MARKET STUDY & OPPORTUNITIES. July 3, 2017

Transcription

1 MARKET STUDY & OPPORTUNITIES July 3, 2017

2 Confidentiality This Document, including all Appendices, is the proprietary work product of Boutique Real Estate Advisors LLC ( BREA ) and intended solely for the use of El Anhelo SA de CV, its principals, directors, officers, and designated advisors and associates. The Document contains information that is privileged, confidential and proprietary. If you are not an intended recipient of this Document, please notify BREA, and then please delete and destroy all copies and attachments. Please be advised that any unauthorized review or dissemination of, or the taking of any action in reliance on, the information contained in or attached to this message is strictly prohibited and may result in legal consequences. Nothing in this Document constitutes an offer to sell or a solicitation of any investment products or other financial product or service, or an official confirmation or of any transaction. Through gathering information for purposes of this Document, the following resources were consulted, but is not limited to: HVS; Dream Homes of Cabo; Snell Real Estate Engel & Völkers; Interval International; correspondence with competitive set representatives; correspondence with brokers active in Los Cabos and East Cape; Global Property Guide; Pisces Real Estate; Hotel New Network, Statista, Jones Lang LaSalle, Oxford Economics, STR and Actinver. Additional research were conducted via the Internet and relevant information has been compile for this Document. 100 Park Avenue 16 th Floor New York, NY Theodore Fremd Ave Ste 206 S Rye, NY Jay DiGiulio, President Devin Wakeford, Vice President 2

3 TABLE OF CONTENTS Page 1. Executive Summary 5 2. Mexico s Economic Overview The Destination East Cape, Baja California Sur Tourism Overview a. Leisure Travel Market 14 b. Mexico Tourism. 15 c. Los Cabos Tourism d. Access & Transportation.. 18 e. Travel Logistics Real Estate Market Overview a. Mexico Housing Market 21 b. Los Cabos Real Estate Market.. 23 c. Trends in Second Home Market in Los Cabos 24 d. East Cape Real Estate Market.. 26 e. Looking Ahead. 27 f. Timeshare Market Popular Hotel Destinations a. Mexico City b. Cancun/Riviera Maya. 32 c. Los Cabos 33 d. Puerto Vallarta Historical Hotel Performance Trends Shaping Mexico s Hotel Market Mexico s Hotel Brand Segments 38 3

4 10. Competitive Set Properties El Anhelo Real Estate a. Product Types.. 63 b. Estimated Market Pricing per Product Type.. 64 c. Product Type Pricing Recommendations. 65 d. Sales Pace & Phasing Conclusion. 66 APPENDIX A: Master Plan Illustrative Map

5 EXECUTIVE SUMMARY El Anhelo SA de CV owns a spectacular development property near Los Barriles, Baja, California Sur, Mexico (the Project ) with development plans that include several types of for-sale real estate product. Boutique Real Estate Advisors LLC ( BREA ) has been engaged to prepare this Market & Feasibility Study for the Project. The information below summarizes the findings from research as provided in more detail within this document. Project Name El Anhelo Marina, Golf & Private Resort Community Project Location Los Barriles, East Cape, Baja California Sur Description A destination resort combining golf, marina, water access, food and beverage, spa, retail and all the lifestyle experiences of the East Cape and authentic Mexico. El Anhelo is a 459-acre (186-ha) master planned resort community that features an Arnold Palmer designed golf course, 350-slip marina, private beach, seamless access to the Sea of Cortez, approximately 1,500 real estate offerings with multiple price points, hotels, retail outlets, authentic resort destination amenities and experiences delivered by a reputable, quality developer with significant success in the Mexican resort market today. The Sponsor s credibility is extremely important and being able to deliver what is promised to consumers is an absolute must. General Market Overview From research and speaking with real estate experts, it is evident that the market continues to perform and react positively over the past few years and that an increase in total sales volume is anticipated. Due to Hurricane Odile in 2014, many of the resorts in Los Cabos and surrounding areas had to invest significant renovation and restoration funds to get back to operating status. Pricing is currently staying consistent with steady increases expected in the near future. There are certain areas that lack inventory which might increase pricing due to demand; however, in general there is a significant amount of inventory that entered/is entering the market. Due to consumer demand, there is a significant amount of inventory entering the market in order to satisfy the increased appetite for real estate investment in the region. Key highlights: Some of the most defining features for development in the Los Cabos market is based on consumer sentiment and consumer confidence. Cabo San Lucas and Los Cabos has long been considered the safest area in Mexico. 5

6 The consumer has seen most projects come to successful fruition through natural disasters and economic downturns The area has grown and flourished over the last several years with the most significant growth outside of Cabo San Lucas extending in all directions from the epicenter Diamante, and Porto Los Cabos being the prime examples. Lift and infrastructure have improved and more visitors are coming into the market year over year. The major markets continue to be the west coast feeder states of the US, Western Canada and recently the affluent Mexican market has been responsible for a significant percentage of the sales. While Cabo San Lucas was built on small intimate resorts like Las Ventanas, Palmilla, Esperanza, etc. the norm has become large mixed use resorts with multiple real estate offerings. Most of Cabo San Lucas was built through the monetization of accommodations by developers. The sophisticated consumer has watched longer development cycles, mixed brands and accommodation types in the resorts that have been ongoing for the last decade. All of these attributes are key barometers for development and sprawl to the East Cape and the site for El Anhelo. A mixed-use resort with marina, golf, family lifestyle, self-contained, well positioned and marketed properly can have major impact and grab market share of the East Cape which will naturally grow over the next 10 to 20 years. Having a widely accepted major Mexican brand at the helm of the project also adds to the credibility It s not just location, location, location, but also about the financial wherewithal to deliver to consumer expectations. Competitive Landscape There are currently successful competitive set projects throughout the Corridor with resort projects located in Cabo San Lucas and Los Cabos. The East Cape would capitalize on location, lower price points than available in Cabo, and the current positive economic indicators in the origin markets. Notable Competitive Set Properties as listed in this document are (in no particular order): Puerto Los Cabos, Cabo San Lucas Costa Palmas by Four Seasons, La Ribera (formerly Cabo Riviera) Diamante, Cabo San Lucas 6

7 Villa la Estancia, Cabo San Lucas Esperanza, Cabo San Lucas Solaz Los Cabos Chileno Bay Resort & Residences, Los Cabos Los Cabos Resort Developments In Los Cabos, a new Grand Velas opened on December 30, The all-inclusive beachfront offers 300 suites, five restaurants, a 16,370 sq. ft. convention center and a Leading Spa of the World. The new Quivira Towers opened in December at the Pueblo Bonito Pacifica Golf & Spa Resort. In addition to 47 guest rooms and suites (some with private plunge pools) the towers include a new VIP Lounge, restaurant and fitness center. Chileno Bay Resort & Residences officially opened during February The new hotel project was previously known as VieVage Los Cabos, an Auberge Resort. Auberge Resorts Collection still manages the property that includes 60 guest rooms and 32 villas with private pools. The property also has a holistic spa plus more than 12,000 square feet of meeting space. The 250-room Le Blanc Spa Resort Los Cabos opened in mid The all-inclusive adults only Palace Resorts property has five restaurants, an expansive spa plus 13,000 square feet of meeting space. The 2,000-acre Puerto Los Cabos Resort on the Sea of Cortez is the setting for the Ritz Carlton Reserve Los Cabos. With a summer of 2017 opening, it has 124 oceanfront villas with private plunge pools. Resort amenities include a marina plus golf courses by Jack Nicklaus and Greg Norman. Solaz, a Luxury Collection Resort, Los Cabos opened in June The 131-room property at the tip of Baja California Sur includes a spa and private beach club, three restaurants, event space plus walking and running trails. Hard Rock Hotel Los Cabos is scheduled for completion in late The 600-room property at the Diamante Cabo San Lucas Resort will include six restaurants, 54,000 sq. ft. of meeting space plus a signature Hard Rock Rock Spa. Grand Solmar at Rancho San Lucas Resort is set for a late 2017 debut. Rancho San Lucas is an 834-acre beachfront community 30 minutes from Cabo San Lucas and the Magic Town of Todos Santos. Resort amenities include a Greg Norman-designed golf course, tennis center and Mexican Village. Also expected to open in 2017, Nobu Hotel Los Cabos will have 200 Japanese and Los Cabos-inspired rooms, a signature Nobu Restaurant and Bar, event and meeting 7

8 space, a luxury spa plus retail space. Montage Los Cabos is set to open in the winter season of The Hotel Corridor property overlooking Santa Maria Bay will have 122 guest rooms and suites; a spa, multiple dining rooms and a two-level pool. Four Seasons Resort Los Cabos at Costa Palmas will open in Located in the private Costa Palmas community on the Sea of Cortez, the 145-room property will include a spa, private beach and Robert Trent Jones II designed golf course. Tourist Attractions Mexico has so much to offer regarding attractions and activities for tourists. Mexico's fastest growing resort area of Los Cabos offers miles of empty desert and deserted beaches, laid-back nightlife, whale watching, hang-gliding, snorkeling, antiquing, golf and fishing, Loreto's historic mission, sport fishing, dining, Cabo Pulmo, beautiful resorts and so much more. Origin Markets The origin markets of the US and Canada are looking for alternatives to Cabo pricing, lack of access to water and limited access to other amenities. Both American and Canadian demographics for real estate are looking for active resort destination in which to invest and live. The location to all major services, lift, easy driving distances, and an eco-friendly resort destination fill a demand for which there is no current supply. The current mix of sales is still predominantly 50% US, 35% Canadian and 15% Mexican. Price & Pace The price and pace of shared ownership and whole ownership real estate offerings in this documents are based on conservative assumptions tied with the market comp set. In summary, shared ownership prices are discounted at a rate of 15 to 20 percent from Cabo comp set offerings with the sales pace scaled back 10 to 20 percent off the same comp set. Whole ownership sales are scaled to current East Cape real estate listings. There may be significant increases in pricing and pace as the resort is further developed due to the value of added amenities and services. Demand is a product of supply and developers have struggled to combine all the correct pieces for a destination resort community on the East Cape. A fully amenitized destination resort such as El Anhelo would capture a larger market share. Economic Snapshot The projections summarize the overall Project revenues, costs and projected profit considering the following assumptions: Mix of product type and phasing consistent with previously presented report. Developer Costs is estimated to be 30% of total gross revenues. 8

9 Sales and marketing costs are estimated to be 15% on whole ownership/condominiums and 45% on timeshare/shared ownership product. Based on these assumptions and a total project timeline of approximately 20 years to develop and sell all real estate offerings, the Projected Net Profit for the Project was modelled. More information available upon request. El Anhelo vs. Diamante In order to set the tone of this document and the future development of the Project, it can be compared to the Diamante development that has shown significant success with their real estate product offerings. Diamante is considered to be the most successful of the projects today with annual revenues of over $50 million year over year since Of the $50 million in revenue approximately $35 million each year is attributed to timeshare/shared ownership, mostly around the golf course and practice facilities. A head-to-head comparison of Diamante (comparison is relevant to all other projects in the competitive set) to El Anhelo indicates a competitive advantage: Amenities El Anhelo s location would have a significant competitive advantage due to the planned programming matching Diamante; however, with a world class marina in addition. Marina, Water Activities and Access to Watersports The planned marina at El Anhelo would be the most consumer friendly marina and only marina between La Paz and the pending marina at Costa Palmas in La Ribera (approximately 87 miles/2 hour drive). With its location on the East Cape, the marina would have excellent access to the Sea of Cortez. Golf Diamante would have an initial competitive advantage with 36-holes of golf by Davis Love III and Tiger Woods; however, with Arnold Palmer Design Company committed as the golf course designer for the El Anhelo course, one could potentially argue that it would only be a slight advantage. This will be Arnold Palmer s first planned course in Mexico. Arnold Palmer Relationship El Anhelo would be able to successfully leverage the Arnold Palmer Brand for golf and real estate. Arnold Palmer is still the single most powerful brand in golf amongst the baby boomer demographic. Since Mr. Palmer s passing, it is anticipated that the brand strength will increase throughout the next few years due to his legacy. The addition of an Arnold Palmer Golf course, lodge, branded real estate, academy and public/private golf access would rapidly gain the consumer looking for the true family centered resort destination with the full amenities package offered at El Anhelo. 9

