons desiring to invest in the Partnership will be required to make certain representations and warranties regarding their financial condition in the Subscription Agreement attached hereto. Such representations include, but are not limited to, certification that the Investor is an accredited Investor under SEC regulations. The Partnership reserves the right to reject any Subscription in whole, or in part, in its sole discretion. See “Suitability Standards.” THE SUBSCRIPTION AGREEMENT INCLUDES CERTAIN REPRESENTATIONS AND WARRANTIES OF THE INVESTOR ON WHICH THE PARTNERSHIP WILL RELY IN DETERMINING WHETHER TO ACCEPT THE SUBSCRIPTION. PROSPECTIVE INVESTORS ARE URGED TO READ THE SUBSCRIPTION AGREEMENT CAREFULLY AND, TO THE EXTENT THEY DEEM APPROPRIATE, TO DISCUSS THE SUBSCRIPTION AGREEMENT, THIS MEMORANDUM AND THEIR PROPOSED INVESTMENT IN THE UNITS WITH THEIR LEGAL OR OTHER ADVISORS.

ADMINISTRATIVE FEES:

EB-5 participants will be required to pay a $40,000 administrative fee. Any other administrative or other fees paid to any party in connection with the sale of Units pursuant to this Offering shall not be paid out of the proceeds of Capital Contributions of EB-5 participants. This administrative fee is in addition to any fees paid by Investors for the preparation of USCIS applications, forms, or paperwork.

RISK FACTORS:

The Units offered hereby involve a high degree of risk. See "Risk Factors" set forth in the Memorandum.

TAX RISKS:

Investment in the Partnership involves substantial tax risks. Although the primary motive of Investors should be for current income and/or long-term appreciation, state and federal legislatures and tax authorities may alter and change the permissible deductions that may be taken with respect to the Project and its income, and may change the tax rates to less favorable rates. In addition, the state and federal tax authorities may be more likely to audit taxpayers with higher incomes or partnership income or loss. Since Investors generally fall into this category, the Partnership also has an increased risk of being audited. Such an examination could result in adjustments to items that are related to the Partnership. Investors and/or the Partnership may incur legal or other professional expenses in connection with such audit or the adjustments resulting from such audit. The Partnership has not obtained a legal opinion or ruling from any tax authority regarding any tax aspects of the Project, the Partnership or its business. The

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tax risks include, without limitation, the following: (i) Changes in federal income tax laws; (ii) Partnership status; (iii) Taxable income in excess of distributions; (iv) Allocation of tax items among Limited Partners; (v) Allocation of purchase price; (vi) Partnership termination; (vii) At risk limitations; (viii) Risk of audit; (ix) Profit objective; and (x) Limitations on passive losses. This tax discussion is not tax advice to Investors. Each Investor is advised to consult with his or her own tax advisor regarding the tax consequences of investing in the Partnership. See “Risk Factors” below. RESIDENCY RISKS:

Neither the Partnership nor the General Partner guarantees that any EB-5 participant will be granted conditional or permanent residency in the United States as a result of their purchase of Units of the Partnership. Each Investor must evaluate and accept the risk that he/she may not be granted residency in the United States after making their capital contribution and being admitted as a Limited Partner of the Partnership.

SUBSCRIPTIONS:

Investors who wish to subscribe for the Units may do so by executing the Subscription Agreement attached hereto and delivering the completed materials and payment for the Units to the Partnership. A subscription may not be considered for acceptance unless it is completely filled out and properly executed and is accompanied by payment in full for the Units which are being purchased. Subscriptions accompanied by payment in the form of a personal check, if accepted, will be so accepted conditioned upon and subject to clearance of the check and the Units will not be delivered until the check clears. Funds accompanying any subscription not accepted by the Partnership will be promptly returned to the Investor without interest thereon or deduction therefrom.

AVAILABILITY OF FUNDS:

All proceeds from the sale of Units once the escrow conditions have been satisfied will be delivered directly to the Partnership and be available for use by the Partnership for Partnership purposes, at its discretion.

RESALE OF UNITS:

There is no market for the Units. It is not anticipated or intended that one will develop. This is a non-liquid investment. (See “Risk Factors” — there is no market for the Partnership’s Units.) Further, there are substantial restrictions on private and/or public resale.

REPORTS TO LIMITED PARTNER:

The Partnership will furnish financial statements to Limited Partners annually.

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Investor Suitability Standards INVESTMENT IN THE UNITS OF Palm House Hotel, LLLP INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR THOSE INVESTORS WHO HAVE SUBSTANTIAL FINANCIAL RESOURCES IN RELATION TO THEIR INVESTMENT AND WHO UNDERSTAND THE PARTICULAR RISK FACTORS OF THIS INVESTMENT. IN ADDITION, INVESTMENT IN THE UNITS IS SUITABLE ONLY FOR AN INVESTOR WHO DOES NOT NEED LIQUIDITY IN THE INVESTMENT AND IS WILLING TO ACCEPT RESTRICTIONS ON THE TRANSFER OF THE UNITS. No Registration or Secondary Market The Units have not been registered under the Act but are being offered and sold in reliance upon exemptions from registration contained in Sections 4(2) and 4(6) of the Act as interpreted by the Securities and Exchange Commission (the “Commission”) and in Rule 506 of Regulation D promulgated thereunder (“Regulation D”). See “STATUS OF UNITS UNDER SECURITIES LAWS; RESTRICTED UNITS”. There will be no secondary market for the Units subsequent to this Offering. See “RISK FACTORS”. For the foregoing and other reasons, a purchase of Units is suitable only for Investors of substantial net worth who (I) are willing to purchase a high risk investment, (ii) can afford to hold their Units for an indefinite period and do not anticipate that they will be required to sell their Units in the foreseeable future, and (iii) have sufficient net worth to sustain a total loss of their investment in the Partnership in the event that such loss should occur. Investor Suitability Subject to the right of the Partnership to sell Units to Accredited Investors, Units will be sold only to those Investors who submit an Offeree Questionnaire in the form attached hereto establishing to the satisfaction of the Partnership that: 1.

The Investor is an "Accredited Investor," as defined as follows: (i)

a natural person who, either individually or jointly with his/or her spouse, has a minimum net worth of $1,000,000 (net worth shall be determined exclusive of primary residence), or who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.

(ii)

any other Accredited Investor, as defined by Regulation D or the SEC.

2. The Accredited Investor has such knowledge and experience in financial and business matters that he/she/it is able to evaluate the merits and risks of an investment in the Units. 3. The Accredited Investor has the financial ability to bear the economic risk of an investment in the Units, adequate means of providing for his current needs and personal contingencies, and no need for liquidity in an investment in the Units. 4. The Accredited Investor is acquiring the Units for his own account for investment and not with a view to resale or distribution.

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Investor Suitability (Regulation S) The Company’s Units will also only be offered to those investors who are not a “U.S. person” as defined by Rule 902(k) under Regulation S, which include: (i) Any natural person resident in the United States; (ii) Any partnership or corporation organized or incorporated under the laws of the United States; (iii) Any estate of which any executor or administrator is a U.S. person; (iv) Any trust of which any trustee is a U.S. person; (v) Any agency or branch of a foreign entity located in the United States; (vi) Any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person; (vii) Any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and (viii) Any partnership or corporation if: (A) Organized or incorporated under the laws of any foreign jurisdiction; and (B) Formed by a U.S. person principally for the purpose of investing in securities not registered under the Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a)) who are not natural persons, estates or trusts. Please study the terms of the Subscription Agreement, this Memorandum and all related documents carefully before you decide to subscribe for Units. The Partnership will review all subscription documents and will not accept subscriptions from any person or entity who does not represent that he/it complies with the applicable standards specified above.

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PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM OR ANY OTHER COMMUNICATIONS FROM THE PARTNERSHIP OR ANY OF ITS MANAGERS, EMPLOYEES, ACCOUNTANTS OR LEGAL COUNSEL AS LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT HIS OR HER OWN COUNSEL AND ACCOUNTANT AS TO LEGAL AND TAX MATTERS AND RELATED MATTERS CONCERNING HIS OR HER INVESTMENT. The Partnership reserves the right to reject the subscription of any prospective Investor at any time prior to acceptance and to refund, without interest thereon and without any deduction there from, any funds paid to the Partnership by such prospective Investor. STATUS OF UNITS UNDER SECURITIES LAWS; RESTRICTED UNITS Investors will have no right to require registration of the Units comprising their Units under the 1933 Act or any state securities laws, and such registration is neither contemplated nor likely. In addition, the Partnership will not make public such information as would permit an Investor to transfer his or her Units pursuant to the provisions of Rule 144 promulgated under the 1933 Act. The Units are “restricted” as that term is defined in Rule 144 under the Act and, as a result, are subject to substantial restrictions upon transfer or resale. The Units may, absent registration, in the future be sold only in compliance with Rule 144 or other exemption from registration under the Act, the availability of which must be established to the satisfaction of the Partnership, unless the Units are covered by an effective registration statement under the Act. Prospective Investors will be required to represent to the Partnership that they understand that: a) The Units have not been registered under the Act or under the securities laws of any state. They will not be able to sell or transfer any of the Units unless they are registered or sold pursuant to an exemption from registration under the Act and under applicable state securities laws, the availability of which exemptions may never occur and, if they do, are to be established to the satisfaction of the Partnership; b) Neither the Partnership nor any affiliate has made any representation concerning future registration of the Units, except for compliance with an exemption from registration; c) Since the Units cannot be readily sold, Investors must be prepared to bear the economic risk of the investment indefinitely;

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Use of Proceeds The net proceeds to be received by the Partnership from the sale of the Units offered hereby, after deducting the anticipated expenses of the Offering, are estimated to be $39,500,000.00, assuming the maximum sale of the Units offered hereby, of which there can be no assurance. The amounts actually expended for each purpose may vary significantly depending upon a number of factors. The Partnership reserves the right to reallocate the proceeds of this Offering in response to a variety of factors and related contingencies. ESTIMATED USE OF NET PROCEEDS Although the Partnership has broad discretion to adjust the application and allocation of the net proceeds of this Offering in order to address changed circumstances and opportunities, the Partnership intends to loan the proceeds of this Offering to Borrower for the uses described in this Offering Memorandum. In order to achieve its objectives as described herein, the Borrower seeks financing to operate a business involving the renovation and development of a high-end resort hotel. As further described in the Summary of Loan Terms below, Borrower is required to create 10 new fulltime direct, indirect, and induced jobs for each $500,000 advanced under the Loan within two and one half years of the First Advance.

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Return on Investment The Partnership has prepared the following projections based upon projected revenue and the return on investment which may be paid to an EB-5 Investor (“ROI”). For illustration purposes, the following table shows the ROI for an EB-5 Investor based upon a $500,000.00 investment. The ROI projections concerning the estimated operating results of the Partnership have been prepared by the management of the General Partner. These projections are based on certain assumptions which may, or may not, prove to be inaccurate and which are subject to future conditions that may be beyond the control of the Partnership, such as the general industry and market conditions. The Partnership may experience unanticipated costs or lower revenues than forecast. There is no assurance that the results which are illustrated in the ROI projections will, in fact, be realized by the Partnership.

ASSUMPTIONS Total Initial Investment

$500,000.00

Annual Preferred Dividend to EB-5 Investor

0.25%

Equity of EB-5 Investor

1.25%

The Partnership is projecting a five (5) year ROI based upon: (i) a one-quarter of one percent (0.25%) preferred dividend for the first five years; (ii) annual distributions of cash flow from operations; and (iii) the distribution to be paid to the EB-5 Investor upon the refinancing of the Project at the end of the fifth (5th) year of operations of the Project. The projected ROI of an EB-5 Investor is as follows: (i)

0.25% annual return. Each Investor will be entitled to receive a 0.25%, non-cumulative, annual preferred distribution based on their initial investment of $500,000.00. The preferred return shall be paid prior to calculating and making any additional distributions and/or dividends to the other Investors and/or Partners. The annual preferred dividend to be paid to all of the Investors (based upon a total investment of $39,500,000.00) is $21,250 per year or $1,250 per Investor per year. The non-cumulative preferred return will begin to accrue on the first day that the Project is open for business to the public and will be paid annually until the assets of the Partnership are sold. The total projected preferred return for an EB-5 Investor making a $500,000.00 investment is $6,250.

(ii)

Bonus Distribution. Each Investor shall have the opportunity to participate in the profitability of the commercial enterprise funded by this Offering. Should Palm House, LLC (the “Borrower”) achieve certain performance goals, Investors shall receive bonus distributions. Specifically, (a) if the Project is commercially successful enough that Palm House, LLC is able to sell the Project for $110,000,000 or more before repayment of Investor contributions, then Investors shall be entitled to an additional bonus distribution totaling 5% of the amount invested, or (b) if the Project is commercially successful enough that Palm House, LLC is able to sell the Project for $130,000,000 or more before repayment of Investor contributions, then Investors shall be entitled to an additional bonus distribution totaling 10% of the amount invested.

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(iii)

Bonus Benefits. In addition to the distributions discussed herein, Investors shall additionally be entitled to certain benefits related to the Project. Once the hotel is operational, and subject to availability, Investors will be entitled to receive a complimentary one week hotel stay each year during the term of the investment. This hotel stay benefit accrues only to each Investor, and is not transferrable. As an additional bonus benefit, once the hotel’s membership club is operational, Investors shall be entitled to join that membership club, and shall receive a discount of 50% off the normal price of membership. This benefit is subject to the terms of the Membership Club Rules. Exercise of these bonus benefits is at each Investor’s option.

(iv)

Annual Distribution. After the payment of the annual preferred return to the EB-5 Investors, the net cash flow from operations will be distributed to the General Partner.

(v)

Distribution upon Sale or Liquidation. It is contemplated that the Project will be refinanced after the fifth year of operations, and Units repurchased from Limited Partners at that time. Upon sale of all of the assets of the Partnership and/or liquidation of the Partnership, the net proceeds (after normal and customary costs of sale) shall be distributed as follows: (i) the Investors shall each receive a pro rata share of the net proceeds, up to a maximum of the net sums invested by each of them in the Partnership; (ii) to the extent there are excess proceeds, such proceeds shall be distributed to the General Partner. The General Partner shall own 1% of the Partnership. The Investors shall collectively own 99% of the Partnership (rounded to the nearest one percent).

The following total ROI is based on an EB-5 investment of $500,000.00 and is in addition to the potential return of the $500,000.00 initial investment.

Individual ROI 0.25% preferred non-cumulative annual dividend

$6,250

Annual Additional Distributions

-

Property Sale

-

TOTAL ROI

$6,250

The total ROI is based on a 0.25% preferred non-cumulative annual dividend. These ROI calculations show an annualized rate of return of 0.25%, with an overall ROI of 1.25%. ROI DISCLOSURES Profits of the Borrower, if any, will be used first to pay operating expenses and service debts and obligations of the Borrower. Any remaining profits will be used to establish reserves required by law, in addition to those deemed necessary by the General Partner in its sole discretion, for maintenance, capital improvements, and structural repairs to the Project. Any remaining profits may be available for distribution to Partners in accordance with the LP Agreement (attached).

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Proceeds of this Offering do not include Administrative Fees. Offering Expenses, commissions, and fees incurred in connection with this Offering shall be paid from the proceeds of Administrative Fees and not from EB-5 Capital Contributions. The General Partner determines in its sole discretion the amount, if any, timing and form of any distribution of profits by the Partnership. The Partnership shall not make a distribution (i) if after such distribution liabilities of the Partnership, other than liabilities to Partners on account of their Partnership Interests (as defined in the LP Agreement), exceed the fair value of the assets of the Partnership, (ii) to EB-5 Limited Partners, other than distributions from Available Cash Flow, prior to the fifth anniversary date of the EB-5 Limited Partner's admission as a Partner of the Partnership. After the fifth anniversary date of the EB-5 Limited Partner's admission as a Partner, the foregoing restriction shall no longer apply, to the extent such distribution is prohibited under the Act. See Summary of Limited Partnership Agreement below. The rules and regulations governing the Pilot Program prohibit the return of an EB-5 investor's investment prior to the approval of the Investor’s I-829 application. Accordingly, it is possible that neither Preferred Returns nor return of capital will be made to any EB-5 Limited Partner of the Partnership prior to the end of the fifth year after the closing of this Offering or his/her investment, whichever is later. See EB-5 Immigration Disclosures and Risk Factors above. An EB-5 Limited Partner's interest in the Partnership shall automatically terminate without further action upon repayment of his/her Capital Contribution and all accrued Preferred Returns. See LP Agreement. Refinance, Repayment and Extension of the Loan. The terms of the Loan require the Borrower to use commercially reasonable efforts to refinance and repay the Loan after the end of the fifth year from the First Advance (as defined in the Loan Documents) thereunder. If Borrower is unable to refinance the Loan, it may extend the term of the Loan for one or more additional five year terms during which it shall continue to make principal and interest payments to the Partnership on the balance of the Loan. See Summary of Loan Terms below.

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Management of the Partnership " SARC MANAGEMENT

PRINCIPAL" Joseph"J."Walsh""

""

South&Atlantic&Regional&Center,&LLC,"Managing&Member&

Joseph"J."Walsh"was"born"and"raised"in"Chicago."Mr."Walsh"has"managed"and"owned"both"public"and" private"corporations"in"the"US."Canada"and"the"UK."Mr."Walsh"started"his"career"in"Marketing"and" Advertising,"though"he"was"formally"educated"as"an"Electrical"Engineer."He"founded"and"served"as" President"and"CEO"of"several"startup"computer"and"graphics"firms"that"he"brought"to"the"public"markets" in"the"late"1990s"and"early"2000s."He"subsequently"managed"several"successful"mergers"of"public" companies"and"has"extensive"experience"in"merger"and"acquisition"strategy"and"law."His"experience" extends"not"only"in"the"technical"realm"but"to"the"intricacies"of"U.S."Securities"and"Exchange"laws."Mr." Walsh"brings"a"wealth"of"knowledge"and"expertise"to"South"Atlantic"Regional"Center"with"over"thirty" years"of"experience"in"marketing,"development"and"process"engineering.& " PALM HOUSE, LLC MANAGEMENT

Robert"V."Matthews" Robert"V."Matthews"is"the"chairman"of"Matthews"Ventures"Holdings,"LLC."" MVH"is"a"diversified"holding"company"with"interests"in"real"estate,"hotels,"software,"manufacturing"and" construction."The"companies"also"provide"funding"for"start"up"businesses,"as"well"as"the"acquisition"of" existing"businesses"in"various"market"segments.""Founded"in"1982,"the"MVH"companies"are"comprised"of" seasoned"professionals"with"extensive"experience"in"banking,"hospitality,"and"construction." Over"the"past"several"years,"like"many"U.S."Developers,"Matthews’"companies"were"battered"by"the" financial"collapse.""The"group"has"weathered"the"storm"and"returned"with"an"organization"that"is"much" more"agile"and"refined.""The"exposure"has"produced"an"organization"that"is"well"educated"in"navigating" the"distressed"asset"financial"process"and"this"knowledge"has"allowed"us"access"to"a"substantial"number" of"undervalued"assets.""" Matthews"Ventures"Holdings,"based"in"Palm"Beach,"is"currently"working"on"over"$600"Million"worth"of" product"under"development"ranging"from"condos"to"hotels"both"here"in"Florida"as"well"as"throughout" the"United"States.""In"keeping"with"the"goal"of"the"company"to"develop"one"of"kind"properties"in"luxury" destinations,"all"of"the"MVH"products"will"be"five"star"facilities"upon"completion."MVH"is"the"principal"of" both"HIG"Acquisitions"LLC,"a"private"equity"fund"that"is"acquiring"strategic"international"5"star"hospitality" assets"for"re[positioning"and"Matthews"Hospitality"Group,"a"consortium"of"luxury"properties"under" development."

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As"a"venture"capitalist"Matthews"was"named"Entrepreneur"of"the"Year"in"1993."He"has"controlled" numerous"companies"over"the"past"twenty"five"years"including"FMP,"Echelon"Engineering"and" Construction,"Bentley"Churchill,"and"Stromberg"Software."He"also"holds"minority"shares"in"several"other" companies." " Ryan"Black" Ryan"Black"began"his"career"with"Kriti"Management,"the"U.S."office"of"the"Vardinoyannis"family,"one"of" Europe’s"wealthiest"families"and"the"largest"industrial"group"in"Eastern"Europe.""As"Executive"Vice" President"of"Kriti"Management,"he"over"saw"the"allocation"and"investment"of"over"200M"in"capital" across"multiple"asset"classes"in"the"U.S."and"South"America.""" In"2009,"Mr."Black"left"Kriti"to"serve"as"the"Chief"Operating"Officer"of"Jumeirah"South"America"and"to" advise"the"Cabot"family"on"their"investments"in"Argentina"and"Brazil.""He"spent"a"year"working"for"the" group"prior"to"their"withdrawal"from"the"South"American"market." In"2010"R."Black"Global"was"formed"to"serve"as"an"investment"vehicle"sourcing"attractive"investment" opportunities"for"a"variety"of"international"high"net"worth"families,"funds,"and"corporations.""" In"2012"alone,"R."Black"Global,"on"behalf"of"clients,"has"closed"3"transactions"totaling"83"million"dollars" worth"of"investment.""Transactions"this"year"to"date"include:" •"

A"500,000"square"foot"development"parcel"in"New"York,"NY"

•"

A"portfolio"of"385"improved"lots"in"Reno,"NV"

•"

A"portfolio"of"24"condos"in"Irvine,"CA"

In"addition"to"the"above"closed"transactions,"R."Black"Global,"through"controlled"entities,"has"in"excess"of" 25"million"in"hospitality"assets"under"contract"and"has"a"stalking"horse"offer"in"excess"of"30"million,"in" backup"position,"on"a"large"residential"development"opportunity"outside"of"San"Francisco,"CA."""" R."Black"Global"acts"as"an"investment"sourcing"entity"and"operating"partner"for"assets"acquired.""With" substantial"international"equity"structuring"experience,"we"have"been"able"carve"out"a"substantial"equity" allotment"from"multiple"sources"by"advising"and"establishing"tax"effective"investment"structures"for" international"investors.""" " Eduardo"V."Miranda" Mr."Miranda"currently"serves"as"a"Senior"Associate"with"Metro"1"Properties"in"Miami,"Florida,"a" commercial"brokerage"and"real"estate"advisory"services"company."There,"he"represents"buyers"and" sellers"in"commercial"real"estate"transactions"including"hotel,"industrial,"multi[family,"and"land."He"also" performs"due"diligence"and"financial"feasibility"analysis"on"proposed"acquisitions"for"clients,"produced" 12/02/2012

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and"distributed"offering"memoranda"for"property"dispositions,"and"represented"retail"tenants"in"site" selection"and"lease"execution." Prior"to"that,"Mr."Miranda"served"as"the"Development"Manager"for"Oto"Development,"LLC,"a"hotel" development"group"based"in"Fort"Lauderdale,"Florida."His"duties"there"included"directing"the" development"efforts"of"Marriott,"Hilton,"and"Hyatt"branded"select"service"hotels"from"site"selection,"due" diligence,"and"acquisition,"through"design"development,"permitting,"construction,"FF&E"coordination" and"hotel"opening."He"also"negotiated"and"managed"all"contracts"and"purchase"orders,"coordinated" design"and"construction"teams"during"project"origination"and"implementation,"collaborated"with"brand" representatives"to"ensure"brand"standards"were"achieved,"and"developed"project"budgets"of" approximately"$75"million"for"new"hotels"and"evaluated"feasibility"of"proposed"projects." Mr."Miranda"also"served"as"Acquisition"and"Development"Consultant"for"Luxury"Development" Consultants,"Inc.,"where"he"performed"due"diligence"and"financial"feasibility"analysis"on"proposed" acquisitions"and"developments."Prior"to"that,"he"served"as"Vice"President"of"Development"at"Boca" Resorts"Inc."(now"LXR"Luxury"Resorts,"an"affiliate"of"The"Blackstone"Group),"where"he"managed"over" $200"million"in"development"spending"on"numerous"resort"enhancements"including"the"renovation"of" existing"facilities"in"Boca,"Fort"Lauderdale,"and"Naples,"including"restaurants,"bars,"retail"outlets,"pools," meeting"rooms,"and"guest"rooms,"as"well"as"new"construction"projects"including"a"golf"clubhouse,"luxury" spa,"and"a"112"room"guestroom"tower"with"flexible"meeting"space"at"the"Boca"Resort,"a"golf"course"in" Naples,"and"a"state"of"the"art"floating"dock"marina"at"Bahia"Mar"in"Fort"Lauderdale."He"also"served"as"an" Operations"/"Financial"Analyst"at"The"Breakers"Palm"Beach,"Inc.,"a"luxury"hotel"on"Palm"Beach"Island."His" duties"there"included"controlling"the"financial"performance"of"the"670[acre"Breakers"West"residential" development"and"its"country"club"operations." Mr."Miranda"earned"a"Master"of"Science"in"Hotel"and"Food"Service"Management"from"Florida" International"University"in"1994."He"also"earned"a"Bachelor"of"Science"in"Industrial"and"Systems" Engineering"from"the"University"of"Florida"in"1992."The"is"a"Licensed"Real"Estate"Salesperson"in"the"state" of"Florida." " Gerry"D."Matthews" Mr."Matthews"is"a"Licensed"Real"Estate"Broker"at"Matthews"Commercial"Properties,"where"he"has" served"for"over"a"decade."MCP"specializes"in"the"sales"and"leasing"of"commercial,"industrial,"office"and" retail"space"throughout"Connecticut;"it"has"completed"over"1,000"transactions"since"2001"and"earned" the"Co[Star"Power"Broker"Award"2003[2011"top"20"brokerage"firms"in"Ct"/"Westchester"county"N.Y." Prior"to"that,"Mr."Matthews"served"as"a"Licensed"Real"Estate"Agent"with"Giglio"&"Krasney"Commercial" Real"Estate"for"6"years,"where"he"worked"directly"with"clients"to"search,"locate"and"procure"property" that"met"their"requirements,"and"developed"successful"marketing"campaigns"for"the"disposition"of" clients’"properties."

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Before"that,"Mr."Matthews"served"as"Executive"Vice"President"at"Connecticut"Factors,"Inc."for"13"years." There,"he"supervised"and"coordinated"personnel"in"the"renovation"of"commercial"office,"and"industrial" buildings,"ranging"in"size"from"25,000"to"385,000"square"feet,"as"well"as"several"condominium"and"multi[ family"conversion"projects."He"also"instituted"maintenance"and"management"programs"for"nine" commercial"office"buildings"totaling"over"700,000"square"feet"and"six"condominium"conversions"and" multi[family"projects"totaling"276"units,"and"attained"necessary"materials,"bids"and"proposals"for" projects." Concurrently,"Mr."Matthews"also"served"by"gubernatorial"appointment"as"the"Real"Estate"Commissioner" with"the"State"of"Connecticut"Department"of"Consumer"Protection"from"1997"to"2003."There,"he"was" tasked"to"uphold,"interpret"and"enforce"the"laws"governing"the"Real"Estate"industry"in"Connecticut."His" division"had"jurisdiction"over"20,000"brokers,"agents,"and"property"managers"licensed"in"the"State"of" Connecticut." " PROJECT PARTNERS

ECONOMIC"CONSULTANT" Dr."Michael"K."Evans"

""

Evans,&Carroll&&&Associates,&Inc.,"Chairman"

Dr."Evans"is"the"Chairman"of"Evans,"Carroll"&"Associates"(formerly"Evans"Economics),"which"has"been" providing"economic"forecasting"and"consulting"to"clients"since"1981."The"firm,"based"in"Boca"Raton," Florida,"specializes"in"economic"analysis"for"EB[5"programs,"economic"impact"studies"of"development" projects"and"new"construction,"models"of"state"and"local"tax"receipts,"impact"of"current"and"proposed" government"legislation,"and"construction"of"econometric"models"for"individual"industries"and" companies."As"Chief"Economist"for"the"American"Economics"Group"from"2000"to"the"present,"Dr."Evans" has"also"built"a"comprehensive"state"modeling"system"that"provides"economic"analysis"for"a"variety"of" consulting"projects."Previously"Dr."Evans"was"founder"and"president"of"Chase"Econometric"Associates" (1970–80),"and"served"as"Clinical"Professor"of"Economics"at"Kellogg"Graduate"School"of"Management," Northwestern"University"(1996–99)"and"Assistant"and"Associate"Professor"of"Economics,"Wharton" School,"University"of"Pennsylvania"(1964–69)."Dr."Evans"holds"a"Ph."D."in"Economics"from"Brown" University."

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Summary of the General Risk Factors Before investing in the Units, prospective Investors should be aware that there are risks, including those described below, which may affect the Partnership’s business, financial condition or results of operations. Prospective Investors should consider carefully these risk factors together with all of the other information included in this Memorandum before deciding to purchase any Units. An investment in the Units involves a certain degree of risk, including, but not limited to the following. For a more detailed description of the risks involved in an investment in the Units see RISK FACTORS below. • The Units are illiquid and should only be purchased if the Investor is willing to hold the Units for an indefinite period of time. • Identifying, completing, and realizing profits in the target market has from time to time been highly competitive, and involves a high degree of uncertainty. • Many of the Partnership's competitors for investments are far larger than the Partnership, may have greater financial resources than the Partnership, and may have management personnel with more experience than the Managers of the General Partner. • The Partnership’s business or services may fail to perform as expected, and capital expenditures may exceed estimates. • The Partnership may be forced to alter the design of, and services rendered at, the Project after expending resources to determine feasibility. • The Partnership’s revenues are subject to changes in regional economic conditions, including levels of employment and discretionary disposable income, consumer confidence, and may be affected by changes in legislation. --------------------------------------EB-5 IMMIGRATION DISCLOSURES AND RISK FACTORS The U.S. Congress created the employment-based fifth preference (“EB-5”) immigrant visa category in 1990 for immigrants who invest in and manage U.S. commercial enterprises that benefit the U.S. economy. Each investment needs to create or save at least 10 full-time jobs for U.S. workers. A description of the requirements and processes of the EB-5 Program are based on information obtained by the Partnership from third parties who the Partnership believes are reliable. However, there can be no assurance that such information is accurate or current or that it includes all of the risks relating to U.S. immigration laws or the EB-5 Program (see below). Investors in this Offering who have subscribed for Units with the intention of applying for a U.S. green card through investment in the Partnership should be aware of certain risk factors relating to immigration to the United States, the EB-5 Program and its administration. An Investor who purchases Units with the intention of obtaining a conditional and permanent green card is encouraged, along with his or her advisors, to make his or her own independent review of the EB-5 Program and the various immigration risk factors relating to the process in obtaining a conditional and permanent residency status to determine if an investment in the Units is a suitable approach for him/her. THE PARTNERSHIP MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND CONCERNING WHETHER AN INVESTMENT IN THE PARTNERSHIP WILL MEET THE REQUIREMENTS OF THE EB5 PROGRAM OR OTHER U.S. IMMIGRATION REQUIREMENTS. NO ASSURANCES CAN BE GIVEN THAT AN INVESTMENT IN THE PARTNERSHIP WILL RESULT IN AN IMMIGRANT INVESTOR RECEIVING AN EB-5 VISA OR CONDITIONAL OR PERMANENT RESIDENT STATUS.

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RISKS RELATED TO THE EB-5 PROGRAM General Immigration Risks Congress and/or USCIS may change the law, regulations, or interpretations of the law, including the EB-5 Program, without notice and in a manner that may be detrimental to an Investor and/or the Partnership. Investors who obtain conditional or permanent residence status must intend to make the United States their primary residence. Permanent residents who continue to live abroad risk revocation of their conditional or permanent residence status. The process of obtaining conditional and permanent resident status involves numerous factors and circumstances that are not within the control of the Partnership. These include an Immigrant Investor's history and quotas established by the United States government limiting the number of immigrant visas available to qualified individuals seeking conditional or permanent resident status under the EB-5 Program. Job Allocation Among EB-5 Foreign Investors The Partnership shall take such action to meet the objective of allocating to each Investor a minimum number of ten (10) direct and/or indirect and/or induced full-time equivalent positions for qualifying employees created by the Project due to the Partnership’s investment in the Project on the following basis: The assignment of full-time equivalent positions for qualifying employees created by the Project shall be allocated to members of the Partnership based on the sequential order of the date that each member entered the United States on an EB-5 Visa. Use of Immigration Attorney and Processing Time The filing of an I-526 Petition by an Investor with the USCIS should be done by a qualified U.S. immigration attorney. As of the date of this document, the USCIS is taking approximately six months to approve (or deny) an I-526 Petition. It is impossible to predict USCIS processing times. Once approved, the case will be forwarded to the U.S. State Department’s National Visa Center and then to a U.S. Consulate selected by the Investor for processing or, if the Investor is already in the U.S., the Investor may adjust his or her status to that of conditional permanent resident. It may, however, take an additional six months or longer for a U.S. Consulate to process the I-526 Petition, or for the USCIS to adjust an Investor’s status, and issue a conditional green card. Investors should not physically move to the United States until their visa has been issued. Management estimates that the Project will create a sufficient number of direct jobs. Each Investor in the Partnership who will petition for permanent residency in the U.S. under the EB-5 Program must demonstrate that the Project created at least 10 direct jobs in order to qualify for permanent residency status under the EB-5 Program. There is no assurance that the assumptions upon which the job creation totals are based are accurate or that the actual number of direct employees will be close to the number predicted. Depending upon the disparity there may be insufficient employment to remove conditional visa status, resulting in a delay or denial of permanent residency for any Investor. Proving Lawful Source of Funds As part of the I-526 Petition, an Investor must present to the USCIS clear documentary evidence of the source of the funds invested and that the funds belong to the Investor. Generally, the Investor can satisfy the source of funds requirements by submitting documents showing that he or she has a level of income from legal sources that would yield sufficient funds for the investment. The USCIS generally requires copies of income tax returns to satisfy the source of funds requirement. For Investors who do not have such records, there may be other records that can be provided to the USCIS by an Investor to demonstrate that the investment funds came from legal sources. All such matters regarding the Investor’s I-526 Petition should be discussed with his or her immigration counsel.

"

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Policymaking Position The EB-5 Program requires an Investor to hold a policymaking or management position within the Partnership. The Partnership believes that each Investor, as a limited partner of the Partnership, is provided with the powers and duties under the Partnership Agreement sufficient to meet the USCIS requirement that an Immigrant Investor is actively participating in policymaking or management of a new commercial enterprise. Chinese Governmental Action. The government of the People’s Republic of China (“PRC”) (the expected home country source of Investors) may restrict or suspend entirely participation by its nationals in the EB-5 Program as violative of (a) the PRC’s Securities Laws, (b) the PRC’s foreign exchange controls, and/or (c) the current prohibition on Chinese nationals investing overseas in an individual capacity, rather than through enterprises. Moreover, the PRC may promulgate new laws or regulations in the future that restrict or prohibit participation in the EB-5 Program. Finally, the PRC has not approved this private placement; although in the past it has been assumed that a lack of action on particular offerings by the PRC is tantamount to their tacit approval, in the future, it cannot be assured that the PRC will not restrict or prohibit foreign private placements in general or the Offering in particular. Similar political risks apply to any other country from which a prospective Investor who seeks to transfer funds is a citizen, lawful permanent resident, or is otherwise domiciled. Targeted Employment Area Designation. The Partnership believes that the Project is located in a “TEA.” The Partnership bases this belief on the TEA Designation Memorandum, attached hereto. While USCIS may rely on the TEA Designation Memorandum, USCIS may also choose to defer to state governmental authorities for an ultimate decision on whether the Project is located in a TEA. In such an event, the Partnership believes that the state would consider the Project to be in a TEA based on the evidence supported by the TEA Designation Memorandum, but that is not certain. Moreover, even if USCIS determines that the Project is currently located in a TEA, demographic shifts could cause the loss of TEA status to the census tract where the Project is located. If the Project is not in a TEA, then Investors in Interests seeking a green card pursuant to the Pilot Program would have to invest a minimum of one million dollars ($1,000,000). Therefore, if the census tract’s “TEA” status is lost, it could become difficult or impossible for the Partnership to raise additional funds from EB-5 Investors. If the Partnership is unable to raise sufficient funds, the risk factor “Risks Due to Failure to Raise Adequate Capital” will also apply. At-Risk Investment An Investor’s investment must be at risk to qualify for the EB-5 Program. As part of the green card application, an Investor must show evidence that he or she has placed the required amount of capital at risk for the purpose of generating a return on the capital placed at risk. The Partnership believes that an investment in the Units will place an Investor’s investment in the Partnership at risk because there is no assurance that the business of the Partnership will be able to return any Investor’s investments in the Units at any time, or ever. Purchase of a Unit does not guarantee conditional or permanent residency in the United States. Furthermore, no assurance can be given that conditions to residency under the EB-5 Program will be removed. THE PARTNERSHIP MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND CONCERNING WHETHER AN INVESTMENT IN THE PARTNERSHIP WILL MEET THE REQUIREMENTS OF THE EB5 PROGRAM OR OTHER U.S. IMMIGRATION REQUIREMENTS. NO ASSURANCES CAN BE GIVEN THAT AN INVESTMENT IN THE PARTNERSHIP WILL RESULT IN ANY INVESTOR RECEIVING A VISA OR CONDITIONAL OR PERMANENT RESIDENT STATUS. Timing of investment The EB-5 program procedures requires an investor to first make a qualifying investment, and then file a Form I-526 petition (and supporting documents) with USCIS. The applicant must thus be prepared for situations where—if the application is denied—he or she would have incurred irrecoverable expenses on

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foreign exchange transfer and then getting the investment returned. The investor might also have disposed of some valuable asset to arrange liquid funds in the first place and would be required to look for new investment assets. The investor should factor in expenses and costs and losses that he or she might incur while going through sale and purchase of assets. From the time that the investor makes the investments and time he or she receives the money back, the investor will need to factor in the lost interest in the process.

" OTHER RISK FACTORS

RISKS RELATED TO OUR BUSINESS AND INDUSTRY General Economic Conditions The investment strategy of the Partnership is based in large part upon the success and results of the markets in general. Changes in the general economic conditions (including economic downturns), securities markets, and changes in tax codes and other governmental regulations may affect the value of the Partnership’s investments. Operating History Palm House Hotel, LLLP has no operating history. As a result, we have no operating history to aid in assessing our future prospects. We will encounter risks and difficulties as an early-stage Partnership in a rapidly evolving, and often volatile, investment market. We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results. The Partnership is a new business with no operating history upon which Investors may base an evaluation of its potential future performance. As a result, there can be no assurance that it will be able to develop consistent revenue sources, or that its operations will become profitable even if it is able to allocate the funds raised in this Offering in accordance with its business plan. The Partnership and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered by entities in an early stage of development. Such risks include, but are not limited to, an evolving business model, developing the business plan and the management of its growth, property acquisition and development, the successful operating and maintaining of a commercial real estate Project. The Partnership must, among other things, locate investment assets, purchase investment assets at reasonable values, develop investment assets on a profitable basis, respond to economic and market variables outside the control of the Partnership, conduct adequate due diligence, respond to competitive developments and continue to attract, retain and motivate qualified employees and operate and maintain its facilities. There can be no assurance that the Partnership will be successful in meeting these challenges and addressing such risks and the failure to do so could have a materially adverse effect on the Partnership’s business, results of operations and financial condition. Management of Growth The Project will experience growth in its operations, which will place significant demands on our management, operational, and financial infrastructure. If the Partnership does not effectively manage growth, the quality of services could suffer, which could negatively affect the Project and its operating results. To effectively manage growth, the Partnership will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. These systems enhancements and improvements may require significant capital expenditures and management resources. Failure to implement these improvements could hurt the Project’s ability to manage growth and its financial condition. Competition The Partnership will compete for investments with numerous other investments, many of which have substantially greater financial resources, research and marketing capabilities, operating histories and

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greater name recognition than does the Partnership. Construction Risks The Project may involve construction and/or renovation of existing buildings. Construction and renovation costs may exceed projected levels; similarly, the time for construction and renovation may exceed projections. Such cost overruns or delays may imperil the timing and profitability of the project. Further, necessary permits may take longer than anticipated to acquire, or may be denied entirely. For existing units, the condition of those units may be worse than expected, the units may contain asbestos, or they may require extensive work or even demolition and reconstruction. Natural Disasters; Weather Construction, development, leasing, or operation may be delayed, prevented, or adversely affected by inclement weather or other acts of God. Florida is located in an area at high risk for hurricanes and other natural disasters and natural disaster-related damage. Buildings, fixtures, and other Project assets may be damaged or destroyed by natural disasters. Government Regulation Risks The hospitality industry is regulated by both state and federal governments. Adverse changes in government regulations, taxes, or incentive programs could impact the feasibility, profitability, or even the legality of the project. Hospitality Industry Risks The business operations of the Borrower involve the operations of a luxury hotel facility, including highend ancillary services. The profitability of such an enterprise is dependent upon the tourism market in the area, as well as the general economy and consumer spending patterns. Furthermore, the ultimate profitability of the project may be influenced by the South Florida real estate market, which may be volatile. These macroeconomic factors are outside of Management’s control.

RISKS RELATED TO MANAGEMENT Reliance on Management The General Partner has sole responsibility and authority for all decisions in connection with the management of and investments made by the Partnership. Limited Partners will have a limited right to participate in the management of the Partnership. The capital required by the Partnership to commence operations and carry on its business is being sought entirely from the proceeds of the Offering. The Partnership’s success is highly dependent on the experience and industry knowledge of the management team, which members have limited experience in the operation of a Project of this type or with the EB-5 program. The General Partner was only recently formed and has no operational history to date. The Partnership is dependent entirely on the efforts of the management team of the General Partner for strategic business direction. The principals of the General Partner have limited experience in managing a Project of this type, and as a result, their ability to be effective managers, or otherwise operate the business in a manner that maximizes profitability for the Partnership is questionable. None of the Investors will have the right to vote on or approve any of the investments or business decisions to be made by the Partnership. Prospective Investors who are unwilling to delegate sole discretion to the General Partner in this manner should not invest in the Partnership. Because the General Partner will have sole discretion in structuring the Partnership’s business model, the risk profile and exposure of this Partnership will ultimately be determined by the General Partner. The Partnership’s success depends on the General Partner’s ability to execute its business model and plan.

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The General Partner, and consequently the Partnership, is currently dependent on the continued service and active advisory efforts of the principals of the General Partner (see “Management Team”). If any of their services with the General Partner were to cease or lapse for any reason, the Partnership may be adversely affected if such services were not otherwise provided by Persons of equal or greater talent or experience. Potential Conflicts of Interest Certain conflicts of interest may arise from the fact that the Managers of the General Partner will continue to be involved in business pursuits which require their time, attention and energies and which may conflict with the business of the Partnership. The Managers of the General Partner may also act in management and advisory capacities for other entities. Therefore, conflicts of interest may arise in the allocation of their time to the management and administration of the Partnership and such other entities.

RISKS RELATED TO THIS OFFERING No Assurance of Liquidity; Restrictions on Transfer There is currently no market for the Units, and a market in the Units is not expected to develop in the future. The Units are not redeemable and cannot be assigned; transferred; pledged; encumbered or otherwise disposed of without the consent of the General Partner and in compliance with applicable provisions of the Partnership Agreement and applicable securities laws. As a result, purchasers must bear the economic risk of their investments for the life of the Partnership. A purchase of Units should be considered only by sophisticated and accredited Investors financially able to maintain their investment and who can afford to lose all or a substantial part of their investment. Transferability of the Units is restricted and Investors will not be able to liquidate their investment in the event of an emergency. Additionally, the Units may not be readily acceptable as collateral for loans (to the extent permitted by the Partnership Agreement). Accordingly, purchase of the Units must be considered a long-term, illiquid investment. Private Offering Exemption The Units are being offered in reliance upon a non-public offering exemption provided under the Act, Regulation D promulgated thereunder. The Partnership has used its best efforts to assure compliance with the requirements of these various registration and qualification exemptions. Since compliance with the securities statutes is highly technical and often difficult, there is no assurance that a court reviewing the facts and circumstances of the Offering might not determine later that one or more of the applicable exemption provisions was not properly complied with. Should it be determined that the Partnership failed to comply with the requirements of the Act or any applicable exemption and a sufficient number of Investors were to seek rescission, the Partnership could face financial demands which could adversely affect its ability to continue to conduct business which, in turn, could result in adverse consequences to both rescinding and non-rescinding Investors. Liability and Indemnification of the General Partner The General Partner is in a fiduciary relationship with the Limited Partners of the Partnership. As such, the General Partner is required to exercise good faith and integrity in their conduct of the Partnership’s affairs. However, their responsibility is limited by provisions of the Subscription Agreement and Partnership Agreement which exculpate the General Partner and their affiliates from liability to the Partnership where the General Partner act (or fail to act) not in violation of the Subscription Agreement and Partnership Agreement and without gross negligence, fraud or willful violation of law. As a result, a Limited Partner may have a more limited right of action than it would have had in the absence of such provisions. The Subscription Agreement and Partnership Agreement also provides that the Partnership will indemnify the General Partner and their respective affiliates from any liability or loss suffered by virtue of the General Partner acting in such capacity, except in the case of violation of the Subscription Agreement and Partnership Agreement or of gross negligence, fraud or willful violation of law.

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Projections; Forward Looking Information Management has prepared projections regarding Palm House Hotel, LLLP’s anticipated financial performance. The Partnership’s projections are hypothetical. Financial projections concerning the estimated operating results of the Partnership have been prepared by the Partnership’s management. These projections may be based on certain assumptions which may prove to be inaccurate and which are subject to future conditions that may be beyond the control of the Partnership, such as the general industry conditions. The Partnership may experience unanticipated costs or lower revenues than forecasted. There is no assurance that the results which may be illustrated in financial projections would in fact be realized by the Partnership. The financial projections have been prepared by management of the Partnership in consultation with experts in the field and the Partnership’s independent certified public accountants. However, since the financial projections are based upon numerous assumptions, which may or may not prove to be true, neither the independent experts or the independent certified public accountants or counsel to the Partnership can provide any level of assurance with respect to them. Many of these risks are described elsewhere herein. For all of the foregoing reasons, actual results may vary materially from the Forward Looking Statements and there is no assurance that the assumptions used are necessarily the most likely. Additionally, when used in this memorandum, the words “believes,” “anticipates,” “intends,” “expects,” “plans,” as well as similar words are intended to identify forward-looking statements. All such statements are based on the Partnership’s expectations and are subject to a number of risks and uncertainties, many of which are beyond the Partnership’s control. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained herein will in fact occur. The Partnership does not undertake any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Risks Due to Failure to Raise Adequate Capital Management intends to close this Offering with the requisite number of investors to achieve the full offering amount. However, this can not be guaranteed. A failure to secure full funding could endanger the success of the Project. Failure of the Partnership to raise the full offering amount could negatively impact the Project Company’s ability to finance and develop the Project. If the Partnership fails to raise the full offering amount and is therefore unable to loan such amount to the Project Developer, to secure the balance of any funds required for the Project, the Project Developer will be required to seek a larger than expected amount from alternative capital sources, including institutional investors and non EB-5 investors, among others. Furthermore, it is possible that the Project Developer will fail to raise the additional capital, or that, even if the Partnership succeeds in raising the full offering amount and loans such amount to the Project Developer, such proceeds, plus any additional capital raised, will be inadequate to satisfy all capital requirements, or that such financing may be untimely procured, requiring the Project Developer to obtain alternative financing, including short- and long-term debt financing, or equity financing, in addition to the Partnership’s loan to the Project Developer. The terms of such alternative financing may be better or worse for the Project Developer than the terms of the loan from the Partnership, and may result in subsequent investors in the Project Developer having superior rights to those of the Partnership.

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Summary of Loan Terms Purpose. Prior to the closing of the first Unit offered hereunder, the Partnership will enter into a Loan Agreement (the "Loan") with Borrower. The proceeds of the Loan will be used to partially finance the acquisition, development and operation by Borrower of the Project. Amount. The Loan amount will be up to $39,500,000, depending upon the number of Units sold in this Offering. Whether or not the maximum Loan amount is advanced, the Borrower may seek alternative and additional financing. Term; Repayment. The balance of all Advances and all accrued unpaid interest on the Loan shall be repaid as follows. Upon and after the First Advance hereunder, Borrower shall make payments of interest only on the outstanding principal balance of all Advances at the rate per annum of 0.25% until expiration of 5 years from the First Advance (the "Initial Term"). Upon the expiration of the Initial Term, the outstanding principal balance of all Advances and all accrued interest then outstanding shall be due. Borrower shall make commercially reasonable efforts to repay the outstanding principal balance of all Advances and all accrued unpaid interest thereon after the expiration of the Initial Term. If Borrower cannot refinance such amounts on commercially reasonable terms prior to the end of the Initial Term, Borrower may extend the term of this Note for one or more additional five year periods (each an "Extension Period"), provided Borrower is not in default. During each Extension Period (a) the interest rate shall remain at 0.25%, and (b) Borrower shall make principal and interest payments on the outstanding principal balance of all Advances and all accrued unpaid interest thereon then outstanding, calculated by amortizing the outstanding balance thereof over 15 years at the rate of interest set forth below. Interest shall be computed on the basis of a 365 day year and actual days elapsed. Upon default or after judgment has been rendered on this Note, the unpaid principal of all Advances shall bear interest at a rate which is two (2%) percent per annum greater than that which would otherwise be applicable. The Borrower may not, without the Partnership's prior express written consent, prepay the Note prior to the expiration of five years from the First Advance. Thereafter, Borrower may prepay this Note, in whole or in part, at any time, without penalty or premium, and without prior written consent of the Partnership. Disbursement. Disbursements of Loan proceeds will be made to Borrower from time to time upon approval of Investor I-526 Petitions and in accordance with the Escrow Agreement. It shall be a condition of each advance that as of such time there shall not have been a material adverse change in the operations, assets or financial condition of the Borrower and its subsidiaries, taken as a whole. Promissory Note and Loan Collateral. The Borrower will issue a Promissory Note with full recourse to the Borrower. The Loan may be secured by a lien on collateral of Borrower. Senior Debt. Borrower may incur other debt and in connection therewith, grant security interests senior to those granted to the Partnership under the Loan Agreement. Loan Documents. The Partnership has issued a Commitment Letter to Borrower, a copy of which is available upon request. The Promissory Note and Loan and Security Agreement to be executed by each Borrower are available for review upon request.

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Summary of Limited Partnership Agreement The rights and obligations of the Partners of the Partnership will be governed by the Limited Partnership Agreement ("LP Agreement"), attached to this Offering Memorandum. It is recommended that each prospective investor read the entire LP Agreement. The following is a brief summary of some of the provisions of the LP Agreement. The summary below and all statements made elsewhere in this Offering Memorandum relating to the LP Agreement are qualified in their entirety by reference to the LP Agreement.

PURPOSES (ARTICLE 1, LP AGREEMENT) The purposes of the Partnership shall be to engage in any lawful acts or activities for which limited liability companies may be formed under the Act, including for the purpose of investing in Qualifying Investments under the EB-5 Pilot Program.

CAPITAL CONTRIBUTIONS (ARTICLE 2, LP AGREEMENT) Each Limited Partner's capital contribution must be paid at the time such Limited Partner subscribes to purchase Units in this Offering and shall be paid in USD cash. Each Investor's Capital Contribution will be credited to his/her Capital Account. Terms governing the maintenance of Capital Accounts are set forth in the LP Agreement. An EB-5 Limited Partner shall be conditionally accepted to the Partnership upon receipt by the Partnership of his/her Capital Contribution and the Administrative Fee. The Capital Contribution shall be released from escrow and delivered to the Partnership upon the USCIS approval of the I-526 Petition for such conditionally accepted EB-5 Limited Partner, in accordance with the Escrow Agreement. Upon release of the Capital Contribution to the Partnership, an EB-5 Limited Partner shall be admitted to the Partnership.

ALLOCATION OF PROFITS AND LOSSES (ARTICLE 3, LP AGREEMENT) Profits and Losses for each fiscal year shall be allocated as follows: (a) first, to the Partners in accordance with their Adjusted Capital Contributions, payable in proportion to the unpaid amounts thereof; and (b) the balance, to the Partners in accordance with the Percentage Interests.

DISTRIBUTIONS (ARTICLE 3, LP AGREEMENT) Available Cash Flow, if any, shall be distributed annually as follows: (a) to Partners in payment of Mandatory Distributions (See Section 3.6 of the LP Agreement); (b) then to EB-5 Limited Partners pro rata in accordance with each EB-5 Limited Partner's Adjusted Capital Contribution in an amount up to each EB-5 Limited Partner's Preferred Return, less amounts due to the Partnership; (c) then to EB-5 Limited Partners pro rata in accordance with each EB-5 Limited Partner's Adjusted Capital Contribution in an amount up to each EB-5 Limited Partner's Adjusted Capital Contribution; (d) then to Partners pro rata in accordance with each Partner's Adjusted Capital Contribution in an amount up to each Partner's Adjusted Capital Contribution; and (e) then to Partners in accordance with their Percentage Interests in the Partnership. The rules and regulations governing the Pilot Program prohibit the return of an EB-5 investor's investment prior to the approval of the Investor’s I-829. Accordingly, the Partnership shall not make distributions to EB-5 Limited Partners, other than distributions from Available Cash Flow in amounts not exceeding their

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respective EB-5 Minimum Capital Requirement prior to that time. After such date the foregoing restriction shall no longer apply.

MANAGEMENT (ARTICLE 4, LP AGREEMENT) the Partnership operates under the direction of a General Partner. The General Partner has full and complete authority, power and discretion to manage and control the business and affairs, including the management and operation of the Partnership, to make all decisions regarding the business and affairs of the Partnership, in its sole discretion, and to perform any and all other acts incident to or customary for the business. Limited Partners have limited rights to take part in the management of, or to bind, the Partnership.

TAX WITHHOLDING (ARTICLE 4, LP AGREEMENT) The General Partner is authorized to withhold any sums required by the Internal Revenue Code even if such withholding conflicts with any of the terms and conditions of this Agreement or otherwise affects distributions, allocations or payments to the Partners. In the event that the General Partner learns of a withholding obligation subsequent to the distribution to which the withholding obligation relates, the General Partner will issue an invoice to the Partner. If the invoice is not paid within sixty (60) days, the General Partner will charge the amount against the Partner's Capital Account.

INDEMNIFICATION (ARTICLE 5, LP AGREEMENT) The Partnership may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, including all appeals (other than an action, suit or proceeding by or in the right of the Partnership) by reason of the fact that he is or was a partner, officer or employee of the Partnership, or is or was serving at the request of the Partnership as a Partner, trustee, officer or employee of another company, partnership, joint venture, trust or other enterprise, against expenses, judgments, decrees, fines, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Partnership and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Expenses of each person indemnified may be paid by the Partnership in advance of the final disposition of such action, suit or proceeding as authorized by the General Partner upon receipt of an undertaking to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Partnership.

VOTING (ARTICLE 7, LP AGREEMENT) On any matter presented to the Partners for their vote, each Limited Partner shall have one vote for each Unit owned by him. The following actions shall require the approval of Limited Partners holding a majority of the then outstanding Units: (i) any modification to this LP Agreement materially changing the rights of the Limited Partners; and (ii) dissolution of the Partnership prior to the end of the fifth year after admission of the last EB-5 Limited Partner.

TRANSFER RESTRICTIONS (ARTICLE 8, LP AGREEMENT). No EB-5 Limited Partner may voluntarily transfer any interest or rights in his/her Units without consent of the General Partner. Additional restrictions on transfer of Units are described in the LP Agreement. No Limited Partner shall have the right or power to Voluntarily Withdraw from the Partnership. If any Partner intends to transfer his or her Units or any part thereof to any person or entity, after obtaining required

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approval, such Partner shall give written notice to the Partnership of his intention so to transfer. Thereupon, the Partnership, then the General Partners, then the Limited Partners shall have an option to purchase such Units at Fair Market Value (as defined in the LP Agreement).

TERMINATION OF INTEREST (ARTICLE 9, LP AGREEMENT) The Partnership Interest of each EB-5 Limited Partner shall be terminated by (a) dissolution of the Partnership as provided in the LP Agreement and distribution of the proceeds of liquidation to EB-5 Limited Partners in accordance herewith; (b) the Agreement of an EB-5 Limited Partner, or his/her personal representative, and the General Partner; (c) the return of the Capital Contributions and payment of all accrued Preferred Returns to such EB-5 Limited Partner.

DISSOLUTION AND TERMINATION (ARTICLE 10, LP AGREEMENT). The Partnership shall be terminated and dissolved upon the first to occur of the following: If the Partnership then has any EB-5 Partners (a) upon vote of a Majority-In-Interest of the Partners; or (b) upon the sale of all or substantially all the assets of the Partnership; and if there are then no EB-5 Partners of the Partnership (a) upon vote of the General Partner, or (b) upon sale of all or substantially all of the assets of the Partnership.

INCOME TAX CONSIDERATIONS Each Investor is responsible for obtaining his or her own tax advice with respect to the federal, state and local income and other possible tax consequences of his/her investment in the Partnership, and no tax advice will be provided hereunder or at any time in the future. However, as a general rule, a resident alien of the United States will be taxed on all of his or her worldwide income and will be required to file a United States income tax return. In addition, if an alien is not a resident of the United States but has United States source income he or she generally will be subject to taxation in the United States on such income, and such income may be subject to withholding and/or reporting on a United States income tax return. All Investors in this Offering should seek professional tax advice prior to investing in this Offering.

SUBSCRIPTION PROCEDURE AND PLAN OF DISTRIBUTION

SUBSCRIPTION PROCEDURE To subscribe to purchase Units in this Offering, a subscriber must transmit the following to the Partnership prior to the termination of this Offering, as follows: 1. Subscriptions Funds for Units ($500,000 per Unit subscribed for) shall be paid by a wire transfer to the Partnership Escrow Account established by each subscriber of Units with the Partnership according to the wire instructions provided by the Partnership. 2. Administrative Fees ($40,000 per Investor) shall be paid by wire transfer to the Partnership according to the wire instructions provided by the Partnership. 3. Executed counterpart signature page to the Partnership EB-5 Escrow Agreement (attached hereto); 4.

Executed counterpart signature page to the LP Agreement (attached hereto);

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5.

Executed complete Subscription Agreement (attached hereto);

6.

Executed and complete Investor Questionnaire.

