MARKET STUDY & OPPORTUNITIES. October 27, 2017

Transcription

1 MARKET STUDY & OPPORTUNITIES October 27, 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: JLL; HVS; Dream Homes of Cabo; Snell Real Estate Engel & Völkers; Interval International; Datatur; correspondence with competitive set representatives; and correspondence with brokers active in Los Cabos and East Cape. Additional research was 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 15 b. Mexico Tourism. 17 c. Los Cabos Tourism d. Access & Transportation.. 24 e. Travel Logistics Real Estate Market Overview a. Retirement Destination 27 b. Mexico Housing Market 27 c. Los Cabos Real Estate Market.. 29 d. Trends in Second Home Market. 32 e. East Cape Real Estate Market.. 32 f & Looking Ahead.. 33 g. Timeshare Market Popular Hotel Destinations a. Cancun/Riviera Maya 39 b. Los Cabos c. Puerto Vallarta/Riviera Nayarit Historical Hotel Performance Trends Shaping Mexico s Hotel Market Mexico s Hotel Brand Segments 48 3

4 10. Competitive Set Properties El Anhelo Real Estate a. Product Types.. 72 b. Pricing Projections c. Sales Pace & Phasing Conclusion. 76 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. 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 5

6 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 Villa la Estancia, Cabo San Lucas Esperanza, Cabo San Lucas Solaz Los Cabos 6

7 Chileno Bay Resort & Residences, Los Cabos Los Cabos Resort Developments In Los Cabos, a new Grand Velas opened the end of 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 2016 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 is planned to open early The allinclusive 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, opened this year and provides 124 oceanfront villas with private plunge pools. Resort amenities include a marina plus golf courses by Jack Nicklaus and Greg Norman. 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 2018, Nobu Hotel Los Cabos will have 200 Japanese and Los Cabos-inspired rooms, a signature Nobu Restaurant and Bar, event and meeting space, a luxury spa plus retail space. Solaz, a Luxury Collection Resort, Los Cabos has an opening date of March The 131-room property at the tip of Baja California Sur will include a spa and private beach club, three restaurants, event space plus walking and running trails. Montage Los Cabos is expected to open May 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 7

8 include a spa, private beach and Robert Trent Jones II designed golf course. Hard Rock Hotel Los Cabos is scheduled for completion in spring The 639-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. 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. Los Cabos Tourism Facing unique challenges this year due to a wave of natural disasters that impacted top arrival destinations like Houston, Dallas, Miami and Los Cabos itself including Tropical Storm Lydia, the Mexico City earthquakes and Hurricanes Irma and Harvey, new data underscores Los Cabos' rare strength and resilience: 6% surge in hotel occupancy compared to 2016 even as area hotels saw a 21% rise in RevPAR during June through August % year-over-year growth since 2015 Passenger arrivals in Los Cabos increased 17.3% from January through September 2017 compared to 2016 International visitation numbers rose even higher at 17.7% from January through September 2017 compared to out of 10 visitors are repeat guests 90% of first-time visitors say they would return In September 2017, a traditionally slow month for the travel industry and in the immediate aftermath of the U.S. State Department travel warning, the data recorded a 19% increase in hotel occupancy considering the growth in hotel inventory by 6% over the same period and a steady 70% hotel occupancy rate. 29% growth in tourist arrivals compared to the same period in % percent increase in international visitors compared to the same period in 2016 Forecasts estimate Los Cabos will end the year 5% up in tourist arrivals 8

9 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 document 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. 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 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 9

10 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. 10

11 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. Mexico s lodging market has been shaped by the recent macroeconomic trends and is poised for more growth in 2017/2018. 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. 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. 11

12 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. 12

13 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. 13

14 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. 14

15 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. While this year's research indicates a slowdown in intent to travel and a drop in leisure travel spend in the coming months, there are opportunities that marketers can leverage to optimize their efforts in the next 12 months. Millennial Families Driving Growth in Travel This year's study predicts that the approximately 60 million traveling households in the U.S. will spend up to a $5 billion decrease on leisure travel in the next 12 months, which is a dip of less than 1 percent from the industry's eight-year high in However, the 9.5 million households that are American Millennial families intend to spend 19 percent more on vacations during the next 12 months and intend to travel 36 percent more than the previous year. Compare that to U.S. travelers at large, who demonstrate a 6-point increase in intent to travel this year. The depreciation of the Mexican peso to the U.S. dollar of almost 40% also makes travel more appealing. This generational segment is also more likely to travel internationally. A quarter of Millennial family vacations were to international destinations. That creates a substantial opportunity for international travel brands, since only 15 percent of Xers, 10 percent of Boomers and 12 percent of Matures vacationed to international destinations. This is likely related to the group's world view and optimism, as three-quarters of Millennial families consider themselves happy and optimistic about their own futures (83 percent), not to mention the future of the world (62 percent). Attractions Influence Where Travelers Go As these travelers increase their domestic vacations, attractions are becoming more relevant in influencing where those vacations are taken. More than half of all vacations (53 percent) included at least one visit to an attraction last year. And of those 41.5 million households, 68 percent say that they chose those attractions before their vacations began. This means that travelers are building attractions into their travel planning instead of making the decision while in the destination. And, with Millennial families on the rise, one might assume that theme parks and amusement parks create the most interest among attractions. However, this year's research indicates that the top-ranking attractions are more educational and culturally based, with art and history museums (65 percent), aquariums (59 percent) and science museums (56 percent) coming before theme parks (55 percent). Google Is Growing Its Footprint in Travel How travelers search and plan for their vacations is shifting as well. Search engines, which were once just pervasive during certain phases of the travel planning process, now lead across the entire purchase. Most significantly, travelers now rank search engine results as their top choice while searching for advice and ratings 15

16 as well as when they are making reservations (search engines were ranked third in both of those phases the year prior). This is no doubt due to Google's investment in travel and release of new travel products in the last two years. In fact, Google is now ranked by U.S. travelers as the site most often used on a regular basis to obtain travel information and prices a position that has been held by Expedia the last two years. Affluent Travelers Among affluent travelers who took at least one vacation, not all are spending their discretionary income on high-end travel experiences. Said another way, not all affluent travelers are luxury travelers. Luxury travelers affluent travelers who believe it's worth paying more for the very best quality for both vacation accommodations and transportation only make up 36 percent of affluent travelers. Luxury travelers, the most promising affluent segment for travel marketers, represent 11 percent of all American travelers. During the past 12 months, these 6.7 million traveling households took 40 million vacations and spent $67.5 billion on leisure travel. 16