10 MEXICO S ECONOMIC OVERVIEW Mexico s economic outlook over the next five years remains promising. The country has been able to weather the economic slowdown experienced across Latin America as a result of the global decline in pricing for oil and other commodities and a softening U.S. economic outlook, among other issues. Mexico s robust growth in domestic demand, falling unemployment rates and low inflation have helped counter any negative impact caused by currency devaluation and overall economic slowdown experienced across the region. As a result, Mexico s real GDP is projected to average 3% annual growth over the next decade, according to Oxford Economics, supported by an aggressive structural reform agenda, strong private consumption and manufacturing and increases in foreign investment. In an effort to incite healthy competition and attract more foreign investment, government-led reforms were implemented to dismantle monopolies in the energy and telecommunications sector. Private consumption continues to be the main driver of growth, but the manufacturing industry is gaining ground due to improving demand from the United States, more favorable cost dynamics compared to China, and improved competitiveness associated with the Mexican Peso s depreciation. In addition, the government is investing in major infrastructure projects such as a new international airport in Mexico City. Foreign Direct Investment (FDI) projected to total US $30 billion in 2016 and grow 6% annually to $38 billion by The automotive industry, Mexico s top FDI sector, is expected to continue attracting foreign investment given improving conditions in the industrial sector and general infrastructure of the country. Overall visitation to Mexico has increased given the favorable exchange rate and improved connectivity. In the latest United Nations Tourism Barometer, Mexico ranked as the 9 th most visited country in 2015, with approximately 32.1 million visitors, an increase of 9.6% compared to 2014 visitation figures. Likewise, with 6.7 million international arrivals, Cancun set a new record in 2015, closely followed by Mexico City and other top tourist destinations. The number of international arrivals is expected to increase due to key infrastructure projects expected to deliver in the short term. Mexico s lodging market has been shaped by the recent macroeconomic trends and is poised for more growth in Expect to see a rise in international arrivals given the favorable exchange rate, new-build hotels in manufacturing regions and ancillary markets and potential acquisition opportunities and mixed-used developments in markets with high barriers to entry. Healthy demand fundamentals and continued momentum from strong RevPAR growth in indicate numerous opportunities for Mexico s top tourist destinations. 10

11 Mexico has the most developed hospitality sector in Latin America and has enjoyed record-breaking visitation levels for the past four years, evenly distributed across leisure and commercial destinations. The key indicators responsible for the positive results in the hospitality market are: Increased liquidity, growing foreign investors and emerging domestic investment has projected to deliver an exponential growth of hotel acquisition by volume. Covering over 60% of the GDP, Mexico s emerging middle class has restored growth in the service industry that has led to phenomenal growth in lodging demand. User friendly smart phones and advances in technology are altering the relationship between hotels and guests which has transformed the hospitality industry enhancing hotel s financial performance. 11

12 THE DESTINATION East Cape, Baja California Sur The East Cape of Baja is an area of white sand beaches with warm, crystal clear waters that make for excellent diving, some of the world's best sport fishing, world class windsurfing and kiteboarding. The area is home to several beautiful resorts, a living coral reef and mile after mile of exceptionally beautiful, and sometimes, wellhidden beaches. The East Cape Baja resorts are mostly in or near the Los Barriles/Buena Vista area, on the shores of Bahía Las Palmas. There are a few farther south along the coast and one to the north. The resorts of the East Cape tend to be somewhat small in size, as resorts go; however, large on hospitality, which is a pleasant change that many vacationers are seeking out in Baja. The remoteness was the appeal in the early days, as it remains to this day. The growing area is perceived as being much more laid back than the glitzy nearby resorts of Cabo San Lucas and San Jose del Cabo. Much of the East Cape is like a different world than that of the Los Cabos resorts which are so near, yet seem so far away. "This is how Los Cabos was twenty years ago" is often heard when discussing the tranquility of the East Cape. The abundant sport fishing is what started it all and remains the main tourism draw today. Marlin, sail fish, dorado, sierra, grouper, tuna, wahoo, snapper, yellowtail, cabrilla and the ever powerful rooster fish are all lurking in the waters of the East Cape. Colorful tropical fish inhabit the East Cape shoreline, rocks and reefs making the area a "must do" for scuba divers and snorkelers alike. This is especially true at the Cabo Pulmo Marine Reserve. vacation destination to Cabo San Lucas. Los Barriles is a kickback community of fishing resorts, some great restaurants, a few new upscale housing developments and also some of Mexico's best wind surfing during the winter months. This is a small town that does a good job of keeping the locals, and tourists, happy with good eats, great cocktails, and a variety of supplies. The beaches are incredible with an average water temperature near 80 degrees Fahrenheit all year. The entire area provides a feeling of really being away from the everyday hustle and is considered a more relaxing alternative South of Los Barriles/Buena Vista is an area that is home to a few secluded resorts, post-card perfect beaches, one small town (La Ribera) and some very unique settlements that cater mostly to fishermen, divers and nature lovers. 12

13 Cabo Pulmo is a Mexican National Marine Park located 16 miles south of Los Barriles. Cabo Pulmo is home to a living coral reef and millions of tropical fish, which makes for some fantastic diving and snorkeling. Everything one could wish for, as a diver, is nearby tropical fish, game fish, manta rays, sea lions and even the rare Golden Grouper. This protected area has flourished and is an example of what the entire Sea of Cortez was like in the not so distance past. Jacques Cousteau Island an uninhabited island located off the coast of the Cerralvo Channel near the city of La Paz in the Mexican state of Baja California Sur. It is eighteen miles long with a land area of km² ( sq mi), and is the ninth-largest island in Mexico. It is part of the Municipality of La Paz. The peak of the island comes to 2,100 ft (640 m) and the ridgeline runs north-south with many small streams draining east to the Sea of Cortez and west to the Cupalo Channel. There are many steep bluffs on the eastern sides and many sandy beaches and points on the west side. Jean-Michel Cousteau s Ambassadors of the Environment is a program previously introduced to the Project; however, at the time they had a non-compete due to their involvement with the Ritz-Carlton. This has since expired and they are eager to re-engage in the possible opportunity. 13

14 TOURISM OVERVIEW Leisure Travel Market Every year MMGY Global, the leading integrated travel and hospitality marketing firm in the U.S., releases findings from travel surveys they conduct. The most recent results highlights a record year for the leisure travel industry. According to the 2016 annual report, Americans' intent to travel is up 14 percentage points over 2015, with intent to spend on transportation, lodging and entertainment to increase by nine points. These findings show that travel intentions have not only recovered from the Great Recession, but have soared above prerecessionary levels. The report also reveals the importance of micro-segmentation in lieu of defining travel audiences by broad generational groups, as well as the role reversal between travel suppliers and online travel agents in consumers' preferences for travel purchase. These findings include responses from 2,948 U.S. adults surveyed this year who have taken at least one overnight trip at least 75 miles from home in the past 12 months. The following are topline results from the research publication: Leisure travel and vacation spending will achieve record levels in the next 12 months o MMGY Global predicts a record number of vacations and new highs in vacation spending among American travelers in the next 12 months. The market's intention to vacation during the next 12 months represents a 10-year high that surpasses the pre-recession record. 28 percent of travelers indicated an intention to take more vacations, while only 14 percent reported that they plan to take fewer, resulting in a 14-point net positive variance. o Vacation spending has fully recovered from the Great Recession and spending intentions have soared well above the pre-recessionary levels in recent quarters. In 2016, travelers reported having spent an average of $5,048 on vacations in the previous 12 months an impressive 30 percent increase from 2010, and a 12 percent increase from Travelers are planning to spend an average of $5,182 in the next 12 months an astonishing 23 percent increase in only four years, and a nine percent increase in the past year. Micro-segments driving increases in travel o The days of defining travelers by broad generational segments are coming to an end. It should be recognized that Millennials are the largest generation in history (84 million compared to 78 million baby boomers). This demographic group includes anyone who was born between 1980 and 1995, and have officially overtaken Baby Boomers. They are also revolutionizing the real 14

15 estate investment market in Mexico. This is due in part to their interest in Mexico luxury condos and vacation homes, as well as Mexico s version of the Real Estate Investment Trust, or REIT, known as Fideicomiso de Inversión en Bienes Raíces, or FIBRAs. o The following are micro-segments within this group, as well as within Gen X ers and baby boomers: HENRYs "High Earner, Not Rich Yet" traveler is a luxury consumer with a high, steady cash flow who is ready to spend for quality and service. Most of them are willing to pay full price for a vacation and expect personalized attention and options while on vacation. If they are disappointed with the services or destination, they will share it via social media or on travel review websites/blogs. GottaGoSOLOs a traveler who is married with children but vacations alone to reclaim his/her independence. They take more vacations than committed family-only travelers and they reported a 61-point net positive variance in the intent to take more vacations during the upcoming 12 months. Almost three-fourths of GottaGoSOLOs are Millennials, while one-third are X ers. YAHTZEEs "Young At Heart Travelers Zooming Everywhere Enthusiastically" are active retirees who are traveling more and spending more, but are slow to join the sharing economy. They spend more on travel (average of $7,988) and taking more extended trips than other segments. Jet Sweaters amateur adult athletes without children who are redefining wellness in travel. Approximately 10% of U.S. travelers travel annually to participate in races, triathlons or other competitive events. They vacation in order to enhance existing relationships and experience different cultures. The Brat Pack families with children 12 and under who influence vacation-planning decisions. They select vacations based on activities available to children, thus their vacations are entire-child focused. o It should be noted that due to the demographic size, these groups are highly likely to purchase condominium and timeshare/share ownership products in the region. Mexico Tourism The Mexico Tourism Board recently shared some new travel statistics from the World Tourism Organization (WTO). According to the data from the organization during 2015, Mexico registered an annual growth of 9.5 percent in the arrival of international tourists, moving 15

16 from 10 th to 9 th place in world rankings. The data also showed that the number of foreign visitors airlifted to Mexico by country of residence, from January to March, 2016 was 4.5 million, a figure 10.9 percent higher than recorded during the same period in U.S. residents showed a growth of 15.9 percent, rising from 2.2 million visitors last year, to 2.6 million. In the first quarter of 2016, the arrival of 750 cruise ships to Mexico was recorded, a figure 2 percent higher than the same period in 2015, while passenger arrivals also saw an increase of 2.1 percent. Additionally, the Pacific region recorded the arrival of 265 cruise ships in the first quarter of 2016, an increase of 12.3 percent, as well as a 14.7 percent increase in the number of passengers. Los Cabos Tourism Over the years, tourism has become an integral part of the economy in Los Cabos. The destination s geographic location and quality of infrastructure have positioned it highly within the international tourism arena although it primarily maintains a focus on the North American market. Tourism authorities and representatives from the travel industry, including hotels, resorts, Tourism Board, the international airport and Port Authority of Los Cabos, announced that the number of visitors to the region grew significantly over the past couple of years. Below are key highlights and trends for the region: Travel Airlift and Cruise Ships At the end for 2015, Los Cabos recorded a milestone of 1.8 million passengers representing an increase of 11.2% over the previous year. According to the arrival information for Los Cabos, 71% were international passengers; with 60.2% from the United States and 7.6% from Canada. National visitor numbers also increased led by Mexico City at 14.7% followed by Guadalajara and Monterrey at 5.8% and 2.8% respectfully. Cruise ship arrivals at the port of Cabo San Lucas increased from 133 in 2014 to 186 by the end of This represents an increase of almost 40% in the number of vessels and 48% in the number of tourists visiting Los Cabos by ship. The actual increase in the number of visitors is equally impressive growing from 277,000 visitors to 411,000 year-to-year. It has been projected that the numbers for 2016 will be 208 cruise ship arrivals with an estimated 488,000 passengers. The actual amounts has yet to be confirmed for the year. 16

17 Hotels Room Rates Hotel average room rates were positive, increasing from $225 per room per night during 2014 to $240 per night by the end of 2015, representing an increase of 4.89%. These results place Los Cabos in the number one position in Mexico in terms for average daily room rates. Occupancy In terms of occupancy rates, and increase year of year at the end of 2015 was 8.7%. This represents an increase from 65.3% average occupancy to 74.0% for the full year. High occupancy percentages were maintained throughout the year which shows that Los Cabos does not really have a low-season. Hotel Rooms Even though there has been a spurt in hotel development and increased hotel rooms in the region, there remains a significant demand for more hotel rooms to match the existing supply. Investments in Los Cabos tourism continues to grow with 10 new hotels increasing from 82 it had in 2014 to 126 by the end of This brings the total number of rooms in the region from 10,343 to 15,590. During 2015 six (6) new hotels opened adding 1,092 new rooms and the trend has continued into 2016 with several new hotels entering the market. Growth In 2016 and 2017, the growth in private investment will be reflected in the opening of 10 new hotels with 2,540 rooms; thus throughout the past 12 months and the next 12 months Los Cabos will have added more than 3,000 new rooms to the destination. The East Cape Sprawl The addition of new resorts along the coastline of Los Cabos and the Corridor is an evident indication that real estate and resort offerings are sprawling north towards the East Cape. While there is little to no reporting on the state of the market all indicators are that the East Cape has been growing in visits and occupancies to the smaller resorts. Several of the local brokers in the Cabo area have purchased land in East Cape as investment vehicles as they have high confidence in the growth. The Announcement of the Four Seasons has squarely out the East Cape on the map for future growth. 17

