1. 505 Congress Street South Boston R E C REATE, LLC Tim Johnson, Jennifer Balkcom, Scott Nguyen, Arvind Pai, Alison Novak, Charu Singh Re-imagining the Boston Waterfront

2. Vision Emerging urban neighborhood complimented by near natural amenities Dense living in a green building Target young professionals Product Multi-family residential for rent with on-demand office space Create an innovative living space to take advantage of transitioning, well-located neighborhood.

3. Young development team seeking experience. Team Goals Establish foothold in Boston real estate market & South Boston Gain development experience Build reputation Make money

4. Agenda Site Context Market Analysis Regulatory Process Site Design Construction Timeline Capital Budget Financial Analysis

5. SITE CONTEXT

6. 8.8 million SF in development pipeline signals emerging market. Context CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL T T T Convention Center Downtown

7. MARKET ANALYSIS

8. The Boston Economy Recovering from a period of negative growth All demand drivers are stable Vacancy rate is forecasted at less than 5% Positive real rent growth projected Leading growth industries Stable economy. Source: Torto-Wheaton Research 2005 CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

9. Supply Limited existing supply Extensive projected development 2,600 residential units Mostly for sale High metro-area demand for residential 4.45% cap rate Time project before market saturation but after pioneering projects. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

10. Market Area The target population is well represented within a 5 mile radius of the site. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

11. Residential Target Market Residential Target Group $65,000-125,000 income range Service-based employment Upwardly mobile Target underserved market segment CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

12. Office Target Market Site is well located to meet temporary office needs. On-demand office space is ideal for companies who desire: Proximity to the convention center Location close to downtown Flexible office space T Convention Center CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

13. REGULATORY PROCESS

14. Regulatory Process Article 80: BRA Review Large Project Review Boston Civic Design Commission Area is slated for large-scale development, site use flexible Article 27P Flexible open space and FAR requirements due to IPOD zoning Affordable housing and street improvement requirements CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

15. Regulatory Analysis Areas of concern Site coverage ratio relief may trigger exaction fee Meeting EPA & HUD standards for air quality and noise Unspecified fee schedule Although FAR is by-right, the public process is unpredictable. Strategies Foster relationships with relevant BRA staff, neighborhood groups, and environmental NGO CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

16. SITE DESIGN

17. 505 Congress St. is well-located but has many challenging site conditions. Opportunities & Challenges Adjacent to Central Artery Tunnel Vent Building High Traffic Flows Odd-shaped parcel Shallow depth 100’ CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

18. Site Plan Residential Tower Service Area Ingress Egress Drop Off Point Office-on-Demand Retail Ground Floor Uses Landscaped Park Creative design optimizes this constrained site. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

19. Elevation Mixed Use design. Residential Tower 12 stories 117 units 89,023 net rentable sf Office-on-Demand 1 st Floor Podium 19,843 net rentable sf Parking Below grade structure 77 parking spaces CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

20. Lifestyle amenities compliment project. Design Elements Building Amenities 24 hr. concierge Landscaped roof garden On-site parking garage Zip-Car® available Indoor bicycle storage Coffee shop & dry cleaning services CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

21. Interior Finishes Apartment Features Energy Star® appliances Ceramic tiled floors (kitchen & bath) Non-toxic carpeting FSC certified wood cabinets Designer hardware Elegant, energy efficient light fixtures High speed Internet access, cable TV, multiple phone lines Modern & sustainable living space. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

22. LEED Elements LEED certified design. Photovoltaic panels Green roof Low-E glass Energy efficient systems Energy Star appliances Low VOC materials Dual-flush toilets Maximizing daylighting Indoor air quality improvement systems Indoor Technologies Rainwater Collection System CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

23. LEED Elements Cost Neutral Sustainable Site Selection Urban Redevelopment Exterior Landscape Design Public Transportation Bicycle Storage Parking Capacity Water Efficient Landscaping Water Use Reduction (20%) Construction Waste Management Recycled Content Materials Regional Materials Low VOC paints & adhesives/sealants Day-lighting Cost Premium Roof Landscape Design Rain Collection System Advanced HVAC Systems Low-E Glass Building Commissioning Halon/HCFC-free fire systems Photovoltaics Panels CO2 Monitoring Low VOC Carpets Many Cost Premium items will pay for themselves. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