17 Mexico Tourism According to the 2017 Travel and Tourism Competitiveness Index (TTCI) report, Mexico delivers a strong performance this year. It is one of the most-improved countries in the index, rising 8 positions to reach 22 nd place in the global ranking as it continues to close the gap with the US and Canada. The government s prioritization of the T&T sector (30 th ) and the effective use of both natural (2 nd ) and cultural (10 th ) resources have paid off. TTCI provides a measurement of the factors that make it attractive to developing business in the travel and tourism industry of individual countries. Source: 2017 Travel and Tourism Competitiveness Index; Colors are determined by the relative position of each score in the global distribution of each pillar, taken individually; Score 1-7 (Red = Poor; Yellow = Better; Green = Best). Snapshot of Mexico Tourism Activity during the first half of 2017: 1. The arrival of international tourists was 19.2 million, up 2.8 million tourists in the same period of 2016 and equivalent to an annual increase of 12.2%. 2. Foreign currency income from the arrival of international visitors was US$11.1 million, equivalent to an increase of 9.8% in comparison to the same period The arrival of foreign visitors who reside in the United States represents 61.9% of all foreign arrivals by air-travel. From the Latin American and the Caribbean region, the countries of residence with the 17

18 highest number of foreign arrivals in Mexico were Argentina and Colombia, with 2.8% and 2.2% of total visitors respectively. 4. The percentage of hotel occupancy in a group of 70 resorts reached 62.4%, this is 1.8 basis points higher in comparison to the same period of The arrival of domestic tourists to hotel rooms was 27.9 million tourists (71.8%), the remaining arrivals (28.2%) were from foreign tourists. 6. In the second quarter of 2017 around 4.0 million people were employed in the Mexican tourism sector, which accounted for 8.5% of the national employment. Overall Arrivals During January-June 2017, the arrival of foreign air-coming visitors who reside in the United States represents 61.9% of all foreign arrivals by air. From the Latin American and the Caribbean region, the countries of residence with the highest number of foreign arrivals in Mexico were Argentina and Colombia, with 2.8% and 2.2% of total visitors respectively. 18

19 American and Canadian Arrivals The American residents who arrived in Mexico by air increased 11.6% in January-June 2017 compared to the same period of 2016, registering 5.6 million passengers. Los Cabos airport passengers is a large part of the over 500,000 visitors noted in the Others column. During the same period, 1.1 million Canadian residents registered, which is 9.9% higher in comparison to Graph A American Arrivals Los Cabos, B.C.S. Graph B Canadian Arrivals 19

20 Air Travel The number of passengers arriving by air increased 11.5% in January-June 2017 in comparison to the same period last year, reaching 33.3 million passengers, equivalent to an increase of 3.2 million passengers. Domestic Passengers The number of passengers arriving by air on domestic flights was 21.7 million, representing 2.2 million of additional passengers (12.3%), in comparison to the same period last year. 20

21 International Passengers The number of passengers arriving by air on international flights increased 10%, reaching 11.6 million passengers, 1,054 more passengers compared to the same period last year. Cruise Passengers During January-June 2017, the number of cruise passengers reached 3.7 million, representing an increase of 489,000 passengers (14.8%) compared to the same period

22 Cruise Ship Arrivals increased by 184 to 1,390 cruises, an increase of 15.3% in comparison to the same period last year. Source: All graphs from Datatur 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. According to the Los Cabos Tourism Board and the Hotel Association of Los Cabos, new data reported demonstrates the destination's leadership position as Mexico's premier destination for tourism and investment. During the peak summer months starting from June through August 2017, the destination saw a 6 percent surge in hotel occupancy compared to 2016 even as area hotels saw a 21 percent rise Snapshot of Key Los Cabos Statistics Hotel Occupancy 6% Passenger Arrivals 17.3% International Visitation 17.7% YoY Growth since % Visitors to Repeat Guests = 70% First-time visitors would return = 90% Tourist Arrivals YE % For September 2017 compared to same period 2016: Hotel Occupancy 19% Inventory 6% Occupancy Rate = 70% Tourist Arrivals 29% International Visitors 36% 22

23 in RevPAR. This seasonal performance streak indicates Los Cabos is sustaining an impressive momentum of 20 percent YoY growth since This year, passenger arrivals in Los Cabos increased 17.3 percent in January through September 2017 compared to International visitation numbers rose even higher at 17.7 percent during the same timeframe. The data sends a strong signal that Los Cabos continues to be an attractive destination for tourists and investors alike that are looking to enjoy the distinct experiences and opportunities. Facing unique challenges this year due to a wave of natural disasters that impacted top arrival destinations like Houston, Dallas, Miami and Los Cabos itself including Tropical Storm Lydia, the Mexico City earthquakes and Hurricanes Irma and Harvey, the new data underscores Los Cabos' rare strength as a destination where 7 out of 10 visitors are repeat guests and 90 percent of first-time visitors say they would return. In September 2017, a traditionally slow month for the travel industry and in the immediate aftermath of the U.S. State Department travel warning, Los Cabos remained resilient. The data recorded a 19 percent increase in hotel occupancy considering the growth in hotel inventory by 6 percent over the same period and a steady 70 percent hotel occupancy rate. Overall, hotel rooms went from 14,000 in 2014 to 16,000 in 2017 and 4,000 new rooms are expected to be added by Additional findings include: 29 percent growth in tourist arrivals compared to the same period in percent increase in international visitors compared to the same period in 2016 Looking ahead, forecasts estimate Los Cabos will end the year 5 percent up in tourist arrivals A Strong Recovery The above data points suggest that visitors are responding positively to the new Los Cabos which had to rebuild its estimated $1 billion in losses from three years ago due to Hurricane Odile. The destination has bounced back with brand-new resorts for a range of budgets, extensive renovations to established properties, an airport expansion, new attractions and tours, increased airlift, and more than 5,000 new hotel rooms in the pipeline through Another sign of recovery is an uptick in airlift, including new nonstop flights from Los Angeles and San Diego on Southwest Airlines. Today, some 500 weekly connections serve Los Cabos International Airport (SJD), which is undergoing a $48 million enhancement in order to welcome more visitors in the coming years. Scheduled for completion in 2019, SJD s expansion will include five new gates, a brand-new VIP lounge and a complete refurbishment of Terminal 1. Below are key highlights and trends for the region: Travel Airlift and Cruise Ships During the first half of 2017, Los Cabos recorded 910,175 passengers representing an increase of 23