18 Access & Transportation A number of road infrastructure projects have been implemented over the last few years with the goal of improving connectivity between La Paz, East Cape, San Jose del Cabo and Cabo San Lucas. In 2011, the Federal government began work on the expansion and modernization of Highway 19 which runs along the Pacific coast line and connects the towns of La Paz, Todos Santos and Cabo San Lucas. Reportedly, the project represented an estimated investment of over $250 million and its scope comprised the highway s expansion from two to four lanes, reducing driving time from La Paz to Cabo San Lucas from 2.5 hours to 1.5 hours. The project also involves the development of a $50-million, 4.4-mile bypass across the town of Todos Santos to improve traffic flow along Highway 19. In 2012 the Communications and Transportation Secretary also began construction of the bypass that will connect San Jose del Cabo with Cabo San Lucas which is anticipated to alleviate the traffic flow along the Tourist Corridor and improve travel time between the two towns. Reportedly, the bypass has an extension of approximately 27 miles and represent an investment of more than $20 million. Los Cabos is served by the San Jose del Cabo International Airport (SJD), located approximately ten miles north of San Jose del Cabo. A total of 22 airlines service SJD including American Airlines, Alaska Airlines, US Airways, United Airlines, Airtrain, Delta Air Lines, Virgin America, Air Canada, Volaris, Interjet and Aeromexico among others. Several of these airlines provide direct flights numerous times during the week. Top 7 busiest domestic routes to Los Cabos International Airport during 2015: Rank City Passengers Ranking Airline 1 Mexico City 264,701 - Aeroméxico, Aeroméxico Connect, Interjet, Magni, VivaAerobus, Volaris 2 Jalisco, Guadalajara 106,907 - Interjet, VivaAerobus, Volaris 3 Nuevo León, Monterrey 38,789 1 VivaAerobus, Volaris 4 Baja California, Tijuana 33,928 1 Volaris 5 Sinaloa, Culiacán 31,539 1 VivaAerobus, Volaris 6 México (state), Toluca 26,463 1 Interjet 7 Sinaloa, Mazatlán 9,797 - Magni Top 10 busiest international routes to Los Cabos International Airport during 2015: Rank City Passengers Ranking Airline 1 Los Angeles, CA 198,607 - Alaska Airlines, American Airlines, United Airlines 2 Dallas, TX 138,005 1 American Airlines, Spirit Airlines 3 Phoenix, AZ 123,633 1 American Airlines, US Airways 4 San Diego, CA 113,495 - Alaska Airlines, Delta Airlines, Spirit Airlines 5 San Francisco, CA 110,574 - Alaska Airlines, United Airlines, Virgin America 6 Houston, Texas 100,188 - Southwest Airlines, United Airlines, United Express 7 Denver, CO 72,319 - Frontier Airlines, Southwest Airlines, United Airlines 8 Orange County, CA 60,678 - Alaska Airlines, Southwest Airlines 9 Calgary, Alberta 44,159 1 Air Canada, Air Transat, Sunwing Airlines, WestJet 10 Chicago, IL 43,075 1 American Airlines, United, Xtra Airways 18

19 As shown, travelers from Texas have become more prevalent while California remains the main stream of visitors to the area. During the third quarter of 2016, total terminal passengers in the main 13 airports increased by 1,325,000 passengers, or 16.8%, compared to the third quarter of Over the same period, domestic passenger traffic increased by 1,095,000 passengers, or 22.7%, while international passenger traffic increased by 229,000 passengers, or 7.5%. The total passenger traffic increase for 3Q16 was mainly driven by increases at the Guadalajara, Tijuana, Los Cabos and Puerto Vallarta airports, which experienced increases of 461,000 (17.7%), 356,000 (27.3%), 134,000 (15.4%) and 109,000 (15.5%) passengers, respectively. During 2012, Grupo Aeroportuario del Pacifico (SJD s operator) inaugurated SJD s Terminal 2 following an estimated $80-million infrastructure investment. Since then the terminal experienced some damage during the hurricane in 2014 and had to be closed off tentatively while improvements and renovations where taking place. The international terminal accommodates higher flight and passenger volume; features expanded public, check-in and boarding areas as well as improved ancillary services. There are projects in the works including the apron expansion with two (2) new commercial and fourteen (14) general aviation parking positions, the refurbishment of Terminal 1 only for domestic traffic growing and improving commercial spaces and an increase in capacity of Terminal 2 with 5,000 square meters, five (5) new contact gates and a new remote lounge. Anticipated completion of these projects are slated for Travel Logistics Traveling to any global destination usually makes for a much better trip if an international airport is near the resort or property. The best way for visitors to arrive at El Anhelo located near Los Barriles will be via airlift from the respective origin markets with direct flights being the main driver for easy access. As mentioned above, SJD will be the most convenient port of entry for travelers, especially those from the major US and Canadian markets. The SJD airport is located 13 kilometers (8 miles) 19

20 north of San Jose del Cabo, 48 kilometers (29 miles) northeast of Cabo San Lucas and 75 kilometers (47 miles) southwest of Los Barriles (an easy minute drive). Air Travel Restrictions Lifted In August 2016, most restrictions on flights between the U.S. and Mexico have been lifted, a change that clearly has brought more options and possibly lower prices for travelers. American, Delta and Southwest have already announced that they will offer new flights across the border later this year. United is watching the demand for flights and will respond accordingly. The United States and Mexico agreed in December to open their aviation markets to each other's carriers. Rules that had generally limited two or three airlines from each country to a particular route will go away. Airlines on both sides of the border will be able to fly whatever routes they want as often as they want and set their own prices. Base fares between the U.S. and many destinations in Mexico are already low, but both countries impose taxes that inflate the price of a ticket as much as 20-30% of such ticket price. The first new flights from U.S. carriers will focus on resort towns in Mexico such as Los Cabos, Cancun and Puerto Vallarta: Delta Air Lines announced that on December 17 th it will start daily nonstop flights between New York's Kennedy airport and Cancun and between Los Angeles and Los Cabos. It will also run Saturday flights between Kansas City and Cancun. Southwest Airlines announced that on December 4 th it will start flying daily from Los Angeles to Cancun, Los Cabos and Puerto Vallarta. Southwest plans to fly from Oakland, California, to Los Cabos and Puerto Vallarta starting in February 2017 if it gets approval from the Mexican government. American Airlines will begin flying between Miami and Merida on the Yucatan peninsula on Nov. 4 and from Los Angeles to Cancun and Puerto Vallarta on December 15 th. This change in restrictions has driven economic growth in sectors well beyond aviation, including tourism and manufacturing. 20

21 REAL ESTATE MARKET OVERVIEW Mexico s Housing Market Through research, it was found that there are no specific agencies that track the second home market in Mexico or Los Cabos. The below information were reported approximately 12 months ago and pricing, trends and details should be considered as such. Mexico Home Prices During 2015/2016, house prices in Mexico rose by 6.38%. When adjusted for inflation, house prices were up by around 3.35%. Mexico s real estate market has been buoyed by strong demand in resort communities, according to the International Consortium of Real Estate Associations (ICREA). American and Canadian buyers are returning to Mexico, after a several-year slump, thanks to low oil prices and the strong US dollar, pushing home values up. American buyers are very important as owners of beachfront properties; however, there is also an enormously strong domestic market. The Mexican market is not driven by speculators. There are many developers, it is highly competitive. Much new housing is built, which keeps prices down. Interest rates are (relatively) low in the social sectors, due to subsidies. Home prices in Mexico rose by 6% annually between 2005 and 2011, slightly above inflation, according to SHF s home price index. The last big housing crisis occurred after the Tequila crisis of 1994, when a currency devaluation followed by interest rates spiking caused 40% of all bank loans to default. Since then, there has been continuous recovery. The Rising Middle Class Between 2000 and 2010 Mexico s middle-class grew from 37 million to 44 million due to the following four key reasons: Inflation decreased by more than half from 10% in 2000 to 3.5%/4% between 2011 and The autonomy of the Bank of Mexico played a key role. Open Trade As a percentage of the economy, foreign trade (exports plus imports) accounts for nearly 60% of GDP, making Mexico one of the most open economies in the world. By way of comparison, the figure is 27% in Brazil, 48% in China and 30% in the United States. This fosters competition and puts an upper limit on the price of goods in the local market. Prudent management of public finances There is no significant pressure on the fiscal balance or public debt. Between 2000 and 2012, the fiscal deficit was at levels below 1% of GDP. Total public debt, domestic and foreign, barely exceeded 30% of GDP. Financial inclusion The population using banking services rose from 33 million in 2006 to 51 million in 2012, marking an annual average growth rate of 7.5%. 21

22 Effect of Violence on the Housing Market Although drug-related violence has been present in Mexico for the past three decades, the government passively ignored the problem from the 1980s to early 2000s. This norm was broken when President Felipe Calderon took office in 2006 and implemented a militarized approach to dealing with the drug cartels. News about drug-related violence turned off potential American baby-boomer home-buyers. However, a BBVA Research study has suggested that violence has only a limited effect on housing sales, because the violence is very regionally concentrated. Construction & Loans Growth Mexico s real estate market should grow strongly in 2015, aided by government investment in housing and by tax reform. Residential construction rose 6.4% year-over-year to April 2015, according to Scotiabank. Infonavit mortgages rose by 21% to 154,400 loans year-over-year to May Fovissste loans were up 19.3% year-over-year, an improvement on the decline of 4.35% year-over-year to December Commercial bank mortgage loans also rose by 12.6% during the year to May Small Mortgage Market The non-subsidized private mortgage market in Mexico is small, at around 10.1% of GDP in Mortgage interest rates remain high. The average interest rate offered by banks and Sofoles was 13.15% in June Mexico Mortgage Lending In 2014, mortgage loans granted rose 1.25%, due to the slight economic rebound. The value of mortgages increased 6.6% to MXN billion (US$ billion). Default rates were below 4% in December Mexico Banks Sofoles Mortgage Rate The central bank Banco de Mexico (Banxico) recently decided to keep the benchmark interest rate at 3%, despite Mexico s currency depreciation, a record-low rate imposed since June In July 2015, inflation reached a historic low of 2.74%. Since 2000, banks have made significant changes that have led to better access to loans, and more favorable lending conditions. Mexico New Housing Loans Under the current system, foreigners can only indirectly own real estate by setting up bank trusts. Although this is relatively safe, it rests on the credibility of Mexico s banking system and property registry administration. The Good Years Economic expansion continued after 2000 and by 2002 Mexico s banks had been recapitalized. The housing market had steady financial foundations. Interest rates began to fall, and lending for housing recommenced. 22

23 Mexico experienced extraordinary growth of its housing market during Inflation was low, and construction began to recover. More people started to borrow to buy houses, largely due to a big increase in government low-cost housing schemes. The ratio of self-built homes fell from 70% in 2000, to 30% of new houses in Construction became one of the economy s most dynamic sectors, boosted by lower interest rates. Mexico s System of Housing Subsidies Mexico s homebuilding industry has grown enormously in the past decade, with the help of high demand for homes and population growth. An important factor has been state spending through Infonavit and Fovissste. The government provides housing finance for low-income households, mainly through Infonavit (the Instituto del Fondo Nacional para la Vivienda de los Trabajadores or National Fund for Worker s Housing Institute). Infonavit deducts contributions from workers payrolls, and then lends at below-market rates (9%). The low-end is also served by Fovissste (Housing Fund for Public Sector Workers), which lends at a lower interest rate (maximum of 6%, less if the base salary is very low). As of 2014: Infonavit provided 69.97% of mortgages Fovissste granted 10.25% of mortgages Sofoles provided 1% of mortgages Banks provided 17.64% of mortgages Other entities granted 1.15% of mortgages Almost all houses sold by developers get financing from one of four major sources. Los Cabos Real Estate Market As always, Los Cabos remains a primary vacation destination in Mexico with much international appeal due to established brand image as a luxury vacation and residential market. In the resort residential segment, the destination has recently drawn much of its buyer demand from American and Canadian buyers, as well as interest from several other countries such as China and Russia, for example. Activity from Mexican consumers has increased over the past year with numerous inquiries and tours being fielded by brokers and real estate sales agents at the significant resorts. The second home vacation ownership market in Los Cabos is showing recovery from the past few years, including the recession and hurricane damage in 2014, with pricing remaining steady. Numerous resorts had to conduct renovations and improvements which now lends itself to almost brand new product. There are buyers for re-sales as well as existing distressed developer product with the majority of the demand leaning towards turn-key real estate offerings. 23

24 Real Estate Market Snapshot by the Numbers: The following numbers indicate positive trends in the residential market from January 1 until August 31, The market is recovering and has surpassed the 2015 performance. The total sales volume is up by 50% to $156,345,000. Total numbers under contract are up by 15% to 290 contracts. The average sales price is up by 44% to $618,000. More specifically, the below information pertains to the condo and single family home market. For the first eight months of 2016 the total number of closed transactions for condos is up by 13% to 133 units. The total sales volume is up by 41% to $53,331,000. The average sales price is up by 24% to $401,000. The list to sales ratio is at 85%. Closed transactions for single family homes are down by 4% to 120 units. The total sales volume is up by 54% to $103,015,000. The average sales price is also up by 62% to $858,000. The list of sale ratio is up three points from 85% earlier this year to 88%. Snapshot of luxury/high-end properties reflects a steep increase, which shows that the investing power of Mexico real estate has rebounded and remains strong: o Total number of closed sales for properties above $1,000,000 is up an 85% to 37 closed escrows. o The total sales volume is up by 147% to $88,271,000. o The average sales price is up by 33% to $2,386,000. Trends in Second Home Real Estate in Los Cabos The following section addresses the second home market in Los Cabos; however, information for more recent years are not readily available due to the lack of agencies that track and report second home real estate statistics. According to Pisces Real Estate, during 2013 sales volume for residential second homes in Los Cabos increased substantially over 2012 volume. This trend continued into 2014 and According to MLS data, 2013 sales volume increased moderately for both homes and condominium over 2012, while single-family lot sales saw the largest increases, showing in excess of 55% growth over the previous year. The 2014 sales volume showed further significant increases over 2013 in homes and condominiums with a 21% and 29% increase, respectively. Sales volume of single-family lots decreased by about 21%; however, the average price increased significantly. The homes, condominiums, and lots were located both within master-planned communities as well as standalone projects in Los Cabos. 24