The subscription period will begin on the date of this Offering Memorandum and will continue until the Offering is sold or the Offering is terminated by the Partnership. All subscription proceeds received from subscribers for Units shall be deposited in the Partnership Escrow Account established for subscription funds pending filing of subscriber I-526 Petitions. Upon notice of approval of each subscriber's I-526 Petition, his/her subscription funds will be transferred to the Partnership and advanced to Borrower as part of the Loan. A subscriber of Units shall have no right to revoke or withdraw his/her subscription after filing of his/her I-526 Petition. If a subscriber's I-526 Petition is denied by USCIS for reasons within the control of the Partnership, then subscriber's subscription proceeds shall be returned to subscriber without interest or deduction. If a subscriber's I-526 Petition is denied by USCIS for reasons beyond the control of the Partnership or due to subscriber providing false or misleading information to USCIS or the Partnership, then subscriber's subscription proceeds shall not be returned to subscriber but shall remain committed to the Project in accordance with this Offering. In such case, subscriber will be admitted as a Limited Partner of the Partnership and will be issued Units subject to the terms of the LP Agreement as if his/her I-526 Petition was approved. All interest accrued on funds deposited in the Partnership Escrow Account belong to the Partnership.

PLAN OF DISTRIBUTION The Units will be offered to prospective investors by the Partnership, and/or its duly authorized agents. Fees and commissions of such agents may be paid by the Partnership from Administrative Fees. Prospective investors are limited to qualified non-U.S. citizens seeking permanent residence in the United States through the EB-5 Program who are Accredited Investors (as defined in the Act). The Units are offered subject to the Partnership's rights to withdraw the Offering at any time without notice and/or to reject any subscription. This Offering may be terminated if events have occurred, which in the General Partner's sole judgment, make it impracticable or inadvisable to proceed with, continue or consummate the Offering described herein. There is no assurance that all or any of the Units will be sold. If the Offering is terminated the Partnership Escrow Agreement provides for the prompt return to the investors of their subscription funds, without interest. Administrative Fees are not refundable for any reason.

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Availability of Additional Information EACH PROSPECTIVE INVESTOR WILL BE GIVEN AN OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM MANAGEMENT OF THE PARTNERSHIP CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING AND TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT THE PARTNERSHIP POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORTS OR EXPENSE, NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED IN THIS MEMORANDUM. IF YOU HAVE ANY QUESTIONS WHATSOEVER REGARDING THIS OFFERING, OR DESIRE ANY ADDITIONAL INFORMATION OR DOCUMENTS TO VERIFY OR SUPPLEMENT THE INFORMATION CONTAINED IN THIS MEMORANDUM, PLEASE WRITE OR CALL THE PARTNERSHIP.

Palm House Hotel, LLLP 197 S. Federal Highway, Suite 200 Boca Raton, FL 33432 Telephone: (561) 282-6102

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SECTION II

Business Plan Summary !


Strictly Confidential

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EXECUTIVE SUMMARY

THE PROJECT OVERVIEW The Borrower, Palm House, LLC, intends to secure a Loan from the Limited Partnership, using such funding to serve as Developer for the job-creating enterprise known as the Hotel Project. To that end, the Limited Partnership is soliciting investors under the EB-5 Immigrant Investor Program (EB-5 Program), which grants lawful conditional and permanent resident status in the United States to foreign investors who make qualifying investments (Qualifying Investments) under the provisions of 8 U.S.C. 1153 (b) (5) (A) (i)-(iii), (C) (the “Act”). In order to take advantage of the EB-5 Program, foreign investors must invest in the Limited Partnership and complete the required immigration procedures. All Qualifying Investments must be invested in projects structured to create at least 10 full time direct jobs for qualified U.S. workers, as set forth in the EB-5 Program.

" PROJECT SUMMARY The Project developer seeks financing to operate a business involving the renovation and development of a high-end resort hotel. The Project developer will focus on extensively renovating and refurbishing an existing hotel structure on the island of Palm Beach in South Florida. The hotel will be remodeled as a 79-room, high-end resort hotel offering ancillary services (such as food and beverage, spa, salon, membership club, etc.). Of course, the EB-5 program’s primary focus is job creation. Palm House Hotel, LLLP is excited to be an important factor in investing in the creation of new jobs. The project described herein will provide a beneficial impact to the community, provide jobs, and provide a boost to the local and national economies.

" EMPLOYMENT The economic analysis conducted, using the latest USCIS-approved complex software programs and diagnostic models available (RIMS II), justifies the feasibility of the project by proving the economic benefits of the Hotel Project to all areas of the local economy and confirms that the Hotel Project not only meets but exceeds the United States employment generation requirements of the USCIS:"

Activity"

Table&A.&&Summary&of&Employment&and&Revenue&Estimates& Expenditure/Revenues" Final"Demand" ($"million)" Multiplier"

" " Hard"Construction"Costs" Soft"Costs" Purchases"of"FF&E"*" Hotel"Operations" Membership"Fees"*"

Total"" Jobs""

"

32.297" " 6.188" 2.5" 14.36" 2.0"

17.5636" " 16.315" 7.9957" 17.5069" 7.046"

567.2" 101.0" 20.0" 251.4" 14.1"

" Total&&

"

"

953.7&

*"Indirect"and"Induced"effects"only"

" "

75.413& " & " "

!

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The econometric analysis quantifying the Hotel Project benefits to the state and local economy is a project specific analysis validating the Hotel Project opportunity and is included with the business plan.

FINANCES

Number&of&rooms& Available&roomHnights& Occupancy&rate& Occupied&roomHnights& Average&Daily&Rate& RevPAR& Room&Revenue& & Ancillary&Revenue&(F&B,&etc.)& & Total&Revenue& & Total&Expenses& & EBITDA&

79& "28,835"" 61.0%" "17,589"" $522.50"" $318.73"" $9,190,435&& " $5,169,620"" " $14,360,055&& " $8,497,550" " $5,862,505&&

The above summation of the projected Year 2 (stabilized) income and expenses of the Hotel Project indicates that the Developer is well managed in the proper uses of cash flow to grow the concern through the judicious monitoring of variable and fixed costs resulting in profitability within a short time frame, allowing the Hotel Project to provide the projected return on investment to the investor/limited partner. Please see the full Business Plan and its attachments for the 5 year Pro Forma detail supporting the projections. The foreign investor can have confidence that the Hotel Project will create the necessary number of jobs and economic benefits to assure the foreign investor that their application for residence status is and will continue in good standing. The Hotel Project has the expertise and experience of Palm House, LLC’s management to further validate the high level of confidence that the goals and projections will be realized (please see the profiles in the Management section of the business plan).

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! ! ! ! ! ! ! ! !

!"#"$%&'()*$+%*,-"(' ).*%%#%+$'

! " # " $ % & '' ( ) * $ + % * , " (' '


LIMITED PARTNERSHIP AGREEMENT

LIMITED PARTNERSHIP AGREEMENT OF PALM HOUSE HOTEL, LLLP a Florida Limited Liability Limited Partnership County of Palm Beach Dated 11/30/2012 Palm House Hotel, LLLP 197 S. Federal Highway, Suite 200 Boca Raton, FL 33432 Telephone: (561) 282-6102 11/30/2012

LIMITED PARTNERSHIP AGREEMENT Palm House Hotel, LLLP

1


PALM HOUSE HOTEL, LLLP LIMITED PARTNERSHIP AGREEMENT This Limited Partnership Agreement ("Agreement") is entered into and effective on 11/30/2012 by and between the undersigned listed as partners on Schedule A hereto (hereafter, the "General Partner", "Limited Partners", or collectively, the "Partners"), as amended from time to time; WHEREAS, the Partners have caused a Certificate of Limited Partnership to be filed with the Florida Secretary of State forming a limited partnership under the name "Palm House Hotel, LLLP" (the "Partnership"); WHEREAS, the Partnership is formed for the purpose of investing in Qualifying Investments under the EB-5 Pilot Program; and WHEREAS, the parties hereto desire to set forth certain understandings and agreements among them with respect to the affairs of the Partnership and the conduct of its business; NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, the parties hereby agree as follows: DEFINITIONS Capitalized terms used in this Agreement shall have the meaning set forth below. Other terms defined throughout this Agreement shall have the meanings respectively ascribed to them. "Offering" means that certain private offering of Units of limited partnership interest in the Partnership described in the Partnership's Private Offering Memorandum dated 11/30/2012. "Project" means development and operation by Palm House, LLC, a Delaware limited liability company, of the Hotel Project described in the accompanying Business Plan. "Adjusted Capital Contribution" means, with respect to each Partner, the aggregate capital contributed to the Partnership by such Partner reduced, from time to time, (i) by any return of a Capital Contribution made pursuant to this Agreement, and (ii) by the aggregate distributions of Net Proceeds from a Capital Event made to such Partner pursuant to this Agreement. "Affiliate" means, with respect to any Partner, any Person: (i) which owns more than 50% of the voting interests in the Member; or (ii) in which the Partner owns more than 50% of the voting interests; or (iii) in which more than 50% of the voting interests are owned by a Person who has a relationship with the Partner described in clause (i) or (ii) above, or (iv) who otherwise controls, is controlled by, or under common control with, another Person. "Agent" means any officer, director, employee, trustee, partner, agent or representative of a Partner acting for or on behalf of such Partner or the Partnership. "Available Cash Flow" means funds provided from operation of the Partnership, without deductions for depreciation, but after deducting funds used to pay all expenses and debts of the Partnership, including administrative operational expenses, debt payments, capital improvements, and less the amount set aside by the General Partner, in the exercise of its sole discretion, for reserves. "Bankruptcy" means, with respect to any Partner: (i) an assignment for the benefit of creditors; (ii) a voluntary petition in bankruptcy; (iii) adjudication as bankrupt or insolvent; (iv) the filing of a petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation or similar relief under any statute, regulation or law; (v) the filing of an answer or other pleading admitting or failing to contest the material allegations of a petition filed against 11/30/2012

LIMITED PARTNERSHIP AGREEMENT Palm House Hotel, LLLP

2


the Partner in any proceeding of this nature; (vi) seeking, consenting to, or acquiescing in the appointment of a trustee, receiver, or liquidator of such Partner's properties or of all or any substantial part of the Partner's properties; or (vii) any proceeding against the Partner seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation, that continues for one hundred twenty (120) days after the commencement thereof, or the appointment of a trustee, receiver, or liquidator for the Partner or all or any substantial part of the Partner's properties without the Partner's agreement or acquiescence, which appointment is not vacated or stayed for one hundred twenty (120) days or, if the appointment is stayed, for one hundred twenty (120) days after the expiration of the stay during which period the appointment is not vacated. "Capital Contribution" means the total amount of cash and the fair market value of any other assets contributed (or deemed contributed under Regulation Section 1.704-1(b)(2)(iv)(d)) to the Partnership by a Partner, net of liabilities assumed or to which the assets are subject. "Capital Event" means the refinance, sale, exchange or other disposition of Partnership Property or any portion thereof. "Code" means the Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law or any corresponding provision, and all applicable Treasury Regulations. "Deficit Capital Account" means the situation whereby the Partnership has made distributions to a Partner in excess of such Partner's Capital Account. "EB-5 Limited Partners" means Limited Partners admitted to the Partnership as a result of Capital Contributions made into a Qualifying Investment, including the Offering (defined herein), under the EB-5 Pilot Program. "EB-5 Minimum Capital Requirement" means the minimum capital investment required of EB5 investors by USCIS to be at-risk under the EB-5 Pilot Program. The EB-5 Minimum Capital Requirement for the Project is $500,000. "EB-5 Pilot Program" means the program adopted by the U.S. Congress creating the EB-5 Regional Center Pilot Program. "Economic Interest" means a Person's share of the Profits and Losses of, and the right to receive distributions from, the Partnership. "General Partner" means South Atlantic Regional Center, LLC. "Incapacity" means (i) the entry of a judgment by a court of competent jurisdiction to the effect that a Partner who is an individual is incompetent to manage such Partner's affairs, or the appointment of a guardian ad litem by a court of competent jurisdiction to manage such Partner's affairs; or (ii) the incapacity of a Partner who is an individual to perform his or her duties as a Partner as determined by (a) the vote of at least a majority of the Units not held by such Partner, and if such Partner is not in agreement with such determination, the certification of a physician selected by mutual agreement between such Partner and the holders of at least a majority of the Units not held by such Partner, or (b) the certification of a physician selected by the Partner and, if the holders of at least a majority of the Units not held by the Partner are not in agreement with such certification, the certification of a physician selected by mutual agreement between the Partner and the holders of at least a majority of the Units not held by such Partner.

11/30/2012

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"Interest Holder" means any Person who holds an Economic Interest, whether as a Partner or an un-admitted assignee of a Partner. "Involuntary Withdrawal" means, with respect to any Partner, the occurrence of any of the following events: (i) the Bankruptcy of a Partner; (ii) if the Partner is an individual, the Partner's death or Incapacity; (iii) if the Partner is acting as a Partner by virtue of being a trustee of a trust, the termination of the trust; (iv) if the Partner is a partnership or limited liability company, the dissolution and commencement of winding up of the partnership or limited liability company; (v) if the Partner is a corporation, the dissolution of the corporation or the revocation of its charter; or (vi) if the Partner is an estate, the distribution by the fiduciary of the estate's entire interest in the Partnership. "Limited Partner" means each Person who is admitted as a Limited Partner of the Partnership. "Majority-In-Interest" means Partners holding a majority of all Partners' or Interest Holders', as the case may be, Economic Interests in the Partnership. "Net Proceeds from a Capital Event" means the net proceeds derived by the Partnership from a Capital Event after payment or allowance for the expenses incurred in connection with such Capital Event and after payment or allowance for existing indebtedness (but not including any outstanding Secured Debt), the discharge of any other expenses or liabilities of the Partnership and the establishment of appropriate reserves, all as determined by the Managing General Partner, in its sole discretion. "Partner" or "Partners" means each Person who has signed this Agreement and any Person who subsequently is admitted as a Partner of the Partnership. "Partnership Interest" means all of the rights of a Partner in the Partnership, including a Partner's: (i) Economic Interest; and (ii) right to participate in the management of the Partnership as provided in this Agreement. "Percentage" or "Percentage Interest" means, as to a Partner, the percentage set forth after the Partner's name on Schedule A, as amended from time to time, and as to an Interest Holder who is not a Partner, the Percentage of the Partner whose Economic Interest has been acquired by such Interest Holder, to the extent the Interest Holder has succeeded to that Partner's Economic Interest. "Person" means and includes an individual, corporation, partnership, association, limited liability company, trust, estate, or other entity. "Preferred Return" means the cumulative annual preferred distribution of Profits to EB-5 Limited Partners in an amount equal to 0.25% of each EB-5 Limited Partner's initial Capital Contribution. If Available Cash Flow is insufficient to pay all amounts due as Preferred Return hereunder at the end of any year, the unpaid balance thereof shall continue to accrue until the end of the next year, and from year to year until there is Available Cash Flow sufficient for payment in full of the Preferred Return. The ability of the Partnership to pay the Preferred Return is reliant upon the performance of the Partnership’s investments and is therefore not guaranteed. "Profits" and "Losses" mean, for each fiscal year, an amount equal to the Partnership's taxable income or loss for such year, determined in accordance with Code Section 703(a) (including all items required to be stated separately) with the following adjustments: (a) Any income exempt from federal income tax shall be included; and (b) Any expenditures of the Partnership described

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in Code Section 705(a)(2)(B) (including expenditures treated as such pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(i)) shall be subtracted. "Property" or the "Partnership Property" means all real and personal property of the Partnership. "Qualifying Investment" means an investment that will generate full-time employment positions, either directly or indirectly, for not fewer than ten U.S. workers per EB-5 Limited Partner whose Capital Contributions have been so applied. "Regional Center" means South Atlantic Regional Center, a Florida limited liability company of 197 S. Federal Highway, Suite 200, Boca Raton, FL 33432. The Regional Center is an entity that has been approved by the USCIS as a designated regional center under the EB-5 Pilot Program, and is the sponsor of the Project. "Regulations" or "Treas. Reg." means the income tax regulations promulgated under the Code as amended from time to time (including corresponding provisions of succeeding regulations). "Transfer" means — when used as a noun — any sale, hypothecation, pledge, assignment, gift, bequest, attachment, or other transfer, including transfers by operation of law, and — when used as a verb — means to sell, hypothecate, pledge, assign, give, bequeath, or otherwise transfer. "Units" means limited partnership units representing each Partner's undivided interest in the capital of the Partnership. "USCIS" means the United States Citizenship and Immigration Services. "Voluntary Withdrawal" means a Partner's disassociation with the Partnership by means other than a Transfer or an Involuntary Withdrawal. ARTICLE 1 FORMATION OF THE PARTNERSHIP 1.1 Formation of Limited Partnership. The Partners have organized the Partnership pursuant to the provisions of the Florida Limited Partnership Act, as amended from time to time (the "Act"), under the name "Palm House Hotel, LLLP", intending the Partnership to be a limited partnership under the Act. Except as otherwise provided herein, all rights, liabilities and obligations of the Partners shall be as provided in the Act. 1.2 Principal Place of Business and Agent for Service. The principal place of business of the Partnership shall be 197 S. Federal Highway, Suite 200, Boca Raton, FL 33432, or at such other place in the State of Florida as may be designated by the General Partner. The Agent for Service of Process of the Partnership in the State of Florida is Joseph J. Walsh until otherwise determined by the General Partner. 1.3 Purposes. The purposes of the Partnership shall be to engage in any lawful acts or activities for which limited liability companies may be formed under the Act. Without limiting the foregoing, the Partnership was for formed for the purpose of investing in Qualifying Investments under the EB-5 Pilot Program.

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1.4 Duration of the Partnership. The Partnership shall commence on the date on which its Certificate of Limited Partnership was accepted and filed by the Florida Secretary of State, and shall continue in perpetuity until dissolved in accordance with this Agreement. ARTICLE 2 CAPITALIZATION 2.1

Units; Initial Capital Contributions.

2.1.1 Each Partner's undivided interest in the capital of the Partnership shall be represented by Units. Each Limited Partnership Unit shall represent an interest in the capital of the Partnership and shall be identical in all respects to every other Limited Partnership Unit. Notwithstanding the foregoing, only EB-5 Limited Partners shall be entitled to Preferred Returns. Each General Partnership Unit shall represent an interest in the capital of the Partnership and shall be identical in all respects to every other General Partnership Unit. General Partnership Units and Limited Partnership Units shall have the relative rights and preferences accorded General Partners and Limited Partners set forth in this Agreement and the Act. 2.1.2 The Partnership shall be capitalized by each Partner contributing his or her Capital Contribution set forth on Schedule A attached hereto, with such Partner receiving, in exchange therefor, the Units set forth therein. The Capital Contribution of EB-5 Limited Partners shall be placed in escrow in accordance with that certain escrow agreement signed by EB-5 Limited Partners simultaneously herewith ("Escrow Agreement"). 2.1.3 Together with his/her Capital Contribution, each EB-5 Limited Partner shall also concurrently make a Forty Thousand Dollar (US $40,000.00) payment to the Partnership as an administrative fee (the "Administrative Fee") to pay the costs and expenses incurred in connection with the organization of the Partnership, negotiation of the Loan, and placement of the Units. The Administrative Fee shall not be considered a Capital Contribution to the Partnership. 2.1.4 An EB-5 Limited Partner shall be conditionally accepted to the Partnership upon receipt by the Partnership of his/her Capital Contribution and the Administrative Fee. The Capital Contribution shall be released from escrow and delivered to the Partnership upon the USCIS approval of the Form I-526 petition for such conditionally accepted EB-5 Limited Partner, in accordance with the Escrow Agreement. Upon release of the Capital Contribution to the Partnership, an EB-5 Limited Partner shall be admitted to the Partnership. 2.1.5 A Partner shall not have the right to demand or receive the return of such Partner's Capital Contribution except as otherwise expressly provided herein. The Partners shall have no obligation to make additional Capital Contributions. The Partners may make an additional Capital Contribution to the Partnership upon consent of the General Partner. No interest shall be paid on Capital Contributions. 2.1.6 Interest will be charged by the Partnership to a Partner on the sum of any deemed distributions charged to such Partner's Capital Account from obligations to the Partnership

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arising under Section 4.8 concerning federal income tax withholding. The interest charged will be computed on a calendar year compounded basis at a rate equal to two percent above the prime rate of interest from time to time announced by Bank of America, or its successors, to be its "prime rate," such interest to be collected by reduction of any distributions payable to the Partner immediately following the calculation of the year's interest by the General Partner. To the extent that there are no distributions against which the interest can be applied, then the interest will be charged to the Partner's Capital Account. This Section 2.1.4 will survive the termination of a Partner’s status as a Partner. 2.1.7 No Partner shall have any right to withdraw or make a demand for the withdrawal of any of such Partner's Capital Contribution (or the capital interest reflected in such Partner's Capital Account) until the full and complete winding up and liquidation of the Partnership. No Partner shall have the right to demand Partnership Property. 2.1.8 Loans or advances by any Partner to the Partnership can only be made after and in addition to a Partner's initial Capital Contribution. Loans or advances by any Partner to the Partnership shall not be considered additional Capital Contributions and shall not increase the Capital Account of the lending or advancing Partner. No Partner shall be required to lend any cash or property to the Partnership. 2.2

Capital Accounts.

2.2.1 The Partnership shall establish and maintain Capital Accounts ("Capital Accounts") for each Partner in accordance with the Code, applicable Regulations, and the provisions hereof. Except as required by the Code, the Capital Account of each Partner shall consist of his Capital Contribution, as increased by any contribution of capital subsequent to his original Capital Contribution, and by such Partner's share of Partnership income and gain allocated after the date hereof to such Partner, and as decreased by the amount of all cash and the fair market value of all property and assets distributed to such Partner, the amount of all losses allocated after the date hereof to such Partner, and any amounts charged under Section 4.8 to such Partner. 2.2.2 The provisions of this Article 2 as they relate to the maintenance of Capital Accounts are intended, and shall be construed, and, if necessary, modified to cause the allocations of profits, losses, income, gain and credit to have substantial economic effect under the Regulations promulgated under the Code, in light of the distributions and the Capital Contributions made pursuant hereto. All allocations of items that cannot have economic effect (including credits and nonrecourse deductions) shall be allocated to the Partners in accordance with their respective Percentage Interests. Notwithstanding anything herein to the contrary, this Agreement shall not be construed as creating a deficit restoration obligation. 2.2.3 The Capital Account of a transferring Partner shall become the Capital Account of the transferee to the extent it relates to the Units transferred.

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ARTICLE 3 ALLOCATIONS AND DISTRIBUTIONS 3.1 Allocation of Profits and Losses. Profits and Losses for each fiscal year shall be allocated among Partners in the following order and priority: (a) First, to Partners in accordance with their Adjusted Capital Contributions, payable in proportion to the unpaid amounts thereof; and (b) The balance, to Partners in accordance with their respective Percentage Interests. To the extent the allocations of profits and losses otherwise provided under this Agreement are not made in accordance with a Member's Interest in the Company within the meaning of Code Section 704, the allocations shall be made to the appropriate Members in the necessary and required amounts in order to comply with Code Section 704(b). The General Partner shall be authorized to make appropriate amendments to the allocations of items pursuant to this Section 3.1 if necessary, in the discretion of the General Partner, in order to comply with Code Section 704 or applicable Regulations thereunder; provided that no such change shall have a material adverse effect upon the amount distributable to any Member hereunder. In the event Members are admitted to the Company pursuant to this Agreement on different dates, the Company Profits (or Company Losses) allocated to the Members for each Fiscal Year during which Members are so admitted shall be allocated among the Members in proportion to their Percentage Interests during such Fiscal Year in accordance with Section 706 of the Code, using any convention permitted by law and selected by the Manager. 3.2 Limitation on Allocation of Losses. Notwithstanding the foregoing, the Losses allocated pursuant hereto shall not exceed the maximum amount of Losses that can be so allocated without causing any Partner to have a Deficit Capital Account at the end of any fiscal year. In the event some but not all of the Partners would have a Deficit Capital Account as a consequence of an allocation of Losses pursuant hereto, the limitation set forth in this Section 3.2 shall be applied on a Partner by Partner basis so as to allocate the maximum permissible Losses to each Partner under Regulation Section 1.704- 1(b)(2)(ii)(d). 3.3. Deficit Capital Accounts at Liquidation. Partners shall have no liability to the Partnership, to the Partners, or to the creditors of the Partnership on account of any deficit balance in their Capital Accounts upon liquidation of the Partnership, provided, however, that any Partner for whom any charges have been made to his Capital Account by reason of the obligations described in Section 4.8 is required to pay to the Partnership the amount of any negative balance in his Capital Account, but such payment shall not exceed the obligations under Section 4.8. This Section 3.3 will survive the termination of a Partner's status as a Partner. A Partner must also pay any attorneys' or accountants' fees actually and reasonably incurred by the Partnership or the General Partner in collecting amounts under this provision from any Partner. 3.4 Distributions. The General Partner shall determine the timing, amount, if any, and form (cash or property) of all distributions to Partners in its sole discretion and notwithstanding any other provision of this Agreement.

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3.4.1 Available Cash Flow. Subject to the limitations set forth in Section 3.5, Available Cash Flow shall be distributed on an annual basis, as follows: (a)

to Partners in amounts required by Section 3.6, Mandatory Distributions;

(b) then to EB-5 Limited Partners pro rata in accordance with each EB-5 Limited Partner's Adjusted Capital Contribution in an amount up to each EB-5 Limited Partner's accrued unpaid Preferred Return, less any amounts then due and owing by such EB-5 Limited Partner to the Partnership, including his/her Additional Administrative Fees; (c) then to EB-5 Limited Partners pro rata in accordance with each EB-5 Limited Partner's Adjusted Capital Contribution in an amount up to each EB-5 Limited Partner's Adjusted Capital Contribution; (d) then to Partners other than EB-5 Limited Partners pro rata in accordance with such Partners' Adjusted Capital Contribution in an amount up to each such Partner's Adjusted Capital Contribution; and (e) then to the General Partners in accordance with their respective Percentage Interests. 3.4.2 Net Proceeds from a Capital Event or from Dissolution. The Net Proceeds from a Capital Event and/or a distribution resulting from the dissolution of the Partnership shall be distributed in the same manner as Available Cash Flow, as set forth in 3.4.1 above. Net Proceeds from a Capital Event and/or a distribution from the dissolution of the Partnership shall be distributed to Partners within 120 days of such Capital Event or dissolution of the Partnership. 3.5 Limitation on Distributions. Notwithstanding any other provision of this Article 3, the Partnership shall not make a distribution: 3.5.1 To the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the Partnership, other than liabilities to Partners on account of their Partnership Interests, exceed the fair value of the assets of the Partnership. 3.5.2 To EB-5 Limited Partners to the extent that such distributions do not result in their Capital Accounts being less than the EB-5 Minimum Capital Requirement. After the approval of any individual EB-5 Limited Partner’s I-829 application by USCIS, the foregoing restriction shall no longer apply. 3.5.3 To the extent that such distribution is prohibited under the Act. 3.6 Mandatory Distributions. The Partnership shall make distributions from Available Cash Flow to Partners for the payment of taxes incurred by such Partner as a result of allocation of Profits to such Partner by the Partnership. The amount distributable with respect to any year shall be equal to the aggregate amount of U.S. Federal, state and local income taxes payable by the Partners with respect to the taxable income of the Partnership, assuming, for purposes of

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determining the amount of such distribution, that each Partner will be taxed on the net amount set forth in the Partner's respective K-1 at the highest marginal individual Federal income tax rate for such year, and at the highest marginal individual state and local income tax rates applicable to any Partner for each such taxable year. Such distributions shall be made within 90 days of the end of the Partnership's fiscal year or such other time or times as may be determined by the General Partner. 3.7 Record Date. All items of Partnership income, gain, loss and deduction shall be allocated, and all distributions shall be made, to the Persons shown on the records of the Partnership to have been Partners as of the last day of the taxable year for which the allocation or distribution is to be made. Notwithstanding the foregoing, if any Units in the Partnership shall be transferred during a taxable year, items of Partnership income, gain, loss and deduction for such period shall be allocated among the original Partners and the successor on the basis of the number of days each was a Partner during such period; provided, however, that if the Partnership has any extraordinary non-recurring items for the taxable year in which the transfer of Units occurs, such period shall be segregated into two or more segments in order to account for income, gain, loss, deductions or proceeds attributable to such extraordinary non-recurring items of the Partnership. ARTICLE 4 MANAGEMENT 4.1 The General Partner. The business and the affairs and all powers of the Partnership shall be exercised exclusively by the General Partner. The General Partner may resign at any time. In the event of resignation of the General Partner, the remaining Partners shall elect one or more new General Partners by the vote of a Majority-In-Interest of the remaining Partners. If the General Partner is an individual, upon the death or incapacity of the General Partner, the personal representative of the General Partner shall appoint a new General Partner. If the General Partner is a legal entity, upon the liquidation or termination of the General Partner the remaining Partners shall elect one or more new General Partners by the vote of a Majority-In-Interest of the remaining Partners. 4.2 Authority and Powers of the General Partner. The General Partner shall have the exclusive right and power to manage, operate and control the Partnership and to do all things and make all decisions necessary or appropriate to carry on the business and affairs of the Partnership. In addition to the specific rights and powers herein granted to the General Partner, the General Partner shall possess and enjoy and may exercise all the rights and powers of a General Partner under the Act, including the full and exclusive power and authority to act for and to bind the Partnership. The scope of the General Partner's power and authority shall encompass all matters connected with or incident to the business of the Partnership, including but not limited to the power and authority: 4.2.1 To spend and or invest the capital and revenue of the Partnership to maximize return to the Partnership, including the acquisition of the Partnership Property;

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4.2.2 To manage, sell, develop, purchase, mortgage, improve, operate and dispose of Partnership Property; 4.2.3 To employ persons, firms and/or corporations for the sale, operation, management, syndication and development of Partnership Property, including but not limited to sales agents, broker-dealers, attorneys and accountants; 4.2.4 To employ agents, attorneys, accountants, engineers and other consultants or contractors who may be Affiliates of a Partner or the General Partner; however, any employment of such persons must be on terms not less favorable to the Partnership than those offered by unaffiliated persons for comparable services in the same area; 4.2.5 To acquire and or sell Partnership Property or property in which the Partnership has an interest, lease real property, borrow on a secured or unsecured basis in the name of the Partnership, grant Partnership Property as security for a loan to the Partnership; 4.2.6 To hire and fire employees, and appoint agents/representatives to manage the day-to-day operations of the Partnership; 4.2.7 To execute, acknowledge and deliver any and all instruments to effectuate any of the foregoing powers and any other powers granted to the General Partner under the laws of the State of Florida or other provisions of this Agreement, and to take all other acts necessary, appropriate, or helpful for the operation of the Partnership business; 4.2.8 To enter into such agreements and contracts with parties and to give such receipts, releases and discharges, with respect to the business of the Partnership, which the General Partner, in its sole discretion, deems necessary or appropriate to own, sell, improve, operate and dispose of Partnership Property or to effectively and properly perform its duties or exercise its powers hereunder; 4.2.9 To purchase, at the expense of the Partnership, such liability and other insurance as the General Partner, in its sole discretion, deems advisable to protect the Partnership's assets and business; however, the General Partner shall not be liable to the Partnership or the other Partners for failure to purchase any insurance, including earthquake insurance, unless such act or omission constitutes gross negligence or willful misconduct; 4.2.10 To sue and be sued, complain, defend, settle, and/or compromise, with respect to any claim in favor of or against the Partnership, in the name and on behalf of the Partnership; and 4.2.11 To grant Partnership Property as security for a loan to the Partnership, and sign all documents required to grant such security interests in Partnership property, without the signatures or consents of the Partners provided that such borrowing is in furtherance of the purpose of the Partnership. 4.3 Liability of the General Partner. A General Partner shall not have any liability to the Partnership or to any Partner for any mistakes or errors in judgment, or for any act or omission

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believed in good faith to be within the scope of authority conferred by this Agreement. A General Partner shall be liable only for acts and/or omissions involving intentional wrongdoing. Actions or omissions taken in reliance upon the advice of legal counsel that they are within the scope of a General Partner's authority hereunder shall be conclusive evidence of good faith; provided, however, a General Partner shall not be required to procure such advice to be entitled to the benefit of this subparagraph. 4.4 Time Devoted to Partnership; Other Ventures. The General Partner shall devote so much of their time to the business of the Partnership as in its judgment the conduct of the Partnership's business reasonably requires. The General Partner may engage in business ventures and activities of any nature and description independently or with others, whether or not in competition with the business of the Partnership, and neither the Partnership nor any of the other Partners shall have any rights in and to such independent ventures and activities or the income or profits derived therefrom by reason of the acquisition of Units. 4.5

Books and Records. (a) The General Partner shall maintain or cause to be maintained complete and accurate books of account (containing such information as shall be necessary to record allocations and distributions), and make such records and books of account available for inspection by any Partner, or any Partner's duly authorized representative, during regular business hours and at the principal office of the Partnership, upon reasonable notice and for any purpose related to his or her ownership of Units. (b) Within sixty (60) days after the end of each calendar year, there shall be prepared and distributed to all Partners reasonable tax-reporting information, in sufficient detail to enable such Partner to prepare such Partner's federal, state and local income tax returns. (c) Within ninety (90) days after the end of each calendar year, there shall be prepared and distributed to each Partner, a balance sheet, and a report of the receipts, disbursements, net profits and losses, and cash flow of the Partnership, and the share of the net profits and losses and cash flow of each Partner for such calendar year. Such balance sheet and report shall be prepared by the Partnership's accountant in accordance with the method of accounting used by the Partnership for tax purposes.

4.6 Tax Returns. The taxable year of the Partnership shall be the calendar year. The General Partner shall, at Partnership expense, cause the Partnership to prepare and file all tax returns required to be filed by the law for each fiscal year of the Partnership. 4.7 Tax Elections and Adjustments. The General Partner is authorized to cause the Partnership to make, forego or revoke such elections or adjustments for federal income tax purposes as it deems necessary or advisable in its sole discretion, provided such elections or adjustments are consistent with federal income tax rules and principles, including but not limited to, in the event of a transfer of all or part of the Units of any Partner, an election pursuant to Section 754 of the Code to adjust the basis of the assets of the Partnership or any similar

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provision enacted in lieu thereof. The Partners will, upon request, supply any information necessary to properly give effect to any such election or adjustment. 4.8 Federal Income Tax Withholding. The General Partner is authorized to withhold any sums required by the Internal Revenue Code even if such withholding conflicts with any of the terms and conditions of this Agreement or otherwise affects distributions, allocations or payments to the Partners. In the event that the General Partner learns of a withholding obligation subsequent to the distribution to which the withholding obligation relates, the General Partner will issue an invoice to the Partner. If the invoice is not paid within sixty (60) days, the General Partner will charge the amount against the Partner's Capital Account. This Section will survive the termination of a Partner's status as a Partner. ARTICLE 5 INDEMNIFICATION 5.1 Third Party Actions. The Partnership may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, including all appeals (other than an action, suit or proceeding by or in the right of the Partnership) by reason of the fact that he is or was a partner, officer or employee of the Partnership, or is or was serving at the request of the Partnership as a partner, trustee, officer or employee of another company, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, decrees, fines, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Partnership and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Partnership and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 5.2 Derivative Actions. The Partnership may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit, including all appeals, by or in the right of the Partnership to procure a judgment in its favor by reason of the fact that he is or was a limited partner or general partner, officer or employee of the Partnership, or is or was serving at the request of the Partnership as a member, General Partner, trustee, officer or employee of another company, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Partnership, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable for negligence or misconduct in the performance of his duty to the Partnership unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of

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liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. 5.3 Rights After Successful Defense. To the extent that a Partner, General Partner, officer or employee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 5.1 or 5.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 5.4 Other Determination of Rights. Except in a situation governed by Section 5.3, any indemnification under Section 5.1 or 5.2 (unless ordered by a court) shall be made by the Partnership only as authorized in the specific case upon a determination that indemnification of the Partner, General Partner, officer or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 5.1 or 5.2. Such determination shall be made by the General Partner. 5.5 Advances of Expenses. Expenses of each person indemnified hereunder incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding (including all appeals), or threat thereof, may be paid by the Partnership in advance of the final disposition of such action, suit or proceeding as authorized by the General Partner upon receipt of an undertaking by or on behalf of the Partner, General Partner, officer or employee, to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Partnership. 5.6 Nonexclusiveness; Heirs. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled as a matter of law or under the Certificate of Limited Partnership, or any agreement, any insurance purchased by the Partnership, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Partner, General Partner, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person. 5.7 Purchase of Insurance. The Partnership may purchase and maintain insurance on behalf of any person who is or was a Partner, General Partner, officer or employee of the Partnership, or is or was serving at the request of the Partnership as a General Partner, officer or employee of another company, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Partnership would have the power to indemnify him against such liability under the provisions of this Article or of the Act. ARTICLE 6 EXPENSES 6.1 Partnership Expenses. The Partnership shall pay all costs and expenses related to the conduct of its business, including those relating to investing in Qualifying Investments, which may include, but are not limited to: (1) All costs of personnel employed by the Partnership or

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performing services for the Partnership; (2) All costs of borrowed money including repayment of advances to the Partnership made by a Partner; (3) All administrative costs, including fees charged by the Regional Center in connection with administration of the Project, legal, audit, accounting, brokerage and other fees; (4) Printing and other expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and recording of documents evidencing ownership of Units of the Partnership or in connection with the business of the Partnership; (5) Fees and expenses paid to contractors, mortgage bankers, brokers and services, leasing agents, consultants, on-site General Partners, real estate brokers, insurance brokers and other agents, including Affiliates of the Partnership, the General Partner or any Partner; (6) Expenses in connection with the acquisition, preparation, operation, improvement, development, disposition, replacement, alteration, repair, remodeling, refurbishment, leasing, and financing and refinancing of Partnership property; (7) The cost of insurance obtained in connection with the business of the Partnership; (8) Expenses of organizing, revising, amending, converting, modifying or terminating the Partnership; (9) Expenses in connection with distributions made by the Partnership to, and communications and bookkeeping and clerical work necessary in maintaining relations with, Partners; (10) Expenses in connection with preparing and mailing reports required to be furnished to Partners for required tax reporting, or other purposes which the General Partner deems appropriate; (11) Costs incurred in connection with any litigation, including any examination or audits by regulatory agencies; and (12) Costs of preparation and dissemination of informational material and documentation relating to potential sale, refinancing or other disposition of Partnership property. ARTICLE 7 PARTNERS 7.1 Partners. The General Partner shall at all times maintain a current and a past list setting forth (in alphabetical order) the full name, last known mailing address (including full street number), the class and number of Units, and Percentage Interest of each current and former Partner of the Partnership. The names, full residential addresses, number of Units, and Percentage Interest of the initial Partners of the Partnership are as reflected on Schedule A of this Agreement and are hereby made a part hereof. With each change in the Partnership's Partners (or any information on Schedule A), the Partnership shall revise such list to reflect such changes. Partners shall have only the rights and powers set forth in this Agreement unless otherwise provided by the Act. 7.2 General Partners. The Partnership shall at all times have at least one General Partner, as defined by the Act, that is subject to the liabilities of a partner in a partnership without limited partners to persons other than the partnership and other partners. The sole initial General Partner shall be listed in Schedule A as amended from time to time. 7.3 Limited Partners. The Partnership shall at all times have at least one limited partner as defined by the Act. The Limited Partners of the Partnership shall be listed in Schedule A, as amended from time to time. The Partnership shall have two classes of limited partners unless and until one or more additional classes are authorized by the General Partner. EB-5 Limited Partners shall constitute a class of Limited Partners that shall have all of the rights of a Limited Partner set forth herein in addition to the right to Preferred Returns.

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7.4 Meetings. Meetings of the Partners may be called only by the General Partner. Not less than seven or more than sixty days before the date fixed for a meeting of Partners, written notice stating the time and place of the meeting, and in the case of a special meeting the purposes of such meeting, shall be given by or at the direction of the General Partner. The notice shall be given by personal delivery or by mail to each Partner entitled to notice of the meeting who is of record as of the day next preceding the day on which notice is given or, if a record date therefor is duly fixed, of record as of said date; if mailed, the notice shall be addressed to the Partners at their respective addresses as they appear on the records of the Partnership. Notice of the time, place and purposes of any meeting of Partners may be waived in writing, either before or after the holding of such meeting, by any Partners, which writing shall be filed with or entered upon the records of the meeting. The attendance of any Partners at any such meeting without protesting the lack of proper notice, prior to or at the commencement of the meeting, shall be deemed to have waived notice of such meeting. 7.5 Quorum; Adjournment. At any meeting of Partners, whether present in person or by proxy, a Majority-In-Interest of Partners shall constitute a quorum for such meeting; provided, however, that no action required by law or by the Certificate of Limited Partnership to be authorized or taken by a designated proportion of the Percentage Interests of the Partnership, or a particular class thereof, may be authorized or taken by a lesser proportion; and provided, further, that the holders of a majority of the Percentage Interests represented thereat, whether or not a quorum is present, may adjourn such meeting from time to time; if any meeting is adjourned, notice of such adjournment need not be given if the time and place to which such meeting is adjourned are fixed and announced at such meeting. If permitted by the General Partner, Partners may participate in any meeting through telephonic or similar communications equipment by means of which all persons participating in the meeting can hear one another, and such participation shall constitute presence in person at such meeting. 7.6 Voting of Limited Partners. On any matter presented by the General Partner, in its sole discretion, to the Limited Partners or any class thereof for their vote, each Limited Partner shall have one vote for each Unit owned by him. Limited Partners entitled to vote or to act with respect to Units in the Partnership may vote or act in person or by proxy. The person appointed as proxy need not be a Limited Partner. Unless the writing appointing a proxy otherwise provides, the presence at a meeting of the person having appointed a proxy shall not operate to revoke the appointment. Notice to the Partnership, in writing or in open meeting, of the revocation of the appointment of a proxy shall not affect any vote or act previously taken or authorized. The following actions shall require the approval of Limited Partners holding a majority of the then outstanding Units held by Limited Partners: (i) any modification to this Agreement materially changing the rights of the Limited Partners; and (ii) dissolution of the Company prior to the end of the fifth year after admission of the last EB-5 Limited Partner. 7.7 Action Without a Meeting. Any action which may be authorized or taken at a meeting of Partners may be authorized or taken without a meeting in a writing or writings signed by all of the Partners entitled to vote on such matter, which writing or writings shall be filed with or entered upon the records of the Partnership. A facsimile, photographic, photostatic or similar

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transmission or reproduction of a writing signed by a Partner, shall be regarded as signed by the Partner for purposes of this Section. ARTICLE 8 RESTRICTIONS ON TRANSFER 8.1 Transfers. No EB-5 Limited Partner may voluntarily Transfer all, or any portion of, or any interest or rights in, his/her Partnership Interest. Each EB-5 Limited Partner acknowledges the reasonableness of this prohibition in view of the purposes of the Partnership and the relationship of the Partners. The voluntary Transfer of any Partnership Interests, including Economic Interests, in violation of the prohibition contained in this Section 8.1 shall be deemed invalid, null and void, and of no force or effect. Any Person to whom Partnership Interests are attempted to be transferred in violation of this Section 8.1 shall not be entitled to vote, receive distributions from the Partnership, or have any other rights in or with respect to the Partnership Interests. All Partners other than EB-5 Limited Partners may freely transfer his/her Units with consent of the General Partner. 8.2 Voluntary Withdrawal. No Limited Partner shall have the right or power to Voluntarily Withdraw from the Partnership. Any Voluntary Withdrawal in violation of this Agreement shall entitle the Partnership to damages for breach, which may be offset against the amounts otherwise distributable to such Limited Partner. 8.3 Involuntary Withdrawal. Immediately upon the occurrence of an Involuntary Withdrawal, the successor of the withdrawing Partner shall thereupon become an Interest Holder, but shall not become a Partner. The successor Interest Holder shall have all the rights of an Interest Holder, but shall not be entitled by reason of the withdrawal to receive in liquidation of the Partnership Interest, the fair market value of the withdrawing Partner's Economic Interest. 8.4

Right of First Refusal.

8.4.1 Voluntary Transfer. If any EB-5 Limited Partner intends to transfer his or her Units or any part thereof to any person or entity, after obtaining approval required hereunder, such Partner shall give written notice to the Partnership of his intention so to transfer. The notice, in addition to stating the fact of the intention to transfer a Partnership Interest, shall describe (i) the Partnership Interest to be transferred, (ii) the name, business and residence address of the proposed transferee, (iii) whether or not the transfer is for valuable consideration, and (iv) if so, the amount of the consideration and the other terms of the sale. The Partnership shall promptly send a copy of such notice to all other Partners. 8.4.2 Partnership Option. Within thirty (30) days after the receipt by the Partnership of the notice of intention to transfer Units, the Partnership may exercise an option, which is hereby granted by the Partner intending to Transfer his or her Units, to purchase the Units proposed to be transferred, for the price and upon the other terms hereinafter provided. The Partnership may, at its election, terminate its option period by giving a notice to the selling Partner and all other Partners that the Partnership has elected not to exercise its option granted in this Section 8.4.2.

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8.4.3 General Partner Option. In the event that the option granted to the Partnership in Section 8.4.2 is not exercised in its entirety, then the remaining General Partner(s) of the Partnership may, within the earlier of (i) sixty (60) days from receipt of notice of intention to transfer from the transferring General Partner, or (ii) thirty (30) days from receipt of notice that the Partnership has elected not to exercise its option, exercise an option which is hereby granted, to purchase all of the Units for the price and upon the other terms hereinafter provided. If more than one General Partner exercises the option hereunder, such General Partners (hereinafter, the "Participating General Partners") shall be entitled to purchase a proportion of the Units proposed to be transferred determined by a fraction, the numerator of which shall be equal to the Units owned by each such Participating General Partner and the denominator of which shall be equal to the aggregate Units owned by all Participating General Partners, or such other proportion of such Units as shall be agreed upon in writing by all Participating General Partners. The option granted to the General Partners in this Section 8.4.3 shall expire at the end of the option period herein granted if options for all of the Units are not exercised by the last date of such option period. 8.4.4 Limited Partner Option. In the event that the option granted to the Partnership in Section 8.4.2 is not exercised in its entirety, and the option granted to the General Partner in Section 8.4.3 is not exercised in its entirety, then the remaining Limited Partners of the Partnership may, within the earlier of: (i) seventy five (75) days from receipt of notice of intention to transfer from the transferring Partner, or (ii) thirty (30) days from receipt of notice that the General Partners have elected not to exercise their option, exercise an option which is hereby granted, to purchase all of the Units for the price and upon the other terms hereinafter provided. If more than one Limited Partner exercises the option hereunder, such Limited Partners (hereinafter, the "Participating Limited Partners") shall be entitled to purchase a proportion of the Units proposed to be transferred determined by a fraction, the numerator of which shall be equal to the Units owned by each such Participating Limited Partner and the denominator of which shall be equal to the aggregate Units owned by all Participating Limited Partners, or such other proportion of such Units as shall be agreed upon in writing by all Participating Limited Partners. The option granted to the Limited Partners in this Section 8.4.4 shall expire at the end of the option period herein granted if options for all of the Units are not exercised by the last date of such option period. 8.4.5 Involuntary Transfer. If a Partner's Units are transferred by operation of law to any person (such as, but not limited to, a deceased Partner's estate, a Partner's trustee in bankruptcy, a purchaser at any creditor's or court sale or the guardian or conservator of an incompetent Partner), the Partnership within forty-five (45) days of the receipt by it of actual notice of the transfer may exercise its option, which is hereby granted, and, if not exercised by the Partnership, the General Partners within sixty (60) days of the receipt of actual notice of the transfer may exercise their respective options, which are hereby granted, and if not exercised by the General Partner, the Limited Partners within seventy-five (75) days of receipt of actual notice of the transfer may exercise their respective options, which are hereby granted to purchase the

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Units so transferred for the price determined pursuant to Section 8.4.9 below and in the same manner as provided in Sections 8.4.2, 8.4.3 and 8.4.4 with respect to Units proposed to be transferred. 8.4.6 Exercise of Options. The purchase options granted in this Section 8.4 shall be exercised by delivery of written notice of exercise within the time periods provided in said section to the transferring Partner and/or the proposed transferee in the case of a transfer pursuant to Section 8.4.2, 8.4.3 or 8.4.4, as the case may be. 8.4.7 Failure to Exercise Option. If the purchase options are not exercised in compliance with this Section 8.4, then the Units may be transferred to the proposed transferee named in the notice required by Section 8.4.1, and upon the terms therein stated, or to the transferee in the case of an Involuntary Withdrawal, within thirty (30) days after the expiration of the option period granted in Section 8.4.4. In the case of a Transfer as the result of an Involuntary Withdrawal, unless otherwise prohibited therein, the Units, after the expiration of the option periods set forth therein shall, in the hands of the transferee, be subject to the provisions of this Agreement. A subsequent transferee under Section 8.4 shall thereafter be subject to the terms of this Agreement as if such transferee had originally executed it. Unless and until admitted as a Partner, any transferee of any Partnership Interest or portion thereof, shall be merely an Interest Holder and subject to the terms of this Agreement. 8.4.8 Transfers Not in Compliance with this Section. If a Transfer is not upon the terms or is not to the transferee stated in the notice required of the transferring Partner by Section 8.4.1, or is not within the time periods provided, or the transferor, after the transfer, reacquires the transferred Partnership Interest, the Partnership Interest transferred shall remain subject to this Partnership Agreement as if no transfer had been made. 8.4.9 Fair Market Value. 8.4.9.1 The value of each Unit to be purchased and sold upon exercise of the option granted in Section 8.4.5 shall be its Fair Market Value determined pursuant to an independent appraisal performed by an independent appraisal firm qualified in valuing interests in comparable companies in the same industry to determine the Fair Market Value and to prepare a written appraisal of any Units to be repurchased upon exercise of the option granted in Section 8.4.5. Without limiting the appraiser's consideration of any particular relevant fact in preparing its appraisal, the appraiser shall take into account (i) the criteria discussed in the previous sentence in determining the Fair Market Value of any Units (or portion thereof), (ii) the fact that only the Economic Interest is being transferred, if applicable, and (iii) in such a case, the transferring Partner's death. The Fair Market Value of the Units shall be determined as of the last day of the month preceding the month in which the transfer of the Partnership Interest occurred, unless the transfer shall have occurred within three (3) months prior to or within three (3) months after the end of a fiscal year of the Partnership, in which case Fair Market Value shall be determined as of the last day of such fiscal year. 8.4.9.2 In the event the transferee disagrees with the Fair Market Value determined by the independent appraiser pursuant to Section 8.4.9.1, such transferee shall notify the remaining

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Partners in writing within thirty (30) days after such transferee receives the notice from remaining Partners of the determination of Fair Market Value prescribed in Section 8.4.8.1 above. If the remaining Partners and such transferee cannot agree on such Fair Market Value within thirty (30) days after the receipt by the remaining Partners of the transferee's notice disagreeing with such determination, then the issue shall be referred to two (2) appraisers, one of which shall be the remaining Partner's existing appraiser and one of which shall be selected by the transferee. If such appraisers cannot agree upon a Fair Market Value within thirty (30) days after they are appointed as provided for above, then the issue shall be referred to an appraiser selected by the appraisers selected by the remaining Partners and the transferee. The parties to the dispute shall cause such additional appraiser to render within thirty (30) days after its appointment a decision regarding the Fair Market Value, such decision shall be binding on the parties to the dispute for the purpose of this Section 8.4.9. 8.4.9.3 The Partnership shall bear the fees and expenses of the appraiser selected by the remaining Partner under Section 8.4.9.1. The Partnership shall also bear the fees and expenses of the appraiser selected by the transferee and the additional appraiser selected under Section 8.4.9.2 in the event the Fair Market Value finally determined pursuant to Section 8.4.9.2 is more than 10% greater than the Fair Market Value initially proposed by the remaining Partners (or an appraiser chosen by the General Partner under Section 8.4.9.2); and, provided, further, however, that if the Fair Market Value of the Units of more than one transferring Partner is the subject of any appraiser's determination under this Section 8.4.9, then each transferee shall pay his or her pro rata share (based upon the Fair Market Value of all such transferees' interests) of the fees and expenses, if any, required to be borne by such transferees under this Section 8.4.9. 8.4.9.4 Notwithstanding anything to the contrary herein, no payment of the purchase price under this Article 8 may be made to any selling Partner or his or her legal representatives to the extent the remaining Partners determine that (a) such payment would cause an event of default or potential event of default to occur under the terms of any credit agreement to which the Partnership is a party, (b) the Partnership is unable to fund such payment out of available cash or secure reasonable financing to make such payment, or (c) such payment would otherwise have a materially negative impact on the Partnership or its business. In such circumstance, the Partnership agrees that it shall use its good- faith efforts to (a) have such default or potential event of default waived with respect to such payment, (b) secure such reasonable financing, or (c) pay that portion of such payment that does not cause a materially negative impact on the Partnership or its business and pay the remainder of any such payment as soon as practicable without causing such a materially negative impact. In addition, each selling Partner hereby agrees and acknowledges that the right to receive any payment of purchase price shall be forfeited by such selling Partner if prior to the making of such payment the remaining Partners determine that the selling Partner has breached the terms of this Partnership Agreement (which breach remains uncured). 8.4.10 Purchase Price. The price of each Unit to be purchased and sold under this Agreement shall be as follows: 8.4.10.1 A purchase of Units pursuant to the options granted under Sections 8.4.2, 8.4.3 or 8.4. shall be the consideration set forth in the notice required of a selling Partner by Section 8.4.1.

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8.4.10.2 Subject to 8.4.10.3, a purchase of Units pursuant to the option granted under Section 8.4.5 shall be for a price equal to one hundred (100%) percent of the Fair Market Value of Units established under Section 8.4.9. 8.4.10.3 Notwithstanding the foregoing, or any other terms of this Agreement, a purchase of Units of an EB-5 Limited Partner pursuant to the option granted under Section 8.4.5 shall be for a price equal to the sum of such EB-5 Limited Partner's Adjusted Capital Contribution and accrued unpaid Preferred Returns less any amounts due to the Partnership by the EB-5 Limited Partner. 8.4.11 Closing; Payment of the Purchase Price. The purchase price for Units shall be paid in cash. Unless otherwise agreed by the parties, the closing of the sale and purchase of Units shall take place on the later of thirty (30) days after the delivery to the selling Partner or the transferee of the written notice by the Partnership of its exercise of the option to purchase the selling Partner's Units or thirty (30) days after the date on which Fair Market Value is determined pursuant to Section 8.4.9 above. 8.5 Effect of Assignment. A Partner shall cease to be a Partner of the Partnership and to have the power to exercise any rights or powers of a Partner upon transfer of all of the Partner's Units in the Partnership. 8.6 Rights of Interest Holders. Interest Holders have no voting rights in the Partnership and are only entitled to the Economic Interest attributable to the Units transferred, subject to the terms and conditions of this Agreement. 8.7 Admission of Additional Partners. A Person may be admitted as a Partner and, upon such admission, shall be admitted to all the rights of a Partner upon approval of the General Partner. The General Partner may grant or withhold the approval of such admission in their sole and absolute discretion. If so admitted, such newly admitted Partner shall have all the rights and powers and be subject to all the restrictions and liabilities of the Partnership Interest assigned. The admission of an Interest Holder to Partnership, without more, shall not release the Partner originally assigning the Partnership Interest from any liability to the Partnership that may have existed prior to the admission of the Interest Holder as a Partner of the Partnership. No Partners admitted after the date of this Agreement shall be entitled to any retroactive allocation of losses, income or expense deductions incurred by the Partnership. The General Partner may, at the time a Partner is admitted, close the books and records of the Partnership (as though the Fiscal Year had ended) or make pro rata allocations of loss, income and expense deductions to such Partner for that portion of the Fiscal Year in which such Partner was admitted in accordance with the Code. ARTICLE 9 TERMINATION 9.1 Termination of Interest. The Partnership Interest of each EB-5 Limited Partner shall be terminated by (a) dissolution of the Partnership as provided in this Agreement and distribution of

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the proceeds of liquidation in accordance herewith; (b) the Agreement of an EB-5 Limited Partner, or his/her personal representative, and the General Partners; or (c) the return of the Capital Contributions and payment of all accrued unpaid Preferred Returns to such EB-5 Limited Partner. ARTICLE 10 DISSOLUTION AND WINDING UP 10.1 Termination of the Partnership. The Partnership shall be terminated and dissolved upon the first to occur of the following: If the Partnership then has any EB-5 Partners (a) upon vote of a Majority-In-Interest of the Partners; or (b) upon the sale of all or substantially all the assets of the Partnership; and if there are then no EB-5 Partners of the Partnership (a) upon vote of the General Partner, or (b) upon sale of all or substantially all of the assets of the Partnership. 10.2 Winding Up. Upon the termination of the Partnership pursuant to Section 10.1 above, a full and general accounting shall be taken of the Partnership's business, and the affairs of the Partnership shall be wound up. Any profits earned or losses incurred since the last previous accounting shall be allocated among, or borne by, the Partners in accordance with the provisions of Section 3.1 above. The General Partner shall wind up and liquidate the Partnership by selling the Partnership's assets, or by distributing such assets in kind, subject to the Partnership's liabilities, or by a combination thereof, as determined by the General Partner. The proceeds of such liquidation shall be applied and distributed in the following order of priority, by the end of the taxable year during which the liquidation occurs (or, if later, within ninety (90) days after the date of the liquidation): (a) to the payment of any debts and liabilities of the Partnership; (b) to the setting up of any reserve which the General Partner shall reasonably deem necessary to provide for any contingent or unforeseen liabilities or obligations of the Partnership, with any excess in such reserve remaining after such liabilities are satisfied to be distributed as soon as practicable in the manner hereinafter set forth; and (c) thereafter, the balance of the proceeds, if any, shall be distributed in the same manner as Available Cash Flow, after taking into account all capital account adjustments for the Partnership's taxable year during which such liquidation occurs. For purposes of this subsection, a liquidation of the Partnership shall mean a liquidation as defined in Section 1.704-1(b)(2)(ii)(g) of the Regulations. 10.3 Statement. The Partners shall be furnished with a statement prepared by the Partnership's accountants, which shall set forth the assets and liabilities of the Partnership as of the date of complete liquidation. 10.4 Return of Capital Contributions. Notwithstanding anything in this Agreement to the contrary, neither the General Partner nor any other Partner shall be personally liable for the return of the Capital Contributions of any Partner, or any portion thereof, it being expressly understood that any such return of the Capital Contributions of the Partners shall be made solely from Partnership assets.