24. CONSTRUCTION TIMELINE

25. Construction Timeline CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

26. Construction Cost Breakdown CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

27. CAPITAL BUDGET

28. Capital Budget Total Development Cost is $280/sf. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

29. Project Timeline 18 months > 18 months 12 months 4 years until project stabilizes. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

30. Project Timeline Early team formation facilitates integrated design. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

31. FINANCIAL ANALYSIS

32. Assumptions Escalation for construction cost = 5% annually Absorption rates = one year (ReCreate market research) Rental growth = 4% (TWR Fall 2005 ) Op Ex growth = inflation rate (new building) Vacancy = 5% apartments, 12.3% office (TWR Fall 2005 ) Going in cap rate = 6.96% office, 4.45% residential (NCREIF Boston) Going in/out cap rate spread = 30bps office and 97 bps residential (Korpacz 2005) Conservative Assumptions. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

33. Rental Assumptions Mix of Market, Affordable and Office Components Market Apartments: average rent $2,200/month Apartment Operating Expenses + Taxes are $10.5 PSF Green building reduces expense on utilities – Lower effective rents to tenants Parking Rent is $225 per spot (NNN) Office Rents: $35 PSF Gross Office Operating Expense + Taxes are $17 PSF CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

34. Financing Green financing allows lower equity returns. Total Project Cost including land @ time 0: $46,400,000 Construction Loan: $33,400,000 Key Bank: 18 month term, 75% LTC, floating interest rate 6.54% Permanent Loan takes out construction loan Deutsche Bank: 10 year balloon, 30 year amortization, 80% LTC, fixed interest rate 5.6%, Required DSCR 1.25 Equity Partners Key Bank, Investor’s Circle, ReCreate: 19.3% blended return Initial Hurdle: Pari passu up to 15% 82 – 10 - 8 after 15% hurdle is achieved CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

35. Returns Sell upon stabilization. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL Project provides minimal positive NPV Proposed equity splits compensate developer after meeting 15% initial hurdle EQUITY INVESTORS Investor's CircleKeyBankRecreateTotal Equity Amount $ 2,000,000 $10,712,613 $ 300,000 13,012,613 Required Return (10 yr hold)9.5%15%20%14.3% Required Return (Development)15%20%25%19.3% % Of equity15.4%82.3%2.3%100.0% Residual Splits10.00%82.00%8.00%

36. A very sensitive project but our numbers are conservative. Sensitivity Analysis Varying Rents - Constant Construction Cost Monthly RentResidual Land Value 2100 $ 192,000 2200 $ 2,400,000 2300 $ 4,600,000 Varying Construction Cost Escalation - Constant Rents EscalationResidual Land Value 0% 5,000,000 5% 2,400,000 10% (181,000) 15% (2,800,000) Varying rents with constant construction costs Varying construction cost escalation with constant rents CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

37. Mitigating Risk Minimizing temporal uncertainty Pre-leasing office space Sale after stabilization will take advantage of low cap rates now and reduce future risk of unknown market in 10 years Mitigating risk for construction Construction escalation of 5% built in until GMP GMP contract will mitigate further price increases Confirmed timeline feasibility Built-in leeway for uncertainty. CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

38. Alternative Strategies Examined strategies for increasing returns Considered: Extending construction loan to cover lease-up period? Whether rents were too conservative? Taking developer’s fee as return on equity instead of project cost? Getting land value contributed as equity? Reducing construction costs – How cheaply can we build? Which green building components can be achieved at lowest cost? Increasing FAR beyond as-of-right? Sale as condos (option valuation) CONTEXT MARKET REGULATORY DESIGN CONSTRUCTION CAPITAL BUDGET FINANCIAL

39. Conclusion $10 Million ≠ $2.4 Million ?

40. THANK YOU.