25 The average price of single-family homes and condominiums increased 4% and 17% during 2014 as compared to 2013 average prices, respectively. The average price of single-family lots also increased substantially during Sale of lots priced US$3,000,000 and above contributed to the increase indicating that the high-end buyer is once again building new high quality homes. Solid price appreciation is only evident when there is also substantial sales volume. Over the past couple of years, Los Cabos has seen that substantial volume return, which adds confidence to pricing trends and projections. The following charts compare the total sales volume (number of sales) and average sales price of homes, condominiums, and single-family lots in Los Cabos. While the data is based upon MLS resale data and does not include developments that do not report to MLS, the MLS data is sufficient to indicate a trend. Source: Pisces Real Estate Source: Pisces Real Estate 25

26 While Hurricane Odile set Cabo back a bit, overall sales volume were only moderately affected. Total sales volume between September through December 2014 (with hurricane) was about 20% less than the same period in 2013 (without hurricane). Further, passenger flight arrivals to Los Cabos continue to show increases, fueling the increase in the number of potential buyers to the area. All property types show a general increasing trend in both sales volume and average sales price. While there are varying factors that influence average prices, especially due to the diversity of prices and product quality in Los Cabos, the take away from the charts show that higher prices have been supported by substantial sales volume. Los Cabos is seeing higher priced properties selling which influences the upward movement in price during While it is difficult to quantify the amount of price appreciation without a more detailed analysis of the sales, the point that should be communicated to buyers and sellers is that prices are not getting cheaper and that continued sales volume will push price momentum upward and not downward. Further, sales prices of vacant development land parcels are also seeing increases. As development land becomes scarcer and consequently more expensive, end user product (homes, condos, lots), will inevitably increase in price. Most developments along the Los Cabos corridor are reporting healthy sales further adding to the trend of a recovering and growing market. While increasing price momentum still varies among projects, the strong trend of increasing sales volume gives support for the possibility of future price increases. East Cape Real Estate Market The Los Cabos demographic and buyers are showing interest in moving away from the norm in Cabo San Lucas, for example, in search for a more Mexican inspired lifestyle as it was before the real estate boom in the southern part of Baja California Sur. This attitude is driving buyers north as they search for affordable and quality real estate product with all the amenities and activities also found in Los Cabos. Los Barriles As indicated by the positive development trends along the Corridor northeast of Cabo San Lucas, the East Cape is anticipated to be the next area to gain attention for development. The most valuable real estate to own is ocean front with only a limited amount of parcels available for development of large destination resorts. Since the ocean front real estate in the Corridor is decreasing due to these 26

27 developments, developers and hospitality companies that want to enter the market or expand their brand will start looking in this region. An excellent example of this, and a vote of confidence for the East Cape, is the entrance of Four Seasons into the market place at Costa Palmas. They saw the opportunity to capitalize on a distressed development by taking over from Cabo Riviera. They have already built a spectacular model unit and are planning pre-sales. The key concept for East Cape development will be the construction of amenities and activities for prospects. Besides great real estate offerings at lower price points compared to Cabo San Lucas and surrounding areas, developers have to create an experience first by completing a golf course, marina, snorkeling, fishing, etc. to attract and keep the prospect s attention. When it comes to real estate product types that are in need it would be golf course homes. The travel distance from Los Cabos airport does provide a challenge since visitors pass numerous existing and new developments before arriving in the East Cape. Give them a reason to come by providing a value position that is hard to ignore and they may just look past the other opportunities along the way. After the towns and resorts located in the Corridor, the first natural stop north of the Los Cabos Municipal region are the towns of Buena Vista and Los Barriles. The map (top right) indicates the Los Cabos boundaries in red striped lines in close proximity to Los Barriles. The site where El Anhelo is planned for development is a few minutes drive south of Los Barriles and thus considered a natural extension to everything that Los Cabos has to offer for visitors, tourists, owners and buyers. Pricing assumptions are set forth in a chart further down in the document. Looking Ahead The Los Cabos Tourism Board has announced that following Hurricane Odile, a category-3 storm that hit the destination in September 2014, Los Cabos is truly back and better than ever. In addition to the re-opening of nearly the destination's entire roster of hotels and resorts - including the recent re-opening of the first luxury property since the storm, The Resort at Pedregal, in January and in February Hotel Marquis Los Cabos welcomed a variety of new properties as well as increased airlift from the US throughout 2016 and beyond. The first new hotel that joined the destination's impressive list of high-end properties was the highly anticipated The Cape, A Thompson Hotel, a 140-room, oceanfront, boutique hotel with views of the iconic El Arco while offering a sophisticated nightlife experience with various on-site restaurants and bars. The Thompson Cabo San Lucas opened during Also in late 2015, JW Marriott Hotels & Resorts made its much-anticipated debut in the destination with the opening of a 300-room property within Puerto Los Cabos, a 2,000-acre development located just seven miles from San Jose del Cabo International Airport, providing travelers with luxury, style and first-class service while offering breathtaking views of the Sea of Cortes and 820 feet of white sand beach. Also, Grand Solmar Land's End Resort & Spa, a Cabo San Lucas based luxury property which first appeared on the scene in 2011, completed its third and final stage with the addition of 90 guest-rooms and new spa experience. 27

28 Development in Cabo continues into 2016/2017 with several additional projects including The Park Hyatt, which will bring 196 guest-rooms along two miles of coastline; The Hard Rock Hotel, an all-inclusive 4-star property with 601 rooms; Le Blanc Spa Resort, is under construction which will provide an adults-only, luxury all-inclusive option and 250 guest rooms; VieVage Los Cabos, an Auberge Resort, located on the stretch of beach within the Chileno Bay development; and Mar Adentro by Encanto, a unique 160-room project in San Jose del Cabo as it is already under construction. Solaz, part of Starwood Hotel's Luxury Collection, announced a 120-room luxury property already under construction to open in January 2017 along the Corridor, bringing Starwood's presence in Los Cabos to three hotels including the existing Westin Los Cabos and Sheraton Hacienda del Mar properties. As the destination plans to welcome nearly 2,000 new rooms within the next two years, airlift to Los Cabos increased starting with new service via United Airlines from Washington DC (IAD) to SJD and Southwest airlines launched service from Baltimore (BWI) to SJD. These flights are just two of a slew of new airlift coming to Los Cabos from major US markets, including Seattle, Portland, Salt Lake City, San Diego and New York City. The following are some key highlights: Tourism & Market Surges Hoteliers are betting on Los Cabos reputation as a top destination for luxury travelers, as they continue to bring upscale brands to the area. The hot spot saw a 14.7% tourism increase in 2015 compared to 2014, welcoming more than 1.5 million tourists a year. Delta Vacations and Aeromexico Vacations bookings to the destination have seen double-digit increases. Expanding the Upscale Hotel Market Keeping up with the demand, several new luxury hotels are in the works. The Corridor, between Cabo San Lucas and San José del Cabo, are booming with hotel and resort developments. Los Cabos Tourism Board reported that in the next two years, nearly 4,000 new hotel rooms will be built. The uptick in luxury hotels due to a number of major infrastructure projects that have strengthened the city s position in the marketplace. Newly paved roads, the expansion of the San Jose del Cabo International Airport, and construction of the Los Cabos Convention Center also have brought more hospitality investors. The natural progression is that over time the extension will continue to the East Cape and those looking for less commercialization and a more authentic experience will find the East Cape a perfect alternative. This is consistent with our findings that new hotels/developments are needed to meet the demand. 28

29 Timeshare Market The hospitality industry leader in market and feasibility studies, HVS, recently conducted a study of the timeshare market study for a proposed development in the Corridor. Their findings were positive in terms of new product being introduced to the market place. The following information and quotes provide an overview of their opinions. According to HVS, after a thorough review of the timeshare, condominium and hotel markets in Los Cabos (including numerous property visits and interviews with key operating personnel), it is clear that timeshare stands out as the best (re)development opportunity for maximizing the value of real estate. The unit mix and demand in the timeshare market are for one, two, and three bedroom floor plans, with many of the two-bedrooms providing for a lock-off feature. In addition, the three-bedroom units should also provide for a lock-off design to provide maximum flexibility for usage. Accordingly, these floor plan designs allow for a wide variety of unit options to be available, based on the pattern of demand in the market. HVS forecasted that 70% of the sales in a two-bedroom unit will be for either the one-bedroom or studio side of the overall unit, and that the three-bedroom unit will sell for the high demand weeks during the year. Given the variety of unit types, HVS suggests the following weighted average interval week pricing (exclusive of VAT tax): Unit Type Price Range Studio (depending on location and configuration) $7,000-$12,000 One-Bedroom $19,300 Two-Bedroom $25,000-$28,450 Three-Bedroom $60,000 Smaller Lock-Off Feature $25,000 Larger Lock-Off Feature $35,000 Transient Rental of Newly Developed Timeshare Units It has become the norm for large timeshare developers to run a hotel operation with their unoccupied or unsold units. The operation is alternately viewed as an additional profit center for the timeshare operation or simply as an effective method to maximize timeshare interval sales. Guests that enjoy the resort on a transient basis, are given incentives to attend a sales presentation, and a reliably steady percentage of those attending actually purchase. The greater guest exposure, the greater tour flow and sales are maximized. Of all of the development options, it is our (HVS) opinion that developing a timeshare resort, and supplementing sales income with a transient rental program, will be the strongest development combination for development projects. 29

30 POPULAR HOTEL DESTINATIONS During 2017, Mexico s number of hotel rooms are expected to expand by 6% (approximately 20,000), out of which 50% will be attributed to the cities which have registered the maximum expansion in hotel occupancy. Cancun, Mexico City and Los Cabos have become the favorite cities for hotel investment. As per statistics, Mexico s tourism has occupied the 4 th largest source of foreign exchange in the country. In addition to it, Mexico is also the most attractive place for investments and business activities. There are various fiscal adjustments made by the government like the energy reform package which was approved to allow foreign investment in hotel industry. Mexico City is enjoying the maximum visitations due to REIT-like structures as these investment vehicles have provided liquidity to markets that have witnessed very few transactions. Mexico City is among the largest five cities and the most populous area. On the other hand, Cancun records the highest number of hotel rooms among which 60% are branded rooms are affiliated to the US brands. From the macroeconomic perspective, Mexico s real GDP is expected to project an average of 4% annual growth during which is more than of that of the US. Mexico is the seventh most important market in the world in terms of both size and revenue covering all the luxury brands like specialty-select and upper-upscale segments. To expand hotel portfolio across primary and secondary markets, FIBRAs have formed partnerships with global hotel companies. Industrial and manufacturing activities are the major contributors of growth of primary and secondary markets paving the way for a promising economic outlook of Mexico s hotel industry. There are approximately 70 hotel companies working in Mexico and Mexican government plays a dominant role in assisting and lending money for the development of hotel industry. Technology is the key driver enhancing operational efficiencies and strengthening relation with the customers. 30

31 Mexico City Population: ~8.8 million Boasting a population of over 20 million in the greater metropolitan area, Mexico City is among the ten largest cities in the world and the most populous metropolitan area in Latin America. The capital accounted for 20.4% of the country s GDP (US$411.4 billion), making it one of the largest global urban economies. Mexico City s main industries include services and manufacturing, although a gradual shift is emerging as the city becomes the epicenter of Mexico s tech boom. It is home to major offices and headquarters of prominent regional and global businesses, as well as government institutions and the Mexican stock exchange. Mexico City is transforming into a vibrant cultural destination, with neighborhoods such as the historic city center, the trendy and art-filled Roma and Condesa and the upscale Polanco area, which generate leisure demand during weekends and bode well for city-wide hotel occupancy. Quick Facts 30,100 Number of hotel rooms 6.4 million Number of international visitor arrivals (2015) 929 rooms Number of new hotel rooms (2016+) 64.8% Average occupancy 2015/2016 $187 Average rate for 2015/2016 $ % 2015 RevPAR % change vs TOURISM Improved accessibility and the reduced cost of air travel have enhanced Mexico City s status as an established gateway destination. The new airport, currently under development and slated to open in 2020, is expected to be the largest in Latin America and serve as its regional hub, further improving accessibility and tourism to the city. DEMAND Demand is primarily corporate and government-related, as evidenced by peak occupancy levels in the 85% to 95% range during weekdays and low occupancy levels in the 30% to 40% range during weekends. Nonetheless, the historical essence of the city center and the upscale shopping and entertainment offerings in Polanco result in some leisure-oriented demand. Operators seek a higher occupancy base by pursuing discounted rate strategies to encourage more weekend stays for corporate travelers. SUPPLY The city s room supply is relatively small the market s stock of 30,100 quality hotel rooms is comparable in size to that of secondary markets in the US, thus underscoring the opportunity for future growth. The supply pipeline is constrained due to high barriers to entry, such as increasing land costs in prominent submarkets such as Polanco and Reforma. As a result, developers are increasingly turning to mixed-use real estate projects in efforts to allocate land costs across different components. In submarkets such as Santa Fe, supply continues to gradually increase, thereby hindering any significant rate growth. OUTLOOK Expect material ADR gains to drive RevPAR growth given healthy fundamentals, increased capital expenditures by upper-tier branded hotels and a more limited short-term supply outlook. Operators continue to achieve efficiencies and stronger flow through given dollar-denominated rates and costs in local currency. Amongst the Latin American countries, Mexico remains a bright spot with solid economic growth. Mexico City is expected to be the gateway for investors interested in entering Mexico. 31

