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Trust Deed Type: First Trust Deed

Location:42 finished town home lots located in The Villages at Country Club in Mesa, Arizona (hereafter: “VCC”)

Description: VCC is a guard gated community with a total of 369 home sites originally developed between 2004 and 2006.  For a full description of VCC, see “Project Description” below.  This loan is secured by forty two (42) finished lots within the VCC community

Security: First deed of trust on the Collateral and personal guaranty of the borrower

Loan Amount: $1,344,000

Collateral Value: CapSource has obtained a Broker’s Price Opinion (“BPO”) for the project, which was prepared by Chris Wyatt dated with