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ARTICLE 11 DISCLOSURES AND REPRESENTATIONS 11.1 Disclosure by Partnership. In connection with the offer and sale of Units to Limited Partners hereunder, the Partnership hereby discloses that the Units have not been registered under the Federal Securities Act of 1933, as amended (the "Securities Act"), and are being offered and sold by the Partnership pursuant to one or more exemptions from registration under the Securities Act, including the exemption provided by Section 4(2) of the Securities Act, Regulation D promulgated thereunder, and exemptions available under applicable state securities laws and regulations. 11.2 Representations and Warranties of the Limited Partners. In connection with a Limited Partner's purchase of Units in the Partnership, each Limited Partner represents and warrants, which representations and warranties shall survive the consummation of the Limited Partner's purchase of such Units, as follows: (a) the Limited Partner's principal residence is located within the country, state/province and at the address listed in Schedule A hereto; (b) the Limited Partner is aware that no market exists for the resale of Units; (c) the Limited Partner is purchasing the Units for investment and not for the distribution; (d) the Limited Partner is aware of all restrictions imposed by the Partnership on the sale or transfer of the Units, including, but not limited to, any restrictive legends appearing on the certificate(s) and/or other document(s) evidencing the Units; (e) the Limited Partner acknowledges and understands that the Partnership has been organized with the intention that it qualify for taxation as a partnership for U.S. federal income tax purposes. The Limited Partner acknowledges that the provisions of Subchapter K of the Code, and the Regulations promulgated thereunder will apply to the Partnership, and intend that the allocations of taxable income and loss, distributions to the Limited Partners and maintenance of Capital Accounts all conform to the requirements of the Code and the applicable Regulations; (f) the Limited Partner has full legal capacity to execute and agree to this Agreement and to perform his obligations hereunder; (g) the Limited Partner has duly executed and delivered this Agreement; (h) the Limited Partner's authorization, execution, delivery and performance of this Agreement do not conflict with any other material agreement or arrangement to which that Limited Partner is a party or by which he is bound or with any law or regulation to which that Limited Partner is subject; and (i) this Agreement constitutes the valid, binding and enforceable agreement of that Limited Partner, except to the extent such enforceability may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect relating to the rights and remedies of creditors, as well as general principles of equity (regardless of whether considered in a proceeding in equity or in law). ARTICLE 12 MISCELLANEOUS 12.1 Endorsement. Upon the execution of this Agreement, any certificate or certificates evidencing the Units in the Partnership shall be endorsed, as follows: "The Units represented by this certificate are subject to the terms and conditions of a Limited Partnership Agreement dated as of 11/30/2012, among the original owner of record and the other partners of the Partnership. Any purchaser or

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transferee of these Units is bound by the agreement and shall be considered a party to the agreement. The Partnership will mail to the holder of this certificate, without charge, a copy of such agreement within five (5) days after receiving a written request therefor." The foregoing endorsement shall also include such other legends and notices as the General Partner deems necessary and appropriate. After endorsement, the certificate or certificates shall be delivered to the Partners who shall, subject to the terms of this Agreement, be entitled to exercise all rights of ownership of such Partnership Units. The Partnership agrees that it will cause a similar endorsement to be placed on all certificates hereafter issued by it and which are subject to the provisions of this Agreement. 12.2 Tax Matters. The General Partner shall direct Tax Matters of the Partnership, as provided in Regulations issued pursuant to Section 6231 of the Code. Each Partner, by the execution of this Agreement, consents to such designation and agrees to execute, certify, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to evidence such consent. The Partnership shall indemnify and reimburse the General Partner for all expenses, including legal and accounting fees, claims, liabilities, losses and damages incurred in connection with any administrative or judicial proceeding with respect to the tax liability of the Partners. The payment of all such expenses shall be made before any distributions to Partners are made by the Partnership. The taking of any action and the incurring of any expense by the General Partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole discretion of the General Partner. 12.3 Amendments. Except as provided herein, this Agreement may be amended only with the written approval of all of the Partners. 12.4 Notices. All notices, consents or other instruments hereunder shall be in writing and mailed by United States mail, postage prepaid, and shall be directed to the parties hereto at the last addresses of the parties furnished by them in writing to the Partnership, and to the Partnership at its principal office. The Partnership and/or any Partner shall have the right to designate a new address for receipt of notices by notice addressed to the Partners and the Partnership and mailed as aforesaid. Such notices shall be made a permanent part of the Partnership records. 12.5 Obligations and Rights of Transferees. Any person who acquires in any manner whatsoever any interest in the Partnership, irrespective of whether such person has accepted and assumed in writing the terms and provisions of this Agreement, shall be deemed by the acceptance of the benefit of the acquisition thereof to have agreed to be subject to, and to be bound by, all the obligations of this Agreement with the same force and effect as any predecessor in interest of such person.

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12.6 Benefit and Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective next of kin, legatees, administrators, executors, legal representatives, nominees, successors and permitted assigns. 12.7 Integration. This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings of the parties in connection therewith. 12.8 Governing Law. This Agreement and the rights of all parties hereunder shall be governed by, and construed in accordance with, the laws of the State of Florida, without regard to the conflicts of laws principles thereof. 12.9 Counterparts. This Agreement may be executed in several counterparts, each of which shall be considered an original when executed by one or more of the Partners. 12.10 Reports to Limited Partners. As soon as reasonably practicable after the date when an Limited Partner has made his/her Capital Contribution to the Partnership in full and has otherwise complied with its obligations under this Agreement, the Partnership shall provide such Limited Partner or its designated immigration counsel with the copies of the following information: (a) A copy of the USCIS letter of designation of South Atlantic Regional Center as a regional center under the EB-5 Pilot Program; (b) A copy of the approved regional center narrative proposal and business plan submitted to USCIS by the Regional Center; (c) A copy of approved econometric reports which, taken together, conclude that the investments to be made by the Partnership from the Capital Contributions of the Limited Partners are Qualified Investments - they will generate full-time employment positions, either directly or indirectly, for not fewer than ten U.S. workers per EB-5 Limited Partner whose Capital Contributions have been so applied; (d) Documented evidence that the location of the Partnership's investment of an EB-5 Limited Partner's Capital Contribution is within a "targeted employment area" as defined by the USCIS; and (e) A copy of the Partnership's Limited Partnership Agreement, including the Schedules thereto, evidencing that the EB-5 Limited Partner has invested at least the EB-5 Minimum Capital Requirement and that such investment is "at risk." 12.11 Severability. If any provision of this Agreement is declared by any court of competent jurisdiction to be invalid or unenforceable such invalidity or unenforceability shall not affect the remaining provisions of this Agreement. If such invalidity or unenforceability is due to the court's determination that the provision's scope is excessively broad or restrictive under applicable law then in effect, the parties hereby jointly request that such provision be construed by modifying its scope so as to be enforceable to the fullest extent of applicable law then in effect. If any provision is held to be invalid or unenforceable with respect to a particular circumstance, such provision shall nevertheless remain in full force and effect in all other circumstances. 12.12 No Waiver. The waiver by any party hereto of any breach of any provision of this Agreement shall not be deemed a continuing waiver, and shall not affect any subsequent breach of the same or different provisions of this Agreement.

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12.13 Further Assurances. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all commercially reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including using all commercially reasonable efforts to remove any legal impediment to the consummation or effectiveness of such transactions and to obtain any consents and approvals required under this Agreement. 12.14 Neutral Construction. The construction and interpretation of any clause or provision of this Agreement shall be construed without regard to the identity of the party that prepared this Agreement, and no presumption shall arise as a result that this Agreement was prepared by one party or the other. 12.15 Attorneys' Fees. In the event a dispute arises regarding this Agreement, the prevailing party shall be entitled to recover all attorneys' fees and expenses incurred. 12.16 Injunctive Relief. Without intending to limit the remedies available to either party, each party hereby acknowledges that a breach of any of the restrictive covenants contained in this Agreement may result in material and irreparable injury to the other party for which there is no adequate remedy at law, and that it may not be possible to measure damages for such injuries with reasonable certainty. In the event of such a breach or threat thereof, a party shall be entitled to obtain a temporary restraining order and/or a preliminary injunction restraining any other party from engaging in activities prohibited by this Agreement or such other relief as may be required to specifically enforce any of the covenants in this Agreement. The parties expressly agree that it shall not be a defense in such an injunction action that a party had previously breached this Agreement. 12.17 Representation of Counsel. All parties acknowledge that prior to executing this Agreement, they have been advised to seek independent legal counsel. In executing this Agreement, all parties represent and warrant that they relied exclusively upon the advice of their respective independent legal counsel and are not entering into this Agreement based upon any representation of any other party or any other party's counsel. 12.18 Jurisdiction. Any and all legal proceedings to enforce this Agreement, or to enforce or vacate any judgment or award rendered therein, whether in contract, tort, equity or otherwise, shall be brought in the state or federal courts sitting in the district encompassing Palm Beach County, Florida, the parties hereto hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it, and agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner specified by law. 12.19 Force Majeure. Neither party shall be liable for any failure or delay in performance under this Agreement (other than for delay in the payment of money due and payable hereunder) to the extent said failures or delays are proximately caused by causes beyond that party's reasonable control and occurring without its fault or negligence, including, without limitation,

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failure of suppliers, subcontractors, and carriers, or party to substantially meet its performance obligations under this Agreement, provided that, as a condition to the claim of nonliability, the party experiencing the difficulty shall give the other prompt written notice, with full details following the occurrence of the cause relied upon. Dates by which performance obligations are scheduled to be met will be extended for a period of time equal to the time lost due to any delay so caused. 12.20 Notice. All notices, requests, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of service, if personally served; (b) on the day of facsimile over telephone lines with same day first class mailing of both the original of the documents and a proof of transmission; (c) on the day after mailing if sent by express overnight air courier guaranteeing next day delivery with written evidence of delivery; or (d) five (5) days after the date of mailing if mailed by registered or certified mail, return receipt requested, postage prepaid, and addressed to the parties at the addresses listed above. Each party is required to notify the other party in the above manner of any change in address. [SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, each party has executed this Limited Partnership Agreement on the day and year written below. GENERAL PARTNER ________________________________________ Joseph J. Walsh For South Atlantic Regional Center, LLC

Date: _______________________

LIMITED PARTNER ________________________________________ (Signature)

Date: _______________________

________________________________________ (Written Name)

11/30/2012

LIMITED PARTNERSHIP AGREEMENT Palm House Hotel, LLLP

28


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Palm House, LLLP 197 South federal Highway Suite 200 Boca Raton, FL 33432 Palm

House, LLP - Investor Questionnaire 1


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Palm House, LLP - Investor Questionnaire 2


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Palm House, LLP - Investor Questionnaire 3


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Palm House, LLP - Investor Questionnaire 4


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Palm House, LLP - Investor Questionnaire 5


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Palm House, LLP - Investor Questionnaire 6


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Palm House, LLP - Investor Questionnaire 7


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ESCROW AGREEMENT This Escrow Agreement (the “Agreement”), effective as of November 24, 2012 by and among Palm House Hotel, LLLP, a Florida Limited Liability Limited Partnership (“LP”); South Atlantic Regional Center, LLC, a Florida Limited Liability Company (the “Subscriber Representative”); and PNC BANK, a Pennsylvania banking corporation (the “Escrow Agent”) (collectively the “Parties”). W I T N E S S E T H: WHEREAS, the LP proposes to offer for sale (the “Offering”) one unit of interest in the LP (the “Interests”), at a subscription purchase price of five hundred thousand dollars ($500,000.00) per Interest (“Subscription Proceeds”) payable in cash pursuant to subscription agreements (“Subscription Agreements”); and WHEREAS, the Interests in the LP are proposed to be offered for sale to investors (the “Subscribers”) under the terms of the EB-5 visa program administered by the U.S. Citizenship and Immigration Service (“USCIS”), an agency of the United States government; NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Parties hereto as follows: 1.

Deposits in Escrow.

(a) The LP shall deposit or cause to be deposited with the Escrow Agent, to be held in escrow under the terms of this Agreement, all Subscription Proceeds received from

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Subscribers (“Escrow Funds”). The Escrow Agent shall have no responsibility for Subscription Proceeds until such proceeds are actually received, clear through normal banking channels and constitute collected funds. The Escrow Agent shall have no duty to collect or seek to compel payment of any Subscription Proceeds, except to place such proceeds or instruments representing such proceeds for deposit and payment through customary banking channels. Checks for Subscription Proceeds furnished by Subscribers shall be made payable to: “PNC Bank, as Escrow Agent for Palm House Hotel, LLLP.” (b) The LP shall deliver to the Escrow Agent, in a form acceptable to the Escrow Agent, schedules disclosing the name, address and Tax Identification Number of each of the Subscribers, the number of Shares subscribed for by each Subscriber, the amount of Subscription Proceeds received from each Subscriber, and such other information as will enable the Escrow Agent to attribute to a particular Subscriber all Subscription Proceeds received by the Escrow Agent. 2.

Rejection or Withdrawal of Subscription Agreement.

(a) Any Subscription Agreement may be rejected by the LP in whole or in part. The LP shall promptly notify the Escrow Agent in writing in the event of any such rejection. Upon the receipt of a written notice of rejection pertaining to any Subscription Agreement, the Escrow Agent shall return to the Subscriber signing the rejected Subscription Agreement the Subscription Proceeds tendered by such Subscriber, without deduction or payment of interest; provided such Subscriber’s Subscription Proceeds constitute collected funds. (b) In the event the Escrow Agent receives written notice from the LP that a Subscription Agreement has been withdrawn by a Subscriber, the Escrow Agent shall return to such Subscriber who signed the withdrawn Subscription Agreement the Subscription Agreement (if then in the Escrow Agent’s possession) and the Purchase Price tendered therewith, without deduction or payment of interest. 3.

Disbursements.

(a) At such time as the Escrow Agent has received written notice from the LP and the Subscriber Representative that a Subscriber’s Form I-526 Immigration Petition has been filed with the USCIS, the Escrow Agent shall, subject to the receipt of such funds, disburse the Subscriber’s Subscription Proceeds to the account of the LP in accordance with written directions provided by the LP and Subscriber Representative. At such time as all Subscribers’ Form I-526 applications have been either approved, denied, or otherwise processed by the USCIS and all Subscription Proceeds either returned to the Subscriber or disbursed in accordance with directions provided by the LP, this Agreement (except as otherwise provided herein) shall terminate. (b) In the event the Escrow Agent receives written notice from the LP that a Subscriber’s Form I-526 Immigration Petition has been denied by the USCIS, the Escrow Agent shall return to the Subscriber the Subscription Agreement (if then in the Escrow Agent’s

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possession) and the Subscription Proceeds tendered therewith, without deduction or payment of interest. (c) 4.

The LP shall provide a copy of this Agreement to each Subscriber.

Investment of Subscription Proceeds.

The Parties further covenant, warrant and agree that the Escrow Agent shall invest all Subscription Proceeds, at the written direction of the LP, in a non-interest-bearing demand deposit account with the Escrow Agent. 5.

Escrow Administration.

All taxes in respect of any earnings on the Escrow Funds shall be the obligation of the Subscriber to the extent of its pro rata share thereof, which pro rata shares will be in the same proportion of the amounts deposited by each into the Escrow Account. The Subscriber Representative, as agent for the Subscribers and tax owner of record of the Escrow Funds, shall furnish the Escrow Agent with a completed Form W-9 for the Subscriber Representative. The Subscriber Representative shall perform the sub-accounting services necessary for maintaining proper ownership records with respect to the Escrow Funds and shall issue IRS Form 1099s to the Subscribers with respect to their earnings, if any, on the Escrow Funds. The Subscriber Representative understands that, if such tax reporting documentation is not so certified to the Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code of 1986, as amended, to withhold a portion of any interest or other income earned on the investment of monies or other property held by the Escrow Agent pursuant to this Agreement. The parties shall provide to Escrow Agent such information as Escrow Agent may reasonably require to enable Escrow Agent to comply with its obligations under the USA PATRIOT Act. Escrow Agent shall not credit any amount of interest or investment proceeds earned on the Escrow Funds, or make any payment of all or a portion of the Escrow Funds, to any person unless and until such person has provided to Escrow Agent such documents as Escrow Agent may require to enable Escrow Agent to comply with its obligations under such Act. 6.

Duties of Escrow Agent; Indemnification.

(a) The Escrow Agent undertakes to perform only such duties as are expressly set forth herein and no additional duties or obligations shall be implied hereunder. In performing its duties under this Agreement, or upon the claimed failure to perform any of its duties hereunder, the Escrow Agent shall not be liable to anyone for any damages, losses or expenses which may be incurred as a result of the Escrow Agentâ&#x20AC;&#x2122;s so acting or failing to so act; provided, however, that the Escrow Agent shall not be relieved from liability for damages arising from the Escrow Agentâ&#x20AC;&#x2122;s proven gross negligence or willful misconduct. The Escrow Agent shall in no event incur any liability with respect to (i) any action taken or omitted to be taken in good faith upon advice of legal counsel, which may be counsel to either party hereto, given with respect to any question relating to the duties and responsibilities of the Escrow Agent hereunder, or (ii) any action taken or omitted to be taken in reliance upon any instrument delivered to the Escrow

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Agent and believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) The LLLP warrants to and agrees with the Escrow Agent that there is no security interest in the Subscription Proceeds or any part of the Subscription Proceeds; no financing statement under the Uniform Commercial Code of any jurisdiction is on file in any jurisdiction claiming a security interest in or describing, whether specifically or generally, the Subscription Proceeds or any part of the Subscription Proceeds; and the Escrow Agent shall have no responsibility at any time to ascertain whether or not any security interest exists in the Subscription Proceeds or any part of the Subscription Proceeds or to file any financing statement under the Uniform Commercial Code of any jurisdiction with respect to the Subscription Proceeds or any part thereof. (c) As an additional consideration for and as an inducement for the Escrow Agent to serve as escrow agent hereunder, it is understood and agreed that, in the event of any disagreement resulting in adverse claims and demands being made in connection with or for any money or other property involved in or affected by this Agreement, the Escrow Agent shall be entitled, at the option of the Escrow Agent, to refuse to comply with the demands of any parties so long as such disagreement shall continue. In such event, the Escrow Agent may elect not to make any delivery or other disposition of the Subscription Proceeds or any part of such Subscription Proceeds. Anything herein to the contrary notwithstanding, the Escrow Agent shall not be or become liable to such parties or any of them for the failure of the Escrow Agent to comply with the conflicting or adverse demands of such parties. The Escrow Agent shall be entitled to continue to refrain and refuse to deliver or otherwise dispose of the subscription proceed or any part thereof or to otherwise act hereunder, as stated above, unless and until: (i) the rights of such parties have been finally settled or duly adjudicated in a court having jurisdiction of the parties and the Subscription Proceeds and the Escrow Agent, has received written instructions as to disbursement thereof; or (ii) the parties have reached an agreement resolving their differences and have notified the Escrow Agent in writing of such agreement and have provided the Escrow Agent with indemnity satisfactory to the Escrow Agent against any liability, claims or damages resulting from compliance by the Escrow Agent with such agreement. In the event of a disagreement as described above, the Escrow Agent shall have the right, in addition to the rights described above and at the option of Escrow Agent, to tender into the registry or custody of any court having jurisdiction, all money and property comprising the Subscription Proceeds and may take such other legal action as may be appropriate or necessary, in the opinion of Escrow Agent or its legal counsel. Upon such tender, the Escrow Agent shall be discharged from all further duties under this Agreement; provided, however, that the filing of any such legal proceedings shall not deprive the Escrow Agent of its compensation hereunder earned prior to such filing and discharge of the Escrow Agent of its duties hereunder.

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(d) The LLLP agrees that in the event any controversy arises under or in connection with this Agreement or the Subscription Proceeds or the Escrow Agent is made a party to or intervenes in any litigation pertaining to this Agreement or the Subscription Proceeds, to pay to the Escrow Agent reasonable compensation for its extraordinary services and to reimburse the Escrow Agent for all costs and expenses, including legal fees and expenses, associated with such controversy or litigation. As security for all fees and expenses of Escrow Agent hereunder and any and all losses, claims, damages, liabilities and expenses incurred by the Escrow Agent in connection with its acceptance of appointment hereunder or with the performance of its obligations under this Agreement and to secure the obligation of the LLLP to indemnify the Escrow Agent as set forth herein, the Escrow Agent is hereby granted a security interest in and a lien upon the Subscription Proceeds, which security interest and lien shall be prior to all other security interests, liens or claims against the Subscription Proceeds or any part thereof. (e) The Escrow Agent may resign at any time from its obligations under this Agreement by providing written notice to the LLLP. Such resignation shall be effective on the date set forth in such written notice, which shall be no earlier than thirty (30) days after such written notice has been given. In the event no successor escrow agent has been appointed on or prior to the date such resignation is to become effective, the Escrow Agent shall be entitled to tender into the custody of any court of competent jurisdiction all assets then held by it hereunder and shall thereupon be relieved of all further duties and obligations under this Agreement; provided however, the Escrow Agent shall be entitled to its compensation earned prior thereto. The Escrow Agent shall have no responsibility for the appointment of a successor escrow agent hereunder. (f) The Escrow Agent shall have no obligation to take any legal action in connection with this Agreement or its enforcement, or to appear in, prosecute or defend any action or legal proceeding which would or might involve the Escrow Agent in any cost, expense, loss or liability unless security and indemnity satisfactory to the Escrow Agent, shall be furnished. (g) The LLLP agrees to indemnify the Escrow Agent and each of its officers, directors, employees and agents and to save the Escrow Agent and each of its officers, directors, employees and agents harmless from and against any and all Claims (as hereunder defined) and Losses (as hereinafter defined) which may be incurred by the Escrow Agent or any of such officers, directors, employees or agents as a result of Claims asserted against Escrow Agent or any of such officers, directors, employees or agents directly or indirectly as a result of or in connection with Escrow Agent’s serving in the capacity of escrow agent under this Agreement. For the purposes hereof, the term “Claims” shall mean all claims, lawsuits, causes of action or other legal actions and proceedings of whatever nature brought against (whether by way of direct action, counterclaim, cross action or interpleader) the Escrow Agent or any such officer, director, employee or agent, even if groundless, false or fraudulent, so long as the claim, lawsuit, cause of action or other legal action or proceeding is alleged or determined, directly or indirectly, to arise out of, result from, relate to or be based upon, in whole or in part: (a) the acts or omissions of the LLLP, or (b) the appointment of the Escrow Agent as escrow agent under this Agreement, or (c) the performance by the Escrow Agent of its powers and duties under this Agreement. The term

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“Losses” shall mean all losses, costs, damages, expenses, judgments and liabilities of whatever nature (including but not limited to attorneys’, accountants’ and other professionals’ fees, litigation and court costs and expenses and amounts paid in settlement), directly or indirectly resulting from, arising out of or relating to one or more Claims. Upon the written request of the Escrow Agent or any such officer, director, employee or agent (each referred to hereinafter as an “Indemnified Party”), the LLLP agrees to assume the investigation and defense of any Claim, including the employment of counsel acceptable to the applicable Indemnified Party and the payment of all expenses related thereto and, notwithstanding any such assumption, the Indemnified Party shall have the right, and the LLLP agrees to pay the costs and expense thereof, to employ separate counsel with respect to any such Claim and to participate in the investigation and defense thereof in the event that such Indemnified Party shall have been advised by legal counsel that there may be one or more legal defenses available to such Indemnified Party which are different from or additional to those available to the LP. The LP hereby agrees that the indemnifications and protections afforded Escrow Agent and the other Indemnified Parties in this section shall survive the termination of this Agreement and any resignation or removal of the Escrow Agent. (h) The LP acknowledges that the Escrow Agent is serving as escrow agent for the limited purposes set forth herein and represents, covenants and warrants to the Escrow Agent that no statement or representation, whether oral or in writing, has been or will be made to any Subscriber to the effect that the Escrow Agent has investigated the desirability or advisability of investment in the Shares or approved, endorsed or passed upon the merits of such investment or is otherwise involved in any manner with the transactions contemplated hereby, other than as Escrow Agent under this Agreement. It is further agreed that the LP shall not use or permit the use of the name “PNC,” “PNC Bank,” “PNC Banks, Inc.” or any variation thereof in any sales presentation, placement or offering memorandum or literature pertaining directly or indirectly to the offering except strictly in the context of the duties of the Escrow Agent as escrow agent under this Agreement. Any breach or violation of the paragraph shall be grounds for immediate termination of this Agreement by the Escrow Agent. (i) The Escrow Agent shall have no duty or responsibility for determining whether the Shares or the offer and sale thereof conform to the requirements of applicable Federal or state securities laws, including but not limited to the Securities Act of 1933 or the Securities Exchange Act of 1934. The LP represents and warrants to the Escrow Agent that the Shares and the Offering will comply in all respects with applicable Federal and state securities laws and further represents and warrants that the LP has obtained and acted upon the advice of legal counsel with respect to such compliance with applicable Federal and state securities laws. The LP acknowledges that the Escrow Agent has not participated in the preparation or review of any sales or offering material relating to the Offering or the Shares. In addition to any other indemnities provided for in this Agreement, the LP agrees to indemnify and hold harmless the Escrow Agent and each of its officers, directors, agents and employees from and against all claims, liabilities, losses and damages (including attorneys’ fees) incurred by the Escrow Agent or such persons and which directly or indirectly result from any violation or alleged violation of any Federal or state securities laws.

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7.

Notices.

Any notices, elections, demands, requests and responses thereto permitted or required to be given under this Agreement shall be in writing, signed by or on behalf of the party giving the same, and addressed to the other party at the address of such other party set forth below or at such other address as such other party may designate in writing in accordance herewith. Any such notice, election, demand, request or response shall be addressed as follows and shall be deemed to have been delivered upon receipt by the addressee thereof:

8.

(a)

If to the LP: Palm House Hotel, LLLP 197 S. Federal Highway, Suite 200 Boca Raton, FL 33432 Attn: Joseph J. Walsh Phone: (561) 282-6102 Email: info@sarceb5.com

(b)

If to the Subscriber Representative: South Atlantic Regional Center, LLC 197 S. Federal Highway, Suite 200 Boca Raton, FL 33432 Attn: Joseph J. Walsh Phone: (561) 282-6102 Email: info@sarceb5.com

(c)

If to the Escrow Agent: PNC Bank Escrow Services 9875 Jog Road Boynton Beach, FL 33437

Successors and Assigns; Amendment.

The rights created by this Agreement shall inure to the benefit of and the obligations created hereby shall be binding upon the successors and assigns of the Escrow Agent and the LP; provided, however, that neither this Agreement nor any rights or obligations hereunder may be assigned by any party hereto without the express written consent of the other party hereto. This Agreement may not be amended without the written consent of all parties in writing. 9.

Construction. This Agreement shall be construed and enforced according to the laws of the State

of Florida.

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10.

Term.

This Agreement shall terminate and the Escrow Agent shall be discharged of all responsibilities hereunder at such time as the Escrow Agent shall have disbursed all Subscription Proceeds in accordance with the provisions of this Agreement; provided, however, that the provisions of Sections 6(g) and 6(i) hereof shall survive any termination of this Agreement and any resignation or removal of the Escrow Agent. [SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. “LP” Palm House Hotel, LLLP By: _____________________________________ Name: Joseph J. Walsh Title: General Partner

“SUBSCRIBER REPRESENTATIVE” South Atlantic Regional Center, LLC By: ______________________________________ Name: Joseph J. Walsh Title: Managing Member

“ESCROW AGENT” PNC BANK By: ______________________________________ Name: ___________________________________ Title: _____________________________________

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EXHIBIT A Certificate of Incumbency (List of Authorized Representatives)

Client Name: __________________________________________________________________ As an Authorized Officer of the above referenced entity, I hereby certify that the each person listed below is an authorized signor for such entity, and that the title and signature appearing beside each name is true and correct. Name

Title

Signature

Contact Number

IN WITNESS WHEREOF, this certificate has been executed by a duly authorized officer by:

By:______________________________

Date____________________

Title:____________________________

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EXHIBIT B Schedule of Fees

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SUBSCRIPTION AGREEMENT SUBSCRIBER: _____________________________________ Palm House Hotel, LLLP a Florida Partnership 197 S. Federal Highway, Suite 200, Boca Raton, FL 33432 RE:

Offering by Palm House Hotel, LLLP of Partnership interests

The undersigned Subscriber hereby subscribes to and agrees to purchase an equity interest in Palm House Hotel, LLLP, a Florida limited liability Partnership (“Partnership”) consisting of a $500,000 equity investment in Partnership (“Investment”) as set forth below on the signature page hereof. The investment in Partnership, and indirectly in the Hotel Project (“Project”) is described in the Private Placement Memorandum (“Memorandum”). The Partnership will be managed by South Atlantic Regional Center, LLC (“General Partner”). All capitalized terms not otherwise defined herein shall have the meaning specified in the Memorandum. In addition to the $500,000 investment, each Subscriber will pay concurrently to General Partner an organizational and administration fee of $40,000, as described in the Memorandum and LP Agreement. Upon General Partner’s acceptance of the Subscription, the entire $540,000 shall be wired into an Escrow. Subscriber, by executing this Subscription Agreement, does hereby certify and agree as follows: 1. I have had a personal interview (the “Interview”) with the representative of General Partner. During the course of the Interview, we discussed the information concerning the Partnership, General Partner, and their business in great detail and I had the opportunity to obtain any additional information I believed I needed in order to evaluate the risks and merits of the investment. I have also been provided with the Memorandum that provides certain 11/24/2012

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information concerning an investment in the Partnership. In addition, I have undertaken such independent due diligence activities as I feel necessary in order to determine the viability of the Partnershipâ&#x20AC;&#x2122;s and the Project. No oral representations have been made or oral information furnished to the undersigned or his advisor(s) in connection with the offering of this investment, which were in any way inconsistent with the Memorandum. 2. I understand, acknowledge and agree that the proceeds to be received by the Partnership from my investment will be used for development of the Project that is described in the Memorandum and that I am relying on the abilities of the management of General Partner with respect to such investment. 3. I, or my competent professional advisors, if any, have such knowledge and experience in business and financial matters to enable me to utilize the information made available to me in connection with the offering of the Investment to evaluate the merits and risks of the proposed investment and to make an informed investment decision. 4. I understand that I or my authorized representatives have had the opportunity to obtain from General Partner any additional information, such as documents, records, and books pertaining to this investment to the extent possessed or obtainable without unreasonable effort or expenses, necessary to evaluate the merits and risks of the proposed investment and I have concluded, based on information presented to me, my own understanding of investments of this nature and the advice of such consultants as I deem appropriate, that I wish to subscribe for the amount of the Investment set forth below. 5. I understand that the investment has tax implications, and that any income therefrom may be subject to U.S. or Florida State income tax withholding. I further understand that I am advised to consult with a tax professional on tax-related aspects of the Investment. 6. I understand that the Investment being acquired hereby has not been registered under the Securities Act of 1933 (the Act) or the securities laws of the State of Florida or any other state and therefore, I must bear the economic risks of the investment for an indefinite period of time since the Investment cannot be sold or offered for sale unless subsequently so registered or an exemption from such registration is available. Finally, it is my understanding that there is virtually no market for the resale of investments such as this and that any realization on the value of my investment will, in all probability, be solely from the distribution of cash realized upon the liquidation of the Partnership or from operations. 7. I agree not to transfer or assign this Subscription Agreement, or any of my interest herein. I understand that any certificate evidencing the Investment purchased will bear a restrictive legend and that the transfer records of the Partnership will indicate the restrictions on transferability and sale noted in Paragraph 7 above. I agree that I will not dispose of any of the Investment subscribed for hereunder unless I have complied with the terms of the LLC Agreement and delivered to the Partnership an opinion of counsel in form acceptable to the Partnership that the proposed disposition does not violate the Act and the rules and regulations of the Securities and Exchange Commission or any applicable state blue sky or securities laws. 8. The Investment is being purchased for my own account, for investment purposes only, and not for the account of any other person, and not with a view to distribution, assignment, or resale to others or to fractionalize in whole or in part and that the offering and sale of the Investment is intended to be exempt from registration under the Act by virtue of Section 4(2) of the Act. In furtherance thereof, I represent, warrant, and agree as follows: (i) no other person has or will transfer such Investment except in accordance with the Act, the LLC Agreement of the Partnership and applicable state securities laws or unless, in the opinion of

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counsel for the Partnership, an exemption from the registration requirements of the Act and such laws is available; and (ii) the Partnership is under no obligation to register the Investment on my behalf or to assist me in complying with any exemption from registration. 9. I am aware of and understand that the Investment is a speculative investment, which involves a high degree of risk of loss by me of my entire investment. In this connection, I have carefully considered the information furnished to me during the Interview and contained in the Memorandum. 10. I ACKNOWLEDGE THAT I AM NOT RELYING ON ANY REPRESENTATIONS OR PROJECTIONS CONCERNING THE OPERATIONS OF THE OWNER OR THE PARTNERSHIP, EXPRESS OR IMPLIED, ORAL OR WRITTEN, AND FURTHER ACKNOWLEDGE THAT I HAVE BEEN ADVISED TO CONSULT MY OWN TAX ADVISOR CONCERNING THE TAX ASPECTS OF AN INVESTMENT IN THE PARTNERSHIP. MY DECISION TO PURCHASE IS BASED UPON MY OWN INDEPENDENT ANALYSIS OF THE BUSINESS PROSPECTS OF THE OWNER AND THE PARTNERSHIP. I FURTHER ACKNOWLEDGE THAT I UNDERSTAND THAT ANY ESTIMATES OF THE PARTNERSHIP’S ECONOMIC PERFORMANCE PROVIDED TO ME MERELY REPRESENT THE PARTNERSHIP’S ESTIMATES OR RESULTS OF OPERATION AND THERE CAN BE NO ASSURANCE WHATSOEVER THAT THE ESTIMATED RESULTS CAN OR WILL BE ACHIEVED. 11. I shall indemnify and hold harmless from and against all demands, damages, losses, liabilities, costs and expenses the Partnership and General Partner, and any of their officers, employees, directors, and control persons as well as affiliates, representatives, attorneys, accountants and agents who were or are a party or are threatened to be made a party of any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of or arising from my actions, my failure to be an accredited investor, to fulfill any of the terms or conditions of this Subscription Agreement, by my breach of the representations and warranties I have made herein, or in the LP Agreement, or in any other document I have provided to General Partner, or any actual or alleged misrepresentation or misstatement of facts or omission to represent or state facts made by me to the Partnership concerning myself or my financial position or otherwise made herein in connection with the offering or sale of the Investment including any violation of the Securities Act of 1933 or the Securities and Exchange Act of 1934, from and against all demands, damages, losses, liabilities, costs and expenses (including attorneys fees, judgments, fines and amounts paid in settlement) as actually and reasonably are incurred in connection with such action, suit, or proceeding. 12. I understand that this Subscription may be rejected, in whole or in part, by the Partnership in its sole discretion, at any time prior to the Offering termination, notwithstanding prior receipt by me of notice of acceptance of my subscription. 13. I understand the risks associated with the EB-5 immigration program. These risks include, but are not limited to: (1) my immigration status is not guaranteed by the Partnership or any other entity, and is wholly reliant on a determination by the USCIS, (2) my entire investment is “at risk” and is not guaranteed by any party, (3) that if the requisite number of jobs (10 per investor) are not created, then my I-829 application to have conditions removed will be denied by the USCIS. I understand that I am advised to seek independent immigration counsel. 14. This Subscription is and shall be irrevocable. I agree that I may not cancel or terminate or revoke this Agreement, or any agreement I make hereunder. I agree that this Agreement shall survive my death or disability, and shall be binding upon my heirs, executors,

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administrators, successors and assigns. However, I shall have no obligations hereunder in the event that (i) this Subscription is rejected for any reason or (ii) the terms of the Offering have not been satisfied. 15. I am aware that no federal or state agency has made any finding or determination as to the fairness of this Offering for investment, nor any recommendation or endorsement of the Investment. I AM AWARE AND UNDERSTAND THAT (A) THERE ARE NO FINANCIAL STATEMENTS FOR THE PARTNERSHIP; AND (B) NO DUE DILIGENCE HAS BEEN PERFORMED BY ANY COUNSEL OR ACCOUNTANT FOR THE PARTNERSHIP WITH RESPECT TO THE ISSUANCE AND SALE OF THE INVESTMENT TO ME. 16. I acknowledge that the information given to me during the interview and the information set forth in the Memorandum is confidential and non-public and agree that all such information shall be kept in confidence by me and neither used by me to my personal benefit (other than in connection with my subscription for Investment) nor disclosed to any third party for any reason; provided that this obligation shall not apply to any such information which (i) is part of the public knowledge or literature and readily accessible at the date hereof; (ii) becomes part of the public knowledge or literature and readily accessible by publication (except as a result of a breach of these provisions); or (iii) is received from third parties (except third parties who disclose such information in violation of any confidentiality agreements including, without limitation, any Subscription Agreement they may have with the Partnership). 17. All information which I have provided concerning myself, my financial position and my knowledge of financial and business matters and that of my representatives is correct and complete as of the date hereof, and if there should be any material change in such information prior to the acceptance of the subscription, I will immediately provide the officers of General Partner with such information. 18.

If I am an individual, I am 21 years of age or older.

19. I acknowledge and agree that I have (i) read, (ii) fully understand, personally or through the advice from my competent professional advisors, and (iii) specifically accept and adopt, each and every provision of the Partnership LP Agreement, a copy of which is annexed to the Memorandum as Exhibit A and do simultaneously with executing this Subscription Agreement, execute such LP Agreement subject to acceptance by General Partner. 20. This Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of Florida. 21. Within ten (10) days after receipt of a written request from General Partner, I agree to provide such information and to execute and deliver such documents as reasonably may be necessary to comply with any and all laws and ordinances to which the Partnership is subject. 22. I have read and understand the LP Agreement, including the section concerning the Executive Order on Terrorist Financing issued September 23, 2001 by President George W. Bush (Order). (The Order is available on-line at: www.whitehouse.gov/news/releases/2001/09/20010924-1.html). The term Terrorist as used herein shall have the same meaning as the phrase following persons in Section 1 of the Order. The Order includes named organizations (e.g. Al Qaida) and persons (e.g. Osama bin Laden) as well as others determined by federal officials to be controlled by, providing assistance to or associates of such organizations and persons. Among other things, the Order provides that: all property and interests in property of the following persons ... are blocked, any transaction or

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dealing ... in property or interests in property blocked ... is prohibited, any transaction ... that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in this order is prohibited, and any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited. The phrase following persons (hereinafter referred to as Terrorists) is generally defined in the Order as meaning terrorists, including a specified list or persons and organizations. I hereby represent and warrant that I am not a Terrorist as described above. 23. I am a resident of: _________________________________________________ (list U.S. state or province/country). 24. I AM AN ACCREDITED INVESTOR! I am aware that the Investment is being offered to accredited investors only. I acknowledge and warrant that I am an accredited investor because (check appropriate category):

25.

a. ______

My individual net worth (without any exclusions), or joint net worth together with my spouse (if any), is in excess of $1,000,000 (exclusive of my or my spouseâ&#x20AC;&#x2122;s primary residence).

b. ______

My individual income was in excess of $200,000 in each of the past two years (excluding my spouseâ&#x20AC;&#x2122;s income), or my joint income with my spouse was in excess of $300,000 in each of the past two years, and I expect to have an income in excess of that amount in the current year.

I hereby provide you with the following information and representations: 1. Employer and Position: _____________________________________________ 2. Business Address and Telephone Number: _____________________________ ________________________________________________________________ 3. Business or professional education and degrees: ________________________ ________________________________________________________________ 4. Prior Employment (5 Years):

EMPLOYER ______________________

NATURE OF DUTIES DATES OF EMPLOYMENT ______________________ _______________________

______________________

______________________ _______________________

______________________

______________________ _______________________

5. Prior Investments of Purchaser (cumulative amount):

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Real Estate:

None: _____

Up to $100,000: _____

Over $100,000: _____

Oil and Gas:

None: _____

Up to $100,000: _____

Over $100,000: _____

Other:

None: _____

Up to $100,000: _____

Over $100,000: _____

SUBSCRIPTION AGREEMENT Palm House Hotel, LLLP

5


THE INFORMATION CONTAINED IN THIS SUBSCRIPTION AGREEMENT WILL BE TREATED CONFIDENTIALLY. However, I agree that you may present this Subscription Agreement to such parties as you deem appropriate if the Partnership is called upon to establish that the proposed offer and sale of the Investment is exempt from registration under the Act, or meets the requirements of applicable state securities laws. IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement. Signature: ________________________________________ Date: ___________ ____, 20____ Amount of Investment: $500,000 Ownership interest to be vested in the name(s) as follows: Name Typed or Printed: _______________________________________________________ Social Security Number:______________________________ Phone Number:______________________ Email:___________________________________ Street Mailing Address: _________________________________________________________ City: ________________________________

State or Province: ____________________

Country: _____________________________

Zip / Postal Code: ____________________

The initial $40,000 check will be deposited into escrow and should be made payable to: “PNC Bank, as Escrow Agent for Palm House Hotel, LLLP.”

If your subscription is not accepted, please indicate your beneficiary bank to return your investment: Wire Instructions for payments to Beneficiary Bank: Beneficiary Name: _____________________________________ Beneficiary Address:____________________________________ Beneficiary Bank Account Number:________________________ Beneficiary Phone Number: ______________________________ Beneficiary ID (Passport Number):_________________________ Beneficiary Bank Name:_________________________________ Beneficiary Bank Address:________________________________ Branch SWIFT Code: ___________________________________ *If required* Intermediary Bank Name: _______________________________ *If required* Intermediary Bank Address:______________________________ *If required* Intermediary Bank SWIFT Code: _________________________

11/24/2012

SUBSCRIPTION AGREEMENT Palm House Hotel, LLLP

6


EB 5

速 n tio e P

Guiding you through the

IMMIGRATION APPLICATION CHECKLIST


EB-5 FOREIGN INVESTMENT IMMIGRATION APPLICATION CHECKLIST

1 For Internal Use Only Name of Primary Applicant (PA): Date of Review: Name of Reviewer:

Client ID No.:

IMPORTANT: All non-English documents must have a complete copy of notarized English translation ESSENTIAL DOCUMENTS: Received Missing Problem

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[]

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Application fee for Homeland Security - $1,500 USD bank draft

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Remittance of $500,000 USD to escrow account

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I-526 form signed

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G-28 form signed

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I-829 form signed

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W-8BEN form signed

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Operating Agreement of program signed

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Subscription Agreement signed

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Subscription to Escrow Agreement signed

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Investor Eligibility Questionnaire signed (must be “accredited investor”)

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Original of Non-Disclosure and Non-Circumvention agreement signed

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Lawyer Agency Agreement signed

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Notarized English translations of all documents submitted

Client ID No:

Rev. Date 02/27/12 I-526 Document Checklist

1


EB-5 FOREIGN INVESTMENT IMMIGRATION APPLICATION CHECKLIST

2 IDENTIFICATION DOCUMENTS: Received Missing Problem

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Copy of passports of PA and family member(s) (all pages)

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Notarized birth certificates of PA and family member(s)

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If applying with spouse, Notarized Marriage Certificate

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Resident ID cards of PA and family member(s)

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Copy of PA and familyâ&#x20AC;&#x2122;s Household Register

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Notarized criminal background check of PA and any family member(s) over the age of 16 years old.

SOURCE OF FUNDS: Received Missing Problem

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Provide narrative on source of funds and path of $500,000 USD investment, as detailed below

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Resume of applicant

If Through Employment Income: ! Received Missing Problem

[] [] [] [] [] []

[] [] [] [] [] []

[] [] [] [] [] []

Proof of income used to make investment (resume is not enough) - Pay stubs - Income tax returns - Work income certificate from employer - Board minutes or company statement re: salary / bonuses paid to PA - Company Info: business license, registration, permits, taxes paid, audits, PA ownership percentage

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Bank statements showing PATH of funds earned above

Client ID No:

Rev. Date 02/27/12 I-526 Document Checklist

2


EB-5 FOREIGN INVESTMENT IMMIGRATION APPLICATION CHECKLIST

3 If Through Real Estate Sale, Mortgage, or Lease: Received Missing Problem

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Proof of income used to purchase the Real Estate

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Proof of Real Estate purchase (amount and date of purchase)

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Deeds, mortgage, appraisals, tax payments, etc. showing purchase/ownership

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If sale, proof of Real Estate sale (amount of date of sale)

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If mortgage/loan based on Real Estate owned, provide mortgage documents

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If rental property, lease agreement showing amount of rent received

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Bank statements showing PATH of funds used to purchase house & receipt from sale/mortgage

If Through Other Investment Income: Received Missing Problem

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Proof of income used to purchase investment assets

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Proof of asset(s) purchased (amount and date of purchase)

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Deeds, stock certificates, statements, etc. showing purchase/ownership

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If sale, proof of asset(s) sale (amount and date of sale)

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If loan based on asset(s) owned, provide loan documents

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Bank statements showing PATH of funds used to purchase asset(s) & receipt from sale/loan

Client ID No:

Rev. Date 02/27/12 I-526 Document Checklist

3


EB-5 FOREIGN INVESTMENT IMMIGRATION APPLICATION CHECKLIST

4 If Through Loan: Received Missing Problem

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Loan agreement contract, or statement of person or company providing loan

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If from person, legal source of funds of the person providing the loan (see sections above)

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If from company, legal source of capital invested into the company by PA (see sections above)

[] []

[] []

[] []

[]

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- Board minutes or company statement re: Loan provided to PA - Company Info: business license, registration, permits, taxes paid, audits, PA Ownership Bank statements showing PATH of funds received

If Through Gift:

Received Missing Problem

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Statement of person(s) providing gift

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Legal source of funds of person(s) providing the gift (see sections above)

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If gift is Real Estate, provide documentation of transfer of ownership to PA

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Bank statements showing PATH of funds received

If Through Inheritance, Lawsuit, Other Sources: Received Missing Problem

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If through inheritance, documentation of will or court order

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If through lawsuit or divorce proceedings, copy of court order

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If through other, proof of lawful source

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Bank statements showing PATH of funds received

Client ID No:

Rev. Date 02/27/12 I-526 Document Checklist

4


EB-5 FOREIGN INVESTMENT IMMIGRATION APPLICATION CHECKLIST

5 PATH OF FUNDS: Received Missing Problem

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Wire Transfer / bank statements showing remittance of $500,000 USD to escrow account

Path of Funds for all sources above: Received Missing Problem

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Path of funds from money earned to bank account used to make $500,000 USD investment

Path of Funds for Currency Exchange / Capital Exchange: Received Missing Problem

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Declaration of third party members with list of names, personal ID numbers, and signatures

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Bank statements documenting transfer of funds from PA’s account to third party accounts

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Personal remittance vouchers from each friend or relative back to PA’s account

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Copy of deposit slips totaling $500,000 USD into PA’s individual account

OTHER DOCUMENTS: Received Missing Problem

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If business name changes, documentation of name changes and prior names

[]

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[]

If adopted children, notice of adoption

Client ID No:

Rev. Date 02/27/12 I-526 Document Checklist

5


! ! ! ! ! ! ! ! !

!"#"$%&$'"()(&#"(*+!%

&% $% '% "% (% )% (% &% #% "% (% *% +% !% %


State of Florida Department of State I certify from the records of this office that UNITED STATES REGIONAL ECONOMIC DEVELOPMENT AUTHORITY, INC is a corporation organized under the laws of the State of Florida, filed on March 19, 2010, effective March 15, 2010. The document number of this corporation is P10000024689. I further certify that said corporation has paid all fees due this office through December 31, 2010, and its status is active. I further certify that said corporation has not filed Articles of Dissolution.

Given under my hand and the Great Seal of Florida, at Tallahassee, the Capital, this the Sixth day of July, 2010

Authentication ID: 100182950961-070610-P10000024689 To authenticate this certificate,visit the following site, enter this ID, and then follow the instructions displayed.

https://efile.sunbiz.org/certauthver.html


State of Florida Department of State I certify from the records of this office that SOUTH ATLANTIC REGIONAL CENTER, LLC is a limited liability company organized under the laws of the State of Florida, filed on June 11, 2010, effective June 10, 2010. The document L10000062746.

number

of

this

limited

liability

company

is

I further certify that said limited liability company has paid all fees due this office through December 31, 2010, and its status is active. I further certify that said limited liability company has not filed Articles of Dissolution.

Given under my hand and the Great Seal of Florida, at Tallahassee, the Capital, this the Sixth day of July, 2010

Authentication ID: 200182951372-070610-L10000062746 To authenticate this certificate,visit the following site, enter this ID, and then follow the instructions displayed.

https://efile.sunbiz.org/certauthver.html


S.A.R.C.

BUSINESS PLAN


SOUTH ATLANTIC REGIONAL CENTER

PALM HOUSE, LLC PALM HOUSE HOTEL, LLLP Palm House Hotel Project Seeking $39,500,000 in EB-5 funding

CONFIDENTIAL BUSINESS REVIEW NOTICE The information presented in this document is highly sensitive and confidential and is presented for investment purposes only. This Confidential Business Review and the information presented is confidential and no part of it shall be disclosed to others except as authorized by the prior written consent of Palm House. This Confidential Business Review cannot be reproduced, in whole or in part, or used in any other manner without the prior written consent of Palm House. The information contained in this confidential business review is being presented to give investors a thorough understanding of the Project known as the Palm House Hotel Project. For Further Information, Contact: Joseph J. Walsh, Sr. Tel: (561) 282-6102 Email: info@sarceb5.com The contact address of SARC is 197 S. Federal Highway, Suite 200, Boca Raton, FL 33432. 12/18/2012

SARC / Palm House, LLC (Palm House Hotel Project) Confidential Business Review

Page 1


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1.0 EXECUTIVE SUMMARY The Project

Palm House Hotel, LLLP (the “Partnership”) will use EB-5 capital to loan money to Palm House, LLC (the “Company”), which will finance, construct, develop, and operate a luxury hotel in the Region. This facility will be located in Palm Beach, Florida, which is in a Targeted Employment Area.

EB-5 Investment Offering Organization and Structure

The Partnership will accept 79 EB-5 investors as limited partners with all the rights and responsibilities accorded under the Uniform Limited Partnership Act as adopted by the State of Florida in satisfaction of the “policy formulation” requirement of 8 C.F.R. 204.6(j)(5)(iii). The Partnership will loan money to the Company, which will own and manage the luxury hotel.

Project Costs and Capitalizations

The total project costs amount to approximately $91,000,000. The Partnership will raise $39,500,000 in EB-5 capital and $51,500,000 in other funding. A complete description of the capitalization and the sources & uses of funds is available in the “Financial” section of this document.

Project Development & Schedule

A complete development schedule of 12–18 months is projected for the new facility. The full requisite employment needed for EB-5 investors will be available before the I-829 petitions will be submitted.

Project Job Creation

According to the included Economic Analysis, the Project will create 953.7 permanent jobs.

TEA Designation

As verified by the Florida Department of Economic Opportunity on November 14, 2012, the project is located in Census tract 35.02, which qualifies as a Targeted Employment Area (TEA). Therefore the minimum EB-5 investment amount is reduced to $500,000 per investor.

Job Creation Sufficiency

The total job creation (953.7 jobs) created is sufficient for a project located in a TEA (79 investors or 790 jobs).

Return on Investment

EB-5 investors will be offered a projected 0.25% per annum return on investment, paid from profits of the commercial enterprise.

1.1 Description of the Company The Company, Palm House, LLC (“Palm House”), is a Florida corporation that will serve as the developer of the project known as the Palm House Hotel Project. Palm House will operate in conjunction with the South Atlantic Regional Center (“SARC”). Palm House will apply to the

12/18/2012

SARC / Palm House, LLC (Palm House Hotel Project) Confidential Business Review

Page 4


Limited Partnership for loans to provide capital for the development of the business of the Company. The Limited Partnership will be the Lender of the EB-5 investor funds. 1.2 Venture Overview

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SARC is an approved United States Citizenship and Immigration Service (USCIS) designated EB-5 Regional Center (approval receipt number W09001240), based in Boca Raton, Florida, that has as its geographical area one county in Florida: Palm Beach County. This county is shown on the map below.

Map showing the location of the County comprising the Region The following is an overview of how the Regional Center will operate under the EB-5 Program.

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1.3 Corporate Structure The name of the Regional Center is South Atlantic Regional Center (“SARC”). The Regional Center oversees and advises the EB-5 process, ensures compliance with USCIS regulations, manages the Limited Partnership directly as the General Partner, and handles USCIS filing requirements (such as I-924A filings). The developer and owner of the Palm House Hotel Project will be Palm House, LLC (“Palm House”), a Florida limited liability corporation, which will borrow investor funds from the lender, Palm House Hotel, LLLP (“PHH, LLLP”), for job-creating purposes. PHH, LLLP will be comprised of its General Partner, SARC, and each of the foreign investors as its Limited Partners, as shown in the figure below. With the proposed EB-5 investment structure, each of the foreign investors will be a Limited Partner in PHH, LLLP, thereby allowing the foreign investors to make a qualified investment in a “new commercial enterprise” and fulfill the requirements necessary to obtain approval for permanent residency pending the conditional twoyear time period.

12/18/2012

SARC / Palm House, LLC (Palm House Hotel Project) Confidential Business Review

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1.4 Path of Funds The creation of jobs for PHH, LLLP results from the investment of EB-5 capital into Palm House, LLC, a new commercial enterprise. As more fully described in the Economic Analysis attached hereto, the jobs will result from EB-5 capital expended as described herein.

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1.5 Mission Statement The mission of South Atlantic Regional Center is to obtain funding for development of various profitable ventures within Targeted Employment Areas (TEAs) located within the geographical area of the Regional Center (the “Region”). Such projects are projected to include hospitality, restaurants, manufacturing, and other facilities in the Region. Specifically, the Company plans to build, develop, and operate a luxury hotel in Palm Beach, Florida (the Palm House Hotel). Further details of this project can be found in the “Palm House Hotel Project” section of this Confidential Business Review. 1.6 Implementation of Business Plan The Company will focus on developing a luxury hotel in Palm Beach, Florida (the focus of this Confidential Business Review). The Company believes the timing is right to leverage the Company’s knowledge, the skills and experience of its management team, and its access to capital through the EB-5 Program, in order to develop the Project at a profit.

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The Palm House Hotel is being developed as an ultra-premium luxury hotel and resort, on the island of Palm Beach, Florida. Only half a block from the ocean and a few blocks from worldfamous Worth Avenue, the Palm House Hotel is ideally located, and will be ideally developed and operated by the project Developer to provide its guests with the ultimate luxury experience. Of course, the EB-5 programâ&#x20AC;&#x2122;s primary focus is job creation. Palm House Hotel, LLLP is excited to be an important factor in investing in the creation of new jobs. The project described herein will provide a beneficial impact to the community, provide jobs, and provide a boost to the local and national economies. 1.7 Financial The Company anticipates that it will be able to operate a luxury hotel in the Region on a profitable basis. Value Proposition for EB-5 Investment Opportunity The Company has uniquely positioned itself to leverage both its availability to capital via the EB-5 Program and expertise in the hospitality industry. The Company has identified a neighborhood and market needs that are being under-served or ignored completely. The Company is optimally positioned to exploit this market opportunity through the obtainment of capital investment development funds through the EB-5 program. 1.8 Sources of Proceeds The amount of funds anticipated to be received on account of the Offering is $39,500,000. The Companyâ&#x20AC;&#x2122;s principal method of obtaining such funds will be by offering Units in PHH, LLLP to EB-5 Investors pursuant to the EB-5 Program, which limited partnership will in turn make loans to Palm House. Such activities will operate to grant lawful conditional and permanent resident status in the United States to foreign investors who make qualifying investments under the Immigration Act and EB-5 Program. Under the EB-5 Pilot Program: (i) qualified foreign investors must make a qualifying investment in a new enterprise and complete the required immigration procedures; and (ii) a qualifying investment must be invested in a project which creates at least ten (10) full time direct and/or indirect jobs for qualified U.S. workers for each $500,000 invested when such investments are made within a targeted employment area. The subject project will create a sufficient number of full time direct and/or indirect jobs such that the investments in the subject project will qualify as qualifying investments under the EB-5 Program. Please see the econometric analysis attached to this Confidential Business Review that: (i) quantifies the benefits of the Company to the state and local economy; and (ii) demonstrates that each investment in PHH, LLLP will create at least ten (10) full time direct and/or indirect jobs for qualified U.S. workers for each $500,000 invested by each EB-5 Investor.

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Please see the discussion of the EB-5 opportunity and EB-5 Program and requirements appearing in the “EB-5 Investor and Regional Center Information” section of this Confidential Business Review. 1.9 Use of Proceeds The proceeds will be used to develop the Palm House Hotel Project within the Region. The Company plans to begin with the development of a facility in the Region very similar in scope, financing, employment creation, and structure to this Confidential Business Review. Future facilities developed through the Company will be similar in scope, execution, financing, creation of employment, and economic impact on the area. Please see the “Financial” section of this Confidential Business Review for more information. 1.10 Projected Return on Investment Based upon the pro forma financial projections, it is anticipated that the Company will generate significant returns on investment. The projected earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first year of operation are $5,141,587, for the second year are $5,862,505, for the third year are $6,676,634, for the fourth year are $7,337,635, and for the fifth year are $7,251,401. For a more detailed breakdown, please see the “Financial” section of this document. 1.11 Foreign Investor Return on Investment The return on the investment for each investor is projected at 0.25% per annum, paid from profits from the commercial enterprise. Investors are projected to receive a 0.25% simple interest payment annually until such time as the investment has been returned to the investors. 1.12 Management, Staff, and Employees The Management of the Company is experienced in the areas of finance and development, and has partnered with experts in the hospitality field. Together, the Company and its partners and consultants have the expertise to execute its business strategy. The Company will employ a staff of highly trained, respected, and dedicated managers and support staff to operate the facilities it develops. Please see the “Management” and “Employment and Staffing” section of this Confidential Business Review for more information. 1.13 Matter of Ho Compliance This Confidential Business Review is compliant with the standards of Matter of Ho, 22 I&N Dec. 206 (Assoc. Comm., 1998) (pg. 9), which states:

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“A comprehensive business plan as contemplated by the regulations should contain, at minimum, a description of the business, its products and/or services, and its objectives. The plan should contain a market analysis, including the names of competing businesses and their relative strengths and weaknesses, a comparison of the competition’s products and pricing structures, and a description of the target market/prospective customers of the new commercial enterprise. The plan should list the required permits and licenses obtained. If applicable, it should describe the manufacturing or production process, the materials required, and the supply sources. The plan should detail any contracts executed for the supply of materials and/or the distribution of products. It should discuss the marketing strategy of the business, including pricing, advertising, and servicing. The plan should set forth the business’s organizational structure and its personnel’s experience. It should explain the business’s staffing requirements and contain a timetable for hiring, as well as job descriptions for all positions. It should contain sales, cost, and income projections and detail the bases therefore. Most importantly, the business plan must be credible.” As such, this business plan contains the following: •

A comprehensive business plan as contemplated by the regulations should contain, at minimum, a description of the business, its products and/or services, and its objectives. (See Section 3.)