24 18.6% over the same period in 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 reached 101 during the first half of 2017, this is 14.8% more than the same period last year. The actual increase in the number of visitors from 199,934 to 212,481 is on track for another successful year. 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 currently 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. 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. 24

25 Top 7 busiest domestic routes to Los Cabos International Airport during : Rank City Passengers Airline 1 Mexico City 264, ,205 Aeroméxico, Aeroméxico Connect, Interjet, Magni, VivaAerobus, Volaris 2 Jalisco, Guadalajara 106, ,125 Aéreo Calafia, Interjet, VivaAerobus, Volaris 3 Nuevo León, Monterrey 38,789 52,632 VivaAerobus, Volaris 4 Baja California, Tijuana 33,928 47,961 Volaris 5 Sinaloa, Culiacán 31,539 41,153 Aero Pacifico, VivaAerobus, Volaris 6 México (state), Toluca 26,463 36,013 Interjet, Volaris 7 Sinaloa, Mazatlán 9,797 11,071 Magni Top 10 busiest international routes to Los Cabos International Airport during : Rank City Passengers Airline Los Angeles, CA 198, ,221 Alaska, American, Delta, Southwest, United Houston, Texas 100, ,443 Southwest, Spirit, United Airlines, United Express Dallas, TX 138, ,870 American Airlines, Spirit Airlines Phoenix, AZ 123, ,314 American San Francisco, CA 110, ,803 Alaska Airlines, United Airlines, Virgin America San Diego, CA 113, ,142 Alaska Airlines, Delta Airlines, Spirit Orange County, CA 60,678 83,203 Alaska Airlines, Southwest Airlines Denver, CO 72,319 61,865 Frontier, Southwest Airlines, United Airlines Chicago, IL 43,075 44,607 American Airlines, Frontier, United, Xtra Airways Calgary, Alberta 44,159 43,142 Air Canada, Air Transat, Sunwing Airlines, WestJet As shown, travelers from Texas and Arizona have become more prevalent while California remains the main stream of visitors to the area. 25

26 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) 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). 26

27 REAL ESTATE MARKET OVERVIEW Retirement Destination Voted #1 by International Living Mexico has always offered arguably the easiest transition to expat life around: Low-cost, conveniently close, friendly locals and plenty of expats Mexico offers an appealing balance of exotic foreign culture and familiar First-World lifestyle. Over recent years, crime and insecurity across the border have made headlines there are parts of Mexico that are not recommended; however, Mexico is a large country and people are gravitating there. Seasoned expats, folks who have lived in countries like Costa Rica, Ecuador, and Belize, are moving to Mexico. After all, there s a reason over 1 million Americans call Mexico home. The cost of living is great expats report living well for as little as $1,200 a month and has gotten even better with the weakening of the peso against the dollar in recent years. This allows for excellent value in real estate (to buy or rent) for even less than prior years an apartment that cost $1,300 to rent in 2014 costs $980 now. Those dollars also go even further when it comes to Mexican healthcare. This proximity also makes it an ideal destination for snowbird living, perfect for escaping from the worst of the winter weather. There is a diverse selection of climates spread out across this country, ranging from hot weather on the beach to spring-like in the highlands. 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 was reported approximately 12 months ago and pricing, trends and details should be considered as such. Mexico s housing market has enjoyed nominal growth for a decade, but the real (inflation-adjusted) numbers are prosaic: In 2009, house prices rose by 4.75% (0.77% inflation-adjusted) In 2010, house prices rose by 3.7% (-0.59% inflation-adjusted) In 2011, house prices rose by 5.9% (2.37% inflation-adjusted) In 2012, house prices rose by 2.9% (-1.15% inflation-adjusted) In 2013, house prices rose by 4.07% (0.39% inflation-adjusted) In 2014, prices increased 5.11% (0.84% inflation-adjusted) 27

28 In 2015, prices increased strongly by 6.75% (4.36% inflation-adjusted) In 2016, house prices rose by 7.41% (4.07% inflation-adjusted) It should be noted that due to the depreciation of the Mexican peso over the past few years, the real estate market has significant potential for investment and tourism. Local house price variations Whatever the short-term hiccups, there is an enormously strong housing market in Mexico. 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 2016, 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 growth. In Playa del Carmen, a coastal resort town along the Yucatán Peninsula s Riviera Maya, two-bedroom beachfront apartments are priced from US$550,000, according to Sotheby s International Realty. In Playacar, a gated community of resort developments in Playa del Carmen, a four-bedroom home with an infinity pool lists for US$2 million. In Tulum, another resort town located in Mexico s Caribbean coast, a two-bedroom penthouse in the exclusive gated community of AldeaZamá, is priced about US$300,000. To the south, a four-bedroom villa is priced at US$3.9 million. To the north, in TankahBay, a five-bedroom seafront villa with a pool is listed for US$1.6 million. In Cancún, a city in southeastern Mexico known for its beaches, mega-resorts, and frenetic nightlife, prices for four-bedroom villas with a pool range from US$1.4 million to US$3 million. Luxury market buoyed by both foreign and domestic demand 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, which were badly affected by the slump of in areas like Baja California Sur, Nayarit, Baja California, Guerrero and Sinaloa. The rising middle class Between 2000 and 2010 Mexico s middle-class grew from 37 million to 44 million (INEGI, 2013). Last year, the country s middle class was estimated to account for almost half of the total households, at 14.6 million. The middle class is expected to continue growing, with about 3.8 million more households projected to move into the middle class by 2030, for several key reasons: 28