32 Cancun/Riviera Maya Population: ~630,000/~150,000 Cancun/Riviera Maya is the most visited tourist destination in Mexico and the region. Located on the northern coast of Quintana Roo in eastern Mexico and bordering the Caribbean Sea, Cancun/Riviera Maya offers convenient accessibility from destinations in the US and Central America. Cancun/Riviera Maya welcomes more international arrivals than Mexico City and remains the country s second busiest airport. The destination s tourism product currently competes strongly against prominent resort destinations such as Puerto Vallarta/Nayarit, Jamaica, Dominican Republic and Bahamas. The scarcity of developable land in Cancun led to the emergence of Riviera Maya, located between Cancun and Tulum. The Cancun/Riviera Maya corridor boasts the highest number of hotel rooms among resort markets globally, which are complemented by extensive shopping, entertainment and dining outlets. Quick Facts 31,800/42,000 Number of hotel rooms Cancun/Riviera Maya 6.7 million Number of international visitor arrivals (2015) 840 rooms Number of new hotel rooms (2016+) 75.3% Average occupancy 2015/2016 $232 Average rate for 2015/2016 $ % 2015 RevPAR % change vs TOURISM A record number of 6.7 million international travelers visited Cancun in 2015, an increase of 13.5% year-over-year. This surge in passengers can be attributed to the emergence of low cost carriers in Mexico such as Volaris and Interjet, increased connectivity to feeder markets in the US and the renovation and expansion of existing airport terminals. An increase in airport capacity is expected with the development of a new terminal that is scheduled to be completed in DEMAND Travelers from the US, Canada and Europe represent the top source markets for Cancun. The favorable exchange rate for US travelers is a draw given the US Dollar s strong buying power. Nonetheless, with Cancun s strong influx of international travelers, any economic slowdown in primary source markets may impact tourism demand growth. SUPPLY After the introduction of nearly 900 high-quality rooms in 2015, a wave of new upper-tier hotels is set to come online. This supply increase, along with expected hotel openings planned for late 2017, may result in increased competitive pressure. The prevalence of the all-inclusive model is on the rise as institutional investors enter this segment. OUTLOOK Record-breaking visitation levels are expected to continue in the coming years due to improved connectivity and completion of the new airport terminal. New supply will continue developing north of Cancun, in Playa Mujeres, as well as along Riviera Maya as the number of available developable parcels in Cancun becomes scarce. The shift towards the all-inclusive operating model will continue, and we anticipate the all-inclusive lodging supply growth to continue to outpace the traditional European Plan lodging supply growth. 32

33 Los Cabos Population: ~290,000 Located on the southernmost tip of the Baja Peninsula, south of California, Los Cabos encompasses the towns of Cabo San Lucas and San Jose del Cabo, as well as the resort corridor that connects both areas. Cabo San Lucas is known for its varied entertainment, shopping and dining options, while the quieter San Jose del Cabo, which has retained its colonial architecture, features a historic town center, art galleries and boutiques. Numerous resorts and golf courses are located on the 20-mile stretch of shoreline, known as the Corridor, between the two towns. After significant damage caused by Hurricane Odile in September 2014, the destination is regaining strength and vibrancy with the reopening of most resorts, as well as new golf courses and additional direct routes from key destinations in the US. Quick Facts 13,900 Number of hotel rooms 1.3 million Number of international visitor arrivals (2015) 373 rooms Number of new hotel rooms (2016+) 55.8% Average occupancy 2015/2016 $457 Average rate for 2015/2016 $ % 2015 RevPAR % change vs TOURISM International arrivals rose 9.6% in 2015, despite a setback of 2.8% in 2014, attributed to Hurricane Odile. In 2012, the destination inaugurated newly paved roads and a new international airport terminal, which improved accessibility to the destination. In 2015, Los Cabos received more than 100,000 additional air seats resulting from new direct flights, including a United Airlines flight from Washington DC and a Spirit flight from Houston; additionally, Delta resumed its non-stop service from JFK. DEMAND Los Cabos is a popular destination for US travelers, especially those traveling from the West Coast. The favorable exchange rate is a draw for travelers in addition to the highquality hotel product, golf courses and broad range of leisure activities. Additionally, any displaced demand resulting from Hurricane Odile is anticipated to return in the medium term as renovated and new hotels reopen their doors. SUPPLY Producing a swift revival story after the natural disaster, the hotel sector in Los Cabos is experiencing a boom in renovations and new hotel openings. Many resorts closed operations and underwent recovery efforts in the aftermath of Hurricane Odile, thus improving the quality of lodging facilities. Los Cabos should regain its position as the premier Mexican resort destination as a result of the aforementioned renovations and new development. OUTLOOK Los Cabos is poised to continue its comeback with a new hotel development cycle underway. The debut of luxury resorts with global brands is anticipated to lead to improvements in infrastructure, enhanced connectivity and additional international investment. New rooms, combined with improvements to existing stock, are expected to result in strong ADR gains boosting market performance in the medium to long term. 33

34 Puerto Vallarta Population: ~203,000 Puerto Vallarta is located on the Pacific Ocean s Banderas Bay and is the fifth largest city in the state of Jalisco. Puerto Vallarta is Mexico s third largest resort destination and its tourism activity has increased steadily over the years, representing almost 50% of the city s total economic activity. Today, the resort destination is known for its cruise port, marina, hotel zone and mile-long Malecon; its thriving retirement and secondary home real estate market is popular among US and Canadian travelers. Rapid growth in tourism has spilled over from the city limits to Nuevo Vallarta, a planned residential and resort community. Adjacent to Nuevo Vallarta is a 20-mile stretch of beaches, including Punta Mita, which is also known as Riviera Nayarit. Quick Facts 18,700 Number of hotel rooms 1.2 million Number of international visitor arrivals (2015) 120 rooms Number of new hotel rooms (2016+) 67.0% Average occupancy 2015/2016 $107 Average rate for 2015/2016 $72 6.6% 2015 RevPAR % change vs TOURISM International visitor arrivals to Puerto Vallarta increased 13.4% in 2015, mainly attributed to improved airlift. New Southwest flights from Denver, Houston and California s Orange County resulted in an additional 276,000 air seats. In 2016, airlift continued to increase with new Air Canada flights as well as a non-stop Southwest Airlines flight from Seattle and a non-stop Volaris flight from Oakland. More than 130 cruise ship calls were recorded in 2015, an increase of 25 cruises over the previous year. DEMAND The three main source markets for Puerto Vallarta are the US, Canada and Mexico. Local visitors represent about half of total air arrivals, and this figure is set to increase due to Puerto Vallarta s improving connectivity through new direct regional. Visitors from Mexico City and Guadalajara are also drawn to the coastal city not only for its proximity, but also for its affordability relative to other more expensive Mexican resort destinations such as Los Cabos. SUPPLY The city s push to capture other market segments such as meetings and medical tourism has led to improved lodging infrastructure across different operating models such as all-inclusive hotels and vacation clubs. Luxury hotels entered the market in 2015, including the 443-room Grand Fiesta Americana, which boasts the largest conference center in the city, and the 335-room Hyatt Ziva, an all-inclusive hotel operation. OUTLOOK After experiencing the highest occupancy levels since 2010, Puerto Vallarta is anticipated to continue making strides in tourism growth. However, the high influx of regional travel to the city has resulted in lower rates compared to other tourist destinations in Mexico that tend to welcome a higher volume of international travelers who are less rate-sensitive. New luxury hotels are expected to help lift the rate ceiling, while the limited new supply underscores the opportunity for future growth given healthy demand indicators and anticipated ADR gains. 34

35 HISTORICAL HOTEL PERFORMANCE Travel & Tourism Trends Investor confidence in Mexico s lodging sector is predicated by consecutive years of improving hotel performance. Since 2010, the country has witnessed upward movement in occupancy, ADR and RevPAR performance. The drop in 2014 to 2015 in performance can partly be attributed to the hurricane that devastated the Los Cabos hotel market. Source: JLL, STR, HNN, Statista In terms of total consumer spending in Mexico s hotel sector, following a low point in 2009, the country has experienced steady growth with spending on accommodation services rising by 6% annually. Consumer spending at hotels in Mexico is expected to continue 8% annual growth, according to Oxford Economics. These growth rates are well above those in most mature economies. Source: JLL, Oxford Economics 35

36 Investment Activity Against the backdrop of steady top-line growth, the hotel investment climate has resurged. From a low of under $100 million in hotel transactions in 2009, capital has increasingly flowed into the sector, and hotel transaction volumes topped $600 million in Driving the country s record-level transaction volume are investment vehicles such as FIBRAs and CKDs, which accounted for approximately 25% to 50% of hotel acquisition volume in recent years. FibraHotel and Marriott International formed a partnership, which affirms both the investment capacity of FIBRAs and the desirability of secondary markets. FibraHotel plans to develop 20 Marriott branded hotels in secondary markets by At the end of 2016, Marriott announced the signing of four hotels in the country. These new projects are driven by a solid increase in the demand for business and leisure travel. Marriott s aggressive expansion plans reaffirm their commitment to delivering high-quality hotel development projects and maintaining investor confidence in their brands. This highlights growth prospects for institutional quality branded hotel rooms. Source: JLL According to JLL, based on their review of drivers impacting the hotel investment landscape, they expected deal flow to rise over US $700 million in hotel transactions. This further exemplifies the stronghold that the investment vehicles have on the market. 36

37 TRENDS SHAPING MEXICO S HOTEL MARKET Consumers Increasingly Seeking Branded Hotels Mexico s hotel stock is the most sophisticated in all of Latin America in terms of the proportion of branded hotels; however, 70% of hotel rooms are unbranded. Business travelers and tourists are increasingly seeking standards and consistency while owners want access to larger reservation systems to boost occupancy. Expect to see hotels raise flags by partnering with U.S. management companies or local groups, like City Express, to increase the low proportion of branded hotel stock in Mexico over the next three to five years. Developers See More Favorable Exit Strategies The presence of FIBRAs and CKDs is boosting market liquidity. Hold periods are compressing, giving developers more certainty regarding an eventual exit. Having favorable exit strategies in sight will lead to more new development projects. In addition, as FIBRAs and CKDs acquire a number of the value-add purchase opportunities on the market, they will look to new development as a means to achieve yield. These groups are expected to also build new stand-alone hotels as well as mixed-use developments with hotel components in areas where land is available. Increase in Foreign Investment As yields tighten in the U.S., some investors are turning to emerging markets like Mexico for higher rates of return. Over the past three years, investors from the U.S. accounted for a relatively minimal 15% of hotel acquisitions in Mexico given the high amount of product on the market in the U.S. as well as opportunistic plays available domestically. I recent years U.S. buyers have been seeking exposure outside of their home country to review investment opportunities among Mexico s branded full-service hotels in both primary and secondary markets. Safety of Tourist Areas Improves Mexico s drug violence has generally been restricted to specific areas of the country. The country s top leisure destinations like Cancun/Riviera Maya, Los Cabos and Puerto Vallarta are largely perceived as safe. Likewise, the nation s capital has successfully mitigated the negative perception of violence that once tainted the city s reputation, evidenced by increasing domestic and international visitation. Mexico s White Space for Future Hotel Development is Vast According to studies of the economic indicators and demand drivers in Mexico conducted by Jones Lang LaSalle, they estimate that approximately 191,600 new hotel rooms will be warranted through 2022, which represents a compound annual growth rate in room supply of 4.9%. This would be more than three times the growth rate expected for the U.S. 37