A market analysis, including the names of competing businesses and their relative strengths and weaknesses (See Section 7)

A comparison of the competition’s products and pricing structures (See Section 7.2)

A description of the target market/prospective customers of the new commercial enterprise (See Sections 7.1 and 8.2)

The plan should list the required permits and licenses obtained (See Section 4.3)

If applicable, it should describe the manufacturing or production process, the materials required, and the supply sources. (N/A)

The plan should detail any contracts executed for the supply of materials and/or the distribution of products (N/A)

It should discuss the marketing strategy of the business, including pricing, advertising, and servicing. (See Section 3.2, 3.3, and 4.6)

The plan should set forth the business’s organizational structure and its personnel’s experience. (See Sections 1.3 and 6)

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It should explain the business’s staffing requirements and contain a timetable for hiring, as well as job descriptions for all positions. (See Section 5)

It should contain sales, cost, and income projections and detail the bases therefore. (See Section 4.6)

The business plan, as presented is extremely credible based upon solid management with years of experience, conservative projections, detailed market and competitive analysis, and demonstrates management’s solid understanding of the project and market landscape.

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2.0 GLOSSARY OF TERMS The following definitions and terms shall apply in this Confidential Business Review unless otherwise specifically provided to the contrary. 2.1 Key Definitions Company – Palm House, LLC (“Palm House”), a Florida limited liability company that will own and develop the Palm House Hotel Project. The “Company” and “Palm House” are one and the same entity and are used interchangeably in this Confidential Business Review. Limited Partnership – Palm House Hotel, LLLP (“PHH, LLLP”), a Florida limited partnership, which will consist of SARC as its General Partner, and each of the foreign investors who purchase a Unit in the Limited Partnership as its Limited Partners. The Limited Partnership will aggregate EB-5 investor funds and loan them to the Company for job-creating purposes. General Partner – The general partner of the Limited Partnership is SARC, a Florida limited liability company that also serves as the Regional Center. Regional Center – South Atlantic Regional Center, LLC, d/b/a South Atlantic Regional Center (“SARC”), a Florida limited liability company, which will function as the Regional Center. The Regional Center will oversee and advise the Project, the EB-5 process, and the associated entities. Project – The Palm House Hotel Project. An undertaking to develop a luxury hotel in the Region. Region – Consists of one county in Florida: Palm Beach County (see map in “Executive Summary”). This county includes the city of Palm Beach. 2.2 Other Definitions EB-5 Investor – An Alien Entrepreneur who is an Investor and is seeking to obtain a visa pursuant to the Immigration Act. EB-5 Limited Partner – A limited partner in Palm House Hotel, LLLP (“PHH, LLLP”), with certain rights, powers and duties normally granted to limited partners under the Uniform Limited Partnership Act, who is admitted to the PHH, LLLP in accordance with the EB-5 Immigrant Investment Program and USCIS policy memoranda and Administrative Appeals Office precedent decisions governing the EB-5 Program. EB-5 Program – There are two distinct EB-5 pathways for an alien investor to gain lawful permanent residence, the Basic Program and the Regional Center Pilot Program. Both programs require that the alien investor make a capital investment of either $500,000 or $1,000,000 (depending on whether the investment is in a TEA or not) in a new commercial enterprise located within the United States. The new commercial enterprise must create or preserve 10 fulltime jobs for qualifying U.S. workers within two years of the alien investor’s admission to the

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United States as a Conditional Permanent Resident (CPR). When making an investment in a new commercial enterprise affiliated with a USCIS-designated regional center under the Regional Center Pilot Program, an alien investor may satisfy the job creation requirements of the program through the creation of either direct or indirect jobs. Notably, an alien investing in a new commercial enterprise under the Basic Program may only satisfy the job creation requirements through the creation of direct jobs. If the regional center proposal bases its predictions regarding the number of direct or indirect jobs that will be created through EB-5 investments in the regional center, in whole or in part, by offering investment opportunities to EB-5 investors with the reduced $500,000 threshold, then the Targeted Employment Areas (TEAs), Rural Areas (areas with populations under 20,000 people) and areas of high unemployment (areas with unemployment rates 150% or more of the national rate), should be identified. Note: An alien filing a regional center affiliated Form 1-526 must still establish that the investment will be made in a TEA at the time of filing of the alien’s Form 1-526 petition, or at the time of the investment, whichever occurs first, to qualify for the reduced $500,000 capital investment threshold. High Unemployment Area – A geographical area which has experienced unemployment of at least 150 percent of the national average rate. See INA § 203(b)(5)(B)(ii). Immigration Act – The Immigration Act at 8 USC 1153(b)(5)(A)(i)-(iii), (B)(i)-(iii), (C)(i)-(iii) and (D). Investor – A prospective purchaser of a Unit in PHH, LLLP. If an Investor purchases a Unit in PHH, LLLP, such Investor shall thereafter be referred to as a Limited Partner. Limited Partner – A Limited Partner in PHH, LLLP. Management – The Managers of the Company, described in more detail in the “Management” section of this Confidential Business Review. Minimum EB-5 Investment – $500,000.00 (US) for each Unit purchased. Offering – The offering of Units in PHH, LLLP pursuant to the Private Placement Memorandum. Partnership Agreement – The Limited Partnership Agreement of Palm House Hotel, LLLP, as the same may be amended from time to time. All definitions utilized in the Partnership Agreement are incorporated herein by reference. Person – Any individual, firm, partnership, corporation, limited liability company, or any other form of legal entity. Preferred Return – The Preferred Return to be paid to each Limited Partner as more particularly described in the “Return on Investment” section of this Confidential Business Review. Project Documents – (a) Partnership Agreement; (b) Confidential Business Review; and (c) Agreement for Sale and Purchase (together with attached Exhibits).

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ROI – Return on investment. Rural Area (a “RA”) – A geographical area located both outside of a Metropolitan Statistical Area (“MSA”) and outside of a city or town having a population of 20,000 or more based on the most recent decennial census of the United States. See INA § 203(b)(5)(B)(iii) and 8 CFR §204.6(j)(6)(i). Targeted Employment Area (a “TEA”) – A Rural Area, a defined term, or an area designated by the state as a High Unemployment Area, a defined term. Unit – A limited partnership unit in Palm House Hotel, LLLP, which will be offered under Regulation S to foreign nationals outside the U.S. at a purchase price of $500,000.00 each.

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3.0 PALM HOUSE HOTEL PROJECT Contained in the “Financial” section of this Confidential Business Review is a detailed description of the finances for the Palm House Hotel Project, currently being developed by the Company.

PROJECT SPECIFICATIONS Luxury Hotel and Resort Project

Construction and operation of a luxury hotel.

Project Location

Palm Beach Island, Palm Beach County, Florida, which is within the geographic area of the RC

Project Elements

Industry Clusters

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Luxury Hotel • 79 guest rooms offering 5-star luxury accomodations • Food and beverage services • Salon and spa • Private membership club • 4 stories (3 above ground, 1 underground) • 92,546 square feet of space (44,430 for quest rooms) • 66,000-square foot site Nonresidential Building Construction: NAICS Code 2362 Architectural, Engineering, and Related Services: NAICS Code 5413 Traveler Accommodation: NAICS Code 7211

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3.1 Project Overview

The Company will focus on developing a luxury hotel in Palm Beach, Florida (the focus of this Confidential Business Review). The Company believes the timing is right to leverage the Companyâ&#x20AC;&#x2122;s knowledge, the skills and experience of its management team, and its access to capital through the EB-5 Program, in order to develop the Project at a profit. The Palm House Hotel is being developed as an ultra-premium luxury hotel and resort, on the island of Palm Beach, Florida. Only half a block from the ocean and a few blocks from worldfamous Worth Avenue, the Palm House Hotel is ideally located, and will be ideally developed and operated by the project Developer to provide its guests with the ultimate luxury experience. Of course, the EB-5 programâ&#x20AC;&#x2122;s primary focus is job creation. Palm House Hotel, LLLP is excited to be an important factor in investing in the creation of new jobs. The project described herein will provide a beneficial impact to the community, provide jobs, and provide a boost to the local and national economies.

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3.2 Project Description

Artistâ&#x20AC;&#x2122;s rendering of completed fountain, fitness center, cabanas, and pool area On the island of Palm Beach, just steps from the ocean in sunny South Florida, the project Developer was able to acquire an existing hotel in a prime location. Just off Worth Avenue, the epicenter for luxury and wealth in the southeastern United States, the project site held great opportunity as an ultra high-end luxury resort. Sensing this opportunity, the project Developer began an undertaking to finance, remodel, renovate, and operate a world-class hotel and resortâ&#x20AC;&#x201D;the Palm House Hotel. The Company (through an affiliated entity) already owns the subject property, having purchased it in August 2006. At that time, an older hotel existed on the property, which would need to be completely remodeled to the standards of a new, modern, 5-star hotel that would compete with the best resorts in the world.

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Aerial view of the property and existing hotel, before current renovations In preparation for securing EB-5 funding, the Developer spent years of time and tens of millions of dollars of its own equity to begin extensive remodeling of the existing hotel, in order to modernize it and bring it up to a 5-star luxury level. The Developer has invested substantial funding to prepare architectural plans, renderings of the proposed renovations, finances and planning, and to start remodeling. Additionally, the Developer was able to get the site plan improvements approved by the Town of Palm Beach Planning, Zoning, & Building Department, making it the last of only five luxury (5-star) hotels on the coveted island of Palm Beach itself. Since the extensive renovations, remodeling, and construction activity would take several years, this activity was started using bridge financing and the Developerâ&#x20AC;&#x2122;s own equity in anticipation of receiving the EB-5 funding necessary to complete renovations and begin hotel operations. Below are current photographs of the ongoing construction at the property, including work being performed on the underground garage, the outdoor pool area, and remodeling of the lobby, interior spaces, and guestrooms.

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Current state of pool area construction (Nov 2012), with Joe Walsh, President of SARC

Current state of garage construction (Nov 2012), with Joe Walsh and Bob Matthews, chairman of Matthews Ventures Holdings, LLC

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Completed remodeled bathroom in guestroom

Completed remodeled guestroom

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Palm House Hotel robe with monogram

Guestroom partially remodeled (as of Nov 2012)

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Current view (Nov 2012) of front of Palm House Hotel, from Royal Palm Way

Computer rendering of completed pool area, cabanas, and guestrooms with balconies

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3.3 Guestrooms and Architectural Plans

Architectural rendering of front of hotel The Palm House Hotel will encompass a full service hotel and private club, containing 92,546 square feet, of which 44,430 is contained in 79 guestrooms in two inter-connected buildings. The smallest guestrooms are 415 square feet, large even for the typical luxury hotel room; suites range in size up to 1,054 square feet.

Architectural rendering of main floor: lobby, guestrooms, spa, and pool area

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The 79 guestrooms will contain a mix of large standard guest rooms, suites, and mini-suites, to accommodate the needs of every guest.

Breakdown of guestroom types and square footage

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Appointments within the guest rooms will include two closets with European closet systems, five-fixture bathrooms, wet bar and entry foyer, in-room safes; most units will have terraces. Guest amenities include state-of-the-art audio/visual components including flat panel HD/LCD televisions, stereo / CD players and Wi-Fi (high speed Internet) connectivity, iPod and docking station, minimum four phones; all rooms have automated controls for draperies, lights and sound system. Five-fixture bathrooms include steam shower and spa tub. Baths will also have Seura recessed TVs behind the mirror. Furnishings for guestrooms and all common areas include a mix of built-in and free-standing custom-made pieces utilizing natural woods and high-end fabrics. Wet bar with granite tops; appliances are to be Míele or equal. The Míele speed oven, a microwave / convection combination was provided as typical. Wet bars to be equipped with fine china and crystal, Hermés or equal. Other appliances include integrated drawer refrigeration, Sub-Zero or similar; Sub-Zero 700 BC combination drawers were provided as typical. Minibar to be Bartech automatic system or equal; Bartech W32 model was provided as typical. All soft goods to be Pratesi or equal. 18-piece bath products are expected to be high-end brand, named or private label, Kiehl’s or equal.

Architectural plans of hotel lobby

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Breakdown of other hotel facilities and square footage The remaining 48,116 square feet includes a full-service restaurant, event / function space, lounge, salon and spa, lobby, offices, fitness center and other common areas. The hotel contains three levels above grade and one below.

Artistâ&#x20AC;&#x2122;s rendering, overhead view of pool and spa areas

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Architectural rendering of pool and spa facilities For additional architectural renderings, please see Attachment E.

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3.4 The Private Club

Artistâ&#x20AC;&#x2122;s rendering, main lobby The property will feature a unique private social club, where the most prominent figures in civic, commercial, financial and social life would gather together to socialize. Located in Palm Beach, the Palm House Hotel and Club will include exquisite spaces and amenities that provide an elegant destination for our members. Spectacular interiors will create an atmosphere that is stylish and chic, yet consistent with our locale on an island steeped in history and tradition. The food and beverage facilities shall be second to none with restaurant breakfast, lunch, and dinner service available seven days a week. Club members and their special guests will gain access to world-class facilities similar only available to a select few. Facilities and membership will rival Annabelâ&#x20AC;&#x2122;s of London. Residents and members have house accounts and have the option of having their own private bottles available to them in the restaurant. A full staff will be on site 24 hours a day to anticipate and deliver the finest standard of personal service and comfort to residents and their guests. The Developer believes the property will have all the requisite features: location, amenity package, and trophy quality luxury, to make The Palm House Club one of the most prestigious and exclusive private clubs in the world.

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Member facilities and amenities include: • • • • • • • • • • • • • • • • • • • •

Hawker Jet 850 X P 100’ Yacht Rolls Royce Ghost 24hr concierge, doorman and valet underground parking Traditional European spa, health club, and pool Climate controlled wine cellar with a collection of the world’s finest wines. Cigar bar and humidor Business center with 24hr reception and conference rooms Games rooms; billiards, cards Catering services and event planning for private meetings, events or functions Personal shopping and delivery services, including groceries, cleaners, pharmacies, etc. Cabaret/ Ballroom Private Dining Room Chef’s Table Bar/Lounge Library/ Reading Lounge Bowling Parlor Hair Salon/ Blow Bar Yoga/ Pilates Studio Private Screening Room

Reciprocal Access and Privileges: • • • •

Hong Kong (proposed) New York, NY (proposed) Hollywood, CA (proposed) Aspen, CO (proposed)

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3.5 Project Site

Artistâ&#x20AC;&#x2122;s rendering of completed front entrance on Royal Palm Way The project site is in Palm Beach County, Florida, in the center of the Region served by SARC. The project site is located at 160 Royal Palm Way, Palm Beach, Florida, an exceptional location for a high-end luxury hotel and resort. The Propertyâ&#x20AC;&#x2122;s location in the Town of Palm Beach benefits from having one of the highest concentrations of wealth in the world, making real estate ownership on the island extremely attractive. Given the degree of disposable income of Palm Beach residents and visitors, the Property has the potential to deliver significant additional income from the Food & Beverage operations.

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Map overview of Project Site The Property is also ideally located on Royal Palm Way, only half a block from the ocean and less than five blocks from Worth Avenue, which is one of the worldâ&#x20AC;&#x2122;s most high end retail areas.

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Worth Avenue Legal Description Lots 31 to 33, Block F of the ROYAL PARK ADDITION, recorded in Plat Book 4, Page 1 of the land records of Palm Beach County. Source: Deed; OR Book 20776, Page 1540.

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Close-up map detail of Project Site Zoning/ Land Use The subject zoning is zoned C-B, Commercial and Offices, by the Town of Palm Beach, Florida. The C-B classification’s purpose is “...to create an environment especially suited to a group of professional and administrative offices compatible in appearance with single- family housing.” The classification limits building area to 2,000 square feet gross leasable area (GLA); however, also provides that “any commercial establishment with greater than 2,000 square feet GLA are permitted provided the Town Council has found that the proposed use is town serving.” Further, the subject has existing approvals for both the major reconstruction underway as of date of value and for future condominium conversion.

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2011 Site Survey by G.C.Y., Inc. (see Attachment E) Site Size, Shape, Access & Easements The Subject site is a rectangular parcel that contains 66,000 square feet or 1.65 Palm Beach acres (40,000 square feet per PB acre) or 1.51 acres. The property has 300 feet of frontage on and access from Royal Palm Way on its north and is 220 feet deep. It is approximately 3â &#x201E;4 block from the ocean. Utilities All public utilities are available to the Subject Property with water and sewer provided by the City of West Palm Beach, telephone by BellSouth, and electricity by FPL. Topography The Subject parcel is relatively level and at or near grade of the adjacent Royal Palm Way roadway improvements. There were no apparent drainage problems at the time of inspection.

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4.0 FINANCIAL 4.1 General Due to its numerous business advantages, Management believes that: (i) the Palm House Hotel Project will be profitable; and (ii) each Limited Partner will achieve a reasonable return on its investment. The Company anticipates that it will be able to operate the Project on a profitable basis and distribute dividends and net cash flow not less frequently than annually. Specific financial figures discussed herein refer to the Palm House Hotel Project, a development to be located in the Region. Additional potential developments will be analyzed by Management for profitability, suitability, and job creation in a similar fashion. Please see the pro forma financial projections below for further details. 4.2 Investment Summary The Palm House Hotel Project seeks to construct and develop a luxury hotel in Palm Beach, Florida. It is described more thoroughly in the preceding section. The Limited Partnership will pool EB-5 investor funds, which it will loan to the Company. The Company will use those funds to develop the Project, which will create both direct and indirect jobs. A project timeline, sources and uses of funds for the Project, and pro forma financial information are included herein. 4.3 Investment Timeline

Palm House Hotel Project Investment Timeline

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The project Developer acquired the property in August 2006. Since construction and full renovation would take several years, the Developer used a combination of its own equity and bridge loan financing to acquire the property and begin renovations, which have been ongoing. The project now needs EB-5 funding to complete renovations and remodeling, and for start-up operational costs necessary to open for business. As evidenced by the numerous architectural plans and computer renderings included herein and attached (Attachment E), the administrative and design phase of the project has been completed. Construction has been ongoing, and has already taken longer than two years (see hard costs already spent, Attachments C and F). Construction is projected to continue for another 12â&#x20AC;&#x201C;18 months after EB-5 funding is obtained, with the hotel opening for business in early 2014. Approvals & Zoning On June 12, 2007, the property was approved for a zoning waiver to convert the existing hotel to a condominium hotel with restaurant, spa, and other uses. Please see the zoning approval letter from the Town of Palm Beach Planning, Zoning, & Building Department, attached as Attachment A. 4.4 Sources of Proceeds One method being utilized by the Company to obtain investment funds is by offering Units in PHH, LLLP to EB-5 Investors pursuant to the EB-5 Program, which grants lawful conditional and permanent resident status in the United States to foreign investors who make qualifying investments under the Immigration Act and EB-5 Program. As required by the EB-5 Program: (i) qualified foreign investors must invest in PHH, LLLP and complete the required immigration procedures, and (ii) a qualifying investment must be invested in a project that creates at least ten (10) full time direct and/or indirect jobs for qualified U.S. workers for each $500,000 invested. The Company will employ a sufficient number of full-time direct employees and/or cause the creation of indirect jobs (evidenced by an approved econometric study) in order to assure a qualifying investment under the EB-5 Program. Please see the econometric analysis included with this Confidential Business Review that: (i) quantifies the benefits of the Company to the state and local economy, and (ii) demonstrates that the Company will create at least ten (10) full-time direct and/or indirect jobs for qualified U.S. workers for each $500,000 invested by each EB-5 Investor. Palm House Hotel Project, Sources of Proceeds A total investment of $91,000,000 is anticipated for the Palm House Hotel Project, a luxury hotel to be located in the Region. The sources of the proceeds for this project are as follows:

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Source of Funds EB-5 Capital: Developer Equity: Bank Financing: TOTAL:

Amount Percentage $39,500,000 43.4% $22,000,000 24.2% $29,500,000 32.4% $91,000,000 100%

The bank financing referenced above is in the form of a mortgage on the property taken out by the Developer, as a bridge loan to begin construction while awaiting EB-5 funding. 4.5 Use of Proceeds The proceeds received from the Offering will be used to help finance the development of the Palm House Hotel Project, a $91,000,000 project located in Palm Beach County, Florida. The breakdown of fund uses is below: Use of Funds Land Acquisition Cost: Construction (Hard Costs): Soft Costs: Furniture, Fixtures, & Equipment: Interest & Carrying Costs: Start-Up Operational Expenses: Other / Contingency: TOTAL:

Amount $29,000,000 $34,684,500 $9,201,268 $4,500,000 $4,690,186 $7,924,273 $999,773 $91,000,000

The project Developer has already made a substantial equity investment in the Project, and has spent substantial sums to acquire the property, pay interest, taxes, and carrying costs, and to begin construction and remodeling work. See a list of incurred expenses as Attachment F. Land Acquisition Cost The land was purchased by a company owned by the Developer in August 2006 for $29,000,000; the transfer was recorded in OR Book 20776, Page 1540 of the Palm Beach County land records as a non-real estate transaction with a $10 consideration. (See Palm House Hotel & Private Club Appraisal, by Callaway & Price, Inc., attached as Attachment B, page 31.) Hard Construction Costs Hard construction costs are listed below and presented in more detail in Attachment C. DESCRIPTION OF WORK Site work Waterproofing Landscaping Hardscape 12/18/2012

VALUE $725,000 $320,000 $175,000 $85,000

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Demolition Concrete Masonry Structural Steel Exterior stucco Precast Exterior paint Balcony Rails Exterior Faรงade and Trim Roofing Windows and Doors-Exterior Interior trim -Doors, and Hardware Lobby Unit Drywall Unit framing Unit painting Millwork Unit Bathroom Tile Tile Flooring in Units FFE Unit Appliances Corridor Flooring Labor/cleaning Function Room Building Spa Allowance Pool and Water feature Function Room Interior Fit Out Laundry/back of house Banquet room Food Service Equip. 1st floor dining Restaurant Allowance Elevators Sprinkler HVAC Plumbing Fire Protection Electrical Audio/video Hard Costs Subtotal: Contingency TOTAL

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$725,000 $1,650,000 $1,350,000 $625,000 $420,000 $675,000 $185,000 $155,000 $125,000 $625,000 $1,700,000 $505,000 $750,000 $575,000 $1,380,000 $195,000 $800,000 $1,350,000 $650,000 $1,250,000 $250,000 $110,000 $550,000 $1,500,000 $2,000,000 $300,000 $350,000 $65,000 $125,000 $800,000 $1,500,000 $700,000 $550,000 $1,650,000 $1,363,500 $375,000 $2,150,000 $960,000 $32,293,500 $2,391,000

$34,684,500

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Excluding contingency costs, the total comes to $32,293,500, which divided by 79 rooms equates to about $408,778 per room. This puts the costs on the upper end of the “Luxury Hotels and Resorts” category in the HVS chart below. Considering the Palm House Hotel’s ultrapremium, high-end luxury branding and amenities (above the average hotel in the “luxury” category), this cost is in line with others in the industry.

HVS 2011 Hotel Survey showing hotel development costs Soft Costs A breakdown of soft construction costs is detailed below.

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CM Preconstruction CM Fee CM Construction Staff Indirect Cost/General Conditions Arch./Engineers/Design/Consultant Project Admin/Management Developer Fee Subtotal Soft Costs: Contingency (5%) Building Permit $16/1000 License/Permits Security/Fire Alarm Accounting Consulting Information Technology Transportation Utilities Marketing/Advertising Travel/Entertainment Maintenance Taxes Legal Insurance Public Relations Title/Records Third Party Costs Intangible Taxes Misc Closing Costs Contingency (5%) TOTAL SOFT COSTS

$375,000 $1,937,980 $614,000 $512,290 $549,298 $1,100,000 $1,100,000 $6,188,568 $340,350 $225,000 $50,000 $25,000 $45,000 $120,000 $80,000 $25,000 $52,000 $400,000 $150,000 $40,000 $240,000 $150,000 $175,000 $145,000 $105,000 $65,000 $120,000 $120,000 $340,350 $9,201,268

Soft costs total $9,201,268, which equates to about $116,472 per room (79 rooms), which is right in line with soft costs of luxury hotels, listed with a median of $88,600 and average of $133,800 on the HVS chart above. Furniture, Fixtures, and Equipment FF&E costs include room furnishings (such as beddings, desks, chairs, lamps, flat-screen televisions, refrigerators and mini-bars, etc.) as well as lobby and other furnishings (chairs, couches, desks, chandeliers, etc.).

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These costs are projected at $4,500,000, or approximately $56,962 per room (79 rooms). This is in line with FF&E costs of luxury hotels, listed with a median of $55,100 and average of $58,900 on the HVS chart above. Start-Up Operational Expenses (Working Capital) The project Developer has budgeted $7,924,273 towards start-up operational expenses of the hotel, which is enough to cover expenses for Year 1 of operations. By that time, operational revenues are projected to be sufficient to cover operational expenses. 4.6 Return on Investment Based upon the pro forma financial projections (included as Attachment D and excerpted below), it is anticipated that the Company will generate significant returns on investment. The projected earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first year of operation are $5,141,587, for the second year are $5,862,505, for the third year are $6,676,634, for the fourth year are $7,337,635, and for the fifth year are $7,251,401.

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Palm House Hotel 5-year pro forma financial projections Year 1 Room revenue is based on 79 rooms (28,835 room-nights), at an occupancy rate of 58% (16,724 occupied room-nights), and an average daily rate (ADR) of $500 per night. This equates to Revenue Per Available Room (RevPAR) of $290.00, and total room revenue of $8,362,150. 12/18/2012

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Additional revenue comes mainly from food and beverage sales, which is projected at 45% of room revenue, or $3,762,968. Revenue from the spa, salon, and fitness center is projected at 8% of room revenue, or $668,972. And other income, from retail (hotel gift shop), telephones, and event space rental is projected at 3.25% of room revenue, or $271,770. This brings total revenue to $13,065,859. Expenses include departmental expenses ($4,835,413), undistributed operating expenses ($1,980,965), management fees ($391,976), other deductions ($389,273), and reserve for replacement ($326,646). Total expenses are $7,924,273, leaving EBITDA of $5,141,587. Year 2 Room revenue is based on 79 rooms (28,835 room-nights), at an occupancy rate of 61% (17,589 occupied room-nights), and an average daily rate (ADR) of $522.50 per night. This equates to Revenue Per Available Room (RevPAR) of $318.73, and total room revenue of $9,190,435. Additional revenue comes mainly from food and beverage sales, which is projected at 45% of room revenue, or $4,135,696. Revenue from the spa, salon, and fitness center is projected at 8% of room revenue, or $735,235. And other income, from retail (hotel gift shop), telephones, and event space rental is projected at 3.25% of room revenue, or $298,689. This brings total revenue to $14,360,055. Expenses include departmental expenses ($5,181,606), undistributed operating expenses ($2,083,668), management fees ($466,702), other deductions ($406,574), and reserve for replacement ($359,001). Total expenses are $8,497,550, leaving EBITDA of $5,862,505. Number of rooms Available room-nights Occupancy rate Occupied room-nights Average Daily Rate RevPAR Room Revenue

79 28,835 61.0% 17,589 $522.50 $318.73 $9,190,435

Ancillary Revenue (F&B, etc.)

$5,169,620

Total Revenue

$14,360,055

Total Expenses

$8,497,550

EBITDA

$5,862,505 Year 2 Summary Pro Forma

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Support for Year 2 Revenue Projections While the “Palm Beach” market has hundreds of hotels listed, almost all of them are not actually on the island but are in West Palm Beach, Riviera Beach, Manalapan, etc. there are only four 5star hotels actually in Palm Beach: The Breakers, Four Seasons, Ritz-Carlton, and the Brazilian Court (see Section 7.2). While there is some elasticity in the “5-star” rating, the amenities at other hotels claiming to fit into this category are not up to the level at these four hotels. Posted rates for these four hotels start at an average of $525 per night but that figure is somewhat misleading for two reasons: only a relatively few rooms in each hotel are available at the lowest rate, and rooms during high season (January-March) are generally available only at much higher prices. For example, a search of the website for the Breakers and the Four Seasons Hotel in Palm Beach on November 21, 2012, for a wide variety of dates during the first quarter of 2013 revealed either that no rooms were available at all, or that the minimum quoted rates were all above $1,000. For this reason, the first year price of $522.50 per night for the Palm Hotel is quite conservative; it also takes into account the fact that rates are usually about $100 per night lower during the summer months. The next question is the issue of the occupancy rate, which the developer has assumed to be 61%. This is a very conservative figure, as the occupancy rate for Palm Beach hotels, according to Smith Travel Research and the Palm Beach County Tourism Department (see below) is usually 70% on an annual basis. This figure is well below the 78% figure that is generally considered to indicate a shortage of hotel rooms. However, the seasonal swings for Palm Beach County are much wider than most locations, as shown next in Table 9-2 (note: no separate figures are available for 5-star hotels in Palm Beach). While the average annual rate is 70%, the rate rises above 86% in February and March; and as already noted, as of November, 2012, the 5star hotels in Palm Beach are almost completely sold out for February and March 2013. October 65.8 November 72.9 December 67.5 January 76.9 February 86.2 March 86.6 April 75.1 May 67.4 June 66.9 July 62.7 August 59.1 September 54.3 Hotel Occupancy Rates by Month, Palm Beach County, 5-Year Average Source: Report on Palm Beach County Tourism According to HVS, “As a rule of thumb, in a typical commercial market, where demand is high Monday through Thursday and drops considerably on weekends, a strong stabilized level of occupancy would be 70 percent. Under such circumstances, an area-wide occupancy rate of 78

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percent would probably produce a significant amount of un-accommodated demand. If, on the other hand, most of the lodging facilities in the area were operating with an occupancy level of around 60 percent, the un-accommodated demand would probably be negligible.â&#x20AC;?1 A final factor to be considered is that space is extremely limited on Palm Beach Island, and it is very unlikely that any more hotels will be built in the city. As a result, occupancy rates are likely to be relatively high in the coming years, with little or no chance of other hotels being opened right in the city. Considering the 70% Palm Beach County hotel occupancy rate and the limited supply of comparable properties in the immediate area, the 61% occupancy rate forecasted by the developer in Year 2 is conservative and likely to be obtained or exceeded.

As the hotel market and national economies recover, hotel performance indicators (such as ADR, occupancy rate, and RevPAR) are expected to continue to increase. As shown in the chart above, luxury hotels significantly outperformed all other categories in 2011, posting 11.2% increases in

1

Source: page 8-14 of the HVS Hotel Investments Handbook, written by Steven Rushmore, founder of HVS.

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RevPAR. Further, they are projected to outperform the national average in 2012 and 2013, by posting healthy RevPAR gains of 6.0% and 7.5%, respectively. Smith Travel Research (STR) agrees, showing that luxury hotels posted not only the largest RevPAR increases of any hotel category in 2011, but also the largest ADR increases as well (see chart below).2

Also see Sections 7.2 and 7.3 for a competitive analysis supporting the financial projections used above. Each of the comparable hotels listed there have in-season rates that start over $500 and range well over $1,000 per night. Off-season rates are only slightly more affordable, ranging from about $300 to $750 or more. Combined, the average rates of comparable properties easily supports the conservative $522.50 full-year ADR used in the Year 2 projections above. Finally, please see the Palm House Hotel & Private Club Appraisal, by Callaway & Price, Inc., attached as Attachment B, which offers detailed support for the ADR and occupancy rate projections used above. Support for Other Revenue According to the Smith Travel Research survey shown below, hotel room rates for full service hotels generated 64% of the total hotel bill in 2011, so this percentage is used to estimate ancillary revenues. Based on hotel room revenues of $9.19 million, the total revenue figure would be $14.36 million ($9.19M is 64% of $14.36M).

2

Source: STR Host 2012 Report (U.S. Hotel Operating Statistics Study, Report for the Year 2011).

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Hotel Revenues by Major Function, Full-Service Hotels Source: Smith Travel Research, U.S. Hotel Operating Statistics Study, Report for the Year 2011 Private Membership Club Revenue The private membership club (detailed above in Section 3.4) will also generate revenue for the project. These private memberships will initially be sold for approximately $150,000 to $250,000 each (discounts may be offered in certain circumstances from the base price of $250,000). Using an average figure of $200,000, the developer is conservatively estimating selling at least 10 club memberships in the next two years, bringing in an additional $2,000,000 in revenue. Also see Section 7.4 for a competitive analysis supporting the club membership projections above. 4.7 Foreign Investor Return on Investment Return for foreign investors will be as specified in the Partnership Agreement. The return on the investment for each investor is projected to be 0.25% per annum, paid from profits from the commercial enterprise. Investors are projected to receive a simple 0.25% interest payment annually. Current projections call for five years worth of payments. Exit Strategy The Companyâ&#x20AC;&#x2122;s strategy to repay the Partnershipâ&#x20AC;&#x2122;s Loan, thereby allowing the Partnership to return capital invested in the Offering to Investors, is to sell or refinance the Project at the end of year five (5). There is no guarantee that such a sale or refinance will be consummated on acceptable terms, if at all. The purchase of the Units is a long-term investment. 12/18/2012

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4.8 Method of Financing The Company intends to raise the capital necessary to achieve the Company’s purposes by offering Limited Partnership Units in PHH, LLLP to EB-5 Investors. It is anticipated that a substantial number of investors will be Alien Entrepreneurs (“EB-5 Investors”) desiring to take advantage of the EB-5 Program offered pursuant to the Immigration Act. The EB-5 Program permits a qualified EB-5 Investor to obtain U.S. permanent residency (i.e., a “green card”) for such EB-5 Investor and members of his/her immediate family within two (2) years after making a passive investment of $1,000,000 (or $500,000 in a qualified Regional Center). Under Section 203(b)(5) of the Immigration Act, immigrant visas are available to qualified foreign individuals seeking permanent resident status on the basis of an investment of capital in a new commercial enterprise which qualifies under the EB-5 Program. The EB-5 Program provides for the issuance of conditional or temporary (i.e., 24 months) green cards to a qualified foreign investor and its family that invests a minimum of $1,000,000 (U.S.) in a new commercial enterprise that creates at least ten (10) full-time permanent jobs for United States workers. If the new commercial enterprise creates the jobs required by the EB-5 Program, unconditional or permanent green cards will be issued after the expiration of the twenty-four (24) month conditional or temporary residency status period. The investment is required to be maintained for a period of not less than five (5) years. The EB-5 Program is, in the opinion of the Company, the most flexible investor immigration program in the world because it has no requirements regarding age, business training, experience, or language skills. As a permanent resident, provided that he/she is physically present in the United States for at least 180 days after issuance of a green card and/or has obtained a Reentry Permit, if necessary, before departing from the United States, a green card holder and his/her family are free to return to their country of origin for business or personal purposes, as long as he/she maintains a residence in the United States and can maintain business and professional interest in his/her country of origin or, subject to the regulations of his/her country of origin, elsewhere. The EB-5 Program allows qualified foreign investors a great deal of flexibility and freedom because it does not require them to manage their U.S. investment on a daily basis, but, rather, only requires them to be “actively engaged” in the commercial enterprise. This requirement is satisfied by the EB-5 Investor becoming a limited partner in a limited partnership. A limited partner has no personal liability in excess of his/her investment in the new commercial enterprise, which means that he/she can make a capital investment as a limited partner and then pursue other professional and/or personal interests and activities as he/she deems appropriate.

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If a qualified foreign investor and/or his/her family elects to become citizens of the United States, the period after the issuance of conditional permanent residence status is credited against the five (5) year period required to be spent as a permanent resident in the United States in order to qualify to be eligible to be a United States citizen. Upon receipt of conditional permanent resident status, a qualified foreign investor and his/her family (i.e. spouse and children under the age of 21 at the time of application) are entitled to the same benefits as all other lawful permanent residents of the United States, including: • • • • • • •

Living and working anywhere in the United States. No employment authorization required to accept employment in the United States. Ability to develop and operate one or more businesses in the United States. Ability to sponsor relatives to acquire green cards. Freedom to travel within and outside of the United States and return to the United States without obtaining an additional visa or authorization. Educational benefits afforded to permanent residents of the United States, such as, admission to state universities at resident costs. Qualify to become a citizen of the United States after he/she has been a permanent resident for more than five (5) years.

4.9 Cautionary Statements Regarding Projections The forward-looking statements included herein are also based on certain current budgeting considerations, and other assumptions relating to the ability of the Company to obtain returns for the investors in PHH, LLLP, successfully market its services, procure sufficient capital to expand operations, and maintain strict regulatory procedures while conducting business. Assumptions relating to the proceeding and foregoing information involve judgments by the Company that are difficult to predict accurately and are subject to numerous factors that may materially affect the Company’s results. Budgeting, investment, and other managerial decisions are subjective and are thus susceptible to interpretations and periodic revisions based on actual experience and business developments. The impact of such revisions may cause the Company to alter budgets and amend strategies, any or all of which may materially affect the Company’s results. The foregoing considerations, as well as a variety of other factors not set forth herein, could cause the actual results and experience of the Company to differ widely or materially from the anticipated results or other expectations in the forward-looking statements. The Company has prepared projections regarding the anticipated financial performance of the Project. The projections are hypothetical and may be based on certain assumptions that may prove to be inaccurate and that are subject to future conditions that may be beyond the control of the Company, such as the general industry conditions. The Company may experience unanticipated costs or lower revenues than forecasted. There are no assurances that the results that may be shown in the projections would in fact be realized by the Company. The projections

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have been prepared by the Company in consultation with experts in the field. However, since the projections are based upon numerous assumptions, which may or may not prove to be true, neither the independent experts or counsel to the Company can provide any level of assurance with respect to any of them. Many of these risks are described in the PPM and such statements are incorporated herein by reference. For all of the foregoing reasons, actual results may vary materially from the forward-looking statements and there are no assurances that the assumptions used are necessarily the most likely to occur. Additionally, when used in this memorandum, the words “believes,” “anticipates,” “intends,” “expects,” “plans,” “projects,” as well as similar words are intended to identify forward-looking statements. All such statements are based on the Company’s expectations and are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. In light of these risks and uncertainties, there can be no assurance that the forwardlooking statements contained herein will in fact occur. Neither the Company, SARC, nor Palm House Hotel, LLLP undertakes any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

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5.0 EMPLOYMENT AND STAFFING It is anticipated that the Palm House Hotel Project will create approximately 953.7 direct and indirect full-time employment positions by the third year of operation. An econometric analysis of the Palm House Hotel Project by Evans, Carroll & Associates, Inc. that discusses the benefits to the area economy, its population, and households and the statistical confirmation of the USCIS requirements for EB-5 immigration visa approval is included with this Confidential Business Review. !"#$%$#&'

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Excluding contingency costs, total hard construction costs come to $32,293,500 (see Section 4.5). Soft costs counted as eligible for EB-5 job creation calculations are the CM Preconstruction, CM Fee, CM Staff, General Conditions, Architects / Engineers / Designers / Consultant, Project Administration, and the Developer Fee. These total $6,188,568 (see Section 4.5). Furniture, fixtures, and equipment costs total $4,500,000. However, in an effort to be conservative, only $2,500,000 of FF&E expenses were counted for EB-5 job creation purposes. Second-year operational revenue of the hotel is projected at $14,360,055 (see Section 4.6 for details). Additionally, $2,000,000 is projected to come from membership dues. At approximately $200,000 to $250,000 per member, this conservative estimate projects only 8â&#x20AC;&#x201C;10 members in the first 2 years of operations. 5.1 Job Descriptions Below is a list of the types of job positions that will be created by development and operation of a luxury resort hotel like the Palm House Hotel. 12/18/2012

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Accounting Accountant General Summary: Perform accounting and budgeting duties. Essential Job Responsibilities: 1. 2. 3.

Track income and expenses. Keep accounting records and files. Project profits, losses, and other accounting metrics.

Compensation: As determined by Management. ---------Accounts Receivable Supervisor General Summary: Manage accounts receivable and ensure payment. Essential Job Responsibilities: 1. 2. 3.

Track accounts receivable. Follow-up with overdue accounts and collect funds owed. Maintain records and receipts.

Compensation: As determined by Management. ---------Controller General Summary: Supervise accounting and financial issues. Essential Job Responsibilities: 1. 2. 3.

Supervise accountant and other financial department employees. Oversee budgeting, financing, and accounting record-keeping. Help design financial strategy.

Compensation: As determined by Management. ---------Human Resources Manager

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General Summary: Oversee employment and other human resources functions. Essential Job Responsibilities: 1. 2.

Perform hiring, termination, and other employment functions. Perform human resources functions, including employment issues, benefits, complaints, training, and other functions.

Compensation: As determined by Management. ---------Administrative & General General Manager General Summary: Oversee general operations of the hotel. Essential Job Responsibilities: 1. 2.

Oversee directors and manage department heads. Direct policy for the hotel, make operational and management decisions.

Compensation: As determined by Management. ---------Administrative Assistant General Summary: Perform clerical tasks and assist assigned manager / supervisor. Essential Job Responsibilities: 1. 2.

Answer phones, schedule appointments, mail letters, and other secretarial functions. Assist in filing, paperwork, and other clerical functions.

Compensation: As determined by Management. ---------Bell Staff Bell / Luggage Attendant General Summary: Assist guests with luggage.

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Essential Job Responsibilities: 1. 2.

Greet guests as they enter the hotel; hold doors. Carry guest luggage to rooms.

Compensation: As determined by Management. ---------Concierge General Summary: Assist guests. Essential Job Responsibilities: 1. 2.

Welcome guests and answer guest questions. Assist guests in providing information, making reservations, acquiring tickets, booking spa treatments or other guest services, and providing recreational advice.

Compensation: As determined by Management. ---------Beverage Bartender General Summary: Serve drinks to patrons at hotel bar areas. Essential Job Responsibilities: 1. 2. 3.

Take orders and mix and serve drinks to guests. Check identification, ensure proper age of guests before serving alcohol, and ensure patron safety by limiting overly intoxicated drinkers. Clean up bar area.

Compensation: As determined by Management. ---------Server General Summary: Serve food and drinks to patrons. Essential Job Responsibilities:

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1. 2.

Take orders for guests seated away from the bar area. Serve drinks and bar food, as necessary.

Compensation: As determined by Management. ---------Business Center Business Center Attendant General Summary: Operate the business center. Essential Job Responsibilities: 1. 2.

Assist guests in using the business center. Maintain business center equipment.

Compensation: As determined by Management. ---------Cafeteria Cafeteria Attendant General Summary: Bus tables and serve food in the cafeteria. Essential Job Responsibilities: 1. 2.

Serve food in cafeteria. Bus tables.

Compensation: As determined by Management. ---------Food - Banquets Banquet Manager General Summary: Oversee banquet staff. Essential Job Responsibilities:

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1. 2. 3. 4.

Oversee banquet staff. Organize banquet room usage. Maximize banquet room revenue. Assist clients and handle client issues.

Compensation: As determined by Management. ---------Banquet Captain General Summary: Ensure smooth daily operation of banquet rooms. Essential Job Responsibilities: 1. 2. 3. 4.

Oversee banquet staff. Organize and schedule banquet hall preparation, set-up, and clean-up. Schedule timing of food service and clean-up. Oversee bar and drink orders operations.

Compensation: As determined by Management. ---------Banquet House Attendant General Summary: Serve banquet guests, assist in banquet room preparation and clean-up. Essential Job Responsibilities: 1. 2. 3. 4.

Prepare banquet rooms for guests. Arrange tables, seating, bar, buffet table, dance floor, podium, etc. Serve guest needs. Assist in clean-up of banquet rooms.

Compensation: As determined by Management. ---------Banquet Server General Summary: Serve banquet guests. Essential Job Responsibilities: 1.

Take food and drink orders for banquet guests.

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2. 3.

Bring dishes, silverware, linens, napkins, etc. to tables. Serve food, and remove soiled guest dishes.

Compensation: As determined by Management. ---------Food - Casual Restaurant Director of Outlets General Summary: Oversee restaurant departmental operations. Essential Job Responsibilities: 1. 2. 3.

Oversee operation of restaurant and restaurant employees. Set work schedules, menu, pricing, and make other management and administrative decisions. Ensure profitable restaurant operations.

Compensation: As determined by Management. ---------Outlet Supervisor General Summary: Manage daily restaurant operations and oversee staff. Essential Job Responsibilities: 1. 2. 3.

Manage and supervise restaurant employees. Set server schedules, utilize manpower, and ensure efficient guest service. Greet guests and handle any guest complaints or issues.

Compensation: As determined by Management. ---------Greeter General Summary: Greet guests, take reservations, and seat guests. Essential Job Responsibilities: 1. 2.

Greet guests, hold doors, enter guest names on waiting list as necessary. Take reservations.

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3.

Seat guests and provide menus.

Compensation: As determined by Management. ---------Server General Summary: Serve restaurant guests. Essential Job Responsibilities: 1. 2. 3.

Take food and drink orders. Answer questions about the food or menu items. Serve restaurant guests.

Compensation: As determined by Management. ---------Bus Attendant General Summary: Assist servers in table clean-up. Essential Job Responsibilities: 1. 2. 3. 4.

Bring bread, water, condiments, and other items to tables. Assist servers as necessary. Serve guests as necessary. Clear tables and clean soiled dishware, glasses, and silverware.

Compensation: As determined by Management. ---------Food - Catering Director of Catering General Summary: Oversee catering department operations. Essential Job Responsibilities: 1. 2. 3.

Oversee operations and profitability of catering department. Oversee catering employees and scheduling. Create price lists and special promotions and market catering services.

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Compensation: As determined by Management. ---------Administrative Assistant General Summary: Perform clerical tasks and assist assigned manager / supervisor. Essential Job Responsibilities: 1. 2.

Answer phones, schedule appointments, mail letters, and other secretarial functions. Assist in filing, paperwork, and other clerical functions.

Compensation: As determined by Management. ---------Catering / Convention Services Manager General Summary: Oversee catering operations. Essential Job Responsibilities: 1. 2.

Handle catering reservations and scheduling. Handle convention reservations, scheduling, and room reservations.

Compensation: As determined by Management. ---------Executive Meeting Specialist General Summary: Assist clients in reserving rooms and supplies for meetings. Essential Job Responsibilities: 1. 2. 3.

Handle meeting room reservations and scheduling. Ensure necessary equipment is present in meeting rooms, as required. Prepare and clean up meeting rooms.

Compensation: As determined by Management. ---------Food - Kitchen

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Executive Chef General Summary: Oversee food preparation services. Essential Job Responsibilities: 1. 2. 3. 4. 5. 6.

Direct procurement of food and supplies. Create menu and individual dishes. Oversee chefs and kitchen staff. Procure necessary kitchen / cooking equipment. Ensure food safety, taste, and presentation. Cook meals and special orders as necessary.

Compensation: As determined by Management. ---------Sous Chef General Summary: Assist Executive Chef and manage other kitchen employees. Essential Job Responsibilities: 1. 2. 3. 4.

Assist executive chef. Oversee cooks, bakers, and other kitchen employees. Prepare ingredients for Executive Chef. Cook ingredients, meals, and special orders as necessary.

Compensation: As determined by Management. ---------Baker General Summary: Bake bread, desserts, and other food items. Essential Job Responsibilities: 1. 2.

Bake food: bread, desserts, special orders, etc. Assist cooks and chefs as necessary.

Compensation: As determined by Management. ----------

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Cook General Summary: Cook and prepare food. Essential Job Responsibilities: 1. 2. 3. 4.

Prepare ingredients. Cook food. Ensure proper food presentation and temperature. Assist chefs as necessary.

Compensation: As determined by Management. ---------Food - Room Service / Honor Bar Honor Bar Attendant General Summary: Restock room honor bars. Essential Job Responsibilities: 1. 2.

Procure liquor and food in appropriate quantities. Check for use of room honor bars, and restock and replenish as necessary.

Compensation: As determined by Management. ---------Asst. Outlet Manager General Summary: Oversee room service operations and staff. Essential Job Responsibilities: 1. 2. 3. 4.

Oversee room service operations, staff, and food. Schedule employees and food deliveries. Set menu items and prices. Assist in fulfilling guest orders as necessary.

Compensation: As determined by Management. ---------Outlet Supervisor

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General Summary: Supervise kitchen and server staff and ensure prompt room service delivery. Essential Job Responsibilities: 1. 2. 3. 4.

Oversee room service orders and fulfillment. Manage, schedule, and oversee kitchen and server staff. Ensure prompt food service delivery. Handle guest complaints and issues.

Compensation: As determined by Management. ---------Server General Summary: Prepare and deliver food, serve guests, and fulfill room service orders. Essential Job Responsibilities: 1. 2. 3. 4.

Take guest orders for room service. Help prepare food, ingredients, side orders, etc. Arrange and deliver guest food, drink orders, condiments, napkins, etc. Assist guests and handle guest requests.

Compensation: As determined by Management. ---------Front Desk Director of Front Office General Summary: Oversee front desk operations and staff. Essential Job Responsibilities: 1. 2. 3. 4.

Oversee and schedule front desk employees. Administer front desk operations. Set front desk policy and guest services policy. Greet special guests, handle guest complaints, and address guest issues as necessary.

Compensation: As determined by Management. ----------

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Front Desk Managers / Supervisors General Summary: Oversee daily front desk operations and employees, handle guest relations. Essential Job Responsibilities: 1. 2. 3.

Oversee front desk staffing and employees. Assist employees, make management decisions, handle special circumstances, etc. Greet and assist guests as necessary.

Compensation: As determined by Management. ---------Front Desk Agent General Summary: Handle guest greeting, check-in, check-out, and reservations. Essential Job Responsibilities: 1. 2. 3. 4. 5. 6.

Staff front desk and greet guests. Handle guest requests or issues. Take guest reservations, answer phones, answer guest questions, etc. Perform guest check-in and provide room keys. Handle payment, special charges, deposits, and guest check-out. Assist guests as necessary.

Compensation: As determined by Management. ---------Rapid Response Attendant General Summary: Assist guests, deliver towels, and other general guest services needs. Essential Job Responsibilities: 1. 2. 3.

Respond to guest complaints, deliver towels, toiletries, pillows, cots, or other items to guests, etc. Respond to guest calls to fix or operate room equipment, simple plumbing issues, missing room items, etc. Generally handle guest issues, complaints, or questions as appropriate. Provide prompt in-room guest service when called upon.

Compensation: As determined by Management.

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---------Garage Garage Supervisor General Summary: Oversee garage and valet parking operations and employees. Essential Job Responsibilities: 1. 2. 3.

Schedule and oversee valet employees. Ensure guest and guest property safety in the garage and valet area. Arrange for most efficient vehicle parking and retrieval operations.

Compensation: As determined by Management. ---------Valet / Parking Attendant General Summary: Greet guests at curbside, park vehicles, and provide parking ticket stubs. Essential Job Responsibilities: 1. 2. 3. 4.

Greet guests arriving at curbside, open doors, etc. Take guest vehicles and park them safely. Provide parking ticket stubs and securely store guest vehicle keys. Accept parking ticket stubs and retrieve client vehicles.

Compensation: As determined by Management. ---------Housekeeping Director of Housekeeping General Summary: Oversee housekeeping operations. Essential Job Responsibilities: 1. 2. 3. 4.

Oversee housekeeping services and employees. Set employee scheduling. Set laundry rates and services menu. Ensure procurement and maintenance of laundry equipment and supplies.

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Compensation: As determined by Management. ---------Housekeeping Manager General Summary: Oversee daily housekeeping operations and employees. Essential Job Responsibilities: 1. 2.

Schedule and oversee housekeeping employees. Handle special guest requests and issues.

Compensation: As determined by Management. ---------House / Room / Public Area Attendants General Summary: Assist guests, clean towels and linens, clean guest rooms and public areas. Essential Job Responsibilities: 1. 2. 3. 4. 5.

Perform rounds and clean guest rooms. Collect soiled towels, pillows, linens, etc. Replace soiled guest room items with laundered items, restock toiletries, toilet paper, tissues, etc. Clean guest rooms, empty garbage, etc. Clean public areas, return used pool towels, mop floors, clean bathrooms, etc.

Compensation: As determined by Management. ---------Human Resources Director of Human Resources General Summary: Oversee human resources department and make employee policy decisions. Essential Job Responsibilities: 1. 2. 3. 4.

Oversee hotel employment and staffing. Oversee payroll issues, hiring and firing, and employee benefits. Oversee employee training programs. Create hotel employee policy and ensure its proper implementation.

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Compensation: As determined by Management. ---------Human Resources Coordinator General Summary: Work with Director of Human Resources and handle employee issues. Essential Job Responsibilities: 1. 2. 3. 4.

Implement employment policy decisions. Assist employees with human resources issues: payroll, training, complaints, benefits questions, etc. Assist Director of Human Resources as necessary. Work with Director of Human Resources to respond to employee questions and complaints.

Compensation: As determined by Management. ---------Information Systems Manager of Information Technology General Summary: Oversee information technology department and equipment. Essential Job Responsibilities: 1. 2. 3. 4. 5. 6. 7.

Determine necessary technology hardware and software. Procure and maintain technology equipment: computers, servers, printers, scanners, fax machines, cellular phones, etc. Procure necessary software, software licensing, and updates. Develop employee I.T. training materials. Assist employees with technology issues and answer employee questions. Develop back-up plan, anti-virus and other security precautions, and data retention policies, and ensure safety and validity of electronic data. Ensure security of client financial and personal data. Upgrade and replace equipment as necessary. Allocate equipment as necessary.

Compensation: As determined by Management. ----------

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Laundry Laundry / Valet Supervisor General Summary: Oversee laundry department operations and employees. Essential Job Responsibilities: 1. 2. 3.

Handle laundry employee and staffing issues, scheduling, etc. Procure necessary laundry equipment and supplies. Handle special guest issues as necessary.

Compensation: As determined by Management. ---------Laundry / Valet Attendant General Summary: Launder soiled guest articles. Essential Job Responsibilities: 1. 2. 3. 4.

Launder soiled guest linens, towels, pillows, etc. Operate and maintain laundry equipment and supplies. Perform paid garment laundering services, if any. Launder employee uniforms, if necessary.

Compensation: As determined by Management. ---------Marketing Director of Sales & Marketing General Summary: Oversee marketing department and employees. Essential Job Responsibilities: 1. 2. 3. 4.

Oversee marketing program, advertising, and client outreach efforts. Oversee marketing department employees and scheduling. Communicate with prospective clients, answer questions, and market hotel services. Maximize the occupancy and the average daily rate of the hotel.

Compensation: As determined by Management.

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---------Director of Group Sales General Summary: Oversee group sales operations. Essential Job Responsibilities: 1. 2. 3.

Communicate with prospective clients and handle client issues / requests. Handle group sales rates and issues. Assist the Director of Sales & Marketing in sales operations including: reserving meetings and conferences, coordinating wedding groups, general administrative functions, and arranging sales blitzes and giveaways.

Compensation: As determined by Management. ---------Leisure Travel Sales Manager General Summary: Oversee leisure travel marketing efforts. Essential Job Responsibilities: 1. 2. 3.

Communicate with prospective clients, answer questions, and market hotel services. Handle client issues / requests. Create leisure travel marketing plan, advertising, discounts, etc.

Compensation: As determined by Management. ---------Administrative Assistant General Summary: Perform clerical tasks and assist assigned manager / supervisor. Essential Job Responsibilities: 1. 2.

Answer phones, schedule appointments, mail letters, and other secretarial functions. Assist in filing, paperwork, and other clerical functions.

Compensation: As determined by Management. ---------Sales Manager

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General Summary: Market hotel services. Essential Job Responsibilities: 1. 2.

Communicate with prospective clients via phone, email, direct mail, social networking, etc. in order to market hotel services. Handle client calls, requests, complaints, etc.

Compensation: As determined by Management. ---------Purchasing - Food Purchasing Supervisor General Summary: Oversee food procurement and safety. Essential Job Responsibilities: 1. 2. 3.

Order fresh food and ingredients for kitchen, banquet, catering, dining, and room services functions. Oversee food supply levels, freshness, and safety. Ensure efficient food procurement and reasonable procurement costs.

Compensation: As determined by Management. ---------Receiving Agent General Summary: Receive and allocate food supplies. Essential Job Responsibilities: 1. 2. 3.

Receive incoming food supplies. Allocate food supplies to various hotel departments (kitchen, banquet, restaurant, catering, etc.). Ensure incoming food freshness and safety.

Compensation: As determined by Management. ---------Repairs & Maintenance

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Director of Engineering General Summary: Oversee engineering department and employees. Essential Job Responsibilities: 1. 2.

Maintain and protect hotel physical plant assets. Oversee employees, scheduling, and maintenance plan.

Compensation: As determined by Management. ---------Engineer General Summary: Maintain and repair hotel physical plant assets. Essential Job Responsibilities: 1.

2.

Ensure proper operation of hotel physical plant assets: hotel structure and faรงade; integrity of floors, walls, and ceiling; the furniture, fixtures, and equipment (FF&E); electrical transformers and equipment; water distribution and sewage; the heatingventilation-air conditioning system (HVAC); the fire alarm system and fire safety components; the vertical transportation system (elevators); utility management such as electrical, gas, steam, and water; kitchen and laundry equipment; and lighting and sound systems. Maintain above-listed facilities, equipment, and systems.

Compensation: As determined by Management. ---------General Maintenance Laborer General Summary: Perform general building maintenance tasks. Essential Job Responsibilities: 1. 2.

Maintain building equipment and facilities. Change light bulbs and air filters, perform minor electrical or wiring or fixtures work, paint and touch-up small holes or scuffs, perform general maintenance, aesthetic, and repair work.

Compensation: As determined by Management.

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---------Groundskeeper General Summary: Maintain external hotel grounds and landscaping. Essential Job Responsibilities: 1. 2.

Maintain cleanliness and aesthetics of external hotel grounds. Maintain landscaping: water lawns, mow grass, trim hedges, etc.