29 First, inflation has halved: it was close to 10% in 2000, but between 2015 and 2016 the rate has hovered around 2.8%. The autonomy of the Bank of Mexico has played a key role. Second, there is now trade openness. 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 is fosters competition and puts an upper limit on the price of goods in the local market. Third, there is the 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. The headline fiscal deficit is expected to hover around 2.4% this year, from 3% in Total public debt, domestic and foreign, remains below 50% of GDP in The last component is 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%. In 2016, about 44% of adults in Mexico own a bank account, according to the Encuesta National de Inclusion Financiera. Last year, the government also launched the National Financial Inclusion Strategy (NFIS), which aims to accelerate access to financial services for the more than half of the population currently left out of the formal and regulated financial system. Los Cabos Real Estate Market Despite a category 4 hurricane 3 years ago that flattened many structures, Los Cabos, located on the tip of Mexico s Baja California peninsula, is experiencing an explosion of ultra-luxury-home construction. Many of the new projects are hotelbased residences that offer owners not only valuable property, but also extensive round-the-clock resort services. Among the newest offerings is a collection of 30 private residences from Las Ventanas al Paraíso, a Rosewood Resort, one of the best-known luxury resorts in the region. Homes will boast authentic Mexican design, private infinity pools, 24-hour butler service, and rooftop putting greens. Penthouses are priced at $7 million and include 9,000 square feet of indoor/outdoor living space with views of the Sea of Cortez from 3,600-square-foot rooftop terraces. 29

30 Other five-star resort brands are also introducing residential projects. In 2018, for instance, Four Seasons will unveil its Resort and Residences Los Cabos at Costa Palmas and the Montage hotel group is developing its Residences Los Cabos, also expected to open in early Whole-ownership residences will start at $2.7 million. Several factors fuel the boom in Los Cabos, with the region s ease of access at the top of the list especially for West Coast residents. Here, the 2-hour direct flights oftentimes trump the 6-hour jaunt to the Hawaiian Islands, which have long been a favorite beach-home mecca. According to Engel & Völkers Snell Real Estate, for the same reason tourism has boomed and hotel development has responded, the luxury-home market is now experiencing impressive growth, as investors have decided Los Cabos is ideal for second homes, vacationing, investing, and retiring. 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. As seen by all the developments sprawling towards the north east, the East Cape is becoming an extremely attractive place for real estate since the Los Cabos pricing is increasing. This shows significant potential for the region and global brands are starting to take advantage of this movement, Four Seasons being one of the first with Costa Palmas just south of Los Barilles. Real Estate Market Snapshot by the Numbers: The following numbers indicate positive trends in the residential market from January 1 to August 31, The total numbers of sales for all residential properties in all price ranges are up by 17% to 304 transactions. The total sales volume is up by 13% to $187,589,000 US Dollars Total numbers of properties under contract are up by 35% to 387 contracts. The average sales price is $617,000 US Dollars. 30

31 More specifically, the below numbers show the condo and single-family home market: Condos o From January 1, 2017 to August 2017 the total number of closed transactions for condos is up by 17% to 164 units. o The total sales volume is up by 28% to $71,819,000 US Dollars. o The average sales price is $438,000 US Dollars. o List Price to Sold Ratio increased by 3 percentage points to 92%. Single Family Homes o Closed transactions for single family homes for the same period are up by 15% to 140 units. o The total sales volume is up by 5% to $115,770,000 US Dollars. o The average sales price is $827,000 US Dollars. o Furthermore, the List Price to Sold Ratio went up from 88% to 92%. One Million plus Market o o o Total numbers of closed sales for properties above $1,000,000 US Dollars is up 27% to 56 closed escrows. The total sales volume is up by 12% to $118,434,000 US Dollars. The average sales price is $2,115,000 US Dollars. Below Million Market o o o The total numbers under contract went up by 39% to 320 accepted offers. Total units sold is up 12% to 248 units and the total sales volume is $69,155,000 US Dollars. The average sales price for condos and homes is $279,000 USD. 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 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,

32 Trends in Second Home Real Estate 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. Many more U.S. homeowners are interested in buying property abroad, and Mexico tops their wish lists, according to a survey released the National Association of Realtors during the past year. Approximately 14% of real estate agents responding to NAR s 2017 Profile of International Activity in U.S. Residential Real Estate reported that during the year, they had a client seeking to purchase a home in another country. The share more than doubles the 6% recorded in the previous 12-month period, as a strong dollar gives Americans more purchasing power. NAR attributes the uptick partly to baby boomers nearing retirement age, who will be more interested in a second destination. Other reasons include job relocation, as increased U.S. foreign trade activity forces many employees to look for temporary homes. Latin America garnered the most interest from would-be buyers, including countries such as Mexico, with 13% of inquiries; Costa Rica and Colombia, with 4% each; and Brazil, with 3%. Other top picks according to NAR were the Philippines, Canada, Spain, Thailand, and Italy. The list coincides with some of the weakest world currencies against the U.S. dollar, making properties in those countries more affordable to U.S. buyers. The Mexican peso, for example, has depreciated 16% versus the greenback in the last year. 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. 32

33 Since the ocean front real estate in the Corridor is decreasing due to these existing products, 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 Los Cabos boasts a collection of approximately 70 hotels, ranging from small boutiques to large-scale resorts, and is the only resort destination in Mexico to offer 11 Championship Golf Courses, award-winning spas, fine restaurants, world-class sportfishing and premier oceanfront resorts. The following resorts have recently opened in Los Cabos and are good points of reference when examining the economic landscape of the region: Opened in November 2016, the Grand Velas Los Cabos features 306 ocean view suites, all over 1,180 sq. ft. with private terraces and personal plunge pools. In addition, five gourmet restaurants with an extensive beverage and wine program; a 16,370 sq. ft. convention center with the capability for 20 breakout rooms; 19,375 sq. ft. spa with 20 treatment rooms and a leading hydrotherapy facility; three pools, including one adults-only; and pool and beach concierges are available. Rounding out the list of amenities and services are a Life Fitness Center with personal trainers, exercise programs, yoga, Pilates and meditation; recreational activities program; separate teens' and kids' club facilities and activities program; 24-hour personalized butler concierge service; and 24-hour in-suite service. 33