38 HOTEL BRAND SEGMENTS The Mexican hotel industry, comprised by 510,296 rooms (350,744 quality lodging rooms 5 stars, or 68.7%), is characterized by being highly fragmented and by having low penetration levels. Independent hotels represent 69.0% of the system wide room supply, or ~80% leaving aside from the equation the markets like Mexico City (for example), where the presence of chained hotels is stronger. The evolution towards a more sophisticated market, which has already commenced in the country, will close the gap against the U.S. industry, a mature one with a 69.0% representation of chain-affiliated hotels. As of December 2014, the market was comprised by 350,744 quality lodging rooms, from which 158,113 (45%) were affiliated to global or regional hotel chains and the rest were independent quality hotels (192,631 rooms; 54.9%). According to a study by HVS, Mexico s main markets (40 selected cities) have a total inventory of 1,496 hotels and 210,141 rooms (59.9% of the total quality lodging room supply), considering leisure and business class quality hotels. The low quality supply (half star to 2 stars) is represented by 2,270 hotels with 159,522 rooms (31.3% of the total supply). The urban business class inventory consists of 1,154 hotels and 126,927 rooms (60.4% of the total urban quality lodging supply), from which 44,511 rooms are affiliated to international brands, 28,285 rooms are affiliated to national brands, and 54,131 hotel rooms are independent. Mexico s Leading Hotel Chains The urban lodging industry in Mexico is comprised by 30 hotel chains (e.g. Camino Real, Fiesta Americana, Quinta Real, Fiesta Inn, One Hotels, Real Inn) and more than 60 local and international brands (e.g. Marriott, Hilton, Holiday Inn, Ibis, Courtyard). The largest hotel chain in the country is InterContinental Hotels Group (IHG) with 25% of the urban quality lodging market followed by two Mexican chains, Grupo Posadas (23%) and Hoteles City Express (14%). Here s a brief description of the top 4 hotel chains: InterContinental Hotels (IHG) is a British multinational hotel company with over 670,000 rooms and 4,602 hotels across over 100 countries (85% operating under franchise agreements). In Mexico, IHG is the largest hotel chain, with 133 franchised hotels operating under 6 different brands in select and full service segments (Holiday Inn, Holiday Inn Express, Crowne Plaza, Intercontinental, Staybridge Suites and Hotel Indigo) and more than 22,000 rooms, which represent 14% of the country s quality lodging supply market share. Grupo Posadas is a Mexican hotel company with over 20,000 rooms and 128 hotels in 45 cities of Mexico as well as in Texas, U.S. (the only destination outside Mexico). Posadas owns leases, operates and manage hotels, resorts and villas in its 7 different brands that cover Limited, Select and Full service segments (Live Aqua; Fiesta Americana; Fiesta Americana Grand; Fiesta Inn; Gamma; One; and The 38

39 Explorean). Grupo Posadas is the second largest hotel chain in the country; its total hotel rooms represent 12.8% of the total quality market share of the country. Hoteles City Express is a limited-service hotel chain operating as an integrated hospitality business platform developing, acquiring, managing and franchising hotels in the economy and budget segments, primarily in Mexico and expanding into selected markets in Latin America including Costa Rica, Colombia and Chile. They currently operate 96 properties under 4 brands (City Express, City Jr., City Suites and City Express Plus) with a total of 10,907 rooms, of which 94 hotels are located in Mexico, representing 6.4% of Mexico s quality lodging supply market share. Grupo Real Turismo (GRT), was acquired by Grupo Empresarial Angeles in 2000, it owns and operates the Brands Camino Real (30 hotels), Quinta Real (9 hotels) and Real Inn (6 hotels). The latter, was created during 2012 as a business hotel chain. The below charts show the 13 most important hotel chains with operations in Mexico, as well as their brands portfolio and the relation they have with the FIBRAs and other listed hotel companies (Hoteles City Express and Grupo Hotelero Santa Fe): Hotel Chain Brand Relation with FIBRAs/Listed Hotel Companies

40 7 8 9 None 10 None 11 None 12 None 13 None (Continued on next page) 40

41 BRANDS IN MEXICO

42

43 COMPETITIVE SET PROPERTIES The purpose of this competitive set section is to identify key competitors, describe their market pricing/positions and amenities and briefly discuss their strategies where applicable. Most of these properties were addressed in the previous reports. The properties identified in this section may appear to be a wide range of product types and pricing levels; however, is necessary in order to show the complete perspective of the market depth. In order to update the competitive set properties and where they are today, we conducted several telephonic interviews with real estate experts, onsite real estate sales directors and advisors located in Los Cabos and East Cape areas. It is important to note that there remains to be no formal reporting organization in Mexico for sales data. The performance numbers contained within this document were provided by research and directly from real estate experts in the market. The MLS was also utilized for accurate closing prices for homes and lots located in the Los Cabos, La Ribera and Los Barriles/Buena Vista markets. Through our research and correspondence with real estate sales agents, we have been able to confirm pricing ranges for each identified product type across the full platform of properties. The following is a summary of the analysis of the competitive set landscape; highlighting specific aspects and attributes of certain competitive assets. We have separated the projects into four separate groups: A. Select Direct Competitive Set Properties B. Golf, Whole Ownership & Shared Ownership Competitive Set Properties C. Select Timeshare/Vacation Ownership Competitive Set Properties D. Notable New Developments for Whole Ownership in the Corridor Group A: Select Direct Competitive Set Properties Select Direct Competitive Set Properties have the most similar real estate attributes and amenity offerings as proposed for El Anhelo. These properties encompass key development features such as a marina, a wide variety of whole ownership waterfront, golf or marina lots, golf course(s), existing or proposed hotel component and existing or future shared ownership products. These properties all are located within a 90 minute drive of Los Barriles and are master planned communities. The following two (2) identified properties can be defined as closest to the current El Anhelo proposed offerings: 43

44 Puerto Los Cabos, Cabo San Lucas Puerto Los Cabos has the potential to be the most competitive of all identified properties. The property will have all of the attributes planned for El Anhelo s in a location that has closer proximity to the Greater Cabo area. The construction of Puerto Los Cabos officially broke ground in the first quarter of The most recent development venture of the Mexico City based Grupo Questro headed by Eduardo Sanchez Navarro, developer in Los Cabos of several master-planned communities including Cabo Real (located in the Tourist Corridor) and the Club Campestre San Jose (the San Jose Country Club in San Jose del Cabo), the Plaza Bonita, Plaza Real and Plaza San Lucas commercial plazas and the Melia San Lucas, Dreams Los Cabos, Zöetry Casa del Mar Los Cabos, the Hilton Los Cabos Beach & Golf Resort, El Ganzo and Secrets hotels in Puerto Los Cabos is a project result of a business venture among Mexican entrepreneurs combined in a five Trusts development corporation. Puerto Los Cabos is among the most recently created master-planned community in Los Cabos and the first along the San Jose del Cabo Punta-Gorda stretch, with a land extension of 2,000 acres (809 hectares) and 2.80 miles of coastline. Although 85% of the infrastructure works are already done, it is estimated that Puerto Los Cabos has 10 to 15 years of development. Current and Future Development Plans The master plan is projected to include, when completed: 4 to 5 resort hotels Two 18-hole golf courses with Golf club house A slip marina (with a acre/19-hectare harbor area) A marina or pedestrian commercial village The Wirikuta desert botanical theme park (in operation) Five beach clubs (two are already open February 2015) 44

45 A acre (10 hectares) sports club Beach front, golf & ocean view residential neighborhoods The Dolphin Discovery Center (in operation) From a total of 36-holes projected for this master-planned community, Puerto Los Cabos currently has 18-holes of golf in operarion. The first 9-holes belong to the Jack Nicklaus course (the Marina Course, which will be public) while the second 9 to the Greg Norman course (the Mission Course, which will be private). Once fully completed, both courses will occupy an area of approximately acres (150 hectares). Hotels El Ganzo Hotel Marina Hotel o 72-keys o Roof top bar/restaurant/swimming pool area and a small music recording studio o Opened 2012 o Hotel beach club opened February 2013 (reopened first quarter of 2015 due to damages caused by Hurricane Odile) Secrets Puerto Los Cabos o 500-suite adults-only o Opened in December 2013 o Spa by Pevonia, a beach club, two expansive pools, dining facilities, 24-hour room and concierge service, a full service beauty salon, fitness center, business facilities, convention center for up to 850 people, live entertainment. JW Marriott Los Cabos Golf & Beach Resort o 309-room beach front facility o Opened 2015 o Includes the 45-room Griffin Hotel featuring exclusive amenities & services o Swimming pools, salt-water pool, quality restaurants, spa and the largest event space Real Estate Home Sites o There are three residential clusters are on the market which include 360 home sites, from which 265 lots are currently on the market: 45

46 Community Units On Market Sold Price Range Fundadores 231 lots $195,000 to $7 million El Altillo 79 lots $150,000 to $195,000 La Noria 50 lots Sold Out 50 $144,500 to $375,000 o There was a fourth community with 138 lots planned, Las Animas; however, further information has not been released. Condominiums/Villas o Villas Tamaral 148 units 2, 3 and 4-bedrooms Full ownership Started 2007/2008 Never broke ground had 80 reservations, but 70 pulled out due to recession o Fundadores Golf Villas 14-unit condominium complex 3-bedroom units Broke ground in 2012 Pricing ranges from $725,000 to $800,000 7 sold during 2013 o Mision La Serena 75-unit fractional product 2 and 3-bedroom residences Didn t do well due to economic crisis and Grupo Questro studying the possibility of reintroducing in a near future 46

47 Costa Palmas by Four Seasons, La Ribera (formerly Cabo Riviera) The project formerly known as Cabo Riviera in La Ribera is now a Four Seasons branded development project. In its previous iterations, the developers and contractors had significant problems with the dredging of the marina, which remains somewhat of an issue until this day. Historically, the entrance of large brands, such as Four Seasons, into a growing market increases the value of land of the neighboring properties. It is anticipated that this will be the case with El Anhelo due to its close proximity to Costa Palmas. Costa Palmas is a 1,000-acre (400 hectare) private beachfront resort community located 45 minutes from Los Cabos International Airport on the East Cape of the Baja Peninsula. Situated along a twomile (3.2 kilometer) stretch of swimmable beach, Costa Palmas introduces an elemental form of luxury hospitality set among organic farms on an international marina. The community is home to Four Seasons Resort Los Cabos at Costa Palmas, a Robert Trent Jones II 18-hole golf course, 18 acres (7.3 hectares) of orchards and farms, and its own beach and yacht club. Four Seasons Hotels and Resorts took over the luxury development project which is slated for a 2018 opening. With this move, the company is adding yet another upscale property to its portfolio that currently includes Mexico resorts in Punta Mita and Mexico City. They are collaborating with real estate development firm Irongate on the Four Seasons Resort Los Cabos at Costa Palmas. According to the Vice President of Sales, Michael Radovan, The Four Seasons Resort at Costa Palmas is unique with respect to its location on the East Cape and its natural given gifts. The resort is the first and only upscale offering on the Baja peninsula s pristine East Cape. The 145-key Resort will feature a lowdensity layout spread across multiple buildings, and a collection of whole-ownership oceanfront, marina-side 47

48 and golf-side private residences, as well as a collection of custom single-family beachfront private residence villas. Alongside multiple pools, extensive indoor and outdoor event and wedding facilities, and five unique dining outlets, the Resort will also feature a Robert Trent Jones II signature 18- hole golf course, full-service spa and progressive fitness facilities. The Resort will be connected to an adjacent yachting marina that will feature up to two hundred slips to accommodate yachts up to 250 feet (76 meters) and an oceanside marina village with artisanal boutiques, dining options and locally-curated music and art. According to Irongate founder, Jason Grosfeld, Four Seasons Resort Los Cabos at Costa Palmas is being designed for families and groups of friends who appreciate a fresh and mindful approach to resort design and lifestyle. The Costa Palmas master plan is a collaboration of Vita Inc. (San Rafael, California), Guerin Glass Architects (Brooklyn, New York) and Humberto Artigas Architects (Aguascalientes, Mexico) with interior design by TAL Studio (Las Vegas, Nevada). Development Snapshot: Five-star hotel 145 rooms with views overlooking the Sea of Cortés Marina with over 200-slips to accommodate 250-foot boats. The Spa inspired by the nourishing local landscape Marina village with Artists Village, upscale restaurants, tropical bars and bistros, boutiques, galleries, grocery markets and more Five-star hotel Robert Trent Jones III golf course, to be managed by Four Seasons 48

49 Group B: Golf, Whole Ownership & Shared Ownership Comparable Set The properties in this section is considered to be those with significant real estate resemblances to El Anhelo, sans a marina component. All the product offerings in these Cabo San Lucas resorts are worth tracking and studying for future planning and product mix. The pricing of the real estate offerings at El Anhelo should be discounted approximately 15-20% off Cabo San Lucas real estate offerings during the early phases due to the East Cape location and the off the beaten path experiences that only the East Cape can deliver. However, the authentic Mexican atmosphere and environment does appeal to a wide range of customer segments. Diamante, Cabo San Lucas Nestled on 1,500 acres of coastline along 1.5 miles of Pacific Ocean sits Diamante, six miles from downtown Cabo San Lucas. The initial phases of this masterplanned luxury community offer whole ownership homesites ranging from a half acre to over an acre in size in three subdivisions (Sunset Hill Estates, La Cantina Estates and the Beach Estates) and turnkey residences with 2-4 bedrooms in the Dunes Residence Club, San Marcos condominiums, the Ocean Club Residences, Las Casitas and the Golf Villas. In addition, Diamante offers a variety of 1-4 bedroom shared ownership residences and is home to a vast number of amenities. The site is accessed from Route 19; the main highway connecting Cabo San Lucas to points north (Todos Santos and La Paz). The first phase of Diamante features 66 golf villas located around the Dunes Course, 78 home sites located on Sunset Hill and 40 Beach Estates, all a minimum of one half acre in size providing ocean views. In addition, located above the Dunes Clubhouse are a collection of 20 spacious 2-bedroom condominiums called the Dunes Residences. Ten of the Residences are full ownership, and the other ten are part of a Private Residence Club. 49