Compensation: As determined by Management. ---------Reservations Reservations Manager General Summary: Oversee reservations department operations and employees. Essential Job Responsibilities: 1. 2. 3.

Schedule reservations staffing. Develop reservations procedures, plans, and pricing. Oversee reservations issues and employees.

Compensation: As determined by Management. ---------Director of Revenue Management General Summary: Ensure profitable hotel reservations operation. Essential Job Responsibilities: 1. 2. 3.

Set pricing plans, discounts, group rates, and other factors to maximize revenue. Ensure target occupancy rates, RevPAR, and other metrics. Track income and accounts receivable and maintain files.

Compensation: As determined by Management. ---------Reservations Agent

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General Summary: Take customer reservations and group reservations. Essential Job Responsibilities: 1. 2.

Communicate with prospective guests and take advance reservations. Handle reservation changes, cancellations, etc.

Compensation: As determined by Management. ---------Rooms Director of Operations General Summary: Oversee hospitality services department and employees. Essential Job Responsibilities: 1. 2. 3. 4.

Oversee functioning of hospitality department and VIP guest services. Oversee hospitality staffing and scheduling. Oversee hospitality employees. Assist high-profile guests as necessary, handle special guest requests.

Compensation: As determined by Management. ---------Hospitality Attendant General Summary: Assist VIP guests and special guest requests. Essential Job Responsibilities: 1. 2. 3.

Serve food, drinks, hors dâ&#x20AC;&#x2122;oeuvres, and cocktails at executive guest lounges or on executive club floors. Set up and tear down all food and beverage items, light housekeeping, dishwashing, and clean up in between shifts, as necessary. Serve executive / VIP guests and handle special requests as necessary.

Compensation: As determined by Management. ---------Security

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Director of Security General Summary: Oversee security of hotel premises for guests and guest property. Essential Job Responsibilities: 1. 2. 3.

Create overall hotel security plan to ensure safety of guests, guest property, rooms, common areas, garage, grounds, etc. Procure, plan placement, and monitor usage of security equipment including video cameras. Oversee security staff.

Compensation: As determined by Management. ---------Security Officer General Summary: Patrol grounds and ensure safety of guests and guest property. Essential Job Responsibilities: 1. 2. 3. 4.

Patrol hotel grounds, common areas, parking lot, etc. Assist guests as necessary. Respond to disturbances or emergencies. Ensure guest and guest property safety.

Compensation: As determined by Management. ---------Spa Director of Spa Operations General Summary: Oversee spa department, facilities, and employees. Essential Job Responsibilities: 1. 2. 3. 4.

Oversee functioning of spa facilities. Create menu of spa guest services, pricing, scheduling and availability, etc. Oversee procurement of necessary spa facilities and equipment. Oversee spa personnel and scheduling.

Compensation: As determined by Management.

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---------Retail Manager General Summary: Manage retail storefront locations and operations. Essential Job Responsibilities: 1. 2. 3.

Oversee development of retail store spaces. Manage tenants, rents, signage, etc. Handle tenant-related issues.

Compensation: As determined by Management. ---------Front Desk Supervisor General Summary: Oversee spa reservations desk operation and employees. Essential Job Responsibilities: 1. 2. 3.

Schedule spa reservations / services desk staffing and oversee employees. Assist employees, perform managerial tasks, and handle special requests or situations. Assist guests as necessary.

Compensation: As determined by Management. ---------Attendant General Summary: Staff spa reservations / services desk, assist guests in scheduling spa services, and perform various spa services. Essential Job Responsibilities: 1. 2. 3. 4. 5.

Staff spa reservations / services desk and assist guests. Schedule guest spa services. Answer questions, explain services, handle payment and refunds, and handle guest issues. Answer phones and take reservations as necessary. Perform other spa services, such as facials, hair/nail service, manicures and pedicures, exfoliation, etc.

Compensation: As determined by Management.

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---------Guest Services Coordinator General Summary: Serve guests by planning, implementing, and evaluating spa services. Essential Job Responsibilities: 1. 2. 3.

Plan and schedule guest spa services and answer guest questions. Assist in implementation of spa services, handle special quest requests, and ensure optimal guest experience. Coordinate spa staff.

Compensation: As determined by Management. ---------Massage Therapist General Summary: Perform massage therapy and other spa services on guests. Essential Job Responsibilities: 1. 2.

Perform massage therapy and provide massage sessions to guests. Perform other spa services, such as facials, hair/nail service, manicures and pedicures, exfoliation, etc.

Compensation: As determined by Management. ---------Stewarding Stewarding Supervisor General Summary: Oversee dining operations and staff; perform maĂŽtre dâ&#x20AC;&#x2122; functions. Essential Job Responsibilities: 1. 2. 3. 4. 5.

Oversee customer experience in hotel restaurants and dining facilities. Perform guest services, greet guests, perform special services (presenting special meals or desserts), etc. Serve as sommelier and present fine wines to customers for tasting approval. Oversee stewards and dining room staff. Ensure exceptional customer service and customer satisfaction.

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6.

Resolve customer complaints about food or dining service.

Compensation: As determined by Management. ---------Steward General Summary: Assist Stewarding Supervisor and assist restaurant customers. Essential Job Responsibilities: 1. 2. 3. 4. 5.

Schedule reservations (in person, by phone, and over the Internet). Assist Stewarding Supervisor in providing exceptional customer service and ensuring customer satisfaction. Greet guests, confirm reservations, and seat guests. Handle special guest requests and issues. Ensure proper presentation of tables and restaurant dĂŠcor.

Compensation: As determined by Management. ---------Telecommunications Telephone Attendant General Summary: Answer telephones, answer questions, and provide customer service. Essential Job Responsibilities: 1. 2. 3.

Answer incoming telephone calls. Answer guest questions. Route phone calls to the appropriate department, front desk, or rooms.

Compensation: As determined by Management.

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6.0 MANAGEMENT 6.1 SARC Management PRINCIPAL Joseph J. Walsh

SOUTH ATLANTIC REGIONAL CENTER, LLC, Managing Member

Joseph J. Walsh was born and raised in Chicago. Mr. Walsh has managed and owned both public and private corporations in the US. Canada and the UK. Mr. Walsh started his career in Marketing and Advertising, though he was formally educated as an Electrical Engineer. He founded and served as President and CEO of several startup computer and graphics firms that he brought to the public markets in the late 1990s and early 2000s. He subsequently managed several successful mergers of public companies and has extensive experience in merger and acquisition strategy and law. His experience extends not only in the technical realm but to the intricacies of U.S. Securities and Exchange laws. Mr. Walsh brings a wealth of knowledge and expertise to South Atlantic Regional Center with over thirty years of experience in marketing, development and process engineering. 6.2 Palm House, LLC Management Robert V. Matthews Robert V. Matthews is the chairman of Matthews Ventures Holdings, LLC. MVH is a diversified holding company with interests in real estate, hotels, software, manufacturing and construction. The companies also provide funding for start up businesses, as well as the acquisition of existing businesses in various market segments. Founded in 1982, the MVH companies are comprised of seasoned professionals with extensive experience in banking, hospitality, and construction. Over the past several years, like many U.S. Developers, Matthewsâ&#x20AC;&#x2122; companies were battered by the financial collapse. The group has weathered the storm and returned with an organization that is much more agile and refined. The exposure has produced an organization that is well educated in navigating the distressed asset financial process and this knowledge has allowed us access to a substantial number of undervalued assets. Matthews Ventures Holdings, based in Palm Beach, is currently working on over $600 Million worth of product under development ranging from condos to hotels both here in Florida as well as throughout the United States. In keeping with the goal of the company to develop one of kind properties in luxury destinations, all of the MVH products will be five star facilities upon completion. MVH is the principal of both HIG Acquisitions LLC, a private equity fund that is acquiring strategic international 5 star hospitality assets for re-positioning and Matthews Hospitality Group, a consortium of luxury properties under development. As a venture capitalist Matthews was named Entrepreneur of the Year in 1993. He has controlled numerous companies over the past twenty five years including FMP, Echelon Engineering and

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Construction, Bentley Churchill, and Stromberg Software. He also holds minority shares in several other companies. Ryan Black Ryan Black began his career with Kriti Management, the U.S. office of the Vardinoyannis family, one of Europe’s wealthiest families and the largest industrial group in Eastern Europe. As Executive Vice President of Kriti Management, he over saw the allocation and investment of over 200M in capital across multiple asset classes in the U.S. and South America. In 2009, Mr. Black left Kriti to serve as the Chief Operating Officer of Jumeirah South America and to advise the Cabot family on their investments in Argentina and Brazil. He spent a year working for the group prior to their withdrawal from the South American market. In 2010 R. Black Global was formed to serve as an investment vehicle sourcing attractive investment opportunities for a variety of international high net worth families, funds, and corporations. In 2012 alone, R. Black Global, on behalf of clients, has closed 3 transactions totaling 83 million dollars worth of investment. Transactions this year to date include: • • •

A 500,000 square foot development parcel in New York, NY A portfolio of 385 improved lots in Reno, NV A portfolio of 24 condos in Irvine, CA

In addition to the above closed transactions, R. Black Global, through controlled entities, has in excess of 25 million in hospitality assets under contract and has a stalking horse offer in excess of 30 million, in backup position, on a large residential development opportunity outside of San Francisco, CA. R. Black Global acts as an investment sourcing entity and operating partner for assets acquired. With substantial international equity structuring experience, we have been able carve out a substantial equity allotment from multiple sources by advising and establishing tax effective investment structures for international investors. Eduardo V. Miranda Mr. Miranda currently serves as a Senior Associate with Metro 1 Properties in Miami, Florida, a commercial brokerage and real estate advisory services company. There, he represents buyers and sellers in commercial real estate transactions including hotel, industrial, multi-family, and land. He also performs due diligence and financial feasibility analysis on proposed acquisitions for clients, produced and distributed offering memoranda for property dispositions, and represented retail tenants in site selection and lease execution. Prior to that, Mr. Miranda served as the Development Manager for Oto Development, LLC, a hotel development group based in Fort Lauderdale, Florida. His duties there included directing

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the development efforts of Marriott, Hilton, and Hyatt branded select service hotels from site selection, due diligence, and acquisition, through design development, permitting, construction, FF&E coordination and hotel opening. He also negotiated and managed all contracts and purchase orders, coordinated design and construction teams during project origination and implementation, collaborated with brand representatives to ensure brand standards were achieved, and developed project budgets of approximately $75 million for new hotels and evaluated feasibility of proposed projects. Mr. Miranda also served as Acquisition and Development Consultant for Luxury Development Consultants, Inc., where he performed due diligence and financial feasibility analysis on proposed acquisitions and developments. Prior to that, he served as Vice President of Development at Boca Resorts Inc. (now LXR Luxury Resorts, an affiliate of The Blackstone Group), where he managed over $200 million in development spending on numerous resort enhancements including the renovation of existing facilities in Boca, Fort Lauderdale, and Naples, including restaurants, bars, retail outlets, pools, meeting rooms, and guest rooms, as well as new construction projects including a golf clubhouse, luxury spa, and a 112 room guestroom tower with flexible meeting space at the Boca Resort, a golf course in Naples, and a state of the art floating dock marina at Bahia Mar in Fort Lauderdale. He also served as an Operations / Financial Analyst at The Breakers Palm Beach, Inc., a luxury hotel on Palm Beach Island. His duties there included controlling the financial performance of the 670-acre Breakers West residential development and its country club operations. Mr. Miranda earned a Master of Science in Hotel and Food Service Management from Florida International University in 1994. He also earned a Bachelor of Science in Industrial and Systems Engineering from the University of Florida in 1992. The is a Licensed Real Estate Salesperson in the state of Florida. Gerry D. Matthews Mr. Matthews is a Licensed Real Estate Broker at Matthews Commercial Properties, where he has served for over a decade. MCP specializes in the sales and leasing of commercial, industrial, office and retail space throughout Connecticut; it has completed over 1,000 transactions since 2001 and earned the Co-Star Power Broker Award 2003-2011 top 20 brokerage firms in Ct / Westchester county N.Y. Prior to that, Mr. Matthews served as a Licensed Real Estate Agent with Giglio & Krasney Commercial Real Estate for 6 years, where he worked directly with clients to search, locate and procure property that met their requirements, and developed successful marketing campaigns for the disposition of clientsâ&#x20AC;&#x2122; properties. Before that, Mr. Matthews served as Executive Vice President at Connecticut Factors, Inc. for 13 years. There, he supervised and coordinated personnel in the renovation of commercial office, and industrial buildings, ranging in size from 25,000 to 385,000 square feet, as well as several condominium and multi-family conversion projects. He also instituted maintenance and management programs for nine commercial office buildings totaling over 700,000 square feet

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and six condominium conversions and multi-family projects totaling 276 units, and attained necessary materials, bids and proposals for projects. Concurrently, Mr. Matthews also served by gubernatorial appointment as the Real Estate Commissioner with the State of Connecticut Department of Consumer Protection from 1997 to 2003. There, he was tasked to uphold, interpret and enforce the laws governing the Real Estate industry in Connecticut. His division had jurisdiction over 20,000 brokers, agents, and property managers licensed in the State of Connecticut. 6.3 Project Partners ECONOMIC CONSULTANT Dr. Michael K. Evans

EVANS, CARROLL & ASSOCIATES, INC., Chairman

Dr. Evans is the Chairman of Evans, Carroll & Associates (formerly Evans Economics), which has been providing economic forecasting and consulting to clients since 1981. The firm, based in Boca Raton, Florida, specializes in economic analysis for EB-5 programs, economic impact studies of development projects and new construction, models of state and local tax receipts, impact of current and proposed government legislation, and construction of econometric models for individual industries and companies. As Chief Economist for the American Economics Group from 2000 to the present, Dr. Evans has also built a comprehensive state modeling system that provides economic analysis for a variety of consulting projects. Previously Dr. Evans was founder and president of Chase Econometric Associates (1970–80), and served as Clinical Professor of Economics at Kellogg Graduate School of Management, Northwestern University (1996–99) and Assistant and Associate Professor of Economics, Wharton School, University of Pennsylvania (1964–69). Dr. Evans holds a Ph. D. in Economics from Brown University.

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7.0 HOSPITALITY INDUSTRY 7.1 Market Analysis

Hotel industry at a glance Executive Summary The Hotels and Motels industry began its recovery in 2010, following a disappointing 2009 when revenue fell 9.4% due to declines in overall travel spending. Over the five years to 2011, IBISWorld expects revenue to grow at an average annual rate of 0.4% to $121.7 billion. In 2010, revenue grew by 4.4% to $114.8 billion as the economy began to improve and travel rates increased. Industry revenue is expected to continue to grow in 2011, with an estimated jump of 6.0%. 12/18/2012

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In 2009, the decline of the domestic economy and increase in unemployment forced people to become more selective in how they spent their income. As a result, they became less likely to spend money on nonessential travel. Leisure and business travel rates plummeted as households and businesses became more concerned about their finances. The industry was also affected by falling international arrivals into the United States, which declined 5.2% in 2009. These trends negatively affected revenue for operators. As the economy improved over the course of 2010, however, and some of the fears surrounding the state of the economy subsided, a larger number of consumers and business customers opted to take trips and stay in hotels and motels. In 2010, domestic travel rates increased marginally and are expected to continue doing so in 2011. Meanwhile, international arrivals to the United States increased 2.7% in 2010 and are expected to rise a further 4.4% in 2011. Over the next five years, IBISWorld forecasts that the industry will begin to expand again, particularly into segments such as extended-stay hotels, boutique hotels, spa and health retreats and resorts. The industry will also make inroads into developing regions abroad, such as China, India, Eastern Europe and South America. Over the five years to 2016, revenue is projected to increase at an average annual rate of 2.9% to $140.7 billion. Industry employment is expected to grow at an average annual rate of 1.6% over the same period to 1.5 million workers, and the number of establishments will increase by 1.4% per year to 52,197. Key External Drivers Domestic trips by US residents Trends in domestic travel demand and patterns (for any purpose, but particularly for business, conference and seminar reasons) and the total visitor nights spent away from home directly affect demand for accommodation. This driver is expected to increase slowly during 2011 and is a potential opportunity for the industry. Consumer sentiment index Changes in consumer sentiment influence decisions that individuals make concerning expenditure on entertainment and traveling, particularly during an economic recession. This driver is expected to increase during 2011. Consumer spending Consumption levels have a direct effect on travel demand; therefore, a rise in consumer spending benefits accommodation. This driver is expected to increase slowly during 2011. Inbound trips by non-US residents

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Trends in international visitor arrivals and their length of stay influence demand for accommodation. When inbound trips rise, this factor has a positive effect on demand for hotels and motels. This driver is expected to increase during 2011. Competition from Substitutes The industry faces increasing competition from other accommodation styles, like bed-andbreakfast establishments, which can offer a more relaxing and hospitable form of accommodation. This driver is expected to increase during 2011, reflecting a potential threat for the industry.

Current Performance The Hotels and Motels industry has fought declining demand over the past few years. With the onset of the recession, all forms of travel accommodation experienced revenue drops as people became more concerned about their finances and made cutbacks on luxuries, including travel. In 2009, as the recession deepened and unemployment rose, a 5.1% decline in the domestic travel rate and 5.2% fall in international travel to the United States negatively affected the industry. Since destination hotels and motels rely heavily on foreign and domestic tourists, the decline in domestic and international travel hurt the industryâ&#x20AC;&#x2122;s bottom line. However, in 2010 arrivals from abroad increased by 2.7%, while domestic travel rates also improved throughout the course of the year. In 2011, domestic travel is expected to grow by 0.9% and international arrivals by 4.4%. The infusion of tourist dollars is expected to benefit hotels and motels and increase room rates, causing revenue to grow by 6.0% in 2011. Over the five years to 2011, industry revenue is expected to increase marginally at an average annual rate of 0.4% to $121.7 billion.

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Industry Trends Since the mid-1990s, technology has increased labor productivity, lowered labor costs and enhanced customer service. The industry has especially benefited from the internet over the past five years. Operators use the internet to gather information, make bookings and buy supplies, which has lowered overall costs. The information received by operators via new technology also allows them to send better-targeted promotions by e-mail, text message or other digital formats. Many firms now operate guest rewards programs to attract and hold frequent travelers. Additionally, websites such as Lastminute.com and Priceline. com, which offer advance bookings and significantly discounted room prices at the last minute have been flourishing since the early 2000s. Most operators now allocate a portion of their expected unsold rooms to these websites, since travelers have become more confident in booking through them. The websites are either corporate-owned and managed or linked to other specialist travel operators. Hotel investment and construction experienced strong growth soon after 2005. A PricewaterhouseCoopers report indicated that in 2006, construction began on 119,000 new hotel rooms, a 45.0% increase from the previous year. This percentage was the highest level of hotel construction since 2000. The largest growth occurred in upscale hotels and mid-priced hotels, without food and beverages. However, new hotel investment and supply slowed significantly as the recession tightened its grip in 2008, and IBISWorld expects far fewer new openings to occur in 2011. Since the mid-1990s, major operators like Starwood have formed hotel real estate investment trusts to raise funds. Investment in condominium hotels was common until the recent recession, when investment funds dried up due to the subprime mortgage crisis. During the 2000s, major operators have restructured their operations away from direct hotel property ownership to only providing specialist services in their core area of expertise: hotel management. Though overall revenue is lower, hotel management has provided an opportunity to generate higher profit margins due to the elimination of many property-related costs. The industry is still largely property-based, however. Therefore, owners are subject to changes in

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general property value cycles and economic conditions and to any localized imbalances in hotel room demand and supply influences. Industry Outlook

The Hotels and Motels industry is on the road to recovery. After fighting through a decline in 2009, revenue picked up in 2010 and is expected to continue to rise in 2011, with growth rates approaching prerecession levels. Over the five years to 2016, IBISWorld forecasts that revenue will increase at an average annual rate of 2.9% to $140.7 billion, including a 4.0% increase in 2012 to bring revenue to $126.6 billion. Travel spending is projected to increase over the next five years as the economy improves. In 2012, international arrivals will increase by 4.9%, while domestic travel will grow by 2.0%. The influx of tourist dollars will likely bolster revenue for hotels and motels. According to IBISWorld research, over the five years to 2016, international arrivals will increase at a rate of 3.5% per year, while domestic travel will increase by 2.9% per year. The industry will also benefit as the economy improves, unemployment rates decline and consumers begin to spend money again, particularly on recreational activities like vacations and travels. Consumer spending is expected to increase by 2.9% in 2012; over the five years to 2016, it will increase at an average annual rate of 2.3%. Business spending is also forecast to increase, helping hotels and motels increase their number of business guests. Changes in the relative price of domestic and international travel also play a large part in determining travel patterns. Other noneconomic factors include consumersâ&#x20AC;&#x2122; available time to travel, cultural and family links, and age. The price of gas also factors directly into travel costs, such as airline tickets and auto-related travel costs. Growth Trends Over the next five years, investment in new hotel and motel rooms will gradually accelerate because of a sustained rise in tourist accommodation demand. The projection of more solid

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economic growth from 2011 to 2016 will likely cause the industry to experience stronger trading conditions and financial performance. Investment will occur at a much faster pace to compensate for the dramatic decline in investment that the industry experienced over the past few years. However, room oversupply in certain geographic areas will result in those markets experiencing a subdued recovery. Hotel investment by major operators will also increasingly be focused on opportunities in international travel markets and regions, including Russia, Eastern Europe, the Middle East, Latin America, Asia, China and India. Therefore, any domestic accommodation investment proposals will compete for funding against growing international travel markets and regions. The hotel and motel market will also continue to segment into areas such as extended-stay, boutique hotels, resorts and spa and health retreats as guests search for more unique and hospitable accommodation experiences. The low-cost segment will also continue to expand and experience competition on the basis of price (i.e. room rates). This factor will place pressure on economy operators to hold or reduce costs. Direct bookings to websites of major operators are increasing rapidly. For example, the share of Hilton reservations booked through its website increased from 9.0% to 17.0% over the five years to September 2005 and rose to an estimated 25.0% in 2010. In contrast, bookings made through third-party online agencies remained flat at 3.0% over the five years to 2010. Other hotel groups release their excess rooms at deep-discount prices and short notice to web-based hotel accommodation sellers and still receive bookings via web-based computer reservation systems (CRS). IBISWorld projects that the industry will begin expanding again over the five years to 2016 as travel demand rises. The number of establishments is forecast to increase at an average annual rate of 1.4% to 52,197 in 2016. Employment will decline in the beginning of the next five years due to lower guest arrivals and from increasing use of casual employees during peak periods, but this trend will reverse when demand picks up. Over the next five years, employment is projected to grow at an average annual rate of 1.6% to about 1.5 million people. Industry profit margins are anticipated to grow over the next few years in response to the increase in demand for travel accommodations. The continued growth of higher-margin specialty hotels and hotels in new markets will also assist profitability. Products & Markets Demand for hotel and motel accommodation is derived from both the domestic and international visitors market. Domestic travel About 56% of all domestic overnight trips involve the use of hotel, motel or bed- and-breakfast accommodation. Overall, in the domestic market, 75% of trips are undertaken for leisure purposes and 14% for business purposes. The remaining 8% are combined business/pleasure trips. Automobile travel makes up 77% of all trips, while air travel makes up 18%. In general,

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hotels that are major chains or are located in major cities have a greater number of business and international guests, while motels cater to domestic leisure travelers. Demand for hotel and motel accommodation is dependent on factors that affect travel, such as changes in household disposable income (which is influenced by changes in general employment growth) as well as movements in interest and tax rates. Changes in disposable income affect the number of trips a household takes as well as its expenditures while traveling, which in turn affects the growth and economic impact of the tourism industry. Also important is the price of fuel, which also affects household disposable income, as well as general travel demand, flows and patterns. Changes in the availability of leisure time and the recent reluctance of people in the labor market to use their holiday leave (due to work and family commitments) are also impacting the Hotels and Motels industry. Holiday expenditure is also in competition with other leisure and recreational industries and competes for a share of household disposable income. Possibly, a longer-term influence on travel patterns is the cost of taking a domestic trip compared with an international one. The difference between the two is influenced by exchange rate movements, the availability of cheap airfares and holiday packages, and the supply of airline seats. Finally, tourism promotions by private operators and federal and state governments (e.g. through TV programs and special sporting events) may also stimulate travel. However, individual state government promotions may influence domestic travel patterns to favor only their state, rather than the entire industry. Business travel Business travel, including trips to seminars and conferences, accounts for about 20% of total domestic household trips. This travel is greatly influenced by changes in economic growth, business confidence and profitability. Economic conditions directly affect the number of business trips taken, the length of stay and budgeted travel spending. Increasingly, technologies such as teleconferencing and conference calling can take the place of business travel. International tourism International tourism is one of the most competitive industries globally. International tourism is affected by factors similar to domestic travel as well as global economic conditions, especially changes in economic growth. Furthermore, particularly in major visitor-origin countries/regions, international tourism is affected by changes in the US dollar against other major currencies, which has an impact on the cost of travel, as well as the relative attractiveness of traveling to competing destinations. Other factors, such as heightened geopolitical tensions including wars and terrorism (whether feared or actual), affect international travel plans. Promotional expenditures and activities, such as the holding of major or special events, on the part of governments and other organizations can

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raise awareness and interest in travel. Finally, supply factors are also of critical importance, including the availability of airline flights and seats at the times people want to travel, as well as accommodations to and at their selected destination.

Approximately 28.5% of lodging customers are transient business travelers, 25.0% attend a conference or meeting, 25.7% are vacation travelers and 20.8% travel for personal, family or other reasons. In terms of rooms booked for overnight stays, an estimated 83.3% are filled by domestic travelers and 16.7% by international travelers. The relative proportion of business and conference travelers has declined over the last five years due to the cutback in business travel during the recession. The typical business room night is occupied by a male between 35 and 54 years old, and usually in a managerial or professional occupation. These travelers tend to travel alone, make reservations and pay about $95 per room night; 36.0% stay one night and 25.0% stay two nights. The remainder stay more than two nights. However, leisure travelers tend to comprise two adults who are similar in age to the above and also make reservations, but pay about $87 per room night. About 43.0% stay one night and 28.0% stay two nights. The remainder stay more than two nights. Industry Costs

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The Hotels and Motels industry has struggled recently with declining revenue and profit as demand for travel services and accommodations has fallen due to the global recession. Industry profit is determined using EBIT. Profit will vary between players depending upon the size of the hotel, hotel network, or parent company, with larger operators generally benefiting from economies of scale. Due to the competitive nature of the industry, particularly because of its fragmentation with many small operators, industry profit margin tends to be small. This results from competition in the industry being largely on a price basis (i.e. room rates). This is especially true with establishments in the same star rating classification and operating within the same geographic location. Due to the low profit margin, downturns in demand (such as has been occurring since 2008 because of the deepening domestic and international recession) rapidly translate into bottom-line financial losses for operators. IBISWorld estimates that in 2011, the industry will obtain profit equivalent to 6.0% of an average firm’s revenue. The major costs are sales (food and alcohol) purchased for resale and wages. This is a typical of the cost profile of operators in the broader hospitality industry and reflects the need for a large amount of labor input to provide the level of service required. Many hotels and motels also provide meals and liquor, either in individual rooms or in separate restaurant/dining areas. Recently, the hotel sector has experienced a significant increase in insurance premiums, particularly related to public liability and health benefit policies. In recessions, there are limits to how many adjustments a service industry can implement on labor costs before customer service standards plummet, potentially resulting in the loss of customers and revenue. In 2011, purchases are estimated to account for 38.1% of an average firm’s revenue and wage costs incurred by the industry will account for 27.3% of an average firm’s revenue. 7.2 Competitive Market Discussion The Subject Property, the proposed 79-room Palm House, is located 1⁄2 block from the ocean and several blocks from Worth Avenue in an established area of Palm Beach one of the world’s most exclusive real estate destinations. The Palm Beach market has long been a stable, highdemand real estate market and winter season tourist destination. Selecting the competitive market set for the Subject Property was rather difficult; as discussed earlier, the Subject Property has little direct competition on Palm Beach. Nonetheless, we have gathered information from the general market and considered the Subject within the context of these rate structures. We have also considered the Subject’s operating history. The overall market considered most suitable for (broad) comparison to the Subject was researched over a three-year period. This research included property visits, studies of historic occupancy and average daily rate (ADR) performance and consultation with on-site personnel when possible and with industry professionals regarding the strengths and weaknesses of the market as they relate to the Subject Property. Competitive Market Set In general, this market is experiencing strong occupancy, and high ADRs, given competent and professional management. The subject will be a hybrid in the market – heretofore (Heart of Palm

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Beach) more a business type hotel than the boutique properties, i.e. Chesterfield and Brazilian Court, without the ocean frontage of the larger franchised properties, such as the Four Seasons, Hilton and far less upscale than the Palm Beach institution, the Breakers. Once again, subjectivity is required in estimating market-oriented rates and occupancy structure for the Subject. Finally, the subject yields no relevant data from its historic operations due to the new construction. Competitive Analysis As might be expected, research for this market was very limited; we looked to four Palm Beach properties which in our opinion comprise the Palm Beach market for non-oceanfront properties such as the subject; the research included property visits and consultation with on-site personnel. Those hotels, their rack rates, locations and comparability to the Subject are profiled below. We also consulted with industry professionals regarding the strengths and weaknesses of each property, their locations and respective markets and how they relate to the Subject Property. We considered the Subjectâ&#x20AC;&#x2122;s historic operating performance, however, due to the renovation, that performance is not considered relevant. Room rates proposed for the subject for the opening season are as follows. Complete pro formas by the owner based on different occupancy scenarios are found in the Appraisal Report, Attachment B.

The Breakers www.thebreakers.com Situated on 140 acres of oceanfront property in Palm Beach, Florida, The Breakers is a privately held AAA Five Diamond award-winning resort destination. The multifaceted, Italian Renaissance-style property features 540 deluxe guest rooms including 57 suites, two 18-hole championship golf courses, a 20,000-square-foot luxury spa, a Mediterranean-style beach club with 30 premium beach bungalows and cabanas for day use, two fitness centers, four swimming 12/18/2012

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pools, 10 tennis courts, a family entertainment center, nine restaurants, and an array of on-site boutiques. The Breakers completed a five-year, $80 million renovation and redesign of all guest rooms in 2011. Current rates range from $339 to $1,800 per night in the off-season, and $550 to $5,500 per night in-season. Four Seasons http://www.fourseasons.com/palmbeach/ Four Seasons Resort Palm Beach is a five-star hotel located at 2800 South Ocean Boulevard, The five-star resortâ&#x20AC;&#x2122;s 210 guest rooms, which include 13 suites, feature private, furnished balconies with views of the Atlantic Ocean or the Resortâ&#x20AC;&#x2122;s beautifully landscaped garden and/or pool area. Additional amenities include award-winning dining from three on-site restaurants, a complimentary children's program and Teen Room, a spa & salon, fitness center, an outdoor tennis court, and business center. A total renovation of this property was completed in November 2010. In-season rates range from $530 to $4,250, while off-season rates range from $380 to $2,950. Ritz-Carlton http://www.ritzcarlton.com/en/Properties/PalmBeach/Default.htm The Ritz-Carlton, Palm Beach is located on the beach in Manalapan. Amenities include five restaurants, two bars, an outdoor pool, outdoor tennis courts, and a full-service health spa and fitness facility. This 5-star property also has a business center and offers small meeting rooms, secretarial services, and a technology helpdesk. 310 air-conditioned guestrooms at The RitzCarlton, Palm Beach range from $300 to $750 in the off-season, and $515 to $915 in-season. Brazilian Court http://www.thebraziliancourt.com

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The Brazilian Court is an 80-room property located on Australian Avenue at Hibiscus, three blocks from the ocean. Operating as a hotel since 1926; the property underwent a condominium conversion following a $20 million + renovation over the recent past. The hotel is now in operation and is an affiliate of Leading Hotels of the World. Amenities include restaurant, lounge and spa / salon. Set on a tree-lined street in Palm Beach, The Brazilian Court Hotel & Beach Club is adjacent to Worth Avenue. The resort features 80 completely renovated studios, one, two and three bedroom suites. Recreational amenities include an outdoor pool and a fitness facility. The property's full-service health spa has body treatments, massage/treatment rooms, facials, and beauty services. This 4.5-star property offers small meeting rooms, secretarial services, and limo/town car service. This Palm Beach property has 255 square meters of event space consisting of banquet facilities and a ballroom. Business services, wedding services, and tour assistance are available. Rates range from $520 to $885 in-season, and $200 to $640 out of season. 7.3 Support for Financial Projections The support presented below for the financial projections (see Section 4.6) is taken from the Appraisal Report attached as Attachment B. Note that the Developer has chosen to use even more conservative projections for ADR and occupancy rate than what the appraiser supported below. In establishing estimated stabilized occupancy and ADR for our analysis we have given consideration to the competitive market set, the foregoing market analysis and discussions with industry professionals. The owner’s pro forma rate structure is certainly well supported by the Palm Beach market and given the level of finish and amenities proposed may be conservative. We have utilized an ADR of $650 for Year 1 of our analysis. The owner projects occupancy between 68% and 75% for Year 1 operations; while in our opinion a stabilized occupancy of 75% is reasonable given the small size of the property and the level of quality, we have stepped occupancy in our analysis to achieve that stability. We have utilized a 63% Year 1 occupancy increasing by Year 4 to stabilized 75% annual occupancy. This would indicate Year 1 Rooms’ Revenues of $11,807,900, calculated as follows: Rooms x Nights = Room Nights x Occupancy = Total Rooms Consumed Total Rooms Consumed x ADR = Revenues Year 1 Occupied Rooms 79 x 365 = 28,835 X .63 = 18,166 Room Nights Year 1 Rooms’ Revenues 18,166 x $650 = $11,807,900

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7.4 Support for Private Club Financials The support presented below for the financial projections of the private club (see Section 4.6) is taken from the Appraisal Report attached as Attachment B. Note that the Developer has chosen to use even more conservative projections for membership sales than what the appraiser supported below. The Palm House is a proposed private destination club that will afford its members access to a luxuriously appointed property in one of the most exclusive and historic locations in the world. Resort, vacation and/or destination clubs are the fastest growing segment of the luxury travel market according to Ragatz, a consulting and market research firm to the resort industry. Essentially, these clubs combine the amenities and services of a five-star hotel with the luxury of staying at a destination hotel and club also patronized by the public in some portions of the property. Some of these clubs are basically high-end timeshares offering members a choice of dozens of private homes around the world along with concierge and travel services. Club offerings to its members include the opportunity to socialize in unique events and seasonal parties organized throughout the year; private dining room, room upgrades in the hotel and all affiliated properties. Club members have full use of the hotel facilities including pool, cabaret, concierge services, spa and fitness center, without being hotel guests. Further, the club membership includes reciprocity with four other Matthews Venturesâ&#x20AC;&#x2122; facilities, either open or in the planning stages. Point Breeze in Nantucket opens June 19, 2008; grand opening in the Point Breeze cabaret will be celebrated with Natalie Cole, a founding club member. Other clubs in various stages of planning include locations in Stowe, Vermont, Aspen, Colorado and a fullisland Caribbean facility in the Bahamas chain of islands. The Palm House private club one-time membership is proposed by the owner to start at $200,000 and increase to $275,000 in the second year. Members also pay annual dues of $7,000. 510 total active memberships are planned. A survey of other destination clubs with multiple locations is found below:

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Palm Beach Market Other private clubs on Palm Beach consist of Mara-a-Lago, the Bath & Tennis Club, the Everglades Club, the Sailfish Club, and the Palm Beach Country Club. All but Mara-a-Lago are owned by the members, and are therefore, “equity” clubs that are not-for-profit. Mar-a-Lago opened as a private club in 1995 with a cap at 500 members and has a current membership of 436. Current memberships are $175,000 with annual dues of $10,400. The Bath and Tennis Club with 900 members, and the Everglades Club with 750 members, are sold out and memberships are passed down through generations. The Everglades Club is open by invitation only, and requires that three members vouch for any new member. The Sailfish Club, with 400 members, is more like a yacht club, with boat docks and a small restaurant and club. Membership costs $60,000 to join. The Palm Beach Country Club, with 750 members, is sold out. Every member of this club, as a condition of membership, pledges to give $1.0 million to a Jewish charity. Summary & Conclusion – Pricing Destination / multiple location club memberships range from $139,900 to $3,000,000 with annual dues from $13,900 to $100,000. It should be noted that the other destination clubs include single-family houses at some locations. Another difference is that the Yellowstone World Club facilities are exclusive to the membership, i.e., no hotel guests. While the subject’s pro forma pricing is reasonable within the context of other ultra-luxury destination clubs, the reciprocity is with one exception (Point Breeze) at unknown times in the future. We have concluded at a lower membership fee with prices starting at $150,000 and increasing by 10% following initial year sales and thereafter by 5% annually. This second year surge followed by a slowing is well supported by local historic performance, specifically at Mara-Lago. 12/18/2012

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Absorption Price and absorption are naturally interrelated. Typically, as prices increase, absorption slows and vice versa. However, a flurry of initial activity is typical and was exhibited locally with Mara-Lago, followed by a more level pace of sales. People want to be among the first members. The owner projects a two-year sellout; in our opinion very aggressive; again, the reciprocity at this time includes only one other club; the others do not yet exist. We have projected sellout instead over a 15 year period. In the first year we have projected 75 sales followed by 65 in Year 2 and a flat pace of 30 per year thereafter.

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8.0 REGIONAL INFORMATION The county that comprises the Region is located in Florida, and includes the city of West Palm Beach. This area is generally defined by the U.S. Office of Management and Budget as part of the Miami Metropolitan Statistical Area (MSA).

Miami-Dade County Logo

Broward County Logo

Palm Beach County Logo

Miami-Dade County Location within Florida Population 2,496,435 2010 US Census Most populous county in Florida Created in 1836

Broward County Location within Florida Population 1,748,066 2010 US Census 2nd most populous county in Florida Created in 1915

Palm Beach County Location within Florida Population 1,320,134 2010 US Census 3rd most populous county in Florida Created in 1909

8.1 Miami–Fort Lauderdale–Pompano Beach, FL MSA The South Florida metropolitan area, also known as the Miami metropolitan area, and designated the Miami–Fort Lauderdale–Pompano Beach, FL Metropolitan Statistical Area for statistical purposes by the U.S. Office of Management and Budget (OMB), is the most populous metropolis in the Southeastern United States and the eighth-most populous metropolitan area in the United States, encompassing a tri-county area of the southeastern coast of the state of Florida. The metropolitan area covers the counties of Miami-Dade, Broward, and Palm Beach, the three most highly-populated counties in the state. The principal cities include Miami, Fort Lauderdale, Hollywood, Pompano Beach, Boca Raton, and West Palm Beach. Because the population of South Florida is largely confined to a strip of land between the Atlantic Ocean and the Everglades, the Miami urbanized area (that is, the area of contiguous urban development) is about 110 miles (180 km) long (north to south), but never more than 20

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miles (32 km) wide, and in some areas only 5 miles (8.0 km) wide (east to west). South Florida is longer than any other urbanized area in the United States except for the New York metropolitan area. The combined land area of the region encompasses 5,125 square miles, with a population of 5,564,635 as of the 2010 Census. This gives a combined population density of 1,086 people per square mile; however, the majority of the land area in the region is unincorporated, much of it taken up by the Everglades. The Miami metropolitan area consists of three distinct metropolitan divisions, subdividing the region into three divisions according to the region’s three counties: Miami-Dade County, Broward County, and Palm Beach County. Metropolitan Divisions Miami—Miami Beach—Kendall Fort Lauderdale—Pompano Beach—Deerfield Beach West Palm Beach—Boca Raton—Boynton Beach Miami MSA

2010 Census Population 2,496,435 1,748,066 1,320,134 5,564,635

2000 Census Population 2,253,362 1,623,018 1,131,184 5,007,564

Occupation, Income, and Unemployment Occupations and Type of Employer: Among the most common occupations were: 32% were management, professional, and related occupations; 30% were sales and office occupations; 18% were service occupations; 11% were construction, extraction, maintenance and repair occupations; and 9% were production, transportation, and material moving occupations. 81% of the people employed were private wage and salary workers; 12% were federal, state, or local government workers; and 7% were self-employed. Income & Unemployment: The median income of households in South Florida was $60,200 in 2010–2011, according to the U.S. Department of Housing and Urban Development. The unemployment rate in Florida during March 2011 was 11.1%. 8.2 Palm Beach County History Among the first residents in Palm Beach County were African Americans, many of whom were former slaves or immediate descendants of formers slaves who had escaped to Florida from slave plantations located in Alabama, Georgia, and South Carolina. Runaway African slaves started coming to what was then named Spanish Florida in the late 17th century and they found refuge among the Seminole Native Americans. Henry Flagler, who made his home in Palm Beach, was instrumental in the county’s development in the early 20th century with the extension of the Florida East Coast Railway through the county from Jacksonville to Key West.

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Palm Beach County was created in 1909. It was named for its first settled community, Palm Beach, in turn named for the palm trees and beaches in the area. The County was carved out of what was then the northern portion of Dade County, comprising part of the areas now occupied by Okeechobee and Broward counties, part of Martin and all of Palm Beach County, initially including all of Lake Okeechobee. The southernmost part of Palm Beach County was separated to create the northern portion of Broward County in 1915, the northwestern portion became part of Okeechobee County in 1917, and southern Martin County was created from northernmost Palm Beach County in 1925. About three-quarters of Lake Okeechobee was removed from Palm Beach County in 1963 and divided up among Glades, Hendry, Martin and Okeechobee counties. The African American population provided significant labor for the building of the county, its hotels, houses, and Flagler’s railroad. Geography According to the U.S. Census Bureau, the county has a total area of 2,386.33 square miles (6,180.6 km2), of which 1,974.11 square miles (5,112.9 km2) (or 82.73%) is land (making it the second-largest Florida county by land area, after Collier County) and 412.22 square miles (1,067.6 km2) (or 17.27%) is water, much of it in the Atlantic Ocean and Lake Okeechobee. Adjacent counties: Martin County to the North Broward County to the South Hendry County to the West Okeechobee County Glades County Demographics As of the census of 2010, there were 1,320,164 people and 544,277 households residing in the county. The population density was 669 people per square mile. Approximately 41% of Palm Beach County’s population resides in unincorporated areas within the county. The racial makeup of the county was 73.5% White, 17.3% Black or African American, 0.5% Native American, 2.4% Asian, 0.1% Pacific Islander, 4.0% from other races, and 2.3% from two or more races. 19.0% of the population are Hispanic or Latino of any race. Palm Beach County Communities:

Historical Populations Census Population %± 1910 5,577 — 1920 18,654 234.5% 1930 51,781 177.6% 1940 79,989 54.5% 1950 114,688 43.4% 1960 228,106 98.9% 1970 348,753 52.9% 1980 576,863 65.4% 1990 863,518 49.7% 2000 1,131,184 31.0% 2010 1,320,134 16.7%

The county has 38 municipalities in total.

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# 24 2 37 30 33 18 35 17 32 23 34 16 36 29 7 6 5 20 10 25 27 38 28 13 9 31 1 14 8 12

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Incorporated Community Atlantis Belle Glade Boca Raton Boynton Beach Briny Breezes Cloud Lake Delray Beach Glen Ridge Golf Greenacres Gulf Stream Haverhill Highland Beach Hypoluxo Juno Beach Jupiter Jupiter Inlet Colony Lake Clarke Shores Lake Park Lake Worth Lantana Loxahatchee Groves Manalapan Mangonia Park North Palm Beach Ocean Ridge Pahokee Palm Beach Palm Beach Gardens Palm Beach Shores

Designation City City City City Town Town City Town Village City Town Town Town Town Town Town Town Town Town City Town Town Town Town Village Town City Town City Town

Date incorporated 1959 April 9, 1928 May 1925 1920 March 19, 1963 1947 1911 1948 1957 1926 1925 1950 1949 1955 June 4, 1953 February 9, 1925 1959 1957 1923 1912 1921 November 1, 2006 1931 1947 1956 1931 1922 April 17, 1911 1959 1951

SARC / Palm House, LLC (Palm House Hotel Project) Confidential Business Review

Population 2,005 16,739 86,396 66,714 411 167 64,112 276 230 27,569 777 1,454 3,988 2,015 3,262 39,328 368 3,451 8,721 36,342 9,437 3,232 321 1,283 12,064 1,636 6,617 10,468 44,315 1,269

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19 11 21 3 26 4 22 15

Palm Springs Riviera Beach Royal Palm Beach South Bay South Palm Beach Tequesta Wellington West Palm Beach

Village City Village City Town Village Village City

1957 September 29, 1922 June 18, 1959 1941 1955 1957 December 31, 1995 November 5, 1894

11,699 29,884 31,864 4,506 699 5,273 55,584 103,663

8.3 The Town of Palm Beach The Town of Palm Beach (called Palm Beach Island or the Island of Palm Beach to differentiate between the town and the county) is an incorporated town in Palm Beach County, Florida, United States. The Intracoastal Waterway separates it from the neighboring cities of West Palm Beach and Lake Worth. As of 2000, Palm Beach had a year-round population of 10,468, with an estimated seasonal population of 30,000. Geography Palm Beach is the easternmost town in Florida, located on a 16-mile (26 km) long barrier island. According to the U.S. Census Bureau, the town has a total area of 10.4 square miles (27 square kilometers). Of this, 3.9 square miles (10 square kilometers) is land and 6.5 square miles (17 square kilometers) is water. The total area is 62.45% water. Demographics As of the 2000 census, over half the population (52.7%) are 65 years of age or older, with a median age of 67 years. 9.4% are under the age of 18, 1.5% are from 18 to 24, 11.5% are from 25 to 44, and 25.0% from 45 to 64. For every 100 females there are 79.3 males. For every 100 females age 18 and over, there are 77.0 males. The per capita income for the town is $109,219. Males have a median income of $71,685 versus $42,875 for females. 5.3% of the population and 2.4% of families are below the poverty line. 4.6% of those under the age of 18 and 2.9% of those 65 and older are living below the poverty line. The racial makeup of the town is 96% Euro American (93.8% were non-Hispanic White), 2.57% Black, 0.53% Asian, 0.04% Native American, 0.02% Pacific Islander, 0.21% from other races, and 0.63% from two or more races. 2.56% of the population are Hispanic or Latino of any race. The 10,468 people in the town are organized into 5,789 households and 3,021 families. The population density is 2,669.2 inhabitants per square mile (1,031.1/km2). There are 9,948 housing units at an average density of 2,536.6 per square mile (979.8/km2). 7.7% of the households have children under the age of 18 living with them, 48.1% are married couples living together, 3.3% have a female householder with no husband present, and 47.8% are non-families. 42.6% of all

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households are made up of individuals and 27.6% have someone living alone who is 65 years of age or older. The average household size is 1.81 and the average family size is 2.38. Many of Palm Beach's residents are affluent, with a median household income of $124,562 and a median family income of $137,867. The town's affluence and its “abundance of pleasures” and “strong community-oriented sensibility” were cited when it was selected in June 2003 as America's “Best Place to Live” by Robb Report magazine. As of 2000, English was the first language of 87.81% of all residents, while French comprised 4.48%, Spanish consisted of 3.65%, German made up 2.16%, Italian speakers made up 0.45%, Yiddish made up 0.36%, Russian was at 0.30%, Arabic and Swedish at 0.25%, and Polish was the mother tongue of 0.24% of the population.

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9.0 PARTNERSHIP INFORMATION 9.1 Office of the Partnership The contact address of the Partnership is 197 S. Federal Highway, Suite 200, Boca Raton, FL 33432. 9.2 Structure of the Partnership The Partnership is a Florida limited liability limited partnership formed pursuant to the laws of the State of Florida. A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners (GPs), there are one or more limited partners (LPs). It is a partnership in which only one partner is required to be a general partner. The GPs are, in all major respects, in the same legal position as partners in a conventional firm, i.e., they have management control, share the right to use partnership property, share the profits of the firm in predefined proportions, and have joint and several liability for the debts of the partnership. As in a general partnership, the GPs have actual authority as agents of the firm to bind all the other partners in contracts with third parties that are in the ordinary course of the partnership’s business. As with a general partnership, “An act of a general partner which is not apparently for carrying on in the ordinary course the limited partnership’s activities or activities of the kind carried on by the limited partnership binds the limited partnership only if the act was actually authorized by all the other partners.” Like shareholders in a corporation, LPs have limited liability, meaning they are only liable on debts incurred by the firm to the extent of their registered investment and have no management authority. The GPs pay the LPs a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the partnership agreement. General Partners thus carry more liability, and in cases of financial misfortune, the GP becomes “the generous partner.” 9.3 Advantages of a Limited Partnership A limited partnership is a limited liability entity, much like a corporation or limited liability company. The primary advantage of a limited partnership is that the owners of limited partnership interests in a limited partnership are not personally liable for the debts or obligations of the entity. 9.4 Flexible Profit Distribution A limited partnership enjoys certain flexibility regarding the distribution of profits and/or cash flow that is not necessarily the same as the ownership of interests in the Partnership.

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9.5 Key Features •

The Partnership is a limited partnership thereby utilizing a form of business entity offering flexibility and limited liability to the limited partners.

The profits and losses of the limited partnership flow through the partnership to each partner. Each partner will receive a Schedule K-1 from the Partnership on an annual basis. Each partner is responsible for paying taxes, if any, on distributions received.

The General Partner of the Partnership is responsible to manage the day-to-day business affairs of the partnership and the limited partners are not obligated or entitled to participate in the management of the Partnership or the business, except to the extent set forth in the Partnership Agreement.

9.6 Flow-Through Taxation All business losses, profits, and expenses flow through a limited partnership to the individual partners. There is no double taxation requiring the payment of corporate tax and individual tax because the Partnership is not a taxable entity. Notwithstanding the foregoing, all Persons considering an investment in the Partnership are urged to consult with its/their own tax advisors regarding United States Federal, State, local, and foreign tax consequences to its/them of such investment. 9.7 Independent Advice No Person should construe the contents of this Confidential Business Review or any written or oral communication from the Partnership or the employees, agents or affiliates of the Partnership, as advice of any kind, including without limitation, tax, legal, accounting or investment advice. Prospective Investors should consult its/their own independent advisors, including legal counsel, in connection with the rights and obligations relating to an investment in the Partnership.

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10.0 EB-5 INVESTOR AND REGIONAL CENTER INFORMATION The immigrant EB-5 Program is a highly beneficial permanent residence option for the wealthy individual. Since there is no quota waiting list in this preference category, it enables a foreign national to obtain permanent residence status more expeditiously than with most other options. The EB-5 category requires an investment of $1 million (or $500,000 in a high unemployment or rural area) in a commercial enterprise that will employ 10 full-time US workers. Although the investor’s role cannot be completely passive, he or she does not have to be involved in any way in the day-to-day management of the business unless he or she wants to do so. It is critically important that the investor be able to document the lawful source of investment funds and whether his or her own or funds were given to him or her as a gift. The permanent residence obtained by the investor is conditional for two years and can be made permanent upon satisfying USCIS that the investment proceeds have not been withdrawn and the requisite jobs have been created at the end of the two-year period. 10.1 Regional Centers The investor may invest in his or her own commercial enterprise or in a commercial enterprise owned by other parties. The investor may also choose to invest in a pre-approved “regional center.” Regional centers are geographical areas for which USCIS has determined that investments will create the necessary 10 jobs per investor, whether directly or indirectly, in the regional center’s approved geographical area. Virtually all of the regional centers are in geographical areas where $500,000 is the required amount of investment. Most of the regional centers involve limited partnership investments for which having the rights of a limited partner is considered sufficient to make the investor not completely passive. The business plan functions as a proposal to act as a regional center for the Region. 10.2 Immigrant Investors: Two Choices, One Goal Foreign nationals seeking permanent resident status in the U.S. are relying on the investment route more frequently than ever before. Various reasons might be surmised for the increase in popularity of the investment option, including the increasing unavailability of other options under U.S. immigration laws and the significantly decreased value of the U.S. dollar. The result is that the required amount of investment—either $500,000 or $1,000,000—translates into smaller equivalent amounts to foreign nationals using currencies with greatly enhanced value in conversions to dollars. The foreign national who wishes to use the investment option for permanent residence has two basic choices. One choice is to find his or her own individual investment vehicle in which he or she will invest and play a role in management or policy making. The second option is a government-approved “regional center” investment. Both options have advantages and disadvantages that will be discussed in further detail.

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As an overview, the major advantage of the individual investment option is that the foreign national accomplishes not only an immigration purpose, but also a purpose of investing in a business that may provide significant returns as well as a source of income and a livelihood on an ongoing basis. However, there are far more immigration law hurdles to be overcome than with the regional center investment. The regional center investment is often the quickest and most secure option (assuming the investment is made in a regional center with a strong immigration track record). The immigration process is often quicker and there are far fewer legal issues to be confronted. However, the investor is not running his or her own business and the rate of return may be lower than in a successful individual investment. 10.3 What is the Minimum Investment? With either option, the amount of the investment is $1,000,000, unless the investor can prove that the investment is in a “rural area,” or in an area that has experienced unemployment of at least 150% of the national average rate. If so, the amount of the required investment is $500,000. Most (but not all) of the regional centers are located in such $500,000 “targeted employment areas.” 10.4 Job Creation Requirement Both options require the investor to prove that his or her investment has resulted in the creation of “fulltime employment” of 10 U.S. workers. The big difference is that individual investors must prove direct employment of the 10 employees. With regional centers, U.S. Citizenship and Immigration Services (USCIS) has pre-approved the employment creation using a standard that allows a combination of direct employment and indirect employment using various accepted econometric models. 10.5 Role of Foreign Investors as Limited Partners Both investment options prohibit purely passive investment. In other words, the investor must be engaged in the “management” of the enterprise. In this regard, it should be noted that most of the regional centers organize limited partnerships into which the foreign investors invest. The limited partnerships invest into an EB-5 approved enterprise, usually in the form of a loan. Pursuant to regulation, if the petitioning investor is a limited partner and the limited partnership agreement provides the petitioner with the rights, powers and duties normally granted to limited partners under the Uniform Limited Partnership Act, the investor will be considered sufficiently engaged in the management of the enterprise. As a practical and legal matter, this requirement can be met by a limited partner without the necessity of the investor committing to any specific amount of time or engaging in any day-to-day management, since such activities are performed by the general partner.

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10.6 Potential Investment Hurdles & Risk Mitigation One of the biggest stumbling blocks for the individual investor is proving that the investment has been made in a “new commercial enterprise.” This issue can be resolved in advance if the project has been pre-approved for foreign investments through a regional center. A “new commercial enterprise” can be created by an individual investor in one of three ways: •

Establishing a brand new business,

Acquiring an existing business and engaging in significant “restructuring or reorganization” (although this alternative is rarely used and has not been defined); or,

Expanding an existing business.

This option requires the investor to prove not only the creation of 10 new jobs but also the expansion of either net worth or the number of employees of the business by at least 40%. If the investor invests in a “troubled business” (a business with substantial losses as quantified by the regulations), there may be an opportunity to qualify based on preserving existing employees as opposed to adding new ones. Another significant issue for both the individual and the regional center investor is proving the “lawful source of funds.” Substantial documentation is required to prove that the investor did not acquire the funds through unlawful means. If the funds are the result of a gift, this requirement must be met for the giftor as well. Similarly, if the funds are the result of a loan from an individual, this requirement is applicable to the creditor. Documentation utilized to meet this requirement may include tax returns, real estate transactions, securities transactions, inheritance documentation, stock dividends, employment records, bank records, etc. Related to—but separate from—the lawful source of funds requirement is the requirement to trace the funds from the individual investor to the new commercial enterprise. In some cases this is as simple as a wire transfer document from an individual’s bank account to the investment enterprise. In other cases involving countries with restrictions on outbound currency transfers, this can be extremely complex, often involving transfers to multiple parties. It is important to note that the investment must come from the individual investor. An investment from a corporate entity, including a wholly-owned corporate entity, will not qualify. 10.7 Qualifying for Green Card Status With both the individual and the regional center investor, upon approval of the permanent resident application, the foreign national receives “conditional permanent resident status.” This means that the “green card” that the investor receives is valid for two years. During the 21- to 24-month window after approval, the investor must file an application to remove conditions on residence. As part of this process, the investor must prove that the investment funds have not been withdrawn and that the requisite jobs have been created. For individual investors, this can be highly problematic if the vicissitudes of business are such that a downturn in the economy has resulted in a reduction in the workforce. For the regional center investor, although indirect

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employment creation in the community is allowed and although USCIS has pre-approved the employment creation element for purposes of approval of the original investor petition, the regional center has the burden to prove two years later that the actual projected employment has occurred. For this reason, even though all of the regional centers have been pre-approved, the choice of regional center is a critical one. As of the date of this article, only a small number of the regional centers have actually gone through the entire process resulting in successful permanent green cards for their investors. While the immigrant investor options are not the panacea for all foreign nationals seeking permanent residence status in the U.S., it has provided a solution for many during times when other traditional paths have been blocked. For the investors who choose this option, it is important to put together a team including not only the immigration lawyer, but also business, tax, and/or securities counsel, to advise on the multiplicity of issues that go into determining whether the investor option is a good decision for a particular client.

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! ! ! ! "##"$%&'(#! "!


! ! ! ! "##"$%&'(#! )!


AN APPRAISAL OF THE PALM HOUSE HOTEL & PRIVATE CLUB 160 ROYAL PALM WAY PALM BEACH, FLORIDA

PREPARED FOR ORION BANK

AS OF MAY 15, 2008 & AUGUST 30, 2009

BY JOE R. PRICE, MAI, SRA CALLAWAY & PRICE, INC.