34 Opened in December 2016, The Towers at Pacifica at the Pueblo Bonito Pacifica Golf & Spa Resort boasts 47 guest rooms and suites with private terraces (six with private plunge pools), a VIP Lounge, a restaurant, and a fitness center. The Towers are situated on the par 72 Quivira Golf Course, designed by Jack Nicklaus back in Set amid the 1,200-acre Chileno Bay resort development on Cabo's largest swimmable beach, the Chileno Bay Resort & Residences opened in February 2017 and boasts 60 guest rooms of modern decor, including 32 villas ranging from 3,300 to 4,500 square feet. Those two-, three- and four-bedroom villas have outdoor showers, large terraces and soaking tubs for the complete Cabo experience. Chileno Bay shares the property with Discovery Land Co. development, which has a private beach club, spa, 12,000 sq. ft. of meeting space, and a Tom Fazio-designed 18-hole golf course. The new hotel project was previously known as VieVage Los Cabos, an Auberge Resort who still manages the resort. Le Blance Spa Resort opening is planned for early The 373-room luxury beachfront adults-only resort, will boast suites all over 760 sq. ft. with private terraces, featuring panoramic ocean views. In addition, the resort features seven gourmet restaurants and six bars with an extensive wine and beverage program. Incredible amenities at this adults-only oasis include: A brand new fitness center with top-notch personal trainers, the latest fitness activities including, TRX training, Spinning & Aqua Spinning, Yoga and Pilates, as well as a meditation area, for the ultimate tranquility. The resort will also feature an array of recreational activities; 24- hour personalized butler service, as well as 24-hour in-suite service. Le Blanc Spa Resort also has an awardwinning 29,000 sq. ft. full-service spa with 25 treatment rooms, an incredible hydrotherapy facility, a 3,961-sq. ft. fitness center and wellness center, juice bars, four plunge pools, gourmet specialty cuisine, butler service, over 14,000 sq. ft. meeting space, four breakout rooms and much more. Planned to open in March 2018, Solaz is Starwood s first Luxury Collection hotel in Los Cabos and the brand s seventh hotel in Mexico, following the recent conversion of Las Alcobas in Mexico City. Situated at the southernmost tip of Baja California Sur, Solaz will feature 131 luxuriously appointed guestrooms and suites in five distinct six-floor buildings. All of the guestrooms will boast a spectacular outdoor terrace, many with jacuzzis, as well as exquisite amenities. The resort also has a two-bedroom Presidential suite with a private swimming pool. Solaz will have three restaurants and the resort will also feature a spa and fitness facility spanning approximately 12,500 square foot, three tennis courts and miles of walking and running paths. Set along the dramatic coastline of San José del Cabo with panoramic views of the Sea of Cortez, Zadún, a Ritz- Carlton Reserve will make its debut in early This much anticipated opening marks the fourth extraordinary resort in the prestigious Ritz-Carlton Reserve portfolio, and the second in the Caribbean and Mexico region. Zadún will feature 115 elegantly appointed suites and villas, many with their own private plunge pools. The Reserve also features a collection of Ritz-Carlton Reserve Residences. 34

35 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. 35

36 Timeshare Market 2017 Insights 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. 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. The Future of the Timeshare Industry in Mexico As with any business, over the years the timeshare industry has faced challenges, and the coming years will no doubt bring more room for growth and development. However, the overriding message from experts in the timeshare industry is that shared ownership offerings will continue its upward trends. High Level Servicing o Traditionally the timeshare industry in Mexico was famed for providing mid-range service levels geared toward value for money and affordable vacations. While value for money remains to be a key feature of timeshare in Mexico, over the past several years many key players in Mexico s timeshare industry have begun focusing on the luxury market. It would seem that the future of the timeshare industry in Mexico is moving towards high level servicing, which includes the 36

37 highest luxury accommodations, pampering, gourmet restaurants, elite concierge services and more. Smart Phones and Technology o With smartphones and today s technology changing the way we communicate and find out information, the timeshare industry has quickly realized that they have to provide better communication with their members. They can now do this with , blogs, and social media networks creating interactive communities where timeshare members can have direct contact with their timeshare providers, often in real time. Unique Experiences and Transformations o The timeshare industry like the hotel business has seen a major shift towards wellness and personal development. More and more people are looking to their vacations to provide transformative and inspiring experiences. As such, the top timeshare providers are seeking ways to include access to gyms, spas, fitness classes, meditation sessions, wellness programs, medical tourism programs, etc. so that timeshare members can take advantage of these services and enhance their stays. 37

38 POPULAR HOTEL DESTINATIONS Mexico represents the second largest economy in Latin America, benefitting from a strategic location adjacent to the United States, its largest trading partner. This has helped the nation weather the economic downturn better than its Latin American counterparts. The nation s economic outlook for the following years, despite being more conservative than last year, is still promising, even with slower projected growth as a result of the potentially negative consequences of the Trump Administration s trade policies with the country. According to Oxford Economics, the tourism industry continues to play a vital role in Mexico s overall economy. The favorable exchange rate, as well as improved connectivity and infrastructure have been key in increasing overall visitation to Mexico was the fourth consecutive record-breaking year in terms of international visitation, with a total of 34.9 million tourist arrivals, compared to 32.1 million during 2015 when for the first time, Mexico ranked 9 th among the 10 most visited countries in the world, according to the UNWTO Barometer. Mexico has the most developed hospitality sector in Latin America. After years of malaise due to a series of setbacks, including rising violence, H1N1 virus and the global economic recession, Mexico s tourism industry has weathered the storm and is now among the most important destinations for both business and leisure travel in Latin America and the world. The emergence of domestic investment vehicles (e.g., FIBRAs and CKDs) targeting the hotel sector is increasing liquidity in the market, thereby driving investment in the hotel sector. Furthermore, the effect of the recent devaluation of the peso, combined with a moderate inflation rate, has translated into very attractive operating margins in some of the main hotel markets with dollarized rates such as, Cancun and Los Cabos, attracting the attention of both local and international investors. 38

