1. bae Financial Strategy FMFADA Board November 19, 2009

2. bae Today’s Agenda  BAE/RCLCO Analysis  Capital market conditions  Developers in down markets  Current RFI/Q/P solicitation strategy  Master versus multiple developer partners  FMFADA as “master developer”  Recommended revision to developer RFI/Q/P process

3. bae BAE and RCLCO Analysis  In the course of performing their respective work, BAE and RCLCO have independently come to the same conclusion regarding FMFADA’s master developer RFI/P/Q strategy  BAE and RCLCO have conferred over the past several weeks and prepared a joint analysis for FMFADA  This presentation shares our analysis and recommendations

4. bae Big Picture Economic Conditions  National economy emerging from steep recession 8M jobs lost Unemployment at 26-year high  Blue Chip Economic Indicators - November Forecast for 2010 Consensus forecast GDP growth @ 2.7% Growth slower than normal recovery 1.4% disposable personal income growth 2% inflation  Wall Street Journal Survey - November Survey for 2010 Average forecast of solid 2.9% GDP growth Employment growth slow - 600,000 non-farm jobs Low inflation @1.8% Shape of recovery: Half of respondents: “U-shaped” -slowness followed by solid growth 31% “V-shaped” -strong rebound 11% “L-shaped” - economy stabilizes at lower level 7% “W-shaped” or “Double-dip” recession

5. bae Constraints on Capital Availabiliity  Real estate credit markets have been “frozen” for the past 18 months and despite some recent “thawing” remain extremely challenging.  The “great de-leveraging” of commercial real estate is expected to absorb much of real estate capital over the next several years, constraining capital available for new projects.  $950B+/- commercial real estate debt maturing over next three years

6. bae  Lack of capital will constrain developer response to opportunities at Fort Monroe, particularly for new development  Developers are reluctant to expend precious equity dollars for pre-development activities as would be required for planning new development at Fort Monroe  Soliciting a master developer for the entirety of Fort Monroe will attract interested parties seeking to “tie-up” the property and “wait-out” the market Developers in Down Market

7. bae Current RFQ/RFP Strategy  RFP for leasing and property management entity Action: Fiscal year 2010 - NO CHANGE  RFQ, RFP, and ENA for Master Developer National outreach Experience and financial resources key criteria Use selection process to get up front concessions Action: Fiscal year 2010 - NEED TO REVISE  RFP for marina operator in partnership with U.S. Army Action: Fiscal year 2011 - NO CHANGE

8. bae Master Developer Pros and Cons  Pros: Single entity handles real estate on behalf of FMFADA Integrated planning and development Access to private/public debt and equity markets “Lean and mean” staffing of FMFADA  Cons: Risky: “All of one’s eggs in one basket” Encumbers Fort Monroe if partner’s financial conditions deteriorate Rare for one developer to excel in all development types Financial returns: reduced due to lease “sandwiches” with sub-developer Too many financial pockets to feed Lack of control: economic and programmatic interests not always aligned

9. bae The Multiple Developer Scenario  Pros: “Best in class” niche developers selected for discrete projects Improves financial returns by: Eliminating master lease Fee development opportunities Direct end user leases Access to private/public debt and equity markets Deal structure can be customized to fit the opportunity Greater control by FMFADA to balance economic and programmatic interests  Cons : Lower degree of integrated planning Increases staffing requirements for FMFADA FMFADA assumes master developer role

10. bae FMFADA as Master Developer  Integrated planning  Overall real estate marketing and branding  Infrastructure financing and construction  Lease negotiation and execution  Project coordinating and monitoring  Lease administration Under a multiple development partner scenario the FMFADA acts as master developer providing: As a master developer, FMFADA will require a larger staff than previously planned.

11. bae  174 historic residences  Good to excellent condition  Have value today that can be leveraged  Low-to-moderate capital investment required  Can be offered on a cluster-by-cluster or neighborhood basis  Developer can be engaged on “fee” basis Developer invests little of own capital and is compensated by a fee (percent of project value and performance bonus)  Leaseholds used as collateral to secure financing Near Term Development Opportunity Prepaid Residential Leaseholds

12. bae Recommendations  Adopt a multiple developer approach  Reduce scope of first RFI/P/Q to Residential Lease Program  Postpone Industry forum to mid-2010 Allows participation of new Interim Director of Real Estate Permits FMFADA to resolve planning, historic tax credit, and infrastructure issues Time to formulate Residential Leasehold program details  “Soft” Marketing Campaign Identify and brief potential “best in class” developers Ensure developer market understands and buys into program Line up local lender and real estate community support Need to ensure qualified developer response

13. bae Background Slides

14. bae  Concept approved by Board: Offer long-term (50+ year) leases of historic residences with pre- payment of rent Establish endowment/pay for capital costs with proceeds  Issues: Pioneering product in Hampton Roads Need to develop support infrastructure (e.g, local lenders, brokers, title companies) Avoiding fixed rental rates/avoiding “surprises” to leaseholders Capturing future property appreciation  Examples: Sea Colony, Delaware Pensacola, Florida Jekyll Island, Georgia Palm Desert/Palm Springs, California Residential Leasehold Program Hawaii Santa Inez, California Universities/Colleges Land Trusts

15. bae Capital Requirements: “Three Buckets”  Reuse and redevelopment of Fort Monroe will require significant capital at three levels:  This suggests different contractual arrangements and deal structures with private management and development entities. Interim Leasing Own land and improvements “free & clear” Minor upgrades Little capital at risk Exposure to “market” risk Leasing and property management functions LowMediumHigh New Construction Own land only New construction of improvements & infrastructure Highest capital requirement Highest level of risk 3rd-party capital required Residential Leasehold Own land and improvements “free & clear” Moderate unit rehab Site & parking improvements 3rd-party capital required