Callaway & Price, Inc. Real Estate Appraisers And Consultants Licensed Real Estate Brokers

WEST PALM BEACH 1639 Forum Place Suite 5 West Palm Beach, FL 33401 Phone (561)686-0333 Fax (561)686-3705 Michael R. Slade, MAI, SRA, CRE St.Cert.Gen.REA RZ116 Daniel P. Hrabko, MAI St.Cert.Gen.REA RZ48 Stephen D. Shaw, MAI St.Cert.Gen.REA RZ1192 FORT PIERCE/STUART 500 South U.S. Highway 1 Suite 107 Fort Pierce, FL 34950 Phone (772)464-8607 Fax (772)461-0809 Stuart Phone Fax

(772)287-3330 (772)461-0809

Harry D. Gray, MAI, SRA St.Cert.Gen.REA RZ662 Stephen G. Neill, Jr., MAI St.Cert.Gen.REA RZ2480 MELBOURNE/INDIALANTIC 114 6th Avenue, Suite 3 Indialantic, FL 32903 Phone (321)726-0970 Fax (321)726-0384 Curtis L. Phillips, MAI St.Cert.Gen.REA RZ2085 BOCA RATON Phone (561)998-8088 Fax (561)686-3705 Daniel P. Hrabko, MAI St.Cert.Gen.REA RZ48 FOUNDERS Joe R. Price, MAI, SRA St.Cert.Gen.REA RZ555 Robert J. Callaway, MAI, SRA St.Cert.Gen.REA RZ505

Please respond to West Palm Beach office E-Mail: cpi@cpwpb.com

June 10, 2008 Mr. Peter Kampine Orion Bank 605 North Olive Avenue West Palm Beach 33401 Dear Mr. Kampine: We have made an investigation and analysis of the Palm House located at 160 Royal Palm Way, Palm Beach, Florida. The purpose of this investigation and analysis was to estimate the Market Value of the Fee Simple Estate of the property 1) operating as a transient hotel with the sellout of 500 private club memberships as if all proposed improvements were completed in accord with plans provided and the hotel and club were in operation and 2) with condominium sellout of the units “As Is” and “As if Complete” as of the appraisal date. Note that this hypothetical value scenario is as proposed for re-development and represents a prospective future value. As of the date of inspection / value, the subject has been completely gutted and major reconstruction is underway. The results are reported in a complete selfcontained appraisal format. This report has been prepared for our client and intended user, Orion Bank The intended use was to assist the client in internal decision making. The scope of work performed is specific to the needs of the intended user and the intended use. No other use is intended, and the scope of work may not be appropriate for other uses. As of the date of value, the subject is under construction; the partial demolition / reconstruction of the former Heart of Palm Beach Hotel began in February 2008 It is an assumption of this report for the prospective values that the work will be completed consistent with upscale development in Palm Beach and that all legal requirements will have been met.


Mr. Peter Kampine Orion Bank June 10, 2008 Page Two

It should be noted that hospitality operation is a very management intensive venture; the reported values are conditioned upon competent, professional management by those experienced in high-end, ultra-luxury hotel operations in a resort market. Absent such management, the value conclusions herein may well change.

Palm House Summary of Values as of February 2, 2008 & Prospective Future Values as of August 30, 2009 As Stabilized Conventional Hotel August-09 Costs to Complete February-08 Conventional Hotel Less Costs to Complete August-09 Discount; 18 Mos. For construction / Start-up @ 9% Factor

*

$137,500,000 ($34,897,566)

$102,600,000

As is Value - Conventional Hotel

0.8742 $89,692,920 $90,000,000

Discounted Sellout of Condo Units (profit deducted) August-09 * Developer Profit from Sellout of Condo Units (Rd.)

$25,300,000 $5,010,000

As Stabilized Condo Hotel after Sellout August-09

x

*

$118,000,000

* includes Real Estate & FF&E

Furnishings, Fixtures & Equipment Allocation Discounted Sellout of Club Memberships August-09

$4,000,000 $66,500,000


Mr. Peter Kampine Orion Bank June 10, 2008 Page Three

Further, it should be understood that all the conclusions presented herein represent our best efforts to confirm and quantify the market data to which we applied our best judgment. However, all valuations at this point in time are made in what appears to be an uncertain economy as was clearly stated on February 28, 2008 by none other than the Chairman of the Federal Reserve. For all of 2007, the economy (GDP) grew by 2.2% but declined to 0.6% in the fourth quarter. This is not a recession by definition, but definitely a slow down. This appraisal is not to be considered as a future prediction but rather our best judgment as of the current date. Caveat Emptor. A description of the property appraised, together with an explanation of the valuation procedures utilized, is contained in the body of the attached report. For your convenience, an Executive Summary follows this letter. Your attention is directed to the Limiting Conditions and underlying assumptions upon which the value conclusions are contingent. Respectfully submitted, CALLAWAY & PRICE, INC.

Joe R. Price, MAI, SRA St.Cert.Gen.REA RZ555

JRP/DST/08-59597 Attachments


Executtive Summ mary PROPER RTY TYPE

: Full-Service Lu uxury Hote el & Private e Club

ON LOCATIO

e Subject Property is located on the south side : The of Royal R Palm m Way, be etween Oc cean Boule evard and d So. Countty Road in the Town of Palm Be each. The e street ad ddress for the hotell is 160 Royal R Palm m Way, Palm Beach, 33480.

DATE OF VALUATIION

: May y 15, 2008 & August 30, 2009.

SE OF APPR RAISAL PURPOS

: To estimate e the Market Value of the t Fee Sim mple Esta ate of the subject prroperty 1) operating as a tran nsient hote el and priva ate club on nly and 2) with condominium sellout of the units “As “ Is” and d “As omplete” as a of the ap ppraisal da ate. if Co

RTY DESCR RIPTION: PROPER LAND D

BUILDING

:

The e Subject site conta ains a tota al land are ea of 66,,000 squarre feet, orr 1.65 Palm m Beach acres a (40 0,000 square feet perr PB acre), or 1.51 ac cres.

:

Full service hotel h and private club, contaiining w 44,43 30 is conta ained 92,,546 squarre feet of which in a total 79 guestroom ms in two in nter-conne ected buildings; th he remainiing 48,116 6 square feet nt / includes a full-service restaurrant, even nction spac ce, lounge e, salon an nd spa, lo obby, fun offiices, fitnes ss center and other common c arreas. The e hotel con ntains three e levels ab bove grade and one e below.

G ZONING

: C-B B, Commerrcial Distric ct, by the Town of Palm Bea ach, Florid da. See Declara ation of Use Agreement in Addenda and Zoning discussion.

LAND USE PLAN

mmercial by the Town n of Palm Beach. B : Com

ST AND BES ST USE: HIGHES F VACANT AS IF

: Com mmercial Developm ment proposed improvements s.

sim milar

to

MPROVED AS IM

: Ope eration as a full-service luxury hotel / priivate club b.

the


Executtive Summ mary

Palm House H Sum mmary off Values as of Febru uary 2, 20 008 & Pr rospective e Future Values V as of Augustt 30, 2009 9 As s Stabilize ed Conven ntional Hottel August-09 9 Co osts to Complete 8 February-08 Co onventiona al Hotel Le ess Costs s to Complete August-09 9 Dis scount; 18 8 Mos. For constructio on / Start--up @ 9% Facttor

*

$137,500,000 ($34,8 897,566)

$102,600,000 x

As s is Value - Conventtional Hotel

0.8742 $89 ,692,920 $90,000,000

Dis scounted Sellout off Condo Un nits (profit deducted)) August-09 9 * De eveloper Profit P from m Sellout of o Condo Units U (Rd.)

$25,300,000 $5,010,000

As s Stabilize ed Condo Hotel H afte er Sellout August-09 9

*

$118,000,000

* in ncludes Real Estate & FF& &E

Fu urnishings,, Fixtures & Equipm ment Alloc cation Dis scounted Sellout off Club Mem mberships s August-09 9

$4,000,000 $66,500,000


Tablle of Conte ents Page e No. CERTIFIICATION .............................................................................................. 1 LIMITIN NG CONDIT TIONS ................................................................................... 3 DEFINIT TION OF TH HE APPRAISAL PROBL LEM ....................................................... 10 Purpo ose, Date of o Value, an nd Interestt Appraised d ............................................. 10 Intend ded Use an nd User of Appraisal .............................................................. 10 Legal Description ....................................................................................... 10 Marke et Value............................................................................................. 10 Fee Simple Estate ...................................................................................... 11 nary Assum mption ..................................... 11 Hypotthetical Conditions orr Extraordin Prospective Valu ue ...................................................................................... 11 SCOPE OF O WORK .......................................................................................... 12 PALM BE EACH COUNTY AREA DATA................................................................... 16 NEIGHB BORHOOD ANALYSIS A ........................................................................... 27 PROPER RTY DATA ........................................................................................... 29 Location ................................................................................................... 29 Zoning/ Land Us se ...................................................................................... 29 S Shape e, Access & Easementts .......................................................... 30 Site Size, Utilitie es .................................................................................................... 30 Topog graphy .............................................................................................. 30 Censu us Tract ............................................................................................. 30 Flood Hazard Zo one ..................................................................................... 30 Concu urrency ............................................................................................. 30 Easem ments and Deed Restrictions ................................................................. 31 Asses ssed Value & Taxes.............................................................................. 31 Prope erty History y ........................................................................................ 31 DESCRIPTION OF IMPROVEM MENTS â&#x20AC;&#x201C; As s Proposed d ............................................. 32 Land Improvements ................................................................................... 32 vements............................................................................... 33 Building Improv shings, Fixttures & Equipment ............................................................... 39 Furnis HIGHES ST AND BES ST USE ............................................................................... 41 Highe est and Bes st Use Conc clusion - As if Vacantt ............................................. 41 Highe est and Bes st Use - As Improved ............................................................ 43 SALES COMPARIS C ON APPROACH ..................................................................... 44 Prefac ce..................................................................................................... 44 Discussion of Im mproved Sa ales ...................................................................... 45 mary- Sales s Comparis son Approa ach ......................................................... 47 Summ


Tablle of Conte ents INCOME E APPROAC CH ...................................................................................... Directt Capitaliza ation ................................................................................... Comp petitive Marrket Discus ssion .................................................................... Conso olidated Re evenues ............................................................................... Conso olidated Re evenues Su ummary ................................................................ Expen nses .................................................................................................. Undistributed Ex xpenses .............................................................................. Fixed Expenses ......................................................................................... Discounted Cash h Flow Ana alysis .................................................................... Selecttion of a Discount Rate ........................................................................ Conclusion ................................................................................................ Projec ctions to Revise Base e Year ................................................................... Summ mary - Disc counted Ca ash Flow An nalysis .................................................... RECONC CILIATION ......................................................................................... As Is Value ............................................................................................... UNTED SEL LLOUT APPR ROACH ................................................................. DISCOU Marke et Discussio on ...................................................................................... Discussions of Individual Sale S Prices ............................................................. Total Sellout ............................................................................................. C Retail Sellout - Conclusion .......................................................................... bsorption ............................................................................. Discussion of Ab Conclusion ................................................................................................ nses .................................................................................................. Expen Ongoiing Operation of Palm m House Ho otel Operatting as Con ndominium m Unit ......... Conclusion – Su ummary of Values ................................................................. pment .................................................................. Furnitture, Fixturres & Equip Destin nation Club bs....................................................................................... Summ mary & Con nclusion – Pricing P .................................................................. DA ADDEND Engag gement Letters Decla aration of Use U Owne er Provided d Pro Forma a Realty yRates.com m Report Retail Rent Com mparables C AIA Contract Qualiffications: Joe e R. Price, MAI Danice S. Tay ylor

48 48 50 53 55 56 57 59 61 62 66 67 69 70 71 73 74 75 75 76 76 77 78 82 87 88 89 90


Certifica ation CERTIF FICATION o the best of o our know wledge and d belief: We certtify that, to 1.

he stateme ents of factt contained d in this rep port are tru ue and correct. Th

2.

he reporte ed analyse es, opinions, and conclusions are limited only by y the Th re eported ass sumptions and limitin ng conditio ons, and arre our pers sonal, unbiased prrofessional analyses, opinions, and a conclu usions.

3.

We have no present or prospectiive interestt in the pro W operty thatt is the sub bject off this report, and we e have no personal interest or bias with respect to o the pa arties invollved.

4.

We have no bias with respect to the property that is the subjec W ct of this re eport orr to the parties involv ved with th his assignm ment.

5.

Our engagement in th his assignm ment was not contingent upon developin ng or eporting prredetermine ed results. re

6.

nsation is not contingent upon n the reporrting of a predeterm mined Our compen alue or dire ection in value v that favors f the cause of the t client, the amoun nt of va th he value es stimate, the attainme ent of a stipulated res sult, or the e occurrenc ce of a subsequen nt event directly relatted to the intended i use of this appraisal. a

7.

he analyse es, opinions s, and con nclusion we ere developed, and this t report was Th prrepared, in n conformitty with the e Uniform Standards S of Profess sional Apprraisal Prractice (US SPAP) and FIRREA. F

8.

Jo oe R. Price e and Dan nice S. Tay ylor have made m a pe ersonal ins spection off the prroperty tha at is the su ubject of this report.

9.

aylor provided significant professional ass sistance to Joe R. Pric ce in Danice S. Ta he preparattion of this s report. th

10.

Th he use of this reportt is subjectt to the re equirementts of the State S of Flo orida re elating to review by the Florida Real Estate e Appraisal Board.

11.

The reporte T ed analyse es, opinion ns and con nclusion were w develo oped, and this re eport was prepared, in conformity with the requirrements off the Apprraisal In nstituteâ&#x20AC;&#x2122;s Code C of Pro ofessional Ethics E and Standards of Profess sional Apprraisal Practice, which w inclu ude the Uniform Sta andards of o Professional Apprraisal Practice.

12.

This apprais T sal assignm ment was not n based on o a reque ested minim mum valuation, a specific va aluation, or the appro oval of a lo oan.

1


Certifica ation 13.

I certify th hat the us se of this report is s subject to the requirrements off the Appraisal Institute I re elating to review by itts duly autthorized rep presentativ ves.

14.

As of the date of th A his report Joe R. Prrice, MAI, SRA has completed the ucation prrogram of the Apprraisal requirements under the continuing edu Institute.

JJoe R. Price e, MAI, SR RA S St.Cert.Ge n.REA RZ5 555

2


Limitin ng Conditi tions LIMITING COND DITIONS 1.

Unless othe U erwise state ed, the vallue appearring in this appraisal represents s the opinion of the Mark ket Value or the Value V Defined AS OF O THE DATE D S SPECIFIED. Market Value V of re eal estate is affecte ed by national and local economic co onditions and a conseq quently willl vary with h future ch hanges in such onditions. co

2.

The value estimated T e in this app praisal rep port is gros ss, withoutt considera ation given to any encumbrrance, resttriction or question of o title, unless specifically defined.

3.

This apprais T sal report covers only the property desc cribed and any value es or ra ates utilize ed are not to be con nstrued as s applicable e to any other o prope erty, however sim milar the properties might m be.

4.

Itt is assume ed that the e title to th he premises s is good; that the le egal descrip ption is s correct; that the im mprovemen nts are en ntirely and correctly located on n the property de escribed an nd that there are no o encroach hments on this prope erty, stigation or survey ha as been made. but no inves

5.

This apprais T sal express ses our opinion, and employment to make e this apprraisal w was in no way contiingent upo on the rep porting of predeterm mined value or co onclusion.

6.

No responsiibility is as N ssumed for matters le egal in natu ure, nor is any opinio on of tiitle rendere ed. In the e performa ance of ourr investigattion and analysis lea ading to o the conc clusions rea ached here ein, the sta atements of o others were w relied d on. N liability is No i assumed d for the co orrectness of these sttatements.

7.

Neither all nor any part of the N t conten nts of this s report (especially any co onclusions, the iden ntity of th he apprais ser or the firm with h which he h is co onnected, or any reference to the Appraisal A I Institute o any off its or designations) shall be e dissemina ated to the e public through adve ertising me edia, edia, sales media or any a other public p mean ns of public relatiions media, news me ommunicattion withou ut our priorr written co onsent and d approval. co

8.

Itt is assum med that there t are no hidden n or unapp parent con nditions off the property, su ubsoil, or structures s which wou uld render it more orr less valua able. T The appraiser assum mes no responsibillity for such s cond ditions or the engineering g which mig ght be requ uired to dis scover thes se factors.

3


Limitin ng Conditi tions 9.

Unless oth U herwise sttated in this repo ort, the existence e of hazard dous substances,, including g without limitation stachybo otrys charttarum (mold), nated biph henyls, pe etroleum leakage, l o agricultural or asbestos, polychlorin p on n the prop perty, or other o chemicals, which may or may not be present ntal conditions, was not called d to the attention a o nor did the of, environmen b aw ware of such during g the app praiser's in nspection. The appraiser become ence of suc ch materials on or in n the appraiser has no knowledge of the existe nless otherwise stated d. The app praiser, how wever, is not n qualifie ed to property un est for suc ch substances or con nditions. Iff the prese ence of suc ch substan nces, te such as asbestos, urrea formald dehyde foa am insulattion, or otther hazard dous onmental conditions s, may affect the value of the substances or enviro he value estimated is s predicate ed on the assumption that there is property, th oximity the ereto that would w caus se a loss in n value. We W are unaw ware no such pro ns that may have ex xisted for days d or we eeks which h are of very wett condition equired to grow mold d. No resp ponsibility is assumed d for any su uch conditiions, re nor for any expertise or o enginee ering knowlledge required to disc cover them m.

10.

The Americ T cans with Disabilities s Act ("AD DA") becam me effectiv ve January y 26, 1992. The appraisers s have no ot made a specific complianc ce survey and ermine whe ether or no ot it is in conformity c with analysis of this property to dete he various s detailed requirem ments of the t ADA. It is po ossible tha at a th co ompliance survey of the prope erty, together with a detailed analysis a off the re equirements of the ADA, A could reveal tha at the prop perty is nott in compliance w with one or more of th he requirem ments of th he Act. If so, this fac ct could ha ave a negative efffect upon the t value of o the prop perty. Since the apprraisers hav ve no ence relatting to th his issue, possible noncomplia n ance with the direct evide equirements of ADA in estimating the value of the e property y has not been b re co onsidered.

11.

Itt should be noted that hosp pitality op peration is i a very managem ment in ntensive venture; the re eported values v arre conditioned upon u competentt, professional man nagementt by those e experien nced in highe end, ultra--luxury ho otel operations in a resort market. Absent such s m manageme ent, the va alue conclusion herein may well chan nge.

12.

We relied upon the following infformation, provided by W b the conttract purch haser and the hottel operato or in this assignment a t. If any off the repre esentations s are ns will cha ange. It is an not accuratte or have changed the value conclusion port that th he work contemplated d in the reconstructio on of assumption of this rep he hotel wiill be comp pleted in a timely and d workmanlike manne er, in a manner th co onsistent with w the lev vels of finis sh expected in the Pa alm Beach luxury marrket. a a.

The Pallm House; Renovatio on of the Heart H of Pa alm Beach h Hotel; Pe ermit Set plan ns by David d Miller & Associates, A , dated 8/1 1/07; b Pro Form b. ma by Matthews Ventures for Palm P House e operation ns. N Note that square s foottages are not on the e plans pro ovided; all building areas a provided by y Mike Bara asch with Matthews M V Ventures.

4


Limitin ng Conditi tions 13.

The subjectt has been T n approved d for condo ominium de evelopmen nt by the Town T of Palm Be each but there t are no condo ominium documents and it is s an a assumptio n of this report th hat all legal require ements will w be met by th hose docu uments an nd that th hey will be b prepare ed to allo ow for selllout o the cond of dominium m units as anticipate ed in this report.

5


Su ubject Pho otos

SUBJJECT AERIA AL Note: Prior to demolition

6


Su ubject Pho otos

VIEW FROM 3RD FLOOR LOOKING WE EST

VIEW FROM 3RD FLOOR LO OOKING EAST

7


Su ubject Pho otos

NG SOUTH AT SUBJECT FROM ROYAL R PAL LM WAY (2//08) LOOKIN

LOOKING SOUTHWE EST AT SUB BJECT FROM ROYAL PALM P WAY (2/08)

8


Su ubject Pho otos

2ND FL LOOR (11/0 07)

3RD FL LOOR (11/0 07)

9


Deffinition off the Appra aisal Prob blem DEFINI ITION OF THE APPR RAISAL PR ROBLEM Purpose e, Date of Value, V and Interest Appraised A w to estim mate the Market M Valu ue of The purrpose of this investigation and analysis was the Fee Simple Es state of the e Palm House, 1) operating as a conventtional trans sient hotel on nly and 2) with condo ominium se ellout of the units sub bject only to t typical hotel h leases, As Is as of o February y2, 2008 and As if Complete & Operating g, as of Au ugust 30, 2009. ppraisal Intended Use and User of Ap port has be een preparred for ourr client, Orrion Bank k. The inte ended use is to This rep assist th he client in n evaluatio on of loan collateral.. The scope of work k performe ed is specific to the nee eds of the intended user and the t intended use. No N other us se is intended d, and the scope of work w may not n be apprropriate for other use e. escription Legal De Lots 31 to 33, Block F of the e ROYAL PA ARK ADDIT TION, recorrded in Plat Book 4, Page P 1 of the e land recorrds of Palm m Beach Co ounty. Source: Deed; OR R Book 20776, Page 1540 1 V Market Value I s Reform, Recovery,, and Enfo orcement Act's A Section 1110 of Financial Institutions (FIRREA A) instructtions to th he Office of o Thrift Supervision S n uses the e definition of Market Value belo ow as developed by th he Federal National Mortgage M A Association and deral Hom me Loan Mortgage M C Corporation n, and ad dopted by the Apprraisal the Fed Foundattion's Unifo orm Standa ards of Professional Appraisal A Practice. bable price which a property p sh hould bring g in a com mpetitive an nd "The most prob nder all conditions re equisite to a fair sale, the buye er and selle er, open market un each acting pru udently, kn nowledgeab bly and assuming the price is not affecte ed ndue stimu ulus. Implicit in this definition are the co onsummatiion of a sa ale by un as off a specifie ed date and the pa assing of title t from seller to buyer b under conditions wherreby: uyer and seller are ty ypically mo otivated; a. bu oth parties s are well informed or o well adviised, and acting a in what w they b. bo co onsider the eir own bes st interests s;

10


Deffinition off the Appra aisal Prob blem c. a reasonable e time is allowed for exposure in the open n market; ayment is made in te erms of cas sh in U.S. dollars d or in n terms of financial d. pa arrrangemen nts comparable theretto; and he price re epresents the norma al consideration for the prope erty sold e. th un naffected by b special or o creative e financing or sales co oncessions s granted by y anyone associated a with the sa ale." Fee Sim mple Estate ctionary off Real Estate Appraisal, Fourtth Edition 2002, by the Apprraisal The Dic Institute e, defines Fee F Simple e Estate on n page 113 as follows: "Abso olute owne ership unen ncumbered d by any other o interrest or esttate, subje ect only to the lim mitations imposed by b the gov vernmental powers of taxatio on, ent domain n, police po ower, and escheat." e emine etical Cond ditions or Extraordinary Assump ption Hypothe The valu ues as an operating o lu uxury hotel or as an operating luxury l cond dominium hotel h are hypo othetical co onditions necessary fo or analysis purposes. We have discounted d the values for f 18 months to re eflect this. The own ner reports approximately one year remainin ng to complete cons struction. Since the As Is valu ue is based on the As A if Complette value, bo oth are hyp pothetical. Prospec ctive Value The Dic ctionary off Real Esta ate Appraisal (Fourth Edition 2002), by the Apprraisal In nstitute, de efines Pros spective Va alue on pag ge 224 as ffollows: A forecastt of the value v expected at a specifie ed future date. A â&#x20AC;&#x153;A prospective value opin nion is mos st frequenttly sought in connecttion with re eal estate projects that t are prroposed, under u cons struction, or o under co onversion to a new use, u or tho ose that ha ave not ach hieved selllout or a sttabilized le evel of long g-term occ cupancy at the time of appraisa al report is s written.â&#x20AC;?

11


S Scope of Work W SCOPE OF WORK K Accordin ng to the 12 1 th Edition n of The Appraisal off Real Esta ate, the Scope of Wo ork is the amount and type of in nformation researche ed and the e analysis applied in n an al assignm ment. Generally this includes s a detaile ed outline e of the steps s appraisa perform med to com mplete the appraisal assignmen a t and morre importan ntly any stteps that we ere not performed p d per reque est of the client. In the case of the Sub bject Property y, all appro opriate valuation techniques we ere perform med. Loca ated below w is a summarry of the Scope of Wo ork perform med. spected the subject property. The Joe R. Price and Danice S. Taylor perrsonally ins ere based upon site plans and building g plans prrovided by the building sizes we developer. Site in nformation such as zoning, uttilities, et cetera wa as based upon u discussio ons with various v rep presentativ ves mentioned within n those dis scussions. Cost data was obtained from the developer d a and other projects p of comparable c e stature. w gatherred from our files, TR RW REDI, Information I n Service Corp. C Comparrable data was Of Miam mi (ISC), th he Public Re ecords and d various so ources note ed throughout this report. Confirmation of all sales and project com mparables used within n this appraisal was made m acting local brokers, investors, i o owners, an nd through physical in nspection. This by conta informattion is retained in ourr files and available a if necessary. bject is pro oposed as a full-serrvice luxury y hotel co onsisting off 79 units and The sub accessory commo on areas, retail and commerc cial spaces s. Our ass signment is i to e the Mark ket Value of o the Fee Simple Es state of th he hotel “A As if Complete” estimate both as a conventtional trans sient hotell and as a condominium hotel with contin nued operatio on utilizing the sold units in a rental partticipation pool. p We also estimated the “As Is” value as of curre ent date. As of the date of va alue, the fo ormer Heart of Palm Be each Hotell consisting g of 94 un nits had be een demolished to flloor slabs (see photos) and a full re-constru uction was underway.. otel as pro oposed, the e two app proaches utilized werre Income and In valuiing the ho Sales Comparison C n; in this instance, the Sales Comparis son approa ach is used to provide support fo or the conclusion from m the Incom me Approach. st Approach has as its premise e the valuation of the underlying g land by direct d The Cos compariison with similar site es which have recen ntly sold, and the addition a off the deprecia ated cost to replace e the imprrovements. The Cost Approac ch to valu ue is particula arly reliable when applied to o new construction, when ad djustments s for deprecia ation, which may be substantial and hard to quantiffy, are not necessary. In the instance of the e subject, the buildin ng improve ements are more than n 20 years s old, dergoing re econstructiion and th he necessa ary deprec ciation wou uld renderr the are und approac ch very unrreliable; furrther, the market m doe es not use this means of analys sis in making purchase decisions. d Finally, the Town of Palm Beac ch is very nearly n builtt out and and there are very y few land sales; typiically, prop perties are very well maintained m y old; new n develo opment is generally gutting “to o the many are in excess of 75 years

12


S Scope of Work W shellâ&#x20AC;? off existing improveme ents when their value e is less than that of the underlying land. Th his approach is neitherr relevant nor n markett-oriented for f hotels. In the Sales Com mparison Approach h, adjustm ments, whic ch are parrt of the sales s compariison process, are ev ven more difficult d in hospitality y transactions and these industry is adjustm ments are often o insupportable by y market data. d The hospitality h s one where a property's fortunes can chang ge on a da ay-to-day basis. b Poor managem ment or reserrvation delivery can create a "m market opportunity" wherein a hotel sells s for an amo ount that does d not ac ccurately reflect r its value v to an informed d buyer. Even E with reg gard to ma arket-derive ed capitaliz zation rate es, the resp ponsivenes ss of a hotel to changing condition ns can render this infformation less reliablle than for other type es of commerrcial real estate. e A Again, beca ause the hospitality h property operates on o a daily ba asis, rathe er than on the basis of annual leases typ pically seen n in apartm ment projects s and multi-year leas ses prevale ent in mostt commerc cial propertty types, there t is quick k, almost immediate,, response to changiing conditions, whether interna al or external, positive or negative e. g to Hotells & Motells: A Guid de to Mark ket Analysis, Investm ment Further,, according Analysis s, and Valu uations, by the Appraisal Institu ute, "Althoug gh the Sales Compa arison App proach is seldom s giv ven substantial weight in a hottel apprais sal, it can be used to y the Incom me bracket a value orr to check the value derived by Capitaliz zation Approach." The firstt step in th he appraisa al process involved de efining the e appraisal problem which w included d the purpose and da ate of valu ue, determ mining the interest be eing appraised, intended d use and d user of the appra aisal, and identifying g the real estate (legal descripttion). This step also determ mined if th he apprais sal were subject s to any extraord dinary assumptions or hypothetical cond ditions. Sin nce the in ncome ana alysis required d a hypothetical cond dition that the subjec ct construc ction is com mplete and d the hotel is an operating entity y, we have e deducted d the cost to finish and a an ov verall discountt of 18 months to bec come fully operationa al. The nex xt step inv volved the inspection of the Su ubject Prop perty on se everal date es in Octoberr 2007 by Joe R. Pric ce and Danice S. Tay ylor. The inspection n allowed us u to understand the physical component c ts of the Subject Property including the viously air conditioned areas. In I addition n to the ins spection off the expansion of prev d tion proces ss and, subsequently y, an Subject Property, we also began the data-collec analysis s of the factors f tha at affect the t marke et value of o the Sub bject Prope erty, including a mark ket area analysis, neighborho ood analy ysis, and property data analysis s. We gathered and d reviewed d informatiion from the t Palm Beach Co ounty Property y Appraise erâ&#x20AC;&#x2122;s Office,, the Tow wn of Palm m Beach, and a interv views with the property y owner to understan nd and describe the subject. s

13


S Scope of Work W The thirrd step in the process was to determine e the Highest and Best Use off the Subject Property as vacant and as im mproved. Through T th he Highestt and Best Use analysis s, we deterrmined the issues tha at have an effect on the t final op pinion of va alue. To determine the Highest an nd Best Use e, we relied on inform mation obttained from m the data-collection pro ocess. The fou urth step was w the ap pplication of o the app propriate approaches to value. No approprriate appro oaches werre specifica ally omitted d from this s appraisall by the cllient. Howeve er, for this s assignment we ha ave only considered d the Sale es Comparrison Approac ch and the Income Approach to o value. Due to the age a of the improvem ments and the amount of physical depreciatio on we have e not consiidered the Cost Appro oach to Value e. The Sales Compa arison Apprroach was considered d, howeverr the qualitty of the data a was less than ideal in a mark ket like Palm Beach since s there are no ne ew or like-new w competitive hotels. The worlld-famous Breakers is i a notch above and d the others are a below. Therefore e, we have placed mo ost weight on o the Inco ome Appro oach. The datta used in this apprroach was considered d to rende er the bes st indicatio on of value fo or the Sub bject Prope erty. Finally we prefformed a reconciliatio r on to arriv ve at our final opinion of o value.

14


Area Data

15


Area Data D PALM BEACH B CO OUNTY ARE EA DATA ction Introduc mic, govern nmental, environme ental, and d social forces f dire ectly affec ct a Econom property y's highestt and bestt use and, thus, its value. To o accurate ely reflect such influenc ces, it is ne ecessary to o examine the past and probablle future trrends that may affect th he econom mic structurre of the market m area a and evalluate their impact on n the market potential of the Sub bject. In our o analysiis, we hav ve also inc cluded sele ected n Broward and Miami-Dade Cou unties. Th hese two counties c along with Palm P data on Beach County C are defined as s “South Florida”. phy Geograp B Cou unty is located l on Florida''s southea ast coast 250+ miles m Palm Beach south/so outheast of o Jacksonv ville and 50+ 5 miles north of Miami. M It is bounded d by Martin County to the north h, Broward d County to the sou uth, Hendry and Glades obee to the west, an nd the Atla antic Ocea an to the east. e Counties and Lake Okeecho unty has 45 5± linear miles m of coa astline, measured norrth to south, with a width w The cou of 53+--\ miles measured m f from east to west. It contaiins approx ximately 2,387 square miles of area, of which w 1,97 75+\- squ uare miles is land area, a with the m being water area. a The e water arrea include es a remaining 412+\-- square miles e, which is the larges st freshwater lake in nside the State S portion of Lake Okeechobee o America a's largest lakes. l and ranks as one of unty varies s geograph hically, witth beach resorts r and d urban arreas along g the The cou Atlantic Coast, pre eservation areas, agrricultural areas, a and Lake Okee echobee to o the west. Urban and suburban s developmen nts generallly extend 6 to 15 miles inland. erage eleva ation is 15 5 feet abov ve sea leve el and the terrain is sandy flattland The ave with occ casional, gently g sloping, coasta al ridges. The clima ate is subtrropical with an average e temperature of 75+\7 Fahrrenheit. Prevailing winds co ome from the east/sou utheast and the averrage yearly y rainfall is 62+\- inches. The climate, c kn nown for mild d winters due to its s proximity y to the warm w Gulf Stream currents c off the Atlantic Ocean, is a major factor contributing to the t county''s growth. Populatiion e past 15 to t 20 years s, virtually every economic secttor in Palm m Beach County Over the has grow wn becaus se of popula ation increases. Acco ording to da ata from th he U.S. Census Bureau,, the county’s 2006 population n was 1,287,987, up p 13.8% from f the 2000 2 populatiion of 1,1 131,184. The countty is expected to maintain its high total populatiion growth, as it remains a pop pular destin nation for all a age grou ups.

16


Area Data D Table DP-1 1. Profile of Gen neral Demograp phic Characteriistics: 2000 Geo ographic Area: West W Palm Beach - Boca Raton, FL L MSA (For informa ation on confiden ntiality protection n, nonsampling error, e and definitiions see text) Perce Subject Subject N Number Percen nt Numb ber nt Total populattion. 1,131,184 100.0 0 HISPANIC OR LATINO AND RACE Total pop pulation 1,131,18 84 100.0 SEX AND AGE Hispanic or Latino L (of any ra ace) 140,67 75 12.4 Male 5 546,739 48.3 3 Mexican 30,09 99 2.7 5 584,445 51.7 7 Puerto Ri can 25,17 70 2.2 Female ars 62.913 5.6 6 Cuban 25,38 86 2.2 Under 5 yea 5 to 9 years s 68,647 6.1 1 Other His spanic or Latino 60,02 20 5.3 10 to 14 years 70,155' 6.2 2 Not Hispa anic or Latino 990,50 09 87.6 61,738 5.5 5 White alo one. 798,48 84 70.6 15 to 19 years 51,319 4.5 5 20 to 24 years 133,020 11.8 8 RELATIONSH HIP 25 to 34 years 172,021 15.2 2 Total pop pulation 1,131,16 64 100. 0 35 to 44 years 141,051 12.5 5 In household ds 1,111,85 56 98.3 45 to 54 years 56.852 5.0 0 Househol der 474,17 75 41.9 55 to 59 years 51,392 4.5 5 Spouse 240,64 46 21.3 60 to 64 years 122,729 10.8 8 Child 274,46 61 24.3 65 to 74 years 104,382 9.2 2 Own ch hild under 18 Ye ears 215,46 67 19.0 75 to 84 years nd over 34,965 3.1 1 Other rel atives 58,31 16 5.2 85 years an Under 18 years 19,25 54 1.7 41.8 (X) Nonrelati ves 64,25 58 5.7 Median age (Years) Unmarrie ed partner 26,05 51 2.3 18 years an nd over 8 890,726 78.7 7 In group qua arters 19,32 28 1.7 Male 4 423,037 37.4 4 Institutio onalized population 11 ,65 53 1.0 4 467,689 41.3 3 Noninstltutionalized popu ulation. 7,67 75 0.7 Female nd war 8 856,993 75.8 8 21 years an 62 years an nd over 2 292,737 25.9 9 HOUSEHOLD D BY TYPE 65 years an nd over 2 262,076 23.2 2 Total hous seholds 474,17 75 100.0 Male 114,210 10.1 1 Family house eholds (families)) 303,77 72 64.1 147,866 13.1 1 With own children und der 18 years 118,08 85 24.9 Female Married-c couple family 240,64 46 50.8 With own children und der 16 year 83,08 83 17.5 RACE 1,104,256 97.6 6 Female householder, no husband presen nt 45,93 39 9.7 One race 8 894,207 79.1 1 With own children und der 18 years 26,81 19 5.7 White can American 156,055 13.8 8 Nonfamliy ho ouseholds 170,40 03 35.9 Black or Afric American Ind dian and Alaska Native 2,466 0,2 2 Househ holder living alo one 138,40 06 29.2 Asian 17,127 1.5 5 Hous seholder 65 yea ars and over 69,21 19 14.6 an 5,632 0.5 5 Households with w individuals under 18 years s 129,32 25 27.3 Asian India Chinese 3.564 0.3 Households with w Individuals 65 years and over o 178,52 22 37.6 2,415 0.2 Filipino 519 - Average hou sehold size 2.3 34 (X) Japanese 981 0.1 1 Average family size 2.8 89 (X) Korean se. 1,833 0.2 2 Vietnames 1 Other Asia an 2, 183 0.2 2 HOUSING OC CCUPANCY Native Hawaiian and Other Pacific P 692 0.1 1 Total housing h units 556,42 28 100.0 Islander waiian 123 - Occupied housing units 474,17 75 85.2 Native Haw Guamanian or Chamarro 292 - Vacant housing units 82.25 53 14.8 60 For season nal, recreational, or Samoan 2 217 occasion nal use 52,87 74 9-5 Other Paci fic Islander r 33,709 3.0 0 Homeowner vacancy rate (p percent) 2 2.0 (X) Some other races Two or more races 26,928 2.4 Rental vacan ncy rate (percen nt) 8 8.7 (X) n with one Race alone or I n combination er races:3 Or more othe White can American Black or Afric American Ind dian and Alaska Native Asian P Native Hawaiian and Other Pacific Islander

909,541 9 168,585 5,627 21,261

80.4 4 14.9 9 0.5 5 1.9 9

2,057

0.2 2

52,134

4.6 6

Some other race r

HOUSING TE ENURE Occupi ed housing unitts Owner-occup pied housing unit Renter-occup pied housing un nits Average hou usehold size of owner-occupied o units Average hou usehold size of renter-occupied r units

474,17 75 354,02 26 120,14 49

100.0 74.7 25.3

2.3 34

(X)

2.3 37

(%)

-Represents zero or rounds to t zero. (X) Nott applicable 1 Other Asian alone, or two or o more Asian ca ategories. 2 Other Paciffic Islander alone e, or two or more e Native Hawaiia an and Other Pac cific Islander cate egories. 3 In combina ation with one orr more of the oth her races listed. The T six numbers may add to morre that the total population and the t six percentages s may add t more e the 100 percen nt because individ duals may reportt more than one race Source: U.S. Census Bureau, Census 2000.

17


Area Data D The folllowing cha art shows population n changes for Palm Beach an nd neighbo oring counties s from 200 00 to 2006.. This is the e most recent data av vailable. Growth Comparisson Southe east Florida Counties Ju ul-07 Cou nty

Population

Jul-06 Po opulation

% Increase

Palm m Beach

1,274,,013

1,268,548

0.43% %

Brow w ard

1,787,,636

1,632,662

9.49% %

Miam mi/Dade

2,402,,208

2,376,014

1.10% %

The 200 05 populattion estima ate for Palm Beach County C ind dicates that, on averrage, 2,213+\\- new res sidents werre attracted to Palm Beach Cou unty every y month du uring the last 5 years. Many M of these new re esidents arre fleeing the t conges stion and social problem ms that folllowed the e rapid gro owth of Miami-Dade and Brow ward Coun nties, however a signific cant portion remains inmigratin ng retirees and young g professio onals y quality off life. In an effort to benefit fro om this, Pa alm Beach County an nd its lured by municip palities have enacted restrictive land use codes c and developme d ent impact laws to prom mote orderly y growth. Accordin ng to the University U of Florida BEBR, the south Florrida region (comprise ed of Miami-D Dade, Brow ward and Palm P Beach h Counties) will add an additio onal 1.5 million people during the e period off 2002 to 2020. Th he BEBR projects p tha at Palm Be each h ratte of grow wth (37%), with Brow ward comin ng in County will experience the highest d Miami-Da ade in third d (23%). second (34%) and each Coun nty is composed of 38 3 municip palities, as s well as unincorpor u rated Palm Be areas. The T City off West Palm m Beach is s the countty seat and d the large est municip pality with an estimated population n of 107,61 17 as of 20 006. While litttle room for f furtherr growth re emains alo ong the coa astal sectio ons, signifiicant westwarrd sprawl has occurrred over th he last 15 to 20 yea ars. Comm munities to o the west, such as We ellington, Royal Palm m Beach and a the Ac creage, ha ave grown and e to grow rapidly. r continue

18


Area Data D The tab ble below lists the county's la argest mu unicipalities s, showing g their currrent populatiion, recentt growth an nd location within the e county: Municipalities - Population & Growth Municip pality Jupiter ach Gardens Palm Bea North Palm Beach B Riviera Beach Palm Bea ach West Palm Beach Lake Worth Royal Palm Beach Loxahatc chee Groves1 Greenacrres Wellingto on Boynton Beach Delray Be each Boca Ratton Belle Glade

Reg gion North heast North heast North heast North heast East-C Central East-C Central East-C Central Cen ntral Cen ntral Cen ntral Cen ntral South heast South heast South heast We est

Popu ulation 2006 2000 50,028 48,944 12,645 33,408 9,860 107,617 35,485 30,371 3,000 32,019 55,584 67,071 64,150 86,396 15,423

Tottal Chan nge

% Chan nge

39,3 328 058 35,0 12,0 064 884 29,8 9,6 676 103 82,1 133 35,1 21,5 523

10,,700 13,,886 581 3,,524 184 25,,514 352 8,,848

27.2% 39.6% 4.8% 11.8% 1.9% 31.1% 1.0% 41.1%

569 27,5 38,2 216 389 60,3 020 60,0 74,7 764 906 14,9

4,,450 17,,368 6,,682 4,,130 11,,632 517

16.1% 45.4% 11.1% 6.9% 15.6% 3.5%

Historica ally, the fastest growing g unincorporrated areas have been in the regio on west of Boca Raton an nd west of Boynton Be each. The West Boca area is esssentially built-out and has h a populatio on well in ex xcess of 100 0,000. The West W Boynto on market had h been the e fastest gro owing area in th he county du uring the late er part of the e 1990s; how wever it too is approaching build-out. As can be seen from the above data, the western co ommunities of Royal Palm P Beach and on have bee en the faste est growing municipalities over the e last five years, y with Palm Wellingto Beach Gardens G follo owing closely. There has h been a lot of comm mercial/retaill growth in Palm Beach Gardens G alon ng PGA Bou ulevard within the last fe ew years. These T trendss are expectted to remain over o the nextt several yea ars. As the remainder of o the coun nty reachess buildout, developmen nt appears headed for the w of Royyal Palm Beach. B In August A 2005 5, the Palm m Beach Co ounty agricultural areas west Central Westtern Commu unities Secto or Planâ&#x20AC;?. This plan has been Commisssioners apprroved the â&#x20AC;&#x153;C in the works for sev ven years, and a covers 53,000 acrres bounded d on the no orth by North hlake Boulevarrd; on the so outh by Southern Boule evard and on n the east byy Royal Palm Beach. It calls for appro oximately 8,6 600 new ho omes and 85 50,000 squa are feet of commercial c s space in an area that curre ently could be b developed with just over o 1,000 homes. Appro oval of the plan p is now in the hands off the State off Florida.

19


Area Data D Econom my each Coun nty's econo omy is driven by ag griculture, tourism, manufactu m ring, Palm Be construc ction, and the constant migrattion of retiired person ns into the e county. The table be elow charts s the categories and the t change es.

Employm ment Break kdown Total Change EMPLO OYMENT CAT TEGORY

Jun-0 07

Jun-06

% ge Chang

6 6/06 to 6/07 7 6/06 to 6/07 6

Total N Non-Agriculttural Construction Manufactu uring

593,,600 46,,600 20,,600

582,000 5 48,200 20,100

11,600 (1,600)) 500

2.0 0% -3.3 3% 2.5%

Service e Producing

526,,300

5 513,600

12,700

2.5%

Trade, Transporation & Utilitie es Wholesale e Trade Retail Trade

108,,700 23,,700 74,,900

106,000 1 22,800 73,000

2,700 900 1,900

2.5% 9% 3.9 2.6 6%

41,,900

40,700

1,200

2.9 9%

125,,300

1 122,500

2,800

2.3 3%

Educattion & Health Services

77,,500

76,100

1,400

1.8 8%

Leisure e & Hospitality Services s

73,,400

71,000

2,400

3.4 4%

Total G Government Federal State Local

61,,700 6,,200 8,,300 47,,200

60,500 6,200 8,200 46,100

1,200 100 1,100

2.0 0% 0.0 0% 1.2 2% 2.4 4%

Financial Activities s Profess sional & Bus siness Services

Source e: Florida Agenc cy for Workforce Innovation, Lab bor Market Statistics, Current Em mployment Statisttics Program (in co ooperation with the t U.S. Departm ment of Labor, Bureau of Labor Statistics) S

As of June 2007,, Palm Beach Countty had an average unemploym ment rate (not ally adjuste ed) of 3.5 5% as com mpared to the June 2006 rate e of 3.6% %. In seasona southeast Florida, unemploym ment typica ally peaks in the third d quarter of o the yearr and s to its lowe est level in the first quarter, due e to season nal increase es in popula ation declines and tourism. In general, g it is our opin nion that a combination of population gro owth, strong job j growth h and a strong laborr force indiicate the fundamenta f als of a sttrong economy.

20


Area Data D The table below details per capita c income for Palm Beach, Broward and Miami-D Dade counties s for the ye ears 2002 through 200 05. This is the most recent r data a available.

PER CA APITA INCO OME County

2003 3

20 004

2005

Palm Beach Broward B Miami-Dade M e

$44,050 $32,844 $27,593

$44 4,518 $34 4,008 $29 9,076

$50,371 $ $ $36,595 $ $31,347

So ource: U.S. De ept. of Commerrce, Bureau of Economic Ana alysis

h perr capita inc come It should also be noted thatt Palm Beach County has the highest S of Florida based on the 2004 figures.. in the State Residential constrruction acttivity in th his market has nea arly stoppe ed due to the ecting the nation. South Florid da is amon ng the mo ost significa antly lending crisis affe impacte ed areas. The chart below show ws the tren nd of housiing starts and a values. sing Units Au uthorized by Building B Perm mits New Hous Year

Single e Family y

Multiple Family

Total s Units

Esttimated V Value

Value per Unit (total))

2002

9,14 43

3,90 09

13,05 52

$1,835,023,091

$140,59 93

2003

10,69 92

4,91 14

15,60 06

$2,422,596,758

$155,23 35

2004

66 10,26

4,27 70

14,53 36

$2,552,372,436

$175,59 90

2005

9,69 90

4,52 25

14,21 15

$2,812,258,394

$197,83 37

2006

4,65 52

3,72 25

8,37 77

$2,016,999,525

$240,77 78

Source: U.S. Census

arison of th he 2006 da ata to 2005 5 data show ws a substa antial decre ease (-41% %) in A compa building permit acttivity, but an a increase e of 22% in n individual unit value es. Recent data shows that t prices s have at best slow wed and in i some cases, c declined. Ma arket participa ants differ on o the leng gth of and residual im mpact on loc cal markets s. Housing g has long been an imp portant com mponent of o the Palm m Beach County C economy. In our s th hat the hou using indus stry is in se erious trouble at this time opinion, the data suggests st industry experts se ee the crisis s / impact continuing c 8. at least thrrough 2008 and mos

21


Area Data D In Aprill 2006, th he County initiated a new pro ogram enttitled “Inte erim Workfforce Housing g Program”. The goal of the pro ogram is to o serve the housing needs n of pe eople employe ed in the jobs j that the t general populatio on of the community c relies upo on to make th he commun nity viable. It applies to t all new residential developme ents of 10 units u or more e, and calls for 7% % of the units u attrib butable to standard density to o be considerred as “workforce”. Iff a Planned d Unit Deve elopment is s sought, th hen 25% of the applicab ble units arre to be “w workforce”. As of April 2006, prices for the ese “workfo orce” homes would w rang ge from $16 64,000 to $304,000 $ d depending upon incom me levels of the workers s. siness Dev velopment Board (BD DB) of Palm Beach County ha as success sfully The Bus worked to attract new industries to Palm P Beach h County. Through its efforts,, the Board of o County Commissio oners has approved a Job Grrowth Ince entive Fund to support relocating g and expan nding companies. Since 1993, more than n 225 comp pany relocatio ons and ex xpansions assisted a by y the Busin ness Develo opment Bo oard resulte ed in the crea ation of ov ver 22,000 0 jobs and d added in n excess of o $4 billio on to the Palm P Beach County C economy. The e chart belo ow indicate es the top 10 employ yers, public c and private in the coun nty:

Rank 1 2 3 4 5 6 7 8 9 10

Company PBCo School S Board Palm Beach B County Columb bia PB Healthcare Tenet Healthcare H FPL D Office Depot Boca Raton R Resort & Club U.S. Su ugar Corp Florida Crystals City of Boca Raton

A Approx Em mployees 21,616 6,594 5,200 4,794 2,850 1,750 2,200 2,100 2,000 1,880

Product Edu ucation Gov vernment Hea althcare Hea althcare Utillities Office Supplies Hottel Agrriculture Agrriculture City y Government

City Countywid de West Palm m Beach Countywid de Countywid de Juno Beac ch Delray Bea ach Boca Rato on Belle Glad de West Palm m Beach Boca Rato on

S Source: Busines ss Developmen nt Board of Palm Beach Countty

Agriculture Accordin ng to the United States S Dep partment of Agricultture’s “20 002 Census of Agriculture” (the most rec cent available), Pallm Beach County is i the larrgest ural producing countty in Florid da, with approximate ely 27% of o the coun nty’s agricultu total lan nd mass in agricultural productiion. This is s down 12% % from the e “1997 Census of Agric culture”, an nd reflects the reside ential and commercia al growth in the wes stern areas. The county y is also th he eighth largest cou unty in the nation in terms of value v of its crops, with sales s of $1.12+\- billiion during 2003-2004 4. Palm Be each Countty is the le eading county in the United Sta ates in sug gar produc ction. It also leads Florrida as the number one prod ducer of bell pepperrs, cucumb bers, 22


Area Data D eggplan nt, herbs and a Chines se vegetab bles. Other crops grown g include tomattoes, squash, specialty peppers an nd beans. Lastly, the e county ra anks secon nd in the na ation for swee et corn pro oduction. Tourism m 4, Henry Mo orrison Flag gler extend ded his railroad to Pallm Beach and a opened d the In 1894 Royal Po oinciana Ho otel, beginning Palm Beach Cou unty's fame e as a vaca ation area. Its balmy breezes, b su ubtropical climate, c and 45+\- miles m of oce ean beache es, pristine and unique native env vironment, the second d largest freshwater f lake in the nation (Lake Okeecho obee), 160+\- golf co ourses, mo ore than 1,100 tennis courts, ov ver 30 marinas, and 230 0 hotels are e only a po ortion of wh hat Palm Beach B Coun nty has to offer, o making it one of the nation's s top touristt destinatio ons. each Countty is internationally known k as a golfing ce enter and has h been ca alled Palm Be the "Golf Capital of o the World." The co ounty has 160+/1 golf courses, more than n any ounty in th he United States. S It houses th he headqua arters of th he Professional other co Golfer's Associatio on in Palm m Beach Gardens and a as no oted earlie er, Golf Diigest Magazin ne will also o establish h its nation nal golf tra aining headquarters at the Mirrasol planned d developm ment. The Con nvention & Visitors Bureau (CVB B) promote es county tourism via a a bed tax on hotel ro ooms. As can c be exp pected, bed d tax collec ctions decre eased 11% % from 200 01 to 2002 as s a result of o September 11. How wever, curre ent data in ndicates tha at recovery y has taken pllace. A com mparison of o bed taxes s for the tim me period of o July 200 04 through June 2005 to the taxes received du uring the period p of July 2005 thrrough June e 2006 reve ealed a 5.01% % increase in tax reve enue. In ad ddition, the e average occupancy o rate for th he 1st Quarter 2006 was 3.60 points s lower tha an the 1st Quarter Q 200 05 figures. ortation Transpo Major highways fo orm a grid system across the developed eastern quarter of Palm C Florida's Turnpike, Interstate 95 (I-95), State Roa ad A-1-A, U.S. Beach County. Highway y 441, and U.S. Highw way 1 are the major north/soutth roads in the county y, all providin ng access to t locations s beyond th he local arrea. I-95 is s the prima ary north/s south thoroughfare throu ugh easterrn Palm Be each County and exttends its entire e dista ance. e last few years, y seve eral widenin ng projects s have been n complete ed over secttions Over the of I-95. Further, construction n on variou us sections of I-95 is occurring and a is expe ected to contin nue for the e next 5 to 10 years. s Turnpike runs para allel and to o the westt of I-95 and a provide es north/south Florida's access to t points west w of the e immediatte coastal areas. a The Turnpike e provides high speed access to po oints between Wildwood and Homestead, with Palm m Beach Co ounty anges in Jupiter, Palm Beach Gardens, the Beelin ne Highwa ay, West Palm P intercha Beach, Southern Boulevard,, Lake Worrth, Boynto on Beach, Delray Be each, and Boca B erchange at Jog Road d, West Palm Beach, is i nearing completion n. Raton. A new inte

23


Area Data D Numero ous east/we est roads connect c the e coastal area a to the e western portions off the county although currently c t there are no east/w west limited d access roads. r Th his is expected to chang ge within th he next fiv ve to seven n years. Southern Bo oulevard (S State Road 80 0) is the prrimary trafffic artery linking the coastal c cities with the e “Glades” area in weste ern Palm Beach B Coun nty and the e west coas st of Florid da. It is prrimarily a fourf lane tho oroughfare that extend ds westerly y from the Town of Pa alm Beach to the "Gla ades" area of western Pa alm Beach County. Itt has an in nterchange at I-95. Th he $300 million on of Soutthern Boule evard from m Interstate e 95 to Forest Hill Bo oulevard is s the expansio Metropo olitan Plann ning Organiization’s (M MPO) top priority. Th he MPO, co omprised off city and cou unty elected d officials, decides ho ow state ro oad money y is spent. The Soutthern Boulevard project plans call for f five highway-style e interchanges at Australian Ave enue, erhill Road,, Jog Road and State Road 7. Work W on th he county’s first Military Trail, Have east-west expressw way started d in the firrst quarter 2000 at Au ustralian Avenue, and d the last phase is expec cted to be completed c d-year 2008 8. during mid Rail freiight traffic is handled by two systems, s t the Florida East Coas st Railway and the CSX X Railroad. Passenger service is available via Amttrak from Miami M nortth to Orlando o, Jacksonv ville, and th he remaind der of Amtrrak's USA rail r network. South Florida's F commuter ra ail system, Tri-Rail, began service in January 1989. The system runs betw ween West Palm Bea ach and no orthern Mia ami-Dade County, where w commutters can co onnect to Miami-Dad de County's Metrorail. Each cou unty along g the route prrovides fre ee bus serv vice between the fifte een stops and variou us employm ment and sho opping disttricts. Tri--Rail was designed d a an alterrnative to I-95 during its as widening project and a beyond d. Public bus transportation is operate ed by the e county and recen ntly expan nded through hout the county c witth more routes r and d more frrequent se ervice. Public transportation has s not caught on in so outh Florid da, as its buses b and trains typically operate at less than capa acity. Thiis is chan nging howe ever, as delays d due e to construc ction on I-95 appear to have re esulted in an increase in Tri-Ra ail’s usage over the last several ye ears. Howe ever, due to t expansio on of the railroad r tracks as a re esult of the “double “ trracking” prroject, ride ership decreased during the time frame es of January y 2005 to March M 2005 5 as compa ared Januarry 2006 to March 200 06. each International Airport (PBIIA) serves the comm mercial aviation need ds of Palm Be the county and offers o 17+\\- differentt airlines, including commercia al and cha arter. port revenu ue is self-g generating and does not rely on n county ta ax dollars. The The airp chart be elow summ marizes airp port operattions:

24


Area Data D Palm Beach International Airpo ort Traffic Re eport 2 Period Ended June 2007 2007/Jun

2006/Jun

Percent Change

12 Months Ended June 2007

1 Months 12 En nded June 2007

Percent Change

T Total Passengers

493,262

491,346

0.39%

6 6,894,231

6 6,913,306

-0.28%

To otal Cargo Ton ns*

1,164.3

1,685.8

-30.93%

17,008.1

19,481.9

-12.70%

Landed We eight (Thousan nds of Lbs.)