50 Diamante is also home to the Golf Villa Residence Club which consists of 6 shared ownership golf villas located adjacent to the Dunes practice facility and the Beach Estate Residence Club with 3 beach front villas that have stunning views of the Pacific Ocean. Construction on the second phase, The Resort at Diamante, started in November 2011 and is ongoing. The Resort at Diamante is a fully functioning resort within the boundaries of the Diamante Community featuring a 10-acre lagoon and over 300 planned residence club units (more than 75 have already been completed). The newest additions to Diamante s real estate portfolio include Las Casitas, Las Cantinas, and San Marcos. Phase 1 of Las Casitas includes 22 turn-key homes of approximately 2,200 sq. ft. with 3 bedrooms and 3.5 bathrooms. Las Cantinas consists of 11 exclusive ½ acre home sites perched atop Diamante s famous dunes with spectacular views of the Dunes Course and Pacific Ocean. Phase I of the San Marcos include 33 turn-key condos with one, two and three bedroom options that range from 1,100 sq. ft. to over 2,100 sq. ft. Ownership privileges include access to all the amenities at The Resort at Diamante. For Sale and Fractional Revenues at Diamante The property s strengths include dramatic topography and ocean views, the Golf Magazine certified best golf in Los Cabos, the lagoon, luxury amenities and a location combining privacy and security with easy access to Cabo San Lucas. Weaknesses include non-traditional location versus other developments and the non-swimmable beach. The main threat is macroeconomic, since Los Cabos luxury development depends on U.S. economic growth. Based on the location, surrounding land uses, amenities and product quality, the property has the potential to be among the top 2-3 communities in Los Cabos. Currently, however, with the relatively new Pacific location, the lack of residence base and the significant on-site construction, the property is positioned with the mid-level luxury players. The property s market positioning and pricing could potentially change quickly as the community gains scale. New homes are priced at the property on average at $550-$650 per foot ($1,760-$2,080 per meter) for nonhotel branded and $800-$900 per foot ($2,560-2,880 per meter) for branded. Lots average $20-$30 per foot ($64-50

51 $96 per meter). These values are assumed to be the current market rates. Branded hotel residences are priced at 20% discount to similar products at Palmilla and Esperanza. Branded residences are priced at over $1,100 per foot ($3,520 per meter) by year 3 of sales, whereas, fractional product are priced at $40,000-$90,000 per week, depending on size. This Fractional pricing is in line with Esperanza and La Estancia. It is forecasted that the property should absorb full ownership lots and homes per year in the medium term. This represents 5-15% of the overall market, and approximately 25-30% of high end sales. On the fractional side, sales of $50+ million in line with the top market players are supportable based on limited new competition, the unique resort and the other on-site amenities. Residential revenue based on these assumptions grows from $50 million currently to $200 million by year 5 of sales. Community # Units Type Ownership Price Sunset Hill 78 Lots Whole $500,000 to $1.0 million Beach Estates 37 Lots $1.5 to $3.5 million (all developer lots sold out) Golf Villas Turn Key Whole $2.3 to $3.0 million Las Casitas Turn Key $1.2 million Ocean Club Residences 197 Condos 68-Whole 129-Shared The Dunes Residence Club 20 Condos 10-Whole 10-Private Residence Club Golf Villa Residence Club Beach Estates Residence Club Shared Shared $1.7 to $4.0 million Current and Future Development On a parallel path with its Real Estate and Residence Club development, the Diamante Master Plan will include a 600-key all-inclusive Hard Rock Hotel (scheduled to open in 2018), a 200-key traditional Nobu Hotel (scheduled to open in 2018), and an additional boutique 5-star hotel (future development). 51

52 Esperanza, Cabo San Lucas Overlooking the Sea of Cortez, Esperanza is set within Punta Ballena and built on 17-acres (6-ha). The resort opened in 2006 and is designed for guests seeking a private vacation retreat with all the comforts of home and access to world-class dining and an award-winning Cabo Spa and Fitness program. Overview 54 units in seven buildings Developed by Auberge Resorts Fractional and full-ownership opportunities available Product Information 96-unit Auberge Hotel 40 full ownership and 16 fractional flats o Fractional Ownership Residences (Flats) Fully furnished 2-4 BR units o Average Pricing: 1/24 2 or 3 bedroom villa $115,000 1/8 2, 3 or 4 bedroom villa $200,000 to $315,000 1/6 3 bedroom oceanfront $800,000 Optional rental program 50%/50% revenue split owner/auberge o Full Ownership Residences (Flats) - Fully furnished 3 or 4 BR, 2,965 to 3,536sf (275 to 328m2) o Average Pricing: 2, 3 or 4 bedroom unit $1.0 to $2.5 million Sales Information & Comments All 40 full ownership Residences have sold only available on the re-sale market All 16 fractional ownership Residences have sold only available on the re-sale market According to resales the units have held between 50% and 65% of their value Absorbing at about 0.1 units per month over the life of the project Hotel performs well, has the prestige of being an Auberge Resort Branded as "Auberge" Residences in 2008 due to slow sales Lack of golf course has hindered sales Lower quality product than expected at Diamante Amenities Private owners club with massage cabins and kid and adult game rooms Member's only private beach club with large fitness center, bar, beach access, locker rooms 52

53 and space for private events Access to all hotel amenities besides the resort pool Tennis courts and several pools Concierge and business center Ability to swap weeks at Esperanza with time at other Auberge or Elite Alliance Resorts Located along a swimmable beach 53

54 Villa La Estancia, Cabo San Lucas Located on scenic Medano Beach near sister properties Villa del Arco Beach Resort & Spa and Villa del Palmar Los Cabos, this five-star property prides itself on offering magnificence amidst a relaxed setting. There are a total of 156 villas and suites completed in 2006 constructed in three phases. Overview 149 Villas and 7 Penthouse suites located within the Villa La Estancia resort, along Medano Beach Developed by The Villa Group Full-ownership and fractional ownership Product Information 92 full ownership condos comprised of 85 villas and 7 penthouse suites o Full Ownership Villas (Flats) - 2 to 3 bedroom, 2,163 to 2,756sf (200 to 256m2) o Full Ownership Penthouse (Flats) - 3 bedrooms, 4,000sf (371m2) o Pricing is well over $1.0 million with a 3 bed/3 bath/2,893sf (268m2) unit priced at $4.2 million 64 fractional ownership Villas, with the option for a 1/4 of 1/8 share o Fractional Ownership Villas (Flats) - 2 to 3 bedroom, 2,163 to 2,756sf (200 to 256m2) o Pricing ranges from $105,000 for a 2 bedroom to $1.0 million for a 3 bedroom fractional All units are purchased furnished, and upgraded via HOA funds to maintain "5-star" status Sales Information & Comments 91 of 92 full ownership residences have sold o Villas: Sold Out o Penthouses: 6 of 7 Full ownership absorption is at 1.1 units per month over the life of the project 60 of 64 fractional ownership Villas have sold Fractional ownership absorption is at 0.7 units per month Unique set-up, as ownership residences are intermingled with hotel units Villa La Estancia is part of a three hotel community along with Villa del Arco and Villa del Palmar Have seen a 5% resale discount for fractional units and a 20% resale discount for full ownership units The full ownership product has historically been most popular 1/4 share (13 weeks) out sells the 6-week product Rentals are doing very well, with some units bringing in a net rental profit of $65,000 per year 54

55 Amenities Access to all three surrounding hotel's amenities Private fitness center and a 17,000sf (1,579m2) spa Pool and jacuzzi with poolside bar and restaurant Access to the swimmable and popular Medano Beach La Casona - high-end restaurant The Villa Group's "5-star commitment" - a commitment to upgrade property to maintain the 5-star resort recognition Maid and concierge services On-site supermarket and café 55

56 Group C: Selected Timeshare/Vacation Club Competitive Properties In the previous report an entire section was devoted to fractional comps; however, after speaking with numerous real estate experts in the market, fractional is dying down and timeshare/shared ownership is picking up. Due to this trend, the fractional market section has been replaced with this timeshare market information. The Selected Timeshare/Vacation Ownership Competitive Products are mostly located in Cabo San Lucas. There is a strong affinity for timeshare and vacation club product and there has been strong consumer acceptance for the product for at least the past 5 years. Even throughout the recession timeshare share held strong and performed better than other real estate types. The low purchase price and reasonable maintenance fees make this product attractive to a wide range of consumers from various locations. All of these projects have a relationship with an international exchange company and are split almost evenly between Resort Condominium International (RCI) and Interval International (Interval). The following list of properties are in the Interval International network and ranges from $9,950 per week in a studio unit located at Globe Quest by Questro to as much as $110,000 per week for a 3-bedroom unit at Gran Solmar Land s End Resort and Spa. Resort Name Program Duration Unit Type Interval Price AC Patio Total Maintenance SQ FT SQ FT SQ FT Fee 2016 TRIP ADVISOR Rank GlobeQuest by Questro 5 to 30 Year/Membership Studio $ 9, n/a n/a n/a n/a Club Membership that 1Bed $ 14, n/a n/a n/a n/a offers accommodations 2Bed $ 19, n/a n/a n/a n/a across four resorts in Cabo 3Bed $ 27, n/a n/a n/a n/a Studio $ 15, $516 Villa del Arco* 30 Years/Right to use 1Bed $ 29, ,254 $946 #12 of 115 2Bed $ 38, , ,800 $1,247 Studio $ 14, $473 Villa del Palmar - Cabo* 30 Years/Right to use 1Bed $ 26, $860 #41 of 115 2Bed $ 34, , ,205 $1,118 Studio $ 17, $625 Hacienda Encantada Resort & Spa* 30 Years/Right to use 1Bed $ 24, ,250 $950 #30 of 115 2Bed $ 43, , ,971 $1,100 Studio n/a $540 Casa Dorada Spa and Golf Resort 30 Years/Right to use 1Bed n/a ,094 $710 #9 of 115 2Bed n/a 1, ,755 $1,250 Studio n/a Casa Dorada at Medano Beach 30 Years/Right to use 1Bed n/a 1,381 1, #26 of 115 2Bed n/a 1,869 1, Studio n/a $620 Casa Dorada Cabo Real 30 Years/Right to use 1Bed n/a $840 #33 of 115 2Bed n/a 1, ,392 $1,020 Las Residencias Golf and Beach 2Bed $ 49, ,783 2, $1, Years/Right to Use Club* 3Bed $ 74, ,571 2, $2,170 Not used for hotel rentals Casa Dorada San Lucas Bay 30 Years/Right to use Studio n/a $710 1Bed n/a $905 #24 of 115 Studio $ 20, $735 Gran Solmar Land's End Resort and 1Bed $ 30, ,132 $ Years/Right to Use Spa* 2Bed $ 51, , ,117 $1,060 #8 of 115 3Bed $ 110, , ,404 $2,430 Studio $ 17, $650 The Resort at Diamante** 50 Years/Right to use 1Bed $ 25, , ,595 $900 Not used for hotel rentals 2Bed $ 42, , ,238 $1,400 * Winter Pricing ** Golf resort that will have three world class golf courses and Tiger Woods first course. Purchase price does not include complimentary rounds of golf. Golf courses are private and only available to owners at Diamante. 56

57 The table below shows specifically the sales volume and average pricing for Diamante. It is interesting to note the amount of timeshares sold during the last quarter of 2012 and the first two quarters of During this period alone the estimated gross sales revenue equaled $32.4 million. Since then over the past two years, the gross sales revenue has increased to over $50.0 million per year. This is an indication of where the timeshare market is going with more consumers opting for flexible product, together with opportunities to travel elsewhere through an exchange company. SITE SPECIFIC TIMESHARE STATISTICS DIAMANTE, CABO SAN LUCAS Second Quarter 2011 through Second Quarter 2013 SALES VOLUME 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Dunes Residence Club Villa Residence Club Resort Residence Club Beach Estate Residence Club Total AVERAGE PRICE Dunes Residence Club $ 36,000 $ 37,000 $ 45,000 $ 42,000 $ 50,000 $ 37,500 $ 37,500 $ 50,000 $ 40,000 Villa Residence Club 58,000 58,000 60,000 62,500 58,000 60,000 65,000 63,000 65,000 Resort Residence Club - 22,000 37,000 37,500 34,000 30,000 34,000 34,000 34,000 Beach Estate Residence Club ,000 80,000 82, ,000 80,000 80,000 ESTIMATED AVERAGE GROSS REVENUE $ 3,136,000 $ 2,192,000 $ 5,472,000 $ 8,602,000 $ 4,112,000 $ 3,583,500 $ 10,513,000 $ 13,086,000 $ 8,851,000 Group D: Notable New Developments for Whole Ownership in the Corridor This section highlights two developments worth considering as comparable due to their location in the Corridor, making its way up towards the East Cape. Chileno Bay Resort & Residences Chileno Bay Resort & Residences is a 22-acre beachfront community located on one of Cabo s most desirable coastlines. The resort design consists of contemporary, open floor plans that emphasize effortless indooroutdoor living experiences. Chileno Bay Resort & Residences has been brought to life by a visionary team of industry leaders, including Auberge Resorts Collection, SV Capital Partners and RED Group. Development is being overseen by SV Capital and RED Group. SV Capital is a distinguished real estate investment and development firm, known for creating celebrated five-star resorts and exclusive residences in Mexico, the United States, 57