39 Cancun/Riviera Maya 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 U.S. 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 (Mexico), Jamaica, Dominican Republic and the Bahamas. The scarcity of developable land in Cancun led to the emergence of Riviera Maya, located between Cancun and Tulum to the south. The Cancun/Riviera Maya corridor boasts the highest number of hotel rooms of resort markets globally, complemented by extensive shopping, entertainment and dining experiences ,064 Cacun rooms 48,401 Riviera Maya rooms 7.6% Increase in International Visitor Arrivals (YoY) Tourism A record number of approximately 7.2 million international travelers visited Cancun in 2016, an increase of 7.6% and 22% over 2015 and 2014, respectively. Increasing international interest in the market is evidenced by the 7.1% CAGR observed in international travelers from 2006 to The 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 U.S. and the renovation and expansion of existing airport terminals. Further, over the past year, visitation from the U.S. increased due to the lift in flight restrictions established by the U.S. and the Mexican government in August Airport capacity is expected to increase to a maximum of 25 million passengers upon the completion of the Cancun International Airport s additional terminal, which is scheduled to be fully developed in Demand Travelers from North America and Europe represent the top source markets for Cancun/Riviera Maya. The U.S. dollar s strong buying power coupled with a strong economic forecast, and favorable exchange rates, is helping stimulate international travel into the region. Additionally, the devaluation of the peso is making Cancun/Riviera Maya a more attractive vacation destination for domestic travelers as traveling abroad has become costlier should observe robust visitation levels which is supported by the fact that during Q4 2016, average ticket prices for travel during the 2017 spring break period to Mexico were down 5% year over year, as reported by Expedia. 39

40 Supply With the recent addition of over 1,000 high-quality rooms in 2016, coupled with expected hotel openings planned for 2017 and 2018, increasing supply is anticipated to place downward pressure on occupancy levels. However, of the supply in the active pipeline hotels under construction, planning and in the final planning phases over 80% of the rooms are upper upscale or luxury brands, which will continue elevating the destinations profile, push ADR levels up and potentially attract institutional investors including REITs to the market. Outlook The combined effect of the depreciation of the Mexican peso, as well as the improved connectivity and completion of the new airport terminal, should result in an increase of visitation levels from both national and international travelers. The shift towards the allinclusive operating model will continue and it is anticipated that all-inclusive lodging supply growth will continue to outpace European Plan (traditional) lodging supply growth. New Hotels ,800 Rooms Rooms Rooms Rooms Rooms Renaissance Cancun Puerto Cancun (2019) Nickelodeon Hotel & Resort Riviera Maya (2017) Quick Facts Cancun/Riviera Maya St. Regis Kanai Riviera Maya Resort (2018) Hampton Inn Cancun Cumbres (2017) Million international visitor arrivals (2016) Hard Rock Hotel & Resort Riviera Maya (2018) New hotel rooms expected (+2017F) 72.2% $246 $ % Average Occupancy (2016) 2016 ADR (USD) 2016 RevPAR % change v (USD) Sources: SECTUR, STR, JLL 40

41 Los Cabos 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 quieter San Jose del Cabo has retained its colonial architecture and 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, which lies between the two towns. After significant damage caused by Hurricane Odile in late September 2014, the destination has regained strength and vibrancy with the reopening of most resorts, new golf courses and additional direct routes from key destinations in the U.S ,319 rooms 12.7% Increase in International Visitor Arrivals (YoY) With the vibrant development up the Corridor, the East Cape is poised for future growth as an expansion of the Cabo San Lucas real estate market. Tourism International arrivals rose 12.7% in 2016 compared to 2015 and 23% compared to 2014, the year Hurricane Odile hit Los Cabos. In 2012, the destination inaugurated newly paved roads and a new international airport terminal, which improved accessibility to the destination. While the market has yet to fully recover and reach 2013 occupancy levels, 2016 ADR displayed tremendous improvement, making Los Cabos Mexico s strongest market in terms of RevPAR. Demand Los Cabos is a popular destination for U.S. travelers, particularly from the West Coast. The favorable exchange rate as well as its proximity to the U.S. is a draw for travelers in addition to the high-quality hotel product, golf courses and broad range of leisure activities. Supply The hotel sector in Los Cabos is experiencing a boom in renovations and new hotel openings. Many resorts closed operations and underwent extensive renovations in the aftermath of Hurricane Odile, thus improving the quality of lodging facilities. Los Cabos has regained its position as the premier Mexican resort destination as a result of the aforementioned renovations and new construction. Currently, Los Cabos has 1,069 rooms under construction with another 498 rooms in the final planning stage of the development process. 41

42 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. New Hotels Rooms Rooms Rooms Rooms Rooms Hard Rock Hotel Los Montage Los Cabos Cabos (2017) (2017) Ritz-Carlton Reserve Los Cabos (2017) Quick Facts Los Cabos Solaz A Luxury Collection Resort Los Cabos (2017) Million international visitor arrivals (2016) Four Seasons Los Cabos at Costa Palmas (2018) New hotel rooms expected (+2017F) 52.9% $452 $239 Average Occupancy (2016) 2016 ADR (USD) 2016 RevPAR (USD) Sources: SECTUR, STR, JLL 42

43 Puerto Vallarta/Riviera Nayarit Puerto Vallarta is a beach resort city, located on the Pacific Ocean s Banderas Bay and is the fifth largest city in the state of Jalisco. It 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. Though technically not part of Riviera Nayarit, and Nuevo Vallarta, Puerto Vallarta is the gateway of the region. In the early 20th century, the town of Puerto Vallarta was considered a gateway to a number of important mines, but given its unique tourism product offering, the town quickly emerged as a resort destination that attracted North American and Mexican artists alike. Today, the resort destination is known for its cruise port, marina, hotel zone and milelong Malecon ,061 rooms 12.1% Increase in International Visitor Arrivals (YoY) Note: Number of Hotel Rooms includes Punta Mita and Riviera Nayarit Additionally, its thriving retirement and secondary home real estate market is popular among U.S. 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 there is a 20- mile stretch of beaches, known as Riviera Nayarit, which includes the high-end mix-use developments of Punta Mita, and Mandarina (currently under development). Tourism During 2016, Puerto Vallarta achieved a new all-time visitation record. International visitor arrivals to Puerto Vallarta increased 12.1% in 2016, primarily attributable to improved airlift. Both U.S. and Canadian Airlines added routes to the region, with Southwest adding flights from prominent U.S. cities such as, Seattle, Denver, Houston and Oakland. Further, more than 140 cruise ship arrivals were recorded in 2016, an increase of 6% over the previous year. Cruise ship arrivals are anticipated to continue increasing as the development of the new international port is finalized and becomes fully operational in the next three years. Additionally, infrastructure improvements by the federal government such as, a toll road that connects Guadalajara with Puerto Vallarta, making travel time less than two hours between the two cities, will enhance the destinations connectivity to other regional cities. Demand The three main source markets for Puerto Vallarta are U.S., Canada and Mexico. Local visitors represent approximately one third of total air arrivals and this figure is set to increase due to Puerto Vallarta s improving connectivity through new direct regional flights. Business demand in the area will be supported by growth of the automotive industry in the Bajio region cities Aguascalientes, Guanajuato, San Luis Potosi and Queretaro. Visitors from Mexico City and Guadalajara are also drawn to the coastal city not only for its proximity, but also due to the affordability of travel in Puerto Vallarta relative to other more expensive Mexican resort destinations such as Los Cabos. 43