303,497

296,846

2.24%

4 4,341,704

4 4,393,191

-1.17%

Air Carrier Operations**

5,356

5,024

6.61%

71,618

67,319

6.39%

GA & Other Operations** **

7,444

8,933

-16.67%

120,561

126,401

-4.62%

12,800

13,957

-8.29%

192,179

193,720

-0.80%

Total Operations

Source: Pa alm Beach County Departmen nt of Airports * Freight plus mail reported r in US Tons ** Land dings plus take eoffs *** Per FAA Tower

There are five smaller airporrts in the county c loca ated at Boc ca Raton, Lantana, North N County (northwes st of Palm Beach Garrdens), Pah hokee and Belle Glad de. The North N County facility was complete ed in 1994 4 to ease the small plane p conge estion at PBIA. P Boca Ra aton was upgraded u a and expand ded in the early 199 90s and can handle large corporatte jets. B in Riv viera Beach h is the fou urth busies st containerr port in Flo orida The Portt of Palm Beach and is th he main ex xport point for sugar and a other agricultural products. It is also home h to Palm Beach Cou unty's foreig gn trade zo one. The Port P is a self-sufficient entity thatt has not had to rely on n taxes. Itt is the num mber one exporter e off raw suga ar in the Un nited uise to nowhere” gambling States. In addition to cargo, the port is home to several “cru ships. The Porrt of Palm Beach rece ently comp pleted cons struction off its Skypa ass project,, the elevating of U.S. Highway 1 over Po ort Road. This allows rail an nd truck trraffic unrestricted access into the Port and liinks the Po ort's 65-acre wharf area in the east with 100 acres off support in ndustries in n the westt. The Port plans to o increase dock space by b adding an a addition nal slip of 1,500 linea ar feet to handle ves ssel traffic. In addition, the Port’s $40 million cruise e terminal/marine offfice comple ex and parrking garage was w comple eted in early 2002. Services s Medical facilities are a adequa ate throughout the county, c witth special units at many m hospitals. A numb ber of hosp pitals have e or are con nstructing satellite medical m facilities s as west Boynton n Beach and the Acreage. in growiing areas such each Regio onal Hospital in Lake Worth and a JFK Medical Cen nter in Atla antis Palm Be merged in 1995 and the former closed d. Columbia Hospital in West Pa alm Beach and 25


Area Data D JFK Hos spital have e undergon ne, and continue to undergo major m expa ansions. Other O major hospitals h include Jupitter Medicall Center, Pa alm Beach Gardens Medical M Cen nter, Boca Ra aton Comm munity Hos spital, Wellington Regional Med dical Cente er, Palms West W Hospital, also in Wellington, W and the VA A Hospital in Riviera Beach. C sch hool system m provides public edu ucation thrrough the 12th The Palm Beach County unior colleg ge education is ava ailable at Palm Beac ch Commu unity grade. Public ju ear school located in Lake Worrth with branch cam mpuses in Palm P College,, a two-ye Beach Gardens, G Bo oca Raton,, and Belle Glade. or’s degree es and grad duate stud dies are offfered at Florida F Atla antic Unive ersity Bachelo (FAU), Palm Beac ch Atlantic College, Lynn L Unive ersity, Nortthwood Un niversity and a branch of Barry University. FAU, the largest of these scho ools, is a state s institu ution R with h auxiliary campuses in northe ern Palm Beach, B Brow ward located in Boca Raton, and St. Lucie Cou unties. FAU has an honors college camp pus on a 135-acre sitte in the Abacoa develo opment in Jupiter. J Conclusion each Countty's popula ation contin nues to inc crease prim marily due to t the coun nty's Palm Be climate and the propensity p of northe erners to relocate r in Florida. The countty is expecte ed to be am mong the highest in absolute a po opulation growth in th he state forr the near fu uture. As population n grows, more sup pporting commercial, service and industria al developm ment will be b required d. neral, property valu ues, rents, and occupancy o ave increased rates ha In gen substantially over the last se everal yearrs with the exception of the resiidential ma arket s suffering from the earlier e des scribed resiidential ma arket fallou ut. Supply y has which is been stteadily incrreasing in most area as (retail, office and industrial)) over the last several years due to a relattively healtthy econom my, and a supply/demand of space that, fo or the mos st part, ap ppears to be in rela ative equiliibrium – again a with the exceptio on of reside ential for sale s units. The eco onomy’s expansion co ombined wiith populattion growth h during the late 90’s s and early 2000’s 2 ha as resulte ed in fav vorable ab bsorption of comm mercial sp pace. Consequ uently, an increase in i new con nstruction occurred and a is still probable over the next several years, y partticularly in the north county are ea where the t majoritty of al negative e to this growth is rising inte erest vacant land existts. The only potentia on,” appea f by “in-migrati “ ars to be in Palm Beach rates. Continued growth, fueled Steadily growing demand combined c nite supply of with a fin County’s future. pable land creates c a positive p environment for real es state over the long te erm. develop In the short s run, some s weak kness could d be experienced, particularly in n markets with an abun ndance of new n supply y. The one e drawback k to this growth has been b the re ecent – since mid – to la ate 2005 problem witth residential land and d improved d properties s. It also appears inev vitable thatt other ma arkets will feel the impact of this fall offf as all from the e demand side of the e equation for comme ercial contracttors, suppliiers, etc. fa space.

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N Neighborh hood Anallysis NEIGHB BORHOOD D ANALYS SIS ationship of the Subje ect Propertty with surrrounding properties p f forms the basis b The rela of neigh hborhood analysis. a T The 12th Edition E of th he Apprais sal of Real Estate sta ates: â&#x20AC;&#x153;Social, economic c, governm mental, an nd environ nmental fo orces influence prop perty values in the vicin nity of a su ubject prop perty. As a result, the ey affect th he value off the subject property. Although physical p bo oundaries may m be dra awn, the most m imporrtant boundarries are those that id dentify factors influencing prop perty value es. The are ea of influenc ce, commo only called d a neigh hborhood, can be defined as s a group p of complem mentary land uses.â&#x20AC;? The municipality of Palm Beach is loc cated on a coastal islland, ng a width ranging fro om 500 fee et to east off the mainlland; havin three-q quarters off a mile an nd a length h of approx ximately tw welve miles. The island is separrated from m the main nland by Lake ntracoastal Waterway) a saltwater lag goon Worth,, (the In approx ximately thrree-fourths s of a mile wide. w b con nnect the island to th he mainlan nd. The Fla agler Four bridges Memorrial Bridge,, the north hernmost bridge, b tog gether with h the Royal Park Bridge, service the downtown area of o Palm Be each, connec cting with major ea ast/west co onnectors in West Palm Beach. The curre ent Royal Park Bridg ge is new. The Soutthern vard Bridge e is located d approxim mately two miles soutth of Boulev the downtown arrea. The La ake Avenue e Bridge, approximate ely 4 s conn nects with the t City of Lake Worth h. miles south, own of Palm Beach is world re enowned fo or its Europ pean The To atmosp phere and its excellent shopping and dining d facilities. Shoppiing is prov vided in several are eas, the most m famou us of which is Worth Avenue. A W Worth Avenue is a th hree block long shopping district with the majority of o the build dings havin ng a chitecture made m famo ous by Add dison Mizne er, a Spanish style arc nown archittect of the early e 1900's. well kn Palm Beach B has s strong governmen g h tal controls which have affecte ed orderly growth in n the past. The demand for real estate in n Palm Bea ach has been strong since many y building sites are acquired via a the purchas se and dem molition off older homes. Values are currrently con nsidered to o be stable, after severral years of o appreciation. Overall market appeal an nd employm ment y are good. stability

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N Neighborh hood Anallysis Palm Be each is one of the wea althiest com mmunities in the U.S. and is the winter hom me of the som me of the world's ric ch and fam mous. Its permanentt and seas sonal resid dents include a virtual "W Who's Who" of the Forbes 400. These T extra aordinary in ncomes explain h a small population n can support a large commercia al base. in large measure how Property y values have risen dramatically in the past decad de with litttle evidenc ce of stabilizing. Properrty apprecia ation rates s in Palm Beach B have e ranged frrom 1% to o 3% per mon nth in the past decad de. The rea ason for th his is essen ntially that the numbe er of millionaires has also increas sed drama atically in the t past decade as well, w while e the availability of land d in Palm Beach rema ains constant. Conclusion Palm Be each is an internationa al destination - an old der commun nity that is virtually 100% developed. The mu unicipality has h strong governmental contro ols, which have h resulte ed in t past. The T municip pal governm ment and residents r ha ave a record of orderly growth in the g further growth of any kind. Res storation of existin ng comme ercial opposing establish hments occ curs on a regular r bas sis and is expected e to o continue. This does s not offset th he limited supply s of new n comme ercial space e brought about a by highly restrictive zoning and devellopment ordinances and the lack of de evelopable land. Ups scale s, restauran nts, fashion n houses, design d firms s, galleries and other businesses s are retailers likely to continue to t be in the e market fo or propertie es in this most m desirab ble of locations. A itse elf has bee en known since the 1920s am mong one of o a handful of Worth Avenue prestige e shopping streets in the t world and the attrraction conttinues. d, Palm Beach is one of the worrld's wealth hiest comm munities. Co ommercial retail r As noted space in n the town is a fixed commodity c with dema and limited only by the e growth of the world's wealth. Because B res strictive zo oning discourages the e addition of o more sp pace, occupan ncy is likely y to remain relatively high, with long term upward pre essure on rents r and property value es reasonab bly probable, in our op pinion

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P Property D Data PROPERTY DATA A Location n b So. Ocean Boulevard B and So. County Road on The Palm House is located between m Way in the t Town of o Palm Be each. The street add dress the south side of Royal Palm h is 160 Royal Palm Way, Pa alm Beach, 33480. for the hotel

Zoning// Land Use g is zoned C-B, C Comm mercial and Offices, by y the Town of Palm Be each, The subject zoning Florida. B classificattion’s purpo ose is “…to o create an n environm ment especially suited to a The C-B group off profession nal and adm ministrative e offices co ompatible in appearan nce with sin nglefamily housing.” h The classification lim mits buildin ng area to 2,000 squ uare feet gross g leasable e area (GLA A); howeve er, also prov vides that “any “ comm mercial esta ablishment with greater than 2,000 square feet f GLA are a permittted provide ed the Tow wn Council has se is town n serving. Further, the subjec ct has exis sting found that the prroposed us

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P Property D Data approva als for both h the majo or reconstrruction und derway as of date off value and d for future condominium m conversion. See Declaration of o Use Agre eement in Addenda. A e, Shape, Access A & Easements E Site Size bject site is i a rectan ngular parc cel that co ontains 66,,000 squarre feet or 1.65 The Sub Palm Be each acres (40,000 sq quare feet per PB acre) or 1.51 1 acres. Th he property y has 300 fee et of fronta age on and d access frrom Royal Palm Way y on its north and is 220 feet dee ep. It is approximately ¾ block from the ocean. o Utilities s are available to the Subjec ct Property y with watter and se ewer All public utilities d by the City C of West Palm Bea ach, teleph hone by Be ellSouth and electricitty by provided FPL. aphy Topogra bject parce el is relativ vely level and at or near grad de of the adjacent a R Royal The Sub Palm Way roadwa ay improve ements. There were no appare ent drainag ge problem ms at the time e of inspection. Census Tract The Sub bject Prope erty lies witthin Census Tract 35..02 of the 2000 US Census. C Flood Ha azard Zone e The Sub bject Prope erty lies within Flood d Zone "C", according g to the Flood F Insurrance Rate Ma ap (Panel Number N 12 20220 0002 2C) prepared for the National Flood F Insurrance Program m of the US U Departm ment of Ho ousing and Urban De evelopmentt (HUD). Flood F Zone "C C" indicates s “areas off minimal flooding” f ac ccording to o the expla anation of zone designattions on the map panel. Concurrrency 5, the Florida Legislature ena acted the Local Government Comprehen C nsive In 1985 Planning g and Lan nd Develo opment Re egional Ac ct (Chapte er 163, Pa art II, Flo orida Statutes s), commonly referre ed to as "Th he Growth Manageme ent Act". nt to Sectio on 163.317 77(10)(h), F.S., "it is the inten nt of the Legislature L that Pursuan public facilities f and service es needed to support develop pment shall be available concurre ent with th he impacts s of such developmen d nt." From this statem ment, the term t "concurrency" was s derived, and is com mmonly use ed to referr to the abo ove act and its ments. requirem

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P Property D Data The bas sis of the co oncurrency y concept is s Rule 9J-5 5.0055 of the t Florida Administra ative Code, which w states s that: at facilities s and serv vices neede ed to supp port develo opment arre "To ensure tha current with the impacts off such developmen nt, a loca al available conc ernment must m adoptt a concurrrency man nagement system. Prior P to th he gove issua ance of a developme ent order or development perrmit, the concurrenc c cy mana agement system mus st ensure that t the ad dopted leve el of service standard ds required for ro oads, pota able waterr, sanitary sewer, solid waste e, drainage e, eation, and d mass tran nsit, if applicable, will be mainta ained." parks and recre bject Prope erty is an existing im mprovemen nt and therrefore, con ncurrency rules r The Sub do not apply a in the As Is con ndition. It is an assu umption of this reportt that since e the propose ed condominium conv version doe es not anticipate additional unitts, there would w be no concurrenc cy related issues in the prospective va alue as if converted d for minium use.. condom Easeme ents and De eed Restric ctions e not been provided a title searrch for the Subject Prroperty. Ba ased upon our We have inspection of the property p re ecords, no adverse a de eed restricttions or easements were w noted. Assesse ed Value & Taxes 2007 as ssessment and tax information for the sub bject is carrried as Folio #50-43 3-4323-05-0 026-0310 by b the Palm m Beach Co ounty Prop perty Appra aiser. 2007 7â&#x20AC;&#x2122;s assessm ment was forr $13,500,,000 and taxes werre $246,02 22. It sh hould be noted n that the effective e date of this asses ssment (January 1, 2007) 2 refle ects re-ass sessment both prior to o the recent sale sh howing a 67% 6 increa ase over prior p year and a 12 2.5% increase e following g the Aug gust 2006 acquisition. As off January 2008 date of assessm ment, the subject will still be under ma ajor re-construction.. Howeve er, a substantial increase is antic cipated as of the Jan nuary 2009 9 assessme ent date. This f add dressed in the t Income e section of this apprraisal. will be further Property y History The currrent owne er, Royal 160 LLC acquired the prope erty in August 2006 6 for $29,000 0,000; the transfer was w recorde ed in OR Book B 20776 6, Page 1540 of the Palm P Beach County la and recorrds as a non-real estate transaction with a $10 consideration. The sub bject contin nuously operated as a hotel since constru uction of th he west win ng in 1961 an nd the eastt building in n 1981 unttil the mid--year 2007 7 closing to o accommo odate the reco onstruction n. The own ner anticipa ates a Spring 2009 re e-opening.

31


Descrip ption of Im mproveme ents DESCRI IPTION OF O IMPROV VEMENTS â&#x20AC;&#x201C; As Prop posed

Land Im mprovemen nts eas of the site not co overed by building im mprovemen nts consistt of landsca aped The are areas with w automa atic irrigatiion, a swim mming poo ol and deck k area, cab banas, cov vered porte co ochere enttry on Roy yal Palm Way W and va arious courrtyards and hard roo of or trellis-co overed loggia and pa arking area as. There e is parking for 93 cars c locate ed in below-grade structtured parking. The Royal Palm Way W elevattion was als so reconfig gured y and new landscapin ng. The site landsc caping is mature m tro opical with a new entry s improv vements arre in good condition. Lower lev vel floor pla an is vegetatiion. The site found fo ollowing.

32


Descrip ption of Im mproveme ents

g Improvem ments Building Type of Building

:

Full-service 79-roo om Palm House in two s with interrior corrido ors, full serrvice buildings restauran nt and lobby, lounge e, event sp pace, spa, fitn ness cente er, swimm ming pool and other outtdoor recre eational am menities.

Date of Construction

:

1961; 19 981 with demolition to t slab and d reconstructtion in 200 07/08.

Height

:

2-story and s. buildings

Type of Constructiion

:

Concrete e block.

Roof

:

All existing roof de eck and mansards m to o be ed as nee eded; all new repaired / replace copper flashing. Fllat roof to be new sin ngleumen witth minimu um 10 year ply bitu

33

3-s story

full--service

h hotel


Descrip ption of Im mproveme ents warranty y. Mansa ard roof to be mixed m premium m specialty clay barre el tile over new roofing ply. p Exteriorr Walls

:

Stucco and various s decorative finishes over T dettail include es cast stone s block. Typical ornamen ntation and decorrative stucco finishes; cast stone e columns at entry. 42â&#x20AC;? decorativ ve railing at all upper level openings s.

ws / Doors Window Exteriior

:

All new w impact--resistant assemblies.

:

Various; solid corre wood, hollow metal, wood lou uvered.

:

Various over pou ured conc crete; marble, pet, ceram mic tile, sheet s wood plank, carp s vinyl, and sealed orr painted slab.

Interior Floor

34

French

door


Descrip ption of Im mproveme ents Interior Walls

:

Various; typically specialty s f finished pla aster or drywall.

s Ceilings

:

Various; finishes.

typically y

high-e end

spec cialty

ditioning & Heat Air Cond

:

All ne ew system; all system ms – “green” complia ant.

Electricity

:

All ne ew wiring.

g Lighting Plumbin ng

: :

Vario ous; specialty lighting g throughou ut. All guestroom ms have high-quality, bathrrooms.

35

5-fix xture


Descrip ption of Im mproveme ents

ent / Otherr Equipme

:

(7) passenger elevators.. commerc cial kitchen ns.

36

Full-serrvice


Descrip ption of Im mproveme ents Contains

:

The hote el totals 92 2,546 squa are feet ov verall air conditioned building area; the 79 guest g omprise 44 4,430 square feet and d are rooms co found in the following configu urations. Hotel Units SF

Unit #

QT

A B CL CR D E E1 N F F1 G G1 G2

1 1 1 1 1 5 1 1 2 1 8 2 1

A B CL CR D E E1 N F F1 G G1 H

1 1 1 1 1 5 1 1 3 1 8 2 1

Un nit Description n First floor Large One Be edroom Studio m One Bedroom m One Bedroom m One Bedroom Studio Studio m plus den One Bedroom m One Bedroom One Bedroom m Studio Studio Studio S Second floor Large One Be edroom Studio One Bedroom m m One Bedroom m One Bedroom Studio Studio m plus den One Bedroom m One Bedroom m One Bedroom Studio Studio Studio

Third floor J 1 Studio K 6 Large Studio L 1 Large Studio M1 1 m One Bedroom M2 1 m One Bedroom M3 1 One Bedroom m G 8 Studio G1 2 Studio F 3 One Bedroom m F1 1 m One Bedroom F2 1 One Bedroom m Total SQ. S FT ckout room to create c tw o hotell rooms Indicates loc

SF per Unit

Total SF F.

949 475 734 689 870 475 475 960 792 782 379 379 415

949 475 734 689 870 2,375 475 960 1,584 782 3,032 758 415

949 475 734 689 990 475 475 960 792 782 379 379 576

949 475 734 689 990 2,375 475 960 2,376 782 3,032 758 576

605 579 1,054 676 839 843 379 379 792 796 722

605 3,474 1,054 676 839 843 3,032 758 2,376 782 722 44,430

Note tha at square foo otages are not n on the plans p provided; all build ding areas provided p by Mike Barasch with Matthe ews Venture es.

37


Descrip ption of Im mproveme ents Common areas tottal 48,116 as charted d below.

Parking 1 (next to laundry ry) Parking 2 (s salon entranc e) kitchen restaurant Salon n & spa fitness s center h hotel service (funcion spac ce)

A/C Sq. Ft. 9,383 11,683 2,545 3,629 3,167 520

Terrace SF F

obby Lo rest aurant functio on space parking fun nction space

1,224 3,047 4,367 3,990

Dining g Room terrace fun nction space

4,561

1,642 1,968

T TOTAL COMM MON AREA SF

48,116

2,981

1,339

Note tha at square foo otages are not n on the plans p provid ded; all build ding areas provided p by Mike Barasc ch with Matthews Ventu ures.

2007/08 8 Reconstruction

:

We were w provided a bre eakdown of o costs off the recon nstruction (found in n Addend da), indica ating $36,7 706,921 off which $32,706,921 is attributtable to real estate and $4,00 00,000 to FF&E; off the 18 has bee en spent as s of the datte of total, $4,096,91 value with $32,610,003 remaining.. Per bud dget, 11%+ + of hard d cost has s been sp pent; therre is naturrally a lag between b bricks and mortar m in place p vs. pa aid indicating a some ewhat high her percentage of wo ork comple ete. Additionally, als so found in n the Adden nda is a budget for soft costs tota aling $8,97 72,115, of which $6,6 681,552 ha as been sp pent. An ad dditional $3,800,000 $ 0 has been n budgeted d for intere est reserve e and closing costs. Total T hard and soft costs c (excluding inte erest reserv ve and clo osing costs)) remaining g $34,897,,566.

38


Descrip ption of Im mproveme ents Condition & Comm ments

:

The subject s is currently c under re-co onstruction and is in essence e ne ew constru uction to be e complete ed in 2008//09. The e only rem maining po ortions of the existing buildin ngs are flo oor slabs, and conc crete superrstructure, all of which are being extensively restorred / repaired prior to o new cons struction.

Total Ec conomic Liffe Actual Age A / Effecttive Age

: :

60 ye ears While e the actua al ages of the buildin ngs are 20 and 40 years, our opinion o of an a effective e age of 1 year r as a result r of reconstruc ction is reasonable addrressed in th his section..

mic Life Remaining Econom ed Deprecia ation Indicate

: :

59 ye ears Less than 2%.

Furnishiings, Fixturres & Equip pment on of this report that the furnishings, fix xtures and equipment for It is an assumptio the Palm m House will w be cons sistent with the high h-end mark ket, high room rates and particula arly the ex xpectation of o the gues sts who will pay those rates. The smallest guestrooms are 455 square feet, large eve en for the typical luxury s range in size s to 1,05 54 square feet (see page p 35). hotel room; suites hin the gue est rooms will include two clos sets with European clloset Appointments with s, five fixtu ure bathroo oms, wet bar b and enttry foyer, in n-room saffes; most units u systems will ha ave terrac ces. Guest amen nities inclu ude state e-of-the-artt audio/visual compon nents includ ding flat pa anel HD/LC CD televisio ons, stereo o / CD play yers and WI-FI W (high sp peed intern net) connec ctivity, Ipod and dock king station n, minimum m four pho ones; all room ms have auttomated co ontrols for draperies, lights and sound sys stem. Five-fixtture bathro ooms inclu ude steam shower and a spa tub. Seura re ecessed TV Vs behind the t mirror.

Baths will also have h

a all com mmon areas include a mix of bu uilt-in and freef Furnishiings for guestrooms and standing g custom-m made piece es utilizing natural wo oods and high-end h fabrics. Wett bar with gra anite tops;; appliance es are to be b Míele or equal. The T Míele speed ove en, a microwa ave / conv vection combination was prov vided as ty ypical. Wet W bars to o be equippe ed with fine e china an nd crystal, Hermés or o equal. Other appliances inc clude integratted drawerr refrigeration, Sub-Z Zero or sim milar; Sub-Z Zero 700 BC B combina ation drawers s were pro ovided as typical. Minibar to be Bartech automa atic system m or equal; Bartech B W3 32 model was w provide ed as typical.

39


Descrip ption of Im mproveme ents All soft goods to be Pratesi or equal. 18-piece bath prod ducts are expected e to be high-end brand, named or private labe el, Kiehlâ&#x20AC;&#x2122;s or o equal. c of $4 4,000,000 are a include ed in the co onstruction n cost budg get; this fig gure, FF & E costs expressed as $50 0,000+ perr room of course inc cludes all common c a area FF & E as T is an extremely e r figurre, but con nsistent with the level of well. This high per room quality and a finishe es assumed d to achiev ve the room m rates antticipated in our analys sis.

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Highest and Best Use HIGHES ST AND BEST USE ctionary off Real Estate Appraisal, Fourtth Edition 2002, by the Apprraisal The Dic Institute e defines Highest H and d Best Use on page 135 as follows: gal use of vacant land or an a improve ed "The reasonablly probable and leg erty, which h is physically poss sible, apprropriately supported d, financially prope feasib ble, and that results in i the high hest value. The four criteria c the highest an nd best use mustt meet are e legal pe ermissibility, physica al possibility, financial bility, and maximum m productivitty." feasib mate the Highest H an nd Best Use of the Subject, S we e have considered those To estim uses wh hich are le egally perm missible, ph hysically possible, ec conomically y feasible, and maxima ally produc ctive. Consideration was given n to individ dual featurres of the land such as s size, shap pe, locatio on, access to roadwa ays, and th he availability of utiliities. Conside eration was s also give en to the surroundin ng land us ses and th he demand d for property y in the current real estate e marrket. s where prroperties are a improved, the Highest and Best Use of the site e "as In cases though vacant" an nd the High hest and Be est Use of the properrty "as imp proved" ma ay be ntribution" which ho olds that if an different. This is due to the principle of "con ement adds value to o the site over o and above a land d value, th he Highest and improve Best Us se of the property is as improv ved until su uch time as a the imprrovements add no contrributory va alue to the property. Highest and Best Use U Conclu usion - As if Vacant nt, it is our opinion that t the Highest and d Best Use of the site e would be e for If vacan future developmen d nt as perm mitted by th he current zoning and land use e requireme ents. Our reas sons for tha at are as fo ollows. Legally Permissible e e uses invo olve zoning,, deed restrictions, an nd other leg gal entities that Legally permissible mit or restric ct use. The e subject zo oning is C--B, Comme ercial Office es, by the Town T may lim of Palm m Beach, Florida. F However, th he subject is approv ved not on nly for the e reconstruc ction currently underrway of the e full-service hotel im mprovemen nts, but as s the last app proved site e for hotel condominiium conversion on th he island of o Palm Be each. This dec cision to lim mit further hotel cond dominium conversion c could certainly chang ge in the futu ure, but th he Town Council C wo ould likely be slow to reverse such a re ecent decision n. bject has existing e ap pprovals an nd the imp provements s represen nt legally, nonThe sub conform ming use within w the zoning z classifications s due to the zoning classificationâ&#x20AC;&#x2122;s limit of 2,000 squa are foot GL LA. We are e aware off no easem ments or oth her restricttions pede development. See S Declara ation of Us se Agreeme ent in Adde enda. that imp

41


Highest and Best Use Physicallly Possible e o the poss sible use off the prope erty is that dictated by y the The firstt constraintt imposed on physicall aspects of o the site: size, locattion (access s), and utility capacitty. In gen neral, the larg ger the site e, the grea ater the po otential forr achieving g economie es of scale and flexibility y in devellopment. Additionally, shape and topog graphy of a site hav ve a considerrable influe ence on its ultimate de evelopmentt. bject site is s large by Palm Beach standard ds, enjoys good g acces ss and visib bility The Sub from a major roa adway and is physica ally suitablle for vario ous types of permissible pment. The topogra aphy of th he Subjec ct site als so appears suitable for develop Ba development. ased upon n our insp pection, the site app pears to have h adeq quate e. Althoug gh a soil an nalysis was s not provided, we arre unaware e of any so oil or drainage subsoil conditions that may y prohibit or limit fu uture development. Based on the entioned, it is our opinion o tha at the sub bject site is physica ally capable of aforeme accomm modating most legal us ses. Financia ally Feasible at are both h legally permissible p e and phys sically poss sible, we must m Of those uses tha o these are financiallly feasible.. According g to The Ap ppraisal of Real determine which of n 2001, “Iff the physically possible and leg gally permiissible uses s are Estate, 12th Edition income--producing, the analysis of fin nancial fea asibility wiill often fo ocus on which w potentia al uses are e likely to produce p an n income (or return) equal to or o greater than the amo ount neede ed to satisffy operatin ng expense es, financia al obligations, and ca apital amortization of the investme ent. To dettermine the financial feasibility, the appra aiser es the futu ure gross income that can be expected from each h use. Vacancy estimate and colllection loss ses and op perating ex xpenses arre then sub btracted from each gross g income to obtain the likely net operating incom me (NOI) from f each use. A ratte of return on o the inv vested cap pital can then be ca alculated for f each use. u If the net revenue e capable of o being ge enerated frrom a use is sufficien nt to satisffy the requ uired market rate of return on the investmen nt, the use is said to be financia ally feasible e.” s are an important consideration in de etermining the The surrrounding land uses financially feasible e uses of a particularr site. As mentioned d, the Subjject is situated t Town of o Palm Be each and in i good prroximity to o the Atlan ntic Ocean and within the Worth Avenue, A the e island’s most m prominent retail district. Further, it is well loc cated for imm mediate ac ccess to mainland m W West Palm m Beach. The T subjec ct’s immed diate surrounding neighborhood is substantially buiilt-out with residenttial and retail r pment. Th he Subjectt operated as a hote el for morre than 25 5 years in this develop luxury resort r mark ket. Deve elopment to t the max ximum density allowe ed by the Town T with a hotel h use is s in our opinion financ cially feasib ble.

42


Highest and Best Use Maximum Productive Use u of a site is that use that will w genera ate the hig ghest The maximally prroductive use r to th he underly ying land. A hospitality property y in the up pper end off this rate of return very up pscale mark ket in our opinion re epresents current c Hig ghest and Best Use as if vacant. The appro ovals for condominium convers sion comprise an additional elem ment of value e for the fu uture in th he first sce enario of value – ope eration as a conventional hotel. The T condo conversion n with conttinued operation as a hotel is also a feasible e for the own ner/develop per in our opinion. It should be b understtood that the t asset value v to the le ender is ob bviously re educed as a result off the sellou ut of all 79 units. Th his of course, provides the ownerr/developerr with a la arge cash influx during the se ellout period, but at the e same tim me reduces the residu ual value of o the owner’s interest in the prop perty. Highest and Best Use U - As Im mproved It is ourr opinion that the im mprovementts as propo osed as a convention nal luxury hotel h with all centers of profit thatt that entails, represe ent the Hig ghest and Best B Use off the Subject Property which is for luxury y hotel use with po otential forr condomin nium conversion for the following reasons: r he propose ed improve ements are e extremelly high-end d, suitable e for this 1. Th m market wherre there is virtually no o ceiling on n quality or price. We can conc ceive of no o other alte ernative use e that would justify th he razing 2. W off the existiing improv vements pa articularly in i light of the curren nt zoning an nd land us se that lim mit development to 2,000 2 square feet GL LA; note, ho owever tha at the Town of Palm Beach has s the ability y to approv ve larger bu uildings if deemed d “to own-serving g.” he Palm Ho ouse will fit f an as yet y unserve ed niche in this marrket; the 3. Th im mprovements as propo osed will su urpass any of the boutique mark ket hotels in the mark ket and prrovide an ultra-luxurry alternattive to the e island’s ins stitution an nd more ins stitutional Breakers B Hotel.

43


Sales Co omparison n Approach h – Conve entional Hotel H SALES COMPARI ISON APPROACH Preface ctionary off Real Estate Appraisal, Fourtth Edition 2002, by the Apprraisal The Dic Institute e defines Sales S Comp parison App proach on page 255 as a follows: et of proce edures in which w a value indication is deriv ved by com mparing th he "A se property being appraised d to similarr propertie es that hav ve been so old recently y, on, and making m adju ustments to t then applying appropriatte units of compariso the sale s prices of the com mparables based b on the t elemen nts of comp parison. Th he sales s compariso on approac ch may be used to va alue improv ved properrties, vacan nt land,, or land being consid dered as though vacant; it is the most co ommon an nd prefe erred meth hod of land d valuation n when an adequate supply of comparablle sales s are availa able." In orderr to estima ate the Marrket Value of the Subjject Properrty utilizing g this appro oach to value e, it was necessary n to abstract and anallyze sales of propertties considered similar to the Subject. Th he income hotels and motels s generate e is the most m u to de etermine value and the t markett, realizing g this, typically important factor used come meth hodology on nly in makiing buying decisions. uses inc There are a indicato ors that ca an be abstrracted from m market data includ ding price paid per ava ailable room m, and va arious finan ncial indica ators that do not ty ypically req quire adjustm ment, such as rooms’’ revenue (multiplierrs). The economic e indices add dress purchas se prices paid p which reflect diffferences such s as loc cation, size e, construc ction quality, as well as a age and d condition n of the improveme ents. Howe ever, suffic cient financial data wa as not ava ailable for this data a to provid de those revenue-based ors. indicato v active e market recently an nd we hav ve utilized a samplin ng of This has been a very orida reso ort hotel sales, ma any of wh hich were acquired for recent South Flo minium conversion. As describ bed in the Scope off Work, ab bsent suffic cient condom financial data from m the sales, reliance is i made on n the Sales Compariso on Approac ch to ue or che eck the va alue deriv ved by the Income Capitaliza ation “brackett the valu Approac ch” as recommended d by the Appraisal A ( strictly y hotel use as Institute (for opposed d to hotel conversion c to condo use). u alm Beach h and oth her high-e end South h Florida locales have h rece ently The Pa become e difficult ones in which w to apply this s methodology. A recent trrend among buyers and sellers s is to und der-reportt the actua al transac ction price es in a most misleadin ng manner in orderr to save on o fees an nd taxes. Coupled with w the retiicence of many hos spitality ow wners/inv vestors to provide sufficient s d data from which w to understand u d the real numbers s involved d, it is ve ery difficullt to estimatte value in n this manner. Forr that reason, we have h utiliz zed only sales s data for which we w are certtain of the e actual tra ansaction price.

44


Sales Co omparison n Approach h â&#x20AC;&#x201C; Conve entional Hotel H Discussiion of Imprroved Sales wn on the chart belo ow, the sales are all Palm Beac ch county properties and As show two of the t four arre located in the Tow wn of Palm Beach. Note N that Sale S 1, the Ritz Carlton,, while not in the municipality uses u Palm Beach with hin its prop perty name e but is locate ed just sou uth of the jurisdiction j propriate da ata set for compariso on to . The app the Sub bject unforttunately do oes not ex xist. First, its Palm Beach B locattion, next, it is an unafffiliated pro operty. The Palm Bea ach hospita ality marke et is compo osed of varrious market strata, discussed in n greater detail in the t Incom me Approac ch. First, the e propertie es, a categ gory in wh hich the Subject doe es not truly y fit; then n the boutique large, oceanfront franchise f p properties, i.e., the Fo our Season ns and the Hilton; neither does th he Heart of Palm Beach B fall within th his set; orr, finally, the Break kers. Nonethe eless, the sales s found d below are e representtative of th he general market forr the subject;; trophy lo ocations orr trophy prroperties. Two of th he data, the Bridge Hotel H offer and the Hilto on Palm Beach Oceanfront repre esent prope erties acqu uired where e the w for condominium developme ent and/orr conversion. The Ritz z, Sale 1, while w intent was an olderr sale was included because of its location n.

COMPAR RABLE HO OTEL SALES - Palm m House Locattion

Sale Date

Sale Prrice

# Ro ooms

Price / Room R

1 Ritz z Carlton Palm P Beach h 16241//1509 100 0 So. Ocea an Blvd Manalapan

Nov-03 $67,500,,000

270 $250,000

2 Brid dge Hotel 18532//1282 999 9 E Camino o Real Boc ca Raton

May-05 $15,000,,000

121 $123,967

Brid dge Hotel 999 9 E Camino o Real Boc ca Raton

Apr-06 $45,000,,000

121 $371,901

Hiltton PB Oce eanfront 284 42 So. Oce ean Blvd. Palm Beach

Oct-05 $42,000,,000

134 $313,433

Aug-06 $62,346,,921

79 $789,202

3 Offfer

4 Not R Rec.

SUBJJECT Hea art of Palm m Beach 20776//1540 160 0 Royal Palm Way Palm Beach

(effectiv ve)

07/58 8512

45

(proposed)


Sales Co omparison n Approach h – Conve entional Hotel H All of th he sales in this analys sis were tra ansferred on o a Fee Simple S basis. Althoug gh in some in nstances, short term m leases for FF&E may be present, p th he sales were w effective ely conside ered in Fe ee Simple terms bec cause thatt is the wa ay the ma arket views such s conditions. Th herefore, no n adjustm ment was considered d necessarry in terms of o the prop perty rightts conveye ed. All of the t compa arables had d conventiional financing or financ cing determ mined not to have any a impact on the sa ale. Thereffore, ng or any cash equiv valency perrformed on n the no adjustments were made for financin able sales. compara nalysis Data An a subjec ctive analy ysis and ad djustment, again, we e are proviiding Rather than use any t the reasonablleness of th he income approach. We this data set as a means of testing scuss each h sale, its s property y’s charactteristics and the similarities and will dis dissimila arities to th he Subjectt. In gene eral terms, all of the sales are trophy t pro operties, prrimarily by virtue of their locations. C Manalapan, a Mobil 5-S Star and AAA A %-Diamond prop perty Sale 1,, the Ritz Carlton was acq quired in 20 003 for con ntinued operation as a hotel. Since S that time, t there e has been a $15 millio on renovattion to the e exterior, guest roo oms and guest corrid dors. The property is now nea aring completion off a planned $45 million m pro oject cting a 28 8,000 grand spa, new terrace,, second pool p and re estructurin ng of construc other co ommon are eas. Inclusion of the ese major renovations to the ac cquisition price p indicate es a price per p room of o approxim mately $47 75,000. This propertty’s oceanffront location is superior to the subject as a is the quality q of building improveme i ents; n have the in-town n Palm Bea ach location n enjoyed by the sub bject however, it does not ceanfront and a compe etes with otther high-e end Palm Beach B properties. but is oc he Bridge Hotel H on Lake Boca Ra aton was acquired a for condomin nium Sales 2 and 3, th convers sion. The buyer b in bo oth Sale 2 and contra act purchas ser in Sale e 3 intend teart down an nd new dev velopment if possible e, but both will conve ert the exis sting building if need be e. The Boc ca Raton lo ocation is considered c very good; it has fro ontage on Lake Boca Raton, R supe erior to the subjectt’s street frontage, also has ocean vie ews; however, it is nott Palm Bea ach and it abuts a high bridge. Location n is considered ate of valu ue, the ow wners of th he Bridge have h inferior to the subject. As of the da nced excellent and unanticipa ated cash flow as a hotel an nd are ma aking experien improve ements botth physical and opera ational to continue tha at operatio on. uisition of the Hilton Palm Beac ch Oceanfrront; the Hilton H affilia ation Sale 4 is the acqu nce been dropped. This pro operty wa as anotherr acquired for pote ential has sin condom minium conv version bu ut that has not yet ta aken place e. This hotel’s oceanffront location is superio or to the su ubject, butt it is not in i downtow wn Palm Be each, does s not he proximiity to Wortth Avenue and otherr Palm Bea ach draws. The loca ation enjoy th characte eristics are e in our op pinion offse etting. The e owner’s proposal to o the Town n for condom minium conv version was rejected..

46


Sales Co omparison n Approach h – Conve entional Hotel H Sale 5 is the Au ugust 2006 6 acquisitio on of the subject. The effective sale price p includes s acquisitio on cost of $29,000,000 plus the costs s of the re-construc r ction underwa ay as of the current date d of valu ue in the amount a of $33 $ million n+. ndition, all data are e substanttially inferior to the subject as a if Finally, as to con The quality of o constru uction, ma aterials, finishes, equipment and complette. furnishin ngs and fixtures pro oposed for the Palm House will be secon nd only to o the Breakerrs; in some e cases, du ue to the age a of imp provements s – virtually new and d the total re--design of the existin ng building shell, in our o opinion, the subje ect will surrpass the Bre eakers. The e impact of o such hig gh-level finish is diffficult to quantify q in this market. C n Approach h Summary- Sales Comparison The pric ce per room m for the data d set ex xcluding th he subject acquisition n, ranged from f $123,96 67 (Sale 2) 2 to $371 1,901 (Con ntract 3), on o the sam me properrty, the Brridge Hotel; this t pairing g also prov vides evide ence of the strength h of this market m and d the changing market conditions. c . The conttinued ope eration of the Bridge as a hotel and bject the currrent ownerr’s renovattion plans further strrengthen this markett. The sub (acquisition + imp provements) indicate es a price per p room of o $789,20 02. Due to o the lack of an upper limit in this t trophy y market, and the fact f that the t subjec ct as propose ed is superrior to all the t data, these t high-end acquisitions, ab bsent suffic cient information from which to derive d inco ome data, in our opin nion provid de only a base not an indication of o value. The T value can c only be e estimated d via incom me means.

47


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H INCOME APPROA ACH ctionary off Real Estate Appraisal, Fourtth Edition 2002, by the Apprraisal The Dic Institute e defines Income Cap pitalization Approach on page 143 as follows: et of procedures through which an apprais ser derives s a value in ndication fo or "A se an in ncome-pro oducing pro operty by converting g its antic cipated ben nefits (cas sh flows s and re eversion) into prop perty valu ue. This conversio on can be b accomplished in two way ys. One yea ar's income expectan ncy can be e capitalize ed erived capittalization rate r or at a capitaliza ation rate that t reflectts at a market-de ecified inco ome patterrn, return on o investm ment, and change c in the t value of o a spe the investment i t. Alternatively, the annual cash flows for f the holding perio od and the t reversiion can be discounted d at a spec cified yield rate." Direct Capitalizatio C on The value estimatte by the Direct D Capitalization is based upon u the capitalizatio on of hat can be produced by the Subject improvements. The the estimated net income th t valuatiion procedu ure are as follows: steps involved in this 1.

Estimate the t potentiial gross in ncome that can be generated g bject by the Sub based upon market rent r levels..

2.

Estimate the applic cable vaca ancy rate and operrating expenses for the d deduct th hem from tthe potentiial gross in ncome to arrive Subject Prroperty and at a net op perating income.

3.

Estimate an a approprriate overa all capitaliz zation rate based upon the currrent market conditions for propertie es similar to o the Subje ect.

4.

Capitalize the net operating o income in nto an ind dication of Market Value V e. utilizing a market oriiented overall capitalization rate

ed nationally and regionally y recognized sources to In our research, we utilize h financial data not readily available for the sales used in our Sales S research Comparrison Appro oach; amo ong them were Price eWaterhou useCoopers s Korpacz Real Estate Investor I Su urvey for 3rd Quarter 2007.

48


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H PriceW Waterhouse eCoopers Korpacz Real Esta ate Investtor Survey y; 3rd Qua arter 2007 (b bi-annual publication â&#x20AC;&#x201C; mostt recent)

Finally, we also used the Pannell Ke err Forsterr (PKF) Co onsulting Annual A Tre ends 2 for in ndustry rela ated ratios. That datta is in the Addenda. Report 2006

49


Income e Approach h – Conve entional Hotel H Compettitive Marke et Discussion Subject Property bject Prope erty, the proposed p 79-room Pa alm House, is located d ½ block from f The Sub the ocean and se everal block ks from Worth W Aven nue in an established e d area of Palm P Beach one o of the world’s mo ost exclusive real esttate destin nations. Th he Palm Beach market has long been b a stab ble, high-d demand rea al estate market m and winter sea ason d n. tourist destination ng the com mpetitive market m set for the Su ubject Prop perty was rather r difficult; Selectin as discu ussed earlier, the Subject S Pro operty has s little dire ect compettition on Palm P Beach. Nonethele ess, we ha ave gathered informa ation from the generral market and ubject with hin the con ntext of the ese rate sttructures. We have also considered the Su erating histtory. considered the Subject’s ope erall marke et considered most su uitable for (broad) co omparison to the Sub bject The ove was res searched over o a thre ee-year period. This s research included property p visits, studies of historiic occupan ncy and average a da aily rate (ADR) perrformance and ation with on-site pe ersonnel when possib ble and with industry y professio onals consulta regardin ng the stre engths and weaknesse es of the market m as they t relate to the Sub bject Property y. et Set Compettitive Marke eral, this market m is experiencin e ng strong occupancy y, and high ADRs, given g In gene compete ent and professional managem ment. The subject will be a hybrid in the market – heretofo ore (Heart of Palm Beach) B mo ore a busin ness type hotel than n the e propertiies, i.e. Chesterfield C d and Bra azilian Court, witho out the ocean boutique frontage e of the larger franch hised prop perties, suc ch as the Four F Seaso ons, Hilton and far less s upscale than the Palm Bea ach instituttion, the Breakers. Once ag gain, subjectivity is requ uired in esttimating market-orie m pancy struc cture nted rates and occup for the Subject. Finally, the t subjec ct yields no n relevan nt data fro om its his storic operatio ons due to the new co onstruction n. Compettitive Analy ysis As migh ht be expe ected, rese earch for this t marke et was verry limited; we looke ed to three Pa alm Beach properties s which in our opinion comprise e the Palm Beach ma arket for non--oceanfron nt propertie es such as s the subje ect; the research included prop perty visits and consulttation with h on-site personnel. Those hotels, the eir rack ra ates, locations and comparability to t the Subjject are profiled below w. We als so consulted with industry professiona p als regard ding the strengths and weaknesses of eac ch property, their loc cations and d respectiv ve markets s and how they relate to t the Sub bject Prop perty. We considered d the Sub bject’s histtoric opera ating perform mance, how wever, due to the ren novation, that t perforrmance is not considered relevantt. 50


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H Room rates r propo osed for th he subjectt for the opening o (F Fall 2008) season arre as follows. Complete e pro forma as by the owner o base ed on different occup pancy scena arios are foun nd in the Addenda. A

Projecte ed Rate Ra ange Ja anuary $595 - $1,350 $595 - $1,350 Fe ebruary $595 - $1,350 March $595 - $1,350 Ap pril $430 $650 May $250 $650 une Ju $250 $650 Ju uly $250 $650 Au ugust $250 $650 Se eptember $450 $800 October $450 $800 November $550 - $1,195 December Compettitive Marke et Discussion The Colony Hotel one e block so outh of Worth W Aven nue east of o County Road and one block k off the ocean o is ve ery similarly located to the sub bject. It co ontains 80 0 rooms including i 13 suites and three e penthouse suites and has been b opera ating for more m than n 50 years s. Amen nities are also simillar to the e subject,, with courtyard, pool, p resta aurant and d lounge. Rack rate es range from f $190 0 to $950 0 off-seas son and from f $300 0 to $1,3 300 during the season n. This property is substtantially in nferior to the subject with regard to room siz ze, ameniities, quality of interrior finish and a appointtment.

The Bra azilian Co ourt is an 80-room property located on Austrralian Ave enue at Hibiscus, H three bllocks from the ocean n. Operating as a hotel since 1926;; the prop perty unde erwent a condom minium conversion following a $20 million + renovation over the recen nt past. The hotel is now in n operation n and is an n affiliate of Lead ding Hotels s of the World. W Amenities include restaurant, lounge and spa / salon. 51


Income e Approach h – Conve entional Hotel H Current rack rates s are from $249 to $1,249 $ off--season an nd $549 to o $1,549 in n the high sea ason. It sh hould be noted that the t Brazilia an Court’s constructio on / renova ation during conversion c n to hotel condominium was extremely protracted p and as off the date of value, we received notice n thatt the consttruction wh hich began n in early 2003 2 and was s planned for approx ximately 15 5 months, just comp pleted. As complete,, the Brazilian n Court rem mains inferrior to the subject s due to much smaller un nits.

o finish an nd amenitie es. quality of

The Chesterfield d Hotel is i a 55-rroom landmark k hotel bu uilt in 192 26, located d on Cocoanut Row, one block south of the subject and thre The ee blocks west. ed as morre an exclu usive Chesterfield is bille English club than a hotel. It carries the Four Dia amond Awa ard from AAA A and Mobil M Four Sta ar award as a well as s being on ne of only se even pres stigious Red R Carna ation Hotels. Amenities include e Cigar Ro oom, world Leopard Lounge famous and Restaura ant. Current rack rattes are $25 50 to $715 offf-season and from $415 to $1,620 in-season. This prroperty is also inferio or to the subject with regard to t room size,

The Bre eakers is a 550 gue est-room (includin ng 58 suite es) resort property listed on o the Na ational Reg gister of Historic Places. The T Breake ers, as it is today y, opened in 1926; originally o built in n 1896 by y Henry Morrison Flagler, it was tw wice destrroyed by fire prio or to that re-openin ng. The property y has the AAA Five Diamond D Award and since 1990 capital BREAKERS HOTEL ements un nder its ongoing improve revitaliz zation prog gram have totaled $2 250 million n. The property p ha as two 18--hole champio onship golff courses, a 20,000-s square-foott luxury spa with ocean view fittness center, beach club b, one-halff mile of private beac ch, five sw wimming po ools, varietty of s 10 tennis co ourts, eigh ht restaura ants and various v retail boutiq ques. water sports, Current rack rate es are $369 to $1,10 02 off-season and from $419 to $2,025 5 inseason. Rates arre higher for f some suites s partiicularly in--season. While W not truly compara able to the e subject, this prope erty’s level of finish and quality y may pre esent the mos st similarity y.

52


Income e Approach h – Conve entional Hotel H Consolid dated Reve enues R Room Revenue oom revenu ue is a fun nction of multiplying m the room nights by the occupancy Base ro rate and d by the av verage daily rate (AD DR). Occup pancy is the e number of o those ro ooms sold over a given n period, expressed as a perrcentage (#rooms so old ÷ #ro ooms verage daiily rate (A ADR) is a reflection of the tottal guest room r available). The av e for a give en period of o time div vided by th he total nu umber of occupied o ro ooms revenue for that same time e period. The T room nights n or ro ooms availlable are simply s the total numberr of rooms available multiplied by 365 (n nights in th he year). Therefore,, the total nu umber of room r nightts available e for the Subject S Pro operty is to t 28,835 (79 rooms x 365). ncy & ADR Occupan blishing es stimated sttabilized oc ccupancy and a ADR for f our ana alysis we have h In estab given co onsideratio on to the competitive c e market set, the fo oregoing market m ana alysis and disc cussions with w industrry professionals. The owner’s pro forma rate struc cture is certainly well su upported by b the Palm m Beach market m and d given the e level of finish and amenities pro oposed may be conse ervative. We have utilized u an ADR of $650 $ for Yearr 1 of our analysis. a The own ner projectts occupancy between 68% and d 75% for Year 1 operations; while w in our opinion o a stabilized s o occupancy of 75% is reasonable given the small siz ze of the prop perty and the t level of quality, we w have sttepped occupancy in our analys sis to achieve that stability. We have utiliz zed a 63% % Year 1 occupancy y increasing g by Year 4 to t stabilized 75% ann nual occupa ancy. ould indica ate Year 1 Rooms’ Revenues s of $11,807,900, calculated d as This wo follows: om Nights x Occupan ncy = Total Rooms Co onsumed Rooms x Niights = Roo Total Ro ooms Consumed x AD DR = Reven nues O Rooms R Year 1 Occupied 79 x 365 = 28,835 X .63 = 18 8,166 Room m Nights R Rev venues Year 1 Rooms’ 650 = $11,,807,900 18,166 x $6

53


Income e Approach h – Conve entional Hotel H RevPAR R eans of an nalysis is shown s on our DCF; Rev PAR is Revenue e per Available This me Room and is an im mportant measure m of a hotel’s performanc p ce. RevPA AR is calculated m ADR by Occupancy O ( ($650 x 0.63). arithmetically by multiplying R Food & Beverage Revenue nd beverage revenu ue is that revenue generated g by all of the food and Food an beverag ge outlets that are a part of th he hotel’s operations s. In the instance off the Subject, the food d and bev verage outtlets which include restaurant, lounge and catering g are propo osed for lea ased opera ations as op pposed to hotel h run operations; o this approac ch provided d the outle et operatorrs are apprropriate an nd terms are a reasona able, protects s the owne er to the greatest extent. e Th he owner has been in preliminary negotiattion with various operators. Th he food and d beverage e operation of any hottel is crucial with w regard d to revenu ues and ex xpenses; po otential forr theft and waste abo ound when th he owner’s s focus is on o the roo oms’ opera ation. The e owner prroposes Ye ear 1 leases of o $416,845 for the restaurant r and $260,,000 for th he function space. These figures indicate pe er square fo oot rents of o $48 and $60 (rounded) respe ectively. These ates are very well sup pported by restaurant and retaiil space ren nts in the Palm P lease ra Beach market. (See Add denda for examples s.) We have used d the own ner’s ons. projectio one Revenu ue Telepho one revenue is prima arily that revenue ge enerated by y hotel guests’ local and Telepho long-dis stance calls s made fro om guest rooms. r Th his is a hig ghly variab ble item du ue to the vast differenc ces in telep phone systtems, loca al and statte regulatio ons, et cettera. h changed dramatic cally in recent years, due to the e use The nature of this revenue has onal or bus siness mob bile phones s and internet. Unle ess an exis sting hotel has of perso an outdated equip pment lease e – not the e case for the t subjectt – this is a nominal item, arly since it is typica ally offset in full by cost. The owner o projjects $6,00 00 in particula Year 1; we have utilized u a no ominal flat figure of $0.30 $ per occupied o ro oom for the e life of the analysis (Ye ear 1 = $5,,450). nt Spa Ren As with the restaurant and event spa ace, the ow wner propo oses leasin ng the spa and has also been in negotiatio on with various spa a operators. The pro p forma rent ed by the owner o is $2 292,500 fo or Year 1, indicating i a per squa are foot ren nt of propose $80, als so well in keeping with w similarr retail rents on Palm m Beach. We have used that figu ure.

54


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H Other In ncome ncome rep presents an ny and all revenues derived from incom me sources s not Other in specifica ally describ bed above.. This is a highly varriable number, depen ndent upon n the specific property, the type of o facilities s and the nature n of the t properrty's ameniities. Accountting practices also vary fro om hotel to hotel with reg gard to these miscella aneous cattegories off revenue. Other in ncome can include, among a oth hers, rents ch harged for retail outle ets, restaurant or lou unge leases s, or conce essions inco ome, i.e., giftt shops, ca abana renttals, beauty y shops, shoe shine stands; co ommissions s for outside services, i.e., vending equipm ment, photographers s, limousin ne services s, et cetera; cash disc counts earned from creditors' accounts for payme ent within the v game e or arcade e revenues; forfeited deposits and a guaran nteed discountt period; video no-show w revenues s; service charges c add ded to custtomer acco ounts; inte erest incom me. e Subject Property, this inco ome category includ des guest laundry fees, f For the miscella aneous fees s, pet fees and parking fees. The T figure they project for Yearr 1 is $84,200 0, or appro oximately $4.65 per occupied room; this s figure is approxima ately 0.65% total t reven nues, very low given national in ndustry sta andards fro om 7% to 11% of total revenues for full-service prope erties (albe eit offset by b expense es). While e the subject is an extre emely high h-end property where e the typical guest ca an and will pay for conv veniences, the very high h ADR ce ertainly an nticipate inc clusion of many m of th hese. We have e utilized the ownerâ&#x20AC;&#x2122;s s projection n for a Year 1 figure of o $84,200 0. Consolid dated Reve enues Summary enues of $12,866,89 95 are the ereby calcu ulated using g the follow wing Years 1 total reve compon nents: YE E Room Nigh hts

2/28/2 2009 2 28,835

Oc cc.

63.0%

Room Nigh hts

1 18,166

AD DR

$6 650.00

RevPA AR

$4 409.50

Re evenues Rooms

$11,80 07,900

Restaurantt Lease Telephone

$41 16,845 $0.30

per occ. Rm

$ $5,450

Space Lease Function S

$26 60,000

Spa Lease e

$29 92,500

Other

$8 84,200 $12,86 66,895

venues Total Rev

55


Income e Approach h – Conve entional Hotel H Expense es hat our an nalysis utilizes the format f dic ctated by the Uniforrm System m of Note th Accountts for the Lodging L In ndustry; Te enth Revise ed Edition. The own ner’s pro fo orma does no ot follow that t forma at and certain expe enses are categorize ed or grou uped differently, making g extrapola ation of the eir expense es difficult to discern.. mental Expenses Departm mental exp penses are those dire ectly relate ed to the fiive above named inc come Departm sources; analysis of these expenses e i made in is n direct relation to those t revenues and the residual in n each case e is identifiied as dep partmental profit. Rooms' Expense sts and exp pense item ms directly related to o the Rooms' expense is the sum of all cos sale and d upkeep of o guest ro ooms and a property y's public space. Ac ccording to o the Uniform m System of Accounts for Hotels s, Tenth Re evised Edition, these items i inclu ude Salaries, wages w and employee benefits; employee e u uniforms; r rooms' supplies "S in ncluding ch hina, glass sware and linens; tra avel agent and otherr commissiions; contract cle eaning, in-house or contract c la aundry and d dry clean ning; opera ating supplies and d expenses s; reservattions fees and a expens ses." ponents off rooms' expense e arre not dire ectly relate ed to Although some off the comp ncy, these items are predominantly occupancy sensitive. Further, because occupan services s are generrally greate er with hig gher room rates, thes se items arre, to a certain extent, also sensittive to the ADR. going, the appropriate a e unit of an nalysis and d compariso on is In consiideration of the foreg a percentage of ro oom reven nue or amo ount per oc ccupied room. In ou ur analysis s, we sed percenttage of roo om revenues. PKF Consulting C i indicates rooms’ expense have us ratios fo or luxury / resort pro operties to range from m 22% to 27% 2 of roo oms’ reven nues; theoretically, the higher the e room rate, the lower the ratiio; howeve er, ultra-luxury a the subject have e substanttial and costly c gues st amenities / propertiies such as services s, ie., car services, concierge e service, etc. We e have utilized 24% % or $2,833,896 for Ye ear 1. (24% %x $11,807,900 = $2 2,833,896)). one Expens se Telepho one expens ses represe ent all costs associatted with th he operatio on of a ho otel's Telepho telephon ne department and/or system m. Accorrding to the t Uniforrm System m of Accountts for Hotels, Tenth Revised R Ediition, this expense e ite em include es the follow wing as appliicable: "cost of all lo ocal and lon ng-distance calls; eq quipment re ental; sala aries, wages and a employee benefiits; equipm ment charg ges; operatting expen nses; uniforms. These costs c can vary v greattly depending on pro operty size e, i.e., for smaller ho otels

56


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H with fully automatted phone systems may m not ha ave any personnel-related expe ense; for large er properties, three or o more operators ma ay be requiired." xpense figure has reasonably r y gotten h higher (as s a percen ntage) as the This ex revenue es have gottten lower;; we have utilized a 100% 1 expense ratio or $5,450.. nt, Event and Spa revenue categories c s are for leased l space; Note: Restauran come only y not offset by any y expense es. Otherr Income is also a net net inc figure. Undistributed Expe enses strative and d General Expense E Adminis strative an nd general expense es of a hotel h inclu ude all op perational and Adminis manage ement exp penses an nd costs which are e not attributed to o a partic cular departm ment, as outlined o ab bove. Man nagerial sa alaries for example are difficult to allocate, as they would w enco ompass all of the ope erating departments. Accordin ng to em of Acc counts for Hotels, Te enth Revised Edition, this expense the Uniform Syste item inc cludes the following as a applicab ble: "salarries, wages s and employee bene efits; cash overages (sh hortages) credit card commissio ons and/or charges; data d proces ssing penses; donations; (e executive) office exp pense; gen neral or inforrmation services exp liability insurance e; professional fees including internal audits; a pro operty loss or e; postage;; miscellan neous expe ense; printting charge es; associa ation dues and damage publicattion; travelling expens ses." Thes se costs ca an vary gre eatly depen ndent on many m factors, including property ty ype and siz ze, amenitiies et ceterra. In gene eral, administrative and gene eral expenses are re elatively fixed, f i.e., not directly related to o occupanc cy or ADR as much as they are a to prop perty type and specifics s. In lightt of the components of this exp pense item m, the apprropriate un nit of compariison is as a percenttage of gross revenu ues, suppo orted by an a amountt per room co omparison. In our an nalysis, we have used d percentag ge of gross s revenues. y standard ds indicate e Administrrative & General G expenses as relate to this Industry property y are repo orted by PKF betwee en 7.0% and a 8.8% of gross revenues. r The owner projects p Ye ear 1 A & G at 7.0 07%. We have calc culated Ad dministrativ ve & General expense of o 8.0% orr $1,029,352. ($12,8 866,895 x 8%). 8

57


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H Sales & Marketing Expense ng expens se include es all of those cos sts that are a associa ated with the Marketin advertis sing, sales,, and prom motion of the t Subjec ct Property. Projectio on is relatively easy and accurate e, because most operrators establish mark keting plans on an an nnual w long-te erm projec cts also co onsidered. This budget catego ory is pure ely a basis with function n of owne er/ manage ement dis scretion an nd needs bear no relationship to to the Unifform Syste revenue es or any other o departments. According A em of Acco ounts for Hotels, Tenth Revised Edition, th his expens se item in ncludes the e following g as applicab ble: Salaries, wages w and employee benefits; sales s efforrts, advertiising and "S ng costs; public rela m merchandisi ations and d publicity;; research;; outside fe ees and com mmissions;; miscellaneous sales s and promotional effo orts." m expenses e a are properrty specific c, they can n be affec cted by certain Since marketing environmental sup pply/demand conditio ons, i.e., the t loss off a major group g business client(s)); shifts in n the economy on a local, regional or na ational bas sis; age off the property y; arrival of new supply in the marketp place. Add ditionally, most m franc chise affiliatio ons include e brand an nd property y marketin ng efforts as a part of the prope erty's franchis se agreeme ent. Sometimes, ho owever, marketing m a agreements s are sepa arate from the overall franchise f a agreement but provid de the opp portunity fo or participa atory marketing efforts. Industry standards suggest Sales S & Marketing Exp pense betw ween clude 4.6% and 6.3%; it should be noted however, that this figure does not inc on / franch hise costs that t in som me cases also a includ de a marke eting fee. The affiliatio owner projected p a Year 1 ratio of 5.2% %; we have e utilized 5.25% 5 of gross g revenues or $675 5,512. ($1 12,866,895 5 x 5.25%)). Energy (Utilities) Cost C pense category can in nclude several source es, i.e., ele ectricity, na atural gas, fuel This exp oil. In short, s this category includes whatever w fu uel is consumed for lighting, space and water heating g, air cond ditioning, and any miscellaneo m ous power requireme ents. This cattegory also o includes domestic d w water servic ce. y widely du ue to geog graphic loc cation, age e of the prroperty, so ource Energy costs vary antity of fuel. f Bec cause of the nature of the in ndustry, th his expens se is and qua relativelly fixed. Fo or example e, as long as a hotel is open, its public areas mus st be cooled or o heated and a lighted d. Actual guestroom g consumption that wo ould be rellated to occupancy is a relatively minor portion of this line item m. In 200 05, the sub bject ng as the Heart H of Pa alm Beach had energy y costs of $127,407; the ownerr pro operatin forma for f Year 1 is $246,9 900 nearly y double th hat. It sh hould be noted n thatt the building g size has been b increased; furth her, the ho otel is prop posed as a â&#x20AC;&#x153;greenâ&#x20AC;? hotel. Such de esignation typically adds a initial cost as well w increa ased operating costs and may or may not save s energ gy globally y. We hav ve utilized the ownerr pro forma a for Year 1 cost c of $25 50,000.