58 Italy and the Caribbean. RED Group, a Cabo-based construction and development firm, has over 30 years of experience in the development of hotels, master planned communities, commercial real estate and luxury homes in the Mexico marketplace. The architecture and design is overseen by three premier, award-winning firms, Glazier Le Architects, BAMO and Gulla Jonsdottir Design, to bring the unique vision of Chileno Bay Resort & Residences to life. Glazier Le Architects is led by Robert Glazier and Khoi Le, who have garnered much acclaim for designing such premier properties as the Bacara Resort & Spa, Four Seasons Hotel Scottsdale and Ritz-Carlton Hotel Half Moon Bay, as well as innovative private residences located throughout the United States. BAMO, led by Principal-in-Charge, Michael Booth, brings unique experience with a focus on luxury hospitality and residential projects, including The Peninsula Chicago, Rosewood Sand Hill and Matsuri Restaurant. The master plan initially included: Two golf courses designed by Tom Fazio (one semi-completed but not operational), plus practice range, sand practice areas & multiple putting greens Beach club with swimming pools, cabañas with changing rooms & oceanfront terraces Sports fishing fleet, sail boats, kayaks and other watercraft Golf course clubhouse with dining and multiple events areas 600 residential units VieVage Los Cabos, a boutique hotel, currently under construction at Chileno Bay (February 2015). It will provide Chileno owners and guests with services and amenities such as a luxurious spa, beachfront dining, swimming pool and bar. Its location is where the marina was previously planned to be developed. Spa and fitness & health center with open-air treatment rooms, in-home services and on-site training services 58

59 Water-treatment plant Introduction of the Lodging Club Memberships (club memberships previously approved by the 99- founding/members council-chileno Section Views Property Type Unit Size ft2 Unit Size m2 # Units Unsold MV Hotel Suites Marina/water Hotel Hotel Condos Marina/water Condo 1, Resort Condos Marina/water Casita 2, Marina View Condos Marina/water Condo 2, Marina View Casitas Marina/water Casita 2, Ridges Estates Elevated Town homes 3, Marina View Headlands THs Elevated Town homes 4, MV Seacliff Condos OF/elevated Condo 6, Club Condos Club proximity Condo 3, Hacienda Villas Club proximity Villa 4, Las Terrazas Condos Las Terrazas frontage Condo 2, Hillside Villas Hillside/elevated Villa 3, Point Villas Point Villa 4, Golf Villas Golf/distant water Villa 4, Total Units Preliminary research indicates that that no official sales have been recorded since 2008 to 2013 due to situations previously described. The following figures are from the last official sales released. Units Sold Point Villas Originally with a total of 11 units, 54.54% sold (6 units) at selling prices from $647,250 to $7,750,000. Hacienda Villas Originally with a total of 35 units, 74.29% sold (26 units) at selling prices from $454,687 to $5,450,000. Las Terrazas Condominiums Originally with a total of 10 units, 10% sold (1 unit) at a selling price of $906,250. There are currently four (4) units listed as for sale product ranging from $2,250,000 to $3,050,000 for a 3,100 sqft villa with 4-bedrooms. 59

60 60 El Anhelo

61 Solaz Los Cabos Solaz is one of the new developments in the Corridor that is spurring the sprawl north towards the East Cape. The resort is surrounded by a high slope intended to protect the interior and keep the noise of the highway at bay. The resort consists of 147 units Master, Presidential and Imperial suites are available. The developer for the resort is Quinta del Golfo de Cortez Group known for their involvement with Hacienda del Mar in Cabo del Sol, an exclusive development in Cabo San Lucas, surrounded by two golf courses designed by Jack Nicklaus and Tom Weiskopf. The prices range from $2.25 million to $3.9 million for ocean front units which consist of 2,916 sq. ft. of interior space and 2,161 sq. ft. of terrace space for a total unit size of 5,077 livable sq. ft. 61

62 The real estate expert we interviewed handles sales on behalf of ownership. The following chart shows the unit pricing and those with pending sales contracts: Building # Units Flrs Location AC Sq. Ft. Terr. Sq. Ft. Total Sq. Ft. Status Building Oceanfront 2,916 2,161 5,077 5 units under contract Price: $2.3-$3.9 million Building nd Row 2,916 2,161 5,077 1 unit under contract Price: $2.1-$3.5 million Building rd Row 2,916 2,161 5,077 0 under contract Price: $2.0-$3.5 million 62

63 EL ANHELO REAL ESTATE Product Types There are several different product types throughout the Project. In this section we distinguish between each type and offer updated recommended pricing. Our pricing considers the specific location of the product type in relation to the Sea of Cortez, Arnold Palmer golf course, Marina and related amenities, as well as the view corridor associated with the product. These product types are: Whole Ownership/Condominiums (lots, villas and condohotel) Timeshare/Shared Ownership (condos, villas, bungalows) Generally, we consider our pricing is conservative which is based on estimated market pricing that we believe can be achieved during both the pre-construction and post-construction periods. The Master Plan for the Project contains nine (9) distinct parcels on which for-sale real estate product types will be constructed. After completion of all construction phases, these nine (9) parcels will accommodate approximately 1,594 units. See Appendix A showing the most recent illustrative map of the Master Plan. Whole Ownership/Condominium Product Types The whole ownership product types include the luxury residential lots (RL), residential golf villas (RG), residential golf bungalows (RB), a handful of residential golf and marina condos (RC), marina village condos (MV), marina condo hotel (HM), residential marina villas (RM), residential golf triplexes (RT) and alley-loaded homes (RA). Over time, 1,016 out of a total of 20,396 sales (19,380 are timeshare sales) of all real estate sales consists of whole ownership product and ranges in proposed pricing from $100,000 for the units located on the backside of the Project to $1.2 million for prime locations. Even though this is a small percentage of the overall sales, it is projected to produce approximately $520 million over the life of the Project. For the condominium owners, there will be an option to place their unit in the rental program for capital recovery. This model is surging in the market place and appeals to a large group of consumers. Timeshare/Share Ownership Product Types Phase 1 of sales is heavily weighted towards selling timeshare product with approximately 95% of all Project sales stemming from this shared ownership offering. It includes units located in the beach hotel and condos (HP), residential golf and marina condos (RC), the marina condo hotel (HM). The following key recommendations are made for the timeshare product: The product type should all be lock-off based with 75% of the units being two-bedroom units and 25% being three-bedroom units. All units to be sold for 51 weeks in a points based product for flexible usage by owners. 63

64 Marina Condo Hotel (HM) and the Beach Hotel (HP): We have assumed that all units are two-bedroom lock-offs that can be purchased in either a condo hotel structure or timeshare structure. One-bedroom and studios will also be part of the hotel mix, but not sold by the Sponsor or put back into hotel pool. Estimated sell out absorption for timeshare product is 20 years starting at $14 million in gross volume during Year 1 with gradual increases in sales until Year 7 producing $50+ million in annual sales. Recommended pricing: $30,000 and $60,000 depending on the location of the real estate. We recommend that the Marina Condo Hotel (HM) and the Beach Hotel (HP) should provide 56 and 100 units respectively to operate as condo hotel product. Ideally the units should be two-bedroom lock-offs at approximately 1,400sf/130m2 in size. The units break down to a 900sf/83m2 one-bedroom unit and a 500sf/46m2 studio unit. The timeshare product type recommended is in the Beach Hotel with 100 units for 51 weeks, which result in 5,100 sales at a recommended starting price of $30,000 per week. Estimated Market Pricing per Product Type The table below shows the estimated price ranges in the marketplace for indicated product type/location within a development: PRODUCT TYPE OWNERSHIP EST. MARKET PRICING Luxury Residential Whole $395,000 to $650,000 Residential Golf Villas Whole $345,000 to $840,000 Residential Marina Villas Whole Starting at $450,000 Residential Condos Whole $359,000 to $1,800,000 Marina Mixed Use Condos Whole Starting at $450,000 Marina Hotel & Condos Whole $400,000 to $1,500,000 Residential Lots: Mountain View Whole $125,000 to $180,000 Ocean View Whole $175,000 to $250,000 Golf and Ocean Views Whole $175,000 to $1,100,000 Beachfront Whole $2,600,000 to $5,000,000 Timeshare/Shared Ownership: TS/Shared $9,000 to $110,000 per week (based on size and season) 64

65 Product Type Pricing Recommendations Please note that these pricing projections are conservative in nature and are expected to change as the Project is further defined with regard to the location of certain amenities, the architecture and design of the entire Project, as well as the potential modifications in the density of real estate product types. This phasing sequence were presented and accepted at the time of the presentation, with the exception of changing the Arnold Palmer branded golf condos (RC-4 and RC-5) to be sold as 40 whole ownerships condos and 48 timeshare units. Diamante, and others, is an excellent example of making this product offering a success since it is the reason why they made it through the recession without having to stall the project development. The following list shows a summary of the pricing recommendations for each product type (labeled by Parcel ID) at El Anhelo: PHASE 1 Type # Units # Sales Projected Price RG-1 RESIDENTIAL GOLF VILLAS Whole/Condo $ 400,000 RG-4 RESIDENTIAL GOLF VILLAS Whole/Condo $ 350,000 MV MARINA VILLAGE CONDOS Whole/Condo $ 400,000 RC-1 RESIDENTIAL MARINA CONDOS Whole/Condo $ 350,000 RC-1 RESIDENTIAL MARINA CONDOS TS/Shrd 60 3,060 $ 35,000 RC-2 RESIDENTIAL MARINA CONDOS Whole/Condo $ 350,000 RC-2 RESIDENTIAL MARINA CONDOS TS/Shrd 40 2,040 $ 35,000 RC-4 RESIDENTIAL GOLF CONDOS Whole/Condo $ 250,000 RC-5 RESIDENTIAL GOLF CONDOS TS/Shrd 48 2,448 $ 30,000 HM MARINA CONDO HOTEL 3 Whole/Condo $ 350,000 HM MARINA CONDO HOTEL TS/Shrd 56 2,856 $ 40,000 RL-1 LUXURY HOME LOTS Whole/Condo $ 400, ,630 PHASE 2 Type # Units # Sales Projected Price RM-1 RESIDENTIAL MARINA VILLAS Whole/Condo $ 350,000 RM-2 RESIDENTIAL MARINA VILLAS Whole/Condo $ 300,000 RB-1 GOLF BUNGALOWS Whole/Condo $ 350,000 RB-2 GOLF BUNGALOWS Whole/Condo $ 350, PHASE 3 Type # Units # Sales Projected Price RM-3 RESIDENTIAL MARINA VILLAS Whole/Condo $ 400,000 RM-4 RESIDENTIAL MARINA VILLAS Whole/Condo $ 350,000 RL-1 LUXURY HOME LOTS Whole/Condo $ 500,000 RL-2 LUXURY HOME LOTS Whole/Condo $ 450,000 RL-3 LUXURY HOME LOTS Whole/Condo $ 400,

66 PHASE 4 Type # Units # Sales Projected Price RG-2 RESIDENTIAL GOLF VILLAS Whole/Condo $ 300,000 RG-3 RESIDENTIAL GOLF VILLAS Whole/Condo $ 300,000 RM-5 RESIDENTIAL MARINA VILLAS Whole/Condo $ 350, PHASE 5 Type # Units # Sales Projected Price RM-6 RESIDENTIAL MARINA VILLAS Whole/Condo $ 350,000 RT-1 RESIDENTIAL GOLF TRIPLEX Whole/Condo $ 200,000 RT-2 RESIDENTIAL GOLF TRIPLEX Whole/Condo $ 200,000 RA-1 ALLEY-LOADED HOMES Whole/Condo $ 100, PHASE HP 1 Type # Units # Sales Projected Price HP MARINA CONDOS Whole/Condo $ 800,000 HP MARINA CONDOS TS/Shrd 44 2,244 $ 50,000 HP BEACH HOTEL TS/Shrd 100 5,100 $ 30,000 HP BEACH HOTEL (Condohotel) Whole/Condo $ 650,000 HP BEACH CONDOS Whole/Condo $ 1,200,000 HP BEACH CONDOS TS/Shrd 32 1,632 $ 60, ,220 Sales Pace & Phasing The phasing in this section is assumed to be the same per our previous suggestions and comments, and thus have developed the sales pace in such a manner to coincide with the tentative construction phasing of the Project. More discussions will follow to confirm or modify the expected construction phasing to coincide with the projected sales cycles. CONCLUSION As one of the most prominent resort destinations in Mexico, Los Cabos will continue to thrive in the years ahead despite the challenges faced by the local lodging market and the international tourism industry as a whole during the past few years. As previously noted, the destination s recovery from hurricanes and economic struggles are well under way with significant increases in passenger arrivals and tourist visitation figures due to more flights being added to the destination. The new developments along the Corridor have stimulated investors that remain confident and committed to the market s potential as evidenced by all the new projects under construction. In short, the market remains adaptive and tourism as an industry is gaining more traction to reaffirm Los Cabos as one of the top-tier destinations worldwide, with the East Cape to be considered as an extension of this vibrant area in Baja California Sur. 66

67 APPENDIX El Anhelo Page A. El Anhelo Map 68 67

68 Appendix A MASTER PLAN ILLUSTRATIVE MAP 68