44 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, the 335-room Hyatt Ziva, an all-inclusive hotel operation, and the brand new 119-room W Hotel Punta Mita. No hotels were noted to have entered the market in 2016 and new supply is anticipated to remain constrained over the medium-term. In 2018 and 2019, the addition of the One & Only Mandarina, the Fairmont Costa Canuva and the Rosewood Mandarina are expected to enhance Riviera Nayarit s offerings in the luxury hotel segment and induce additional highend tourism given the strength of the brands coupled with the quality of the products. Outlook The Puerto Vallarta tourism board announced that in January 2017 domestic arrivals increased 6.1% while international arrivals increased 9.9% relative to the year prior. The strong start to the year coupled with the market s formidable lodging performance in 2016 suggest that the market will continue making strides in tourism growth. Further, the devaluation of the Mexican peso will enhance its competitiveness compared to other destinations as it is a market denominated by the local currency. Additionally, new luxury hotels are expected to help lift the rate ceiling, while the limited new supply underscores the opportunity for future demand growth and ADR gains. New Hotels Rooms Rooms Rooms One & Only Mandarina Quick Facts Puerto Vallarta Fairmont Costa Canuva (2019) Holiday Inn Express Nuevo Vallarta (2018) Million international visitor arrivals (2016) New hotel rooms expected (+2017F) 67.7% $113 $76 6.6% Average Occupancy (2016) 2016 ADR (USD) 2016 RevPAR % change v (USD) Sources: SECTUR, STR, JLL 44

45 Lodging Performance by City Profiles As observed in the individual city overviews, RevPAR levels across all cities have shown stable growth since Although the US dollar continues to strengthen against the Mexican Peso, hotel operating fundamentals in USD terms remain strong. From 2015 to 2016 Cancun and Puerto Vallarta averaged 2% and 7% annual RevPAR growth, respectively, while Mexico City averaged 3% annual growth during that period. It should be noted that since no year-end 2014/15 data reported for Los Cabos market given hurricane damage, RevPAR growth is not available. Nonetheless, the market achieved a RevPAR of $239 (USD) in It should be noted that Los Cabos achieves the highest RevPAR in the counrty as shown. 45

46 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 46

47 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. 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. 47

48 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 2016, 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 fullservice 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 48

49 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

50 7 8 9 None 10 None 11 None 12 None 13 None 50

51 BRANDS IN MEXICO

52

53 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. Through our online 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: 53

54 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) 54

55 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 55

56 Real Estate Home Sites o There are three residential clusters are on the market which include 360 home sites, from which 265 lots are on the market ranging from $150,000 to $7 million. 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 56

57 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. Initial pricing is very aggressive. The largest unit is 10,000 sq. ft. (929 sq. meters), Beach Front casita. Two out of 4 units of this type have been sold for US$15 million each. Beach Club Casitas (929 sq. meters) are priced at US$6.5 million. Nine (9) Villa Lots have been sold within a price range of US$4,500 and US$9,800 per square meter. Four (4) bedroom condos are in the range of US$4 million and US$5 million. The expected pricing will be aggressive and similar to Los Cabos pricing in hopes that the brand will help with those sales. It is anticipated that the pricing will be too aggressive in the market place with future revisions once in the market. 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. 57

58 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 low-density layout spread across multiple buildings, and a collection of whole-ownership oceanfront, marina-side 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 ocean-side 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 58

59 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. 59

60 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 ($64-60

61 $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. 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 2019), a 200-key traditional Nobu Hotel (scheduled to open in 2018), and an additional boutique 5-star hotel (future development). 61

62 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 and space for private events 62

63 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 63

64 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 64

65 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 65

66 Group C: Selected Timeshare/Vacation Club Competitive Properties 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 with estimated pricing per interval: Resort Name Program Duration Est. Interval Price Maintenance Fee GlobeQuest by Questro 5 to 30 Year/Membership $ 27,950 n/a Villa del Arco 30 Years/Right to use $ 38,454 $1,247 Villa del Palmar - Cabo 30 Years/Right to use $ 34,476 $1,118 Hacienda Encantada Resort & Spa 30 Years/Right to use $ 43,950 $1,100 Las Residencias Golf and Beach 50 Years/Right to Use $ 74,900 $2,170 Gran Solmar Land's End Resort and 50 Years/Right to Use $ 110,000 $2,430 The Resort at Diamante 50 Years/Right to use $ 42,750 $1,400 The timeshare product at Diamante is a very good barometer of the market. Prices per week are up to $110,000 per week depending which product are considered. Over the past few years, it is estimated that the gross sales volume 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. 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 indoor-outdoor living experiences. 66

67 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, 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 67

68 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. 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. Units Sold 68

69 69 El Anhelo

70 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. 70

71 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 71

72 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 projected 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) Fractional Ownership (condos, villas, bungalows) Generally, we consider our pricing as 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), and alley-loaded homes (RA). Over time, 491 out of a total of 1,596 units of all real estate sales consists of whole ownership product and ranges in proposed initial pricing from $150,000 for the units located on the backside of the Project to $900,000 for prime locations. Even though this is a small percentage of the overall sales, it is projected to produce approximately $290 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 1A-B of sales is heavily weighted towards selling timeshare product with approximately 70% 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. 72