58


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H Property y Operation ns and Maiintenance Expense E y operation ns and maiintenance (formerly known k as repair r and maintenan nce), Property is, much like marrketing exp pense, larg gely at the e discretion n of ownerr/managem ment. he exceptio on of absolute esse entials, i.e., safety or security y items, most m With th mainten nance items can be ig gnored. In most case es, this is a cumulativ ve and grow wing process; it become es deferred d maintena ance. ng to the Uniform U Sy ystem of Ac ccounts forr Hotels, Te enth Revise ed Edition,, this Accordin expense e item includes the following f as s applicablle: "salaries, wages and emplo oyee benefits s; uniforms s; building((s); furnitu ure; paintin ng and dec corating; floor coverings; curtains s and dra aperies; painting p a and decorating; me echanical and electtrical equipme ent; elevators; engineering su upplies; grrounds and d landscap ping; opera ating supplies s; refrigera ation suppliies; miscellaneous; waste w and trash t remo oval." y operations and ma aintenance e expenditu ures can be b influenc ced by sev veral Property factors that t are prroperty-spe ecific in addition to th he owner/m manageme ent attentio on to mainten nance. Firrst, if the property exists, e then n historica al maintena ance progrrams are critical. Next, the age and quality of the building impro ovements play a role e. In h the ongoing o m maintenance e costs will be. general,, the olderr a propertty is, the higher Higher quality con nstruction componen nts used at the time e a propertty is built also e costs. Geographic G location is s also a fac ctor; generallly reduces overall maintenance for example, properties loc cated in extreme e cliimates wo ould requirre higher than m ce to accou unt for thes se conditio ons. The subject virtually normal levels of maintenanc ery high qu uality cons struction in ndicating a lower figu ure, howev ver, the luxury new, ve market demands constant c up pkeep / ren novation and immacu ulate physical plant. eral, the ittems in th his categorry are fixe ed and only slightly influenced d by In gene changes s in occupa ancy, or AD DR. In ligh ht of that, the approp priate unit of comparrison for this expense ca ategory is the amoun nt per availlable room. y standards indicate a range fro om$3,100 to t $4,000 on a per ro oom basis. We Industry have utilized $4,4 430 per room or $35 50,000 forr Year 1; consistent c w with the ow wner proform ma and our opinion reasonable given g the ultra-luxury y market. xpenses Fixed Ex Real Esttate & Pers sonal Prope erty Taxes ve utilized a blend off the curre ent tax with our incre eased estim mate For Year 1 we hav ery difficultt to estimate taxes in a to take effect as of January 1, 2009. It is ve situation n such as the subject; actual considerattion in 200 06 was $2 29,000,000 0 but recorded d as a non n-real esta ate transfe er. The 20 007 assess sment of $13,500,00 $ 00 is substantially below w our apprraisal from last year with taxes s of $246,5 500. Howe ever, g permits, etc., we have h due to the major reconstruction, the necessity of building ach for the e increase effective in n 2010 (Ta ax year 20 009). taken a conservattive approa ve utilized d the currrent assessment off $13,500 0,000 plus s the plan nned We hav construc ction budg get of $33,,346,000. That calculation res sults in a real r estate e tax 59


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H estimate e of $853,715; the personal p prroperty tax x on FF & E is also es stimated att full value of o $4,000,000 prese ented in the t constru uction bud dget; that tax figurre is estimate ed to be $72,895. $ T The resultin ng tax estiimate for Year Y 2 of the analys sis is thereforre $926,610. For Year 1, we have used d the current assessm ment / taxe es of $576,750. Insurance surance ex xpense cattegory is for f full cov verage ins surance (n non â&#x20AC;&#x201C; payrroll). The ins Industry y standards for prope erties indic cate $620 to $943 pe er room ho owever, Flo orida insuranc ce costs arre among the t highestt in the nattion and th he subject is i proximatte to the ocea an. The ow wner proje ects Year 1 figure of $225,000 $ or $2,848 8 per room; we have us sed that figure based on an actu ual quote. Management Fee gement fee es are alm most alway ys based on o a perce entage of total Hospitality manag es. There efore, they are fully depend dent on gross revenues and are revenue calculated as a pe ercentage of o such. In I general,, the market for prop perties suc ch as the Sub bject is for management fees of approx ximately 3.0% 3 of gross opera ating revenue es. We hav ve utilized 3% or $386,007 for Year 1.

60


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H Discoun nted Cash Flow F Analys sis praisal of Real R Estate,, 12th Editio on defines yield capittalization as The App a method used to co onvert future benefits s into pres sent value by discoun nting "a each future e benefit att an appro opriate yielld rate or by develop ping an ov verall ra ate that ex xplicitly re eflects the investmen nt's income e pattern, value change, and yield ra ate. Yield capitalizatio c on is also called c disco ounted cas sh flow ana alysis b because a discount rate is applied a to o calculate e the present value e of anticipated future cash flows." g extent, investors are relying on o a valua ation technique utilizing To a greater Discoun nted Cash Flow metthods to analyze in ncome-prod ducing pro operties. The techniqu ue is simply a metho od of reduc cing projec cted annua al cash flow ws to a currrent dollar amount. Th he Discoun nted Cash Flow techn nique has special s app plicability when w nual cash flows f are uneven, u i.e e., varying from yearr-to-year, as a is the projjected ann the case e with mos st real estate investm ments. y, a hospittality real estate e investment is purchased p for a dollar amount, held Typically for a period p of time, t and then sold for a diffferent dollar amoun nt. The in nitial purchas se happens s at time ze ero and, th he net operating inco ome is projected to arrive at the first yearr's cash flow. f The e same procedures p are follo owed for each e subsequ uent year of the holding perio od. Finally y, in the last year of the hollding period, the property is reso old for a projected re esale price e, and the resulting total ow over the e entire ho olding perio od is discounted back k to the be eginning off the cash flo investm ment at an appropriate a e rate of re eturn. The step ps in the utilization of this techn nique for th he Subjectt Property are a as follo ows: ; ge annual occupancy o 1. project each year's average daily rate and averag n income and a expens ses for eve ery year in the projec ction 2. project changes in period; a year of o occurrence or alternatively,, the 3. identify future sales price and capitaliz zation rate e to be ap pplied to the t final year's y net income in the projection period; 4 estimate 4. e an appro opriate inte ernal rate of return for f a discount rate based on curre ent markett conditions s and inves stor expecttations; h flows and discountt them at the approp priate disc count 5. schedule the cash rate identified. e utilized the income and expen nses based d on the pre evious disc cussion. We have

61


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H Selectio on of a Disc count Rate praisal of Real Estate e, 12th Ediition define es a discou unt rate as "a yield rate The App used to convert fu uture paym ments into present va alue" and an a internall rate of re eturn (IRR) "refers to the yield rate that is earned d or expec cted for a given ca apital ment over the period of o ownersh hip. The IR RR equates s the prese ent value off the investm future benefits b of the investm ment to the e amount of o capital in nvested." e a Direct Capitalizattion due to o our some ewhat cauttious appro oach We did not utilize toward build-up to o stability. We have e projected d a Year 1 occupancy y of only 63%, 6 g to a stabilized 75% % in Year 4. 4 A poten ntial scenarrio given the impact of a building new pro operty in an insulated d market such s as thiis would be e for a verry high Yea ar 1, dropping back for a year or two and th hen achieviing stability y. Nonetheless, we have h d occupancy gradually y over a fo our year pe eriod rende ering direc ct capitaliza ation stepped less reliable. Number of o Rooms

Year 1

79 ADR Chg g.

$$ %age

YE

2/28/2009

Year 2 $50.00 7.69% 2/28/2010

Year 3 $50.00 7.14% 2 2/28/2011

Y Year 4 $50.00 6.67% 2/2 28/2012

Yea ar 5 $50.00 6.25% 2/27//2013

Year 6 $50.00 88% 5.8 2/27/20 014

Room Nights s

28,835

28,835

28,835

28,835

28,835

Occ.

63.0%

65.0%

70.0%

75.0%

75.0%

5.0% 75

Room Nights s

18,166

18,743

20,185

21,626

21,626

21,626

ADR R

$650.00

$700.00

$750.00

$800.00

$ $850.00

$900.00

RevPAR R

$409.50

$455.00

$525.00

$600.00

$ $637.50

$675.00

28,835

The sele ection of a discount rate is of great importance sin nce the dis scount rate e, or internal rate of re eturn, mus st measure e the type of income to be received and how profit is s accounted d for. Suc ch a rate, often o referred to as a yield rate e, is influenced by the degree of o apparent risk, prospective p e rates off return for f alterna ative investm ment opportunities, historical rates off return earned by comparrable propertiies, marke et attitudes s with resp pect to futu ure inflatio on or deflation, supply of and dem mand for mortgage m fu unds, availa ability of ta ax shelter, et cetera. Although the suita ability of a particular discount rate r genera ally can not be proven on sis of marrket evidence, the chosen rate should be consis stent with the the bas available evidence e. The dis scounting of future benefits to o obtain an indicatio on of o a prosp pective yield rate, as s distinguis shed present value also requires the use of from a historical h yield y rate. vably, everry discountt rate mus st incorporrate a retu urn for fou ur elementts of Conceiv compen nsation any y investor is i seeking:: 1) comp pensation for f giving up u control over money; 2) compe ensation fo or giving up u liquidity y; 3) comp pensation for investm ment ement; and d 4) comp pensation for f investm ment risks s assumed. In com mmon manage practice e, it is difficult to sep parately es stimate the e risks ass sociated wiith each off the four components and then n "build up p" a disco ount rate. Howeve er, in com mmon practice e, the rate of discount, or inte ernal rate of return, has come e to reflectt the "build-u up" betwee en the costt of capita al and the anticipated rate of inflation. This

62


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H latter "build-up" conceptually takes into consiideration the t four component c ts of investorr compensa ation. aterhouseC Coopers. 3rd Quarte er 2007 report in ndicated investors are PriceWa discountting cash flows f at be etween 8% % and 13% %, with an average discount ratte of 10.64% %, down 19 points from the prio or quarter, and down 29 basis points p from m the prior year. See ta able on pag ge 49. bject is an established e d hotel loca ation in an insulated d trophy market m thatt is a The sub destinattion in itself. Palm Beach inves stor indices s have histo orically bee en below those of mainland West Palm Beac ch and all but a hand dful of other trophy markets in n the S It is thereforre our opinion that an n appropria ate discoun nt rate, or IRR, United States. Another fa would be b well be elow the average a fro om these national surveys. s actor influenc cing the su ubject are the existin ng approva als for con ndominium conversion as detailed d in the Declaration D n of Use found f in the t Adden nda. Whille we are not considering any potential revenues r f from such h conversio on, we do o consider the al in the fu uture as an n added value comp ponent to an a investorr. There is an potentia intrinsic c link betw ween discount rates and capita alization ra ates. Proffiled below w are recent capitalizatio c on rates fro om other trophy location / prop perty hotels s.

Troph hy Hotel / Location n Cap Rate es Sale No. OR Bk/ Pg 7 August-07

May-07

March-07

JJanuary-07 7

Name an nd Address s

# Rooms

OAR

30

3.50%

Bosto n Marriott Quincy Quincy y, MA

464

4.90%

Bosto n Marriott Long Wharf Bosto n, MA

402

3.30%

Westin n Boston Waterfront W Bosto n, MA

793

2.10%

311

4.20%

1,310

3.90%

Mayflo ower Inn & Spa Washington, CT

November-0 05 Le Meridien Beve erly Hills Beverlly Hills, CA O October-05 5

Waikik ki Beach Ma arriott Resort Honolu ulu, HI

07/58512

This rec cent activity y supporte ed by indus stry and fin nancial reporting supports whatt has happene ed in the Palm P Beach real esta ate markett for over 50 years. Investors s are 63


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H willing to t pay morre for the location. Palm Beac ch has the added fac ctor over some s markets s that, being an island, there is no more e land for development. We have h thereforre conclude ed at a dis scount rate e of between 7.0% and a 8.0% for f the sub bject for the â&#x20AC;&#x153;trophyâ&#x20AC;? factor in n addition to the potential p f for future condomin nium sion. The buyer in the Wash hington Co onnecticut Mayflowerr Spa repo orted convers above, American Property Managem ment Com mpany is a $1.7 billion b porttfolio ocess of divesting of any prope erties with 3-star or less hospitality owner in the pro g to only high-end h prroperties. The subject would be b an attrac ctive ratings, converting target fo or luxury hotel h comp panies, larg ge or smalll. The spre ead between Palm Beach and the market in n general applies to overall o (cap p) rates as well as discount rate es in nion. our opin Holding Period m uses s a holding g period of five yearrs, with the e 6th The Discounted Cash Flow model s net operating incom me used to o calculate e the rev version off the year's stabilized property y at the end of the holding pe eriod. This is consis stent with holding pe eriod projectio ons made by investors. on Reversio ociated with the op peration off the In addition to the annual net cash flows asso d on an in nvestment must also o take intto accountt the Subject Property, the yield apprecia ation or depreciatio d n of the property during the e holding period. This addition nal future cash flow is realized d at the time t of a hypothetic cal sale off the property y at the en nd of the holding h perriod, and is s known as s the reverrsion. In order o to estim mate the re eversion for the Subje ect Propertty an apprropriate terrminal cap rate or "goin ng out" capitalization n rate is applied a to the projec cted income for the year following the last year of th he holding period. In n this case e, the reve ersion or re esale ulated by ca apitalizing Year 6's ne et operatin ng income projection. value will be calcu erall rate is an expre ession of the t ratio between b ne et operatin ng income and The ove value. This T rate ty ypically refllects an inv vestor's ex xpectations s from all sources rela ating to the investmentt and is influenced by b the antiicipated ne et income as well as s the r at a the end d of the ho olding periiod. Since e propertie es such as s the equity reversion Subject are typically levera aged, the availability y and costt of mortgage funds can have a significant s impact on the overalll rate analysis. The terrminal cap pitalization rate utiliized for the t valuation of the e subject was obtained d via abstrraction from m market data. d erall rate re eflects the direct relationship be etween a property's p n income net e and The ove its sale price and takes into account a number off factors, including th he location and es of the properties. We have considered d the foreg going income producing capabilitie cap rate es from tro ophy properties; furth her, we looked to national reporrting of gen neric (ie., full service, lu uxury resort, etc.) ho otel data.

64


Income e Approach h – Conve entional Hotel H RealtyRates.com’s s 2nd Quarter 2007 re eport indica ates going in cap rate es for the most m desirable full serv vice properrties on a national ba asis to ran nge from 6.0% 6 to 7.24% ed on theirr investor reporting base. b It sh hould be noted and to average 6.88% base ates a 1.0 debt cove erage ratio o and 85% % loan to value v that RealtyRates also indica ratio forr this type property. aterhouseC Coopers Korpacz Real Estate Inv vestor Surrvey for 3rdd Quarter 2007 2 PriceWa reports a going-in cap rate from f 4.0% % to 10.5% % with a na ational averrage for luxury eport resid dual rates at approxiimately 12 20 basis po oints lodging at 7.53%. They re higher than t going in rates. m’s 2nd Quarter 200 07 Full Se ervice Lodging Facilities’ We utilized RealttyRates.com r to establish e ca ap rates based on ca ash flow ca alculations and Investor Survey results verage ratios. This su urvey’s res sults are fro om nationw wide investtors for all fulldebt cov service investors and a certain nly do not represent r c considerati on of the very v upper-end ue compon nent inhere ent in the e condomin nium “trophy”” market nor the added valu convers sion potential. The re esults of th hose calcula ations are found belo ow. Our eq quity rate was derived from f market research h with the New York Times rep porting rece ently pical equity y rates for hospitality h properties s are at 5% %. that typ

Assumptio A ons: L//V In nterest A Amortizatio on D Debt Coverrage Ratio

85% % 1.10% % over 10 0 Year Trea asury Bill (* *) 2 25 years 1.0 00

(* *) (3/14/08 10 1 Y T-Bill = 3.44%) 3

C Cash Flow Rate - Am mortizing Loan Mortgage M E Equity Ro

0.850 00 0.150 00

x x

0.0734 4 0.0500 0

= =

0.0624 0.0075 6.99%

x x

DCR 1.0000 0

= =

Ro 0.0624 6.24%

D Debt Coverage Ratio o Rate Mtg. Con nstant (f) 0.0734

L/V 0.850 00

65


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H We also o consulted d with ourr client reg garding the e loan quo ote for the e subject. We utilized this means to establish cap rates based on cash flow calcula ations and debt ge ratios. coverag

Assumptio A ons: L//V In nterest A Amortizatio on D Debt Coverrage Ratio O Other

80% % 7.50% % 2 25 years 1.3 35 Interestt Only

C Cash Flow Rate - Am mortizing Loan Mortgage M E Equity Ro

0.800 00 0.200 00

x x

0.0887 7 0.0500 0

= =

0.0710 0.0100 8.10%

x x

0.0750 0 0.0500 0

= =

0.0600 0.0100 7.00%

C Cash Flow Rate - In nterest On nly Mortgage M E Equity Ro

0.800 00 0.200 00

D Debt Coverage Ratio o Rate Ro 0.0810 8.10% Given th he rates es stablished on o a nation nal basis by b PriceWatterhouseCo oopers Korrpacz Real Esttate and RealtyRates R s.com and supported as well by y industry reporting on a global basis, b the cap rates s indicated using the e lenderâ&#x20AC;&#x2122;s loan crite eria are in our opinion not marke et oriented. These rates are co onsistent with w nation nwide averages for all properties considered c to be full-s service. Mtg. Con nstant (f) 7.5 50%

L/V 00 0.800

x x

DCR 0 1.3500

= =

Conclusion n capitaliza ation rates indicated by the na ational market, We considered the going-in otel sales, indicating i a preponde erance of data d in the range rou ughly and the trophy ho 5%, Consid dering the sources, it is therefore our opinion o tha at an from 3.5% to 7.5 r of sub b-5% would d be utilize ed for the subject s pro operty, if we w perform med a overall rate Direct Capitalizatio C on. Instead d, we used d this data for reference to the conclusion n for a termin nal cap rate e in the Discounted Cash C Flow analysis. a

66


Income e Approach h – Conve entional Hotel H Based on o this disc cussion, a terminal t ca ap rate or "going out" rate of 6.5% 6 was used for this s analysis. We have utilize ed a perhaps cons servative 6.5% due e to uncertainties of prrojecting ov verall econ nomic conditions five years henc ce. ors' estima ates, was also A sales expense of 2.5%, which is reflective of investo deducte ed from the e capitalize ed residual value of Ye ear 6. evise Base Year Projecttions to Re ncy Occupan e projected d occupanc cy to be at 63% in Ye ear 1, 65% % in Year 2, 70% for Year We have 3, stabilizing at 75 5% in Yearr four and thereafter for the life e of the an nalysis. Des spite the high h projected d occupanc cy, conside ering the sttability of the t subjec ct’s compettitive set; this s rate considers the nearly ins surmountable barrierr to entry in this ma arket and little likelihood d of new co ompeting product p in the t foresee eable futurre. e Daily Rate Average a we project the t room ra ate to incre ease betwe een approx ximately 6.0% In our analysis, and 7.7 7% annua ally over the t holding g period. Market in nvestors su urveyed in the various resources cited thro oughout this report are a projectting annual ADR changes between n 3% and 8%; 8 in ourr opinion th his inflation n is reasona able. ant, Spa, Salon S & Fun nction Spac ce Commercial Units – Restaura These re ents have been escalated at moderate an nnual increases of 4% % for the life of the analysis. es Expense Expense es, exceptt as noted d in the individual discussions, are pro ojected in our analysis s to remain n at the rattios established for the base ye ear estimatte. Those that are calc culated as a percenttage of rev venue are inherently y inflated by the ab bovediscusse ed increase e in ADR; those t that are not ca alculated in n that man nner have been b increase ed by 4.0% % for all bu ut Real Estate and Personal P Prroperty tax xes which have h been infflated at 3% % annually y. A su ummarizing g these pro ojections is s found on n the The Discounted Cash Flow Analysis following page.

67


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H

Discounte ed Cash Flow Analys sis -Palm House H Number of Rooms

Year 1

79 ADR Chg.

$$ %age

YE

2/28/2009

Year 2 $50.00 7.69% 2/28/2010

Year 3 $50.00 7.14% 2 2/28/2011

Year 4 Y $50.00 6.67% 2/2 28/2012

Ye ear 5 $50.00 6.25% 2/27 7/2013

Yea r 6 $ $50.00 5 5.88% 2/27/2 2014

Room Nights

28,835

28,835

28,835

28,835

28,835

Occ.

63.0%

65.0%

70.0%

75.0%

75.0%

2 28,835 75.0% 7

Room Nights

18,166

18,743

20,185

21,626

21,626

2 21,626

ADR

$650.00

$700.00

$750.00

$800.00

$850.00

$9 900.00

RevPAR

$409.50

$455.00

$525.00

$600.00

$637.50

$6 675.00

venues Rev Rooms

$11,807,900

$13,119,925 $15,138,375 $17 7,301,000

$18,382,313 $19,46 63,625

$416,845

$433,519

$450,860

$ $468,894

$487,650

$5,450

$5,623

$6,056

$6,488

$6,488

$ $6,488

Function Space Lease

$260,000

$270,400

$281,216

$ $292,465

$304,163

$316,330

Spa Lease

$292,500

$304,200

$316,368

$ $329,023

$342,184

55,871 $35

$84,200

$87,568

$91,071

$94,714

$98,502

$10 02,442

Restaurant Lease Telephone

$0.30

per occ. Rm m

Other

$12,866,895

enues Total Reve

$50 07,156

8,492,583 $14,221,235 $16,283,945 $18

$19,621,299 $20,75 51,911

Departmen ntal Expenses Rooms @

24.0% Rms. Rev.

$2,833,896

$3,148,782

$3,633,210

$4 4,152,240

$4,411,755 $4,67 71,270

Telephone @ Total - Dep pt. Expense

100.0% Tel. Rev.

$5,450 $2,839,346

$5,623 $3,154,405

$6,056 $3,639,266

$6,488 4,158,728 $4

$6,488 $ $6,488 $4,418,243 $4,67 77,758

4,333,855 $11,066,830 $12,644,679 $14

$15,203,057 $16,07 74,154

$10,027,549

Departmen ntal Profit Undistribu uted Expenses A&G 8.00% arketing Sales & Ma 5.25% Prop. Ops & Maint 2.72% Energy Total - Und dist. Exp.

$1,029,352 $675,512 $350,000 $250,000 $2,304,864

$1,137,699 $746,615 $364,000 $260,000 $2,508,314

$1,302,716 $854,907 $378,560 $270,400 $2,806,583

$1,479,407 $ $970,861 $ $393,702 $ $281,216 $3 3,125,186

$1,569,704 $1,66 60,153 $1,030,118 $1,08 89,475 $409,450 $42 25,829 $292,465 $30 04,163 $3,301,737 $3,47 79,620

Gross Ope erating Profit

$7,722,685

$8,558,516

$9,838,097 $11,208,669

94,534 $11,901,319 $12,59

Fixed Expenses RE & Perso onal Prop. Tax Insurance Management Fees Total - Fix ed Expenses

$576,750 $225,000 $386,007 $1,187,757

$926,610 $234,000 $426,637 $1,587,247

$954,408 $243,360 $488,518 $1,686,287

$983,041 $ $ $253,094 $ $554,777 $1,790,912

$1,012,532 $1,04 42,908 $263,218 $27 73,747 $588,639 $62 22,557 39,212 $1,864,389 $1,93

Total - All Expenses E % of Total Revenue R

$6,331,966 49.21%

$7,249,966 50.98%

$8,132,135 49.94%

9,074,826 $9 49.07%

$9,584,369 $10,09 96,590 48.85% 48 8.65%

Net Opera ting Income Reversionarry Value @ 6.5% less sellin ng expenses @ 2.5%

$6,534,929

$6,971,269

$8,151,810

9,417,757 $9

$10,036,930 $10,65 55,322 $163,928,025 098,201) ($4,0

$6,534,929

$6,971,269

$8,151,810

$9 9,417,757 $169,866,755 $10,65 55,322

Pre-Debt / Pre-Tax w Cash Flow 07/58512

3.0%

Hotel Ops. Hotel Ops.

Hotel Ops.

Tot. Rev.

N NOTE : Minor arith hmetic inconsiste encies due to rou nding.

68


Income e Approach h â&#x20AC;&#x201C; Conve entional Hotel H Summary - Discou unted Cash h Flow Anallysis viously men ntioned, th he net proc ceeds from m all sources are disc counted to o the As prev present, resulting in a value e indication for the Subject S Prroperty. The T discoun nting ng Discounted Cash h Flow An nalysis and is process is detailed on the foregoin summarrized below w using discount rates s ranging from f 7.0% to 8.0%.

Income Apprroach Ca alculations Palm House H Hotel Dis scounted Cash C Flow w Analysis Annual h Flow Cash Year Year Year Year Year

1 2 3 4 5

$6,534,929 $6,971,269 $8,151,810 $9,417,757 $169,866,755

Prese ent Value Indica ation - @

07/5 58512

Disct. D Indicated d R Rate Value 7 7.00% $1 147,148,10 02 7 7.50% $1 144,047,53 31 8 8.00% $1 141,029,56 61

Conclu usion via DC CF

Ro ounded $147,100,000 $144,000,000 $141,000,000

$144,000,000

ngly, given n the indic cation from m the Disco ounted Cas sh Flow An nalysis, and its Accordin underlying assumptions, and d using a selected s ra ate of 7.0% % to 8.0% %, the roun nded V of th he Subject Property, with w most weight to the t 8% dis scount rate e, via Market Value the Inco ome Approach was: ONE O HUND DRED FORT TY ONE MILLION DOLLARS ($141,000,000 0)

69


Reco onciliation n – Conve entional Hotel H RECONCILIATIO ON st Approach h is based on the ass sumption th hat a poten ntial purcha aser would d pay The Cos no more e for the property p th han the co ost of cons structing a substitute e property with the sam me utility as a the sub bject. Desp pite the ne ew / re-con nstruction of the sub bject from sla ab up, the difficulty in a cost approach a t value for the subje to ect is the near unavaila ability of la and sales frrom which to estimatte land valu ue. oach is bas sed upon the assump ption that a potential and The Sales Comparrison Appro dgeable investor would pay no n more fo or the pro operty tha an the cos st of knowled acquirin ng an existing propertty with bas sically the same utilitty. The Sales Comparrison Approac ch containe ed herein only o utilize ed recent data d from the Palm Beach market. The qua ality of the e data ava ailable is le ess than desirable an nd does no ot provide any reasona able means s for indication of valu ue. Thereffore, we ha ave placed limited we eight on this approach. We are however, h a aware of se everal trop phy hotel market m sale es in other lo ocations which provide the strratospheric c value ind dications on o a per room r basis in which the subject va alue falls viia income capitalizati c on. COMPARA ABLE TROPH HY HOTEL SA ALES - Palm House H Property

Date

S Sale Price

1

sons Hualali Four Seas Ka'upulehu u, Kona, HI

Mar-06

$415,000,000 (1)

2

Mandarin Oriental O NY New York City, NY

Dec-06

$340,000,000

3

Makena Resort R Maui Prin nce Maui, HI

Feb-07

$350,000,000 (1)

4

New Fronttier Hotel Las Vegas s, NV

May-07

5

Mayflowerr Inn & Spa Washingto on, CT

Aug-07

$1,200,000,000

$36,000,000 (1)

Age e at Sale

# Rms

Price / Rm

10

2 243

$1,707 7,819

4

2 251

$1,354 4,582

21

3 310

$1,129 9,032

45

9 984

$1,219 9,512

16

30

$1,200 0,000

07/58512 2

(1) estimated e ff. price of hotel portion p

e considere ed the abo ove from a price per room r stand dpoint. Thiis is not, in n our We have opinion,, the best hotel valu ue indicato or since buyers don’t buy roo oms but ra ather income streams. Although the subjec ct is projec cted to hav ve an exce ellent incom me it is, at th his point, non-existen n nt, so som me considerration is giiven to the e above tro ophy hotel sa ales in our conclusion. The Inco ome Capita alization Approach co onverts antticipated fu uture benefits of prop perty ownersh hip into an n estimate of presentt value. In I this insttance, we have revie ewed local Pa alm Beach market rates and oc ccupancy, the ownerr’s projectio ons. We have h considered the un nique naturre of the Palm P Beach h market and a the new w product that will be delivered d with w the subject. In a high-end d market, this t property as proposed will deliver a “des stination” resort r with h all possib ble amenitiies with th he exceptio on of 70


Reco onciliation n – Conve entional Hotel H water frrontage. The smalle er, boutiqu ue nature will counte erbalance the spraw wling, luxury provided p by the Brea akers and in our opin nion, there e are consu umers who o will prefer the subjectt for this re eason. The e rates we e have projjected are well suppo orted by the market m and are in our opinion reasonable. We have utilized market-based In our op support for expense ratios s where possible. p pinion, this approac ch is reasona able and th he one mos st utilized by b the inve estment market. Nev vertheless,, the subject is a sta art-up dev velopment with som me unsetttled questtions such h as manage ement. Our O projecttions for the t first six years of o operatio on are, in our opinion,, reasonab bly conserrvative; however, they t will depend on professiional manage ement by seasoned lu uxury hotell operators s with a pro oven track record. o the available mark ket data and the resulting analysis, we have h conclu uded Based on that the e income approach sh hould be giiven most weight. w Th herefore, itt is our opiinion that the e Market Value of the t Fee Simple Esta ate of the Subject Property As A if Complette and Ope erational, as a of MAy 152008 was $135,00 00,000 to $141,000,000, say $13 37,500,00 00. As Is Va alue In order to estim mate marke et value As A Is, we have h utilized our conclusion “A As if Complette” and in operatio on and de educted th he remain ning costs to comp plete. Accordin ng to the AIA contra act provide ed by the developer (found in Addenda)) the budget indicates $36,706,92 $ 21 hard co osts, of wh hich $32,706,921 is attributable to 4,000,000 to FF&E; of o the totall, $4,096,9 918 has be een spent as a of real estate and $4 e with $32 2,610,003 remaining g. Additio onally, also o found in the the date of value Addenda a is a bud dget for so oft costs to otaling $8,9 972,115, of o which $6,681,552 has been sp pent. An additional a $ $3,800,000 0 has been n budgeted d for intere est reserve and closing costs. Tottal hard and soft co osts (exclu uding interrest reserv ve and clo osing costs) re emaining is $34,897,,566. Finally, we disc counted for 18 month hs to repre esent the cons struction / start-up period. p

As s Stabilize ed Conven ntional Hottel August-09 9 Co osts to Complete Fe ebruary-08 8 Co onventiona al Hotel Le ess Costs s to Complete August-09 9 Dis scount; 18 8 Mos. For constructio on / Start--up @ 9% Facttor As s is Value - Conventtional Hotel

71

*

$137,500,000 ($34,897,566)

$102,600,000 x

0.8742 $89,692,920 $90,000,000


Income Approach h – Condom minium Hotel

MAR RKET VALU UE OF PAL LM HOUSE E AS IF CONVERT TED FOR R CONDOM MINIUM HOTEL H USE E WIT TH 22 CON NDOMINIU UMS SOLD D

72


Discounte ed Selloutt â&#x20AC;&#x201C; Condominium Units U

DISCOU UNTED SE ELLOUT AP PPROACH a off a residen ntial condo ominium by y the Gros ss Sellout Approach,, the In an analysis appraisa al problem is the estimation of the Markett Value of future rece eipts generrated by the sale of the e condomin nium units s. The ste eps necessa ary for the e Market Value V estimate e by the Discounted Sellout S Approach are as a follows: e the tottal selloutt, or gros ss sales 1. Estimate condominium units s by marke et comparis son.

price,

of

the

e all of th he costs necessary to t carry an nd markett the 2. Estimate inventorry and de educt thes se costs from the total sellout. Included d in these costs is an n estimate of the proffit necessarry to attract an a entrepre eneur to a project of this type. The estim mated costs arre deducted d from gros ss sales rec ceipts to arrrive at net sale proceed ds. 3. Estimate e the abs sorption period p ove er which the t units can reasonably be ex xpected to sell. Thiis step is critical to the appraisa al process, as it will provide a tim me frame of o when the e net proceed ds will be received. r T The absorpttion estima ate involve es an analysis s of curren nt anticipatted supply and dema and forces that will have e a bearing g on the pro ojectâ&#x20AC;&#x2122;s marrketability. nalysis that follows. Each of these steps is detailed in the an

73


Discounte ed Selloutt â&#x20AC;&#x201C; Condominium Units U

Market Discussion Palm Be each is a unique u market for re eal estate; being an island, com mbined witth its location, history and a demonstrated sta ability and continued high dem mand make it a market unto itsellf. In bo oth residen ntial and commercia c l appraisal assignme ents, searches for comparables are a limited to other Palm Beac ch data on nly due to o the exclusiv vity of this market. Complicating the issu ue in the case c of this s assignme ent is that the e Subject is s a unique project to Palm Beac ch; only one condomin nium hotel, the Brazilian n Court in this t markett is suitable e for compa arison. Compou unding the issue is th hat the Brazilian Courrt condomin nium conve ersion has until recently y yielded very v little sales s data. This pro oject includ ding a purc chase and $40 million + renovatio on has bee en underwa ay for seve eral years (soft mark keting bega an in Decemb ber 2002). It should d be noted d however,, the deve eloper of th his projectt has several others in th he south Fllorida mark ket, many of o which arre in similar circumsta ance, on indeffinite hold, stopped construction c n, etc. In fact, durin ng initial co onstruction and development imme ediately up pon filing of o the condominium documents, d there werre 33 pre-sale es; more re ecent inforrmation ind dicates thatt there we ere ultimate ely 80 pre--sold units tha at evaporated when the t develop per did not deliver ove er a multi-y year period d. In our opin nion, the lack of acttivity in this competitive projec ct is not market-deri m ived; rather, it is in our opinion du ue to poor management / development, etc. e Finally, in 2007, cllosings beg gan to take e place. Th he data how wever is so omewhat skewed because many of the close ed sales were contracted as ea arly as 200 03. 2007 sales s from this project are a found below. b 2 2007 Brazilia an Court Hottel Condo Sa ales Sale Datte Feb b-07 Fe eb-07 Feb-07 Sep-07 Sep-07 Sep-07 Sep-07 116 112 117 234 220 219 Unit # 115 1 Sale Pric ce $2,250,0 000 $2,102 2,500 $1,550,000 $2 ,515,000 $ $2,425,000 $825,000 $759,000 354 706 690 744 Sq. Ft. 1,9 920 1 1,475 1,475 $4,379 $1,169 $1,100 $3,259 $ / SF $1,705 $1,1 172 $1 1,425

s to marke et pricing for f the sub bject for se everal reas sons; We utilized a hybrid analysis lack of substantial s competitiv ve product,, price leve els, etc. We W analyzed d the foreg going informattion on sales to date within the Brazilian Court C proje ect. We werre provided d the ownerâ&#x20AC;&#x2122;s salesâ&#x20AC;&#x2122; pro forma. We W also com mpared the e prices of straight re esidential co ondo units within the Pa alm Beach market. Prices were analyzed on o a price per p square foot basis an nd consideration was given for the varyin ng differenc ces in loca ation, unit size, design and a appea al, amenitie es et ceterra. Note that the subject s uniit sizes do o not include balconies.

74


Discounte ed Selloutt â&#x20AC;&#x201C; Condominium Units U

Discussiions of Individual Sale Prices The con ntract purchaser prop poses sellin ng the 79 hotel room ms (approxiimately 44 4,430 square feet f saleab ble area) att $3,000 per p square foot with an a indicate ed average unit price off $1,687,21 16 for the (average) 562.4 squ uare foot units. u The ere are stra aight residenttial condo projects p in Palm Beac ch selling in excess of o $1,800 per p square foot such as Two Break kers Row North N and th he Palm Be each Biltmo ore; however, it shoulld be noted th hat these units u are much larger and are strrictly reside ential condo buildings s and do not have h the hotel ameniities. Nor is s the quality compara able; both are consid dered inferior to the sub bject as pro oposed. Tw wo Break kers Row North is a condomin nium project situated near the Brreakers Hotel; the prroject was built in 19 986 and ty ypical unit size es range from f 2,636 6 to 3,013 square fe eet. The Palm Be each Biltm more located at 150 Bra adley Place e was a 1980 convers sion and is s considere ed substanttially inferior to the Sub bject due to o its age an nd quality. The Sub bjectâ&#x20AC;&#x2122;s con nstruction quality is very good d; its locattion is exc cellent and the propose ed construction indicattes $475,950 per room m ($846.28 8 per square foot) in hard and softt costs of constructio on. This in ncludes very high qu uality interior fixtures and finishes;; the owner has not ru uled out a luxury hote el affiliation n. Total Se ellout ces for the e subject are at leastt one year out; In concllusion, the proposed selling pric while sa ales prices per square foot in this range e do not have h (close ed transaction) market support, the t Trump Internatio onal Tower,, at 551 No. N Ft. Lau uderdale Beach orth of Las Olas Boule evard in Ftt. Lauderda ale is testin ng the marrket; Boulevard, just no 08 / early 2009. Pricin ng goes as high the project is scheduled for completion in late 200 uare foot with w averag ge prices of o the 298 units repo orted at $2 2,120 as $2,660 per squ ales were originally o su uspended in n late 2005 5 with 30 units remain ning. Thos se 30 when sa units we ere opened d to the market m aga ain in mid-2006 and sold out in two mon nths. Finally, the Palm Beach market does not have the typical barriers, i.e., price e per f or $1,000,000 overall price e barrier fo or a small unit, u etc. square foot veloper indiicated that he had bu uyers intere ested at $3 3,000 per square s foott but The dev he did not n provide ed us with any a names s for verific cation. It is the owne er / developerâ&#x20AC;&#x2122;s plan to sell s only 22 2 units at th his time. For F that rea ason and du ue to the ty ypical disparity between n asking and a selling prices, we w have co oncluded at a approxim mately 90% % of propose ed asking prices, p or $2,700 pe er square foot (curre ent dollars) for sellou ut of the unitts. We ha ave applied d this figure to the 22 units recognizing r g that diffe erent units ma ay sell at higher h or lo ower prices s per squarre foot based on view w, location, etc. Final co onsideration ns are rega arding the Palm Beac ch market itself. First, this ma arket typically y shows little if any y impact to t broaderr market conditions. c Despite the current residential market declines d on n a nationwide basis s, Palm Be each defies s the norms.

75


Discounte ed Selloutt – Condominium Units U

Accordin ng to the 2008 2 Evans s Report on Palm Bea ach residen ntial sales,, an analys sis of this marrket for the e first six months m of 2007 2 show ws the follow wing: 1st 6 Mo. 2007 2

In ndicator e Sale Price e / Single Family F Average Average e Sale Price e / Condo

Prior Yearr Chg./P

$5,150,0 000 $1,260,0 000

15.22% % 12.56% %

ncreases arre astronom mical by the standard ds of all butt very few markets in n the These in world. In our following f a analysis, w have considere we ed the sp pecial ma arket conditio ons applic cable to Pa alm Beach h during th he sellout. Retail Sellout - Co onclusion c below show ws our Tota al Sellout Estimate E in current – 2008 2 The Retail Sellout calculated nflation and prices all the units s at $2,700 0 per dollars. This figurre does not include in f square foot. TO OTAL SELLOU UT ESTIMATE E - THE PALM M HOUSE HO OTEL CONDO O Develope er Sales of 22 2 Units

Total Sellout S

Average Selling Prrice

22 2 Units @

56 62.4

44,430 Sq. Ft. $1 1,518,480 $2,700

per Unit U per Sq. S Ft.

TOTAL of 22 Unitts L GROSS SELLOUT S

$33 3,406,560 0

The per square foo ot analysis also leaves s open the possibility of market responsive eness to differrent unit siz zes. None of the com mparables truly t repres sents the subject s market; the priciing is “top of the marrket” pricing g; and, the e quality lev vel is an un nknown eve en in this high-end marrket. There is not as s of date of o appraisa al a model unit. We have ed various componentts of the finishes and d build-out and they are a truly to op of inspecte the line.. Discussiion of Abso orption The abs sorption period is a critical part of the valu uation proc cess. It prrovides a timet line ove er which the sales rec ceipts will occur. It is one of the most difficult item ms to estimate e since abs sorption rates for futu ure sales are a dependent upon external e fac ctors such as the national economy y, local eco onomy, rec cent actions s of the sto ock market, the availabillity of mortgage fun nds, and supply s of competitive units. We must also considerr the curren nt state of the residen ntial condominium ma arket partic cularly in South S Florida, where phrrases such as “condo o boom hitts the walll” are prev valent in media m reporting. Pace off sales in th he West Pa alm Beach market has s definitely y slowed; prices 76


Discounte ed Selloutt – Condominium Units U

have fla attened and d many ma arket partic cipants in West W Palm Beach are in a wait-andsee pos sture, anx xious to see s how many pre e-sales of current projects p u under construc ction actua ally close on o comple etion or if there will be a sub bstantial fa allout reflectin ng speculattive buyers s who cho oose to wa alk on deposits. In n addition, the estimate ed absorption rate must be con nsidered in light of the Market Value V estim mates of the in ndividual units. Once e again, the e Palm Bea ach markett is extremely insulate ed in these matters. m With regard to ab bsorption of o high-end hotel co ondominium ms, we hav ve intervie ewed market participants with regard to t the most m curre ent market conditiions. Interesttingly, a brroker (Joel Greene) specializing in the co ondo hotel market – the only pro oduct the firm f repres sents – ind dicated that 2006 salles activity y was on a par with ea arlier condiitions in this market, despite decreased d interest. That is, the convers sion ratio is s higher be etween look kers and bu uyers. This may indicate that while w the investor marrket is fallling off, th he user market m is still strong g. The trend t continue ed through h 2007; despite dec clined overrall sales, higher end product has seen a continued c pace p of sales. sed the Bra azilian Cou urt situation n with Palm m Beach insiders. De elays Finally, we discuss oblems with delivery of this prroduct are meeting with w marke et resistance – and pro that is, the buyers want th he productt but now have lost faith in the develop per’s ability to deliver. Of note is s the fact that the Brazilian Cou urt is not this develop per’s ect in the South S Floriida markett. only troubled proje o have datta retained in our file es for 11 residential r condominium projects in We also West Pa alm Beach and a on Singer Island;; these pro ojects were selling durring 2004/2 2005 construc ction and absorption a rates rang ged from four f to 38 units per month with an average e of 16 units per montth. d the intere est in the subject s gen nerated via word of mouth m and hotel h We also considered sing. The owner o has discussed d the project with sales at $3,000 per square e foot advertis with ma any prospe ective buye ers. There e are no contracts c o reservations; howe or ever, informally, there are several prospective e buyers with w very strong intere est; one to o the ssioning a design fo or his unitt. extent of commis Conclusion ng no pre-s sales in place, we hav ve utilized a sales pace of less than two units u Assumin per mo onth during g the consttruction perriod for a sellout s of th he total (proposed by y the developer) 22 units upon com mpletion. This T sellout is anticipated to take e approxima ately ar and assu umes a pro ofessional and a compe etent mark keting plan.. We sche edule one yea closings in the 4th Quarter Q of Year 1.

77


Discounte ed Selloutt â&#x20AC;&#x201C; Condominium Units U

Sellout Summary S s is Februarry 2008 witth Year 1 the year ending April 2009 2 The starrt date of the analysis a hypothetical condition c a if the constructtion was complete. as c . The ave erage f of the units is s 562.4 square feet. As conclud ded earlier,, at $2,700 0 per square footage square foot, f the av verage selling price off the units is thereforre $1,518,4 480. The total 22-unit sellout projjected is $33,406,56 60. es Expense es must be e deducted d from the e Total Sellout estima ate to arriive at net sale Expense proceeds. These expenses e i include tho ose items necessary to marke et and sell the e taxes an nd various s operating g costs. Those T Subject units, as well as real estate expense es are discu ussed below w. Hard and soft costs c of com mpletion are not inclu uded given th he hypothetical condittion of com mpletion. We W have de educted the ese costs fo or as is value. See page e 38. We have h discou unted the to otal value to t present day for the e one nstruction period. p year con Sales Co ommissions Sales co ommissions s occur whe en either an a employe ee of the de eveloper or outside agent a makes a sale. In this instanc ce, we hav ve utilized 6% 6 or $2,004,394 ($33,406,5 ( 560 x .06) for commissio ons, supporrted by currrent marke et activity. ng Expense e Marketin This expense is for f the acttive marke eting program and includes pu ublic relatiions, sement, sa ales events s, etc. Given ourr experience and review of ac ctual advertis marketing expens se from oth her condom minium sale es, we hav ve utilized 2.0% of sales s es or a total marrketing ex xpense of $668,13 31 (2% of o receipts s of revenue $33,406 6,560). Entrepre eneurial In ncentive ntive of 10 0% to 20% % of the gross g price of the un nits is typiically A developer incen ect an inve estor's expectation in normal market m cond ditions. In n our considerred to refle opinion, this is wh hat it would take to attract a third party y buyer, which w is wh hat a lender would w have e to do in the event they becam me the ow wners. The risk associiated with the e sellout off the Subje ect Property y is subjec ct to econo omic uncerttainty, which is amplified by the pricing of un nits despite e this insula ar market, and the time period over he units would w be ex xpected to sell. We have h used 15% for the subjec ct, or which th $5,010,984 based d on sales receipts of $33,406,560.

78


Discounte ed Selloutt â&#x20AC;&#x201C; Condominium Units U

Real Esttate Taxes This exp pense item m considers s the reside ential cond dominium component c t of the pro oject only â&#x20AC;&#x201C; the t hotel and a other (restaurant ( t, spa, etc.) areas arre considered in the hotel h operatio on that follo ows. Resid dential condominium areas comprise 48% of the building area. As A such th hat factor has been applied to tax estimates. The T comme ercial components will be responsib ble for theiir pro rata share. Ta axes have been b calcullated based on o the earlier discussion of an estimated e assessmen nt following g completio on of the cons struction fo or YE 2010 0; YE Febru uary 2009 taxes were e estimated d based on n the current assessment of $24 46,022. The T 48% attributable a e to the condo unitts is $118,09 91. Taxes are paid in arrea ars and the t develo oper would d therefore e be responsible for tax xes in YE 2009. 2 The e building is s not proje ected to be e completed by w is the assessmen nt date for taxes. January 1, 2009 which Miscellaneous pense includes various s administrrative, insurance, lega al and misc cellaneous costs c This exp and fees s associate ed with the closings; we w have uttilized 1.0% % of gross dollar sale es, or $334,066, in our opinion rea asonable fo or this proje ect ($33,40 06,560 x .0 01).. penses are deducted from f the to otal sellout of the pro oject in orde er to The estiimated exp derive a net proce eed estimatte. The se elling expen nses and profit p are th herefore 24 4.4% of gross s sales inclu uding real estate e taxes s and are summarized s d as follows s:

Selling g Expense es Sales s Commis sions @ Mark keting Entre epreneuria al Incentiv ve Real Estate Ta axes Misce ellaneous Total Selling Ex xpenses

% Sales Rev. 6.0 0% 2.0 0% 15.0% 22 condo units @ $1,495

1.00% 24.0 00% not incl . taxes

79

$2,004,3 394 $668,1 131 $5,010,9 984 $118,0 091 $334,0 066 $8,135,6 666


ed Selloutt â&#x20AC;&#x201C; Condominium Units U Discounte

Summary e net proce eeds mustt be discou unted to present p value in orde er to Finally, the future e current market va alue assum ming cons struction is comple ete. We have estimate discountted the prroceeds att an annua al discount rate of 8.0%, con nsidered to o be reasonable based on currentt market co onditions, interest rates and co onsultation with m partticipants; it is further supported s a regarding g discount rates r active market by the data in the ho otel DCF an nalysis disc cussion.

80


Discounte ed Selloutt â&#x20AC;&#x201C; Condominium Units U

DISCOU D UNTED SELLOUT S T ANAL LYSIS 22 Units o of Palm House Condom miniums s Date off Value - August 30, 2009 2 Assum mptions: Date of o Value Comp pletion Da ate of Pro oject Total No. of Condo C Unitts to be Sold S Rema aining Unsold Units s of Propo osed Sales s' Pool Avera age Marke et Value o of Unsold Units Year 1 - Pre-Sales Remai ning Unso old Units

Feb-08 Aug-09 22 22 $1,518,4 480 22 0

Year E SALES S INCOME E Ending Procee eds from Sales S Inflati on - Annu ual Compo ounded Total Annual Receipts R ( (Inflated) ) Avera age Unit Price P - 20 008 Dollarrs LESS: % Selling g Expense es Sales Rev. 6.0 Sales s Commis sions @ 0% Mark keting 2.0 0% Entre epreneuria al Incentiv ve 15.0% 22 condo units @ $1,495 Real Estate Ta axes Misce ellaneous 1.00% 24.0 Total Selling Ex xpenses 00% not incl . taxes

2/1/20 009 $33,406,5 560 1.0 000 $ $33,406,5 560 $1,518,4 480

Net Prroceeds from f Sale es (Total Seellout less Exxpenses) Roun nded,

$25,270,894 $ 00 $ $25,300,0

81

$2,004,3 394 $668,1 131 $5,010,9 984 $118,0 091 $334,0 066 $8,135,6 666


D Discounte ed Cash Fllow – Hote el Operatiion w/ Co ondo

Ongoing g Operation n of Palm House H Hote el Operating as Condo ominium Unit U t Hotel Condominium Unit’s s value operating as s the Finally, we must estimate the ndominium m conversio on and refllecting the sale of 22 2 condomin nium hotel following con e Approach h beginning on page e 47 for th he Palm House units. Refer to the Income ng as a hottel only regarding co omposition of the ope erating statement forr the operatin hotel, in ndustry sta andards, etc. e We have h utilize ed both Discounted Cash C Flow and Direct Capitalizatio C on in this analysis. a Available Rooms A R – In n this insttance, we have assu umed 80% % participattion; 8 80% of the condomin nium owners will plac ce their un nits into the hotel pool of available ro ooms. Of the t 79 room ms, 57 will be operatted continu uously as hotel h ooms. Of the 22 con ndominium m units to be b sold, the e participating rooms s will ro be in the operating o p pool as the e Hotel Con ndominium m Unit (22 x .80 = 17.6, 1 ounded to 18) at fin nal sellout. We have e utilized the t following schedule in ro ca alculating develope er owned rooms and cond do unit owned o ro ooms participating g in the ho otel operation. YE Number of o Rooms - Tottal Develope er Owned

3/1/2010

3/1/201 11 2/29/201 12 2/28/2013 3 2/28/2014 4 2/28/2015 5

79

79

7 79

79 9

79

79 9

57

57

5 57

57 7

57

57 7

18

18

1 18

18 8

18

18 8

75

75

7 75

75 5

75

75 5

4

4

4

4

4

4

Unit Own ners' Tracking Sales S @ 80% participation Total Partiicipation - Hote el Rooms Non Partic ipating Hotel Rooms R

Condo owners share in the und C distributed expenses of operation, taxes and in nsurance; taxes are e accounte ed for in the Disco ounted Sellout. Ab bsent co ondominium docume ents for th his hypothe etical cond dition, we have used d the 4 48% contrib bution (pro o rata base ed on squarre footage)) of those expenses. e The co ontribution n might be e made diffferently in the condo o documen nts – highe er or lo ower; eithe er impacts s the value e conclusio on. The number n of condo ow wners sharing in this expe ense will be b stable over the life of th he analysis s as d by the above a num mbers since e only 22 units u demonstrated in the sellout and w be sold will d. Each year’s y conttribution has been calculated c in the manner below.

Hottel Rooms’ Pro Rata Share of Whole W 22 / 79 Room ms by Condo Unit Ow wners Ow ners’ Year 1 Share Yea ar 1 – Undis stributed Expense E + Insurance Yea ar 1 Condo Owner Re eimbursement

82

= = = = X

48.00% 27.85% 13.37% $2,450,592 13.37% $327,573


D Discounte ed Cash Fllow – Hote el Operatiion w/ Co ondo

Finally, the hotel condo owner (d developer) must share e in the rev venues with h the nit owners – the own ner’s divide end. The typical t reve enue (rresidential)) condo un split for low wer RevPAR R hotel cond dos is 45% % to 50% of o room rev venues. Du ue to he high Re evPAR for the subjec ct, as with many exp penses, a point p of crritical th m mass is reached where e expense ratios are lower. Th he owner proposes a 40% split to the e 22 condo o unit buy yers; in ou ur opinion reasonablle. The an nnual ontribution ns are calcu ulated based on the Ye ear 1 exam mple below. co

Condo Un nits Owned / Participa ating A Available Rooms R (18 x 365) O Occupied Rooms R (6,5 570 x 63% %) C Cond Unit Rooms’ Re evenue (4,139 x $65 50 ADR) Y Year 1 Con ndo Ownerr Dividend (40% ( split))

= = = = x

18 6,570 4,139 $2,690,415 0.4 $1,076,166

Y Year 1 Con ndo Ownerr Dividend

Real Estate R e Taxes. This expense e item cons siders the commercial condominium comp ponent of the prroject – the hote el and other (restauran nt, spa, ettc.) areas. All reside ential cond dominium areas a comprise 4 48% of the total build ding area and the own ner / developer and unit u buyers s will be responsible for their pro rata share. Ta axes have been calcu ulated base ed on th he earlier discussion d of an estim mated asse essment following com mpletion off the co onstruction n for Years 2 and bey yond. Yea ar 1 taxes were estim mated based on th he current assessmen nt; followin ng years arre based on o the discu ussion on page 59.

RE Taxes (To R otal Bldg.) C Condo Ratio (of Total Bldg g.) C Condo Share e P Unit / To Per otal 79 Units s U Units Sold R Taxes Paid by: RE C Condo Owne ers' Tax Share D Developer Ta ax Share

T Total Building g Taxes

YE YE YE YE YE YE 10 Feb-11 1 Feb-12 Feb-1 Jan-13 Jan-14 Jan-15 $246,02 22 $926,610 0 $954,408 $983,041 $ $1,012,532 $1,042,908 $ 48% % 48% % 48% 48% 48% 48% $486,015 $500,596 $118,09 91 $444,773 3 $458,116 $471,859 $5,973 $6,152 $1,49 95 $5,630 0 $5,799 $6,337 2 22 22 2 22 22 22 22 $32,88 86 $123,861 1 $127,577 $131,404 $213,13 36 $802,749 9 $826,832 $851,637

$135,346 $877,186

$139,406 $903,501

$246,02 22 $926,610 0 $954,408 $983,041 $1,012,532 $ $1,042,908 $

With the exceptio on of the ittems noted above, the t conclusions used d in the ea arlier s have bee en used fo or valuation n of the Hotel H Cond do Unit. The T Discounted analysis Cash Flo ow showing g these res sults is found on the following f p page.

83


D Discounte ed Cash Fllow â&#x20AC;&#x201C; Hote el Operatiion w/ Co ondo

Discou unted Cash h Flow Ana alysis -Pallm House Operating as a a Condominium m Hotel with 22 Units Sold & 80% Participation Year 1 ADR C hg.

Year 2 $50.0 00 7.69%

$$ % %age

YE ber of Rooms - Total T Numb

Year 3 $50.00 7.14%

Year 4 $50.00 6.67%

Year 5 $50.00 6.25%

Year 6 $50.00 5.88%

3/1/2011 1 2/29/2012 2/28/2013 2/28/2014 2 2/ /28/2015

3/1/201 10 79

7 79

79

79

79

79

57

5 57

57

57

57

57

18

1 18

18

18

18

18

75

7 75

75

75

75

75

4

4

4

4

4

4

ailable Room Nigh hts Ava

27,,375

27,37 75

27,375

27,375

27,375

27,375 75.0%

Deve eloper Owned Unit Owners' Tracking Sales n @ 80% participation P - Hotel H Rooms Total Participation Non Pa articipating Hote el Rooms Oc cc.

63.0%

65.0% %

70.0%

75.0%

75.0%

Occ upied Room Nigh hts

17,,246

17,79 94

19,163

20,531

20,531

20,531

AD DR

$650 0.00

$700.0 00

$750.00

$800.00

$850.00

$900.00

RevPA AR

$409 9.50

$455.0 00

$525.00

$600.00

$637.50

$675.00