73 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 years starting at $30 million in gross volume during Year 1 with gradual increases in sales year-over-year producing $100+ million in annual sales. Projected initial pricing is $50,000 to $70,000 depending on the location of the real estate. 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. Fractional Product Types Throughout the phases, fractional product will also be sold projected to be responsible for approximately 29% 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), golf bungalows (RB), residential marina villas (RM) and the marina condo hotel (HM). The following key recommendations are made for the fractional 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 fractions are a minimum of 2-week purchases with estimated absorption of 22 total fractions per unit. 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 fractional 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 is 15 to 20 years starting at $5 million in annual sales during Year 1 with gradual increases in sales year-over-year producing over $100 million in annual sales. Multiple fractions can be sold to consumers seeking more access to the Project, but not a whole ownership commitment Projected initial pricing is $85,000 to $105,000 depending on the location of the real estate. 73

74 Projected Pricing Please note that these pricing projections are conservative in nature and fall within the lowest part of the estimated market ranges for similar product based on location on the resort and viewing corridors. Please note that the pricing is subject 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 (Phase 1A 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 1A PRODUCT TYPE UNITS SALES EST. MARKET PRICING PROJ. PRICE RG-1 Residential Golf Villas Whole/Condo $345,000 to $840,000 $ 450,000 RG-4 Residential Golf Villas Whole/Condo $345,000 to $840, ,000 MV Marina Village Condos Whole/Condo Starting at $450, ,000 RC-1 Residential Marina Condos Whole/Condo $400,000 to $1,500, ,000 RC-1 Residential Marina Condos TS/Shrd 60 3,060 $59,000 to $325,000 50,000 RC-2 Residential Marina Condos TS/Shrd 20 1,020 $59,000 to $325,000 50,000 RC-2 Residential Marina Condos Fractional $59,000 to $325,000 85,000 RC-3 Residential Marina Condos Fractional $59,000 to $325,000 85,000 RC-4 Residential Golf Condos Whole/Condo $345,000 to $840, ,000 RC-5 Residential Golf Condos TS/Shrd 48 2,448 $59,000 to $325,000 50,000 HM Marina Condo Hotel Whole/Condo $400,000 to $1,500, ,000 HM Marina Condo Hotel TS/Shrd 86 4,386 $59,000 to $325,000 50,000 RL-1 Luxury Home Lots Whole/Condo $175,000 to $1,100, ,000 Total ,960 PHASE 1B PRODUCT TYPE UNITS SALES EST. MARKET PRICING PROJ. PRICE HP Marina Condos Whole/Condo $400,000 to $1,500,000 $ 900,000 HP Marina Condos Fractional $59,000 to $325, ,000 HP Beach Hotel TS/Shrd 176 8,976 $8,000 to $100,000 65,000 HP Beach Hotel Fractional 177 3,894 $59,000 to $325, ,000 HP Beach Condos Fractional 100 2,200 $59,000 to $325, ,000 HP Beach Condos Whole/Condo $400,000 to $1,500, ,000 Total ,114 74

75 PHASE 2 PRODUCT TYPE UNITS SALES EST. MARKET PRICING PROJ. PRICE RM-1 Residential Marina Villas Whole/Condo Starting at $450,000 $ 500,000 RM-2 Residential Marina Villas TS/Shrd 26 1,326 $59,000 to $325,000 60,000 RB-1 Golf Bungalows Whole/Condo $345,000 to $840, ,000 RB-2 Golf Bungalows Fractional $59,000 to $325,000 90,000 Total 145 2,201 PHASE 3 PRODUCT TYPE UNITS SALES EST. MARKET PRICING PROJ. PRICE RM-3 Residential Marina Villas TS/Shrd 35 1,785 $59,000 to $325,000 $ 60,000 RM-4 Residential Marina Villas Fractional $59,000 to $325,000 95,000 RL-1 Luxury Home Lots Whole/Condo $175,000 to $1,100, ,000 RL-2 Luxury Home Lots Whole/Condo $175,000 to $1,100, ,000 RL-3 Luxury Home Lots Whole/Condo $175,000 to $1,100, ,000 Total 123 2,482 PHASE 4 PRODUCT TYPE UNITS SALES EST. MARKET PRICING PROJ. PRICE RG-2 Residential Golf Villas Whole/Condo $345,000 to $840,000 $ 450,000 RG-3 Residential Golf Villas TS/Shrd 53 2,703 $59,000 to $325,000 70,000 RM-5 Residential Marina Villas Fractional $59,000 to $325, ,000 Total 109 3,137 PHASE 5 PRODUCT TYPE UNITS SALES EST. MARKET PRICING PROJ. PRICE RM-6 Residential Marina Villas Fractional $59,000 to $325,000 $ 100,000 RT-1 Residential Golf Triplex Fractional $59,000 to $325,000 90,000 RT-2 Residential Golf Triplex TS/Shrd 54 2,754 $59,000 to $325,000 50,000 RA-1 Alley-Loaded Homes Whole/Condo $125,000 to $180, ,000 Total 171 4,089 Grand Total 1,596 40,983 Sales Pace & Phasing The phasing in this section 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. The overall construction duration is projected to last for 15 years with each phase being 4-5 years depending on the number of units to be developed. More discussions will follow to confirm or modify the expected construction phasing to coincide with the projected sales cycles. The timeline is set forth below. 75

76 31-Dec Dec Dec Dec Dec Dec-22 Estimated Construction Timeline T-3 T-2 T-1 YEAR 1 YEAR 2 YEAR 3 Hectares Acres Duration (months) Yrs Phase 1A Phase 1B Phase Phase Phase Phase Roads & Buffers Support Facilities TOTAL DEVELOPMENT Dec Dec Dec Dec Dec Dec-28 Estimated Construction Timeline YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 Hectares Acres Duration (months) Yrs Phase 1A Phase 1B Phase Phase Phase Phase Roads & Buffers Support Facilities TOTAL DEVELOPMENT Dec Dec Dec Dec Dec Dec-34 Estimated Construction Timeline YEAR 10 YEAR 11 YEAR 12 YEAR 13 YEAR 14 YEAR 15 Hectares Acres Duration (months) Yrs Phase 1A Phase 1B Phase Phase Phase Phase Roads & Buffers Support Facilities TOTAL DEVELOPMENT 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. 76

77 APPENDIX Page A. El Anhelo Map 78 77

78 Appendix A MASTER PLAN ILLUSTRATIVE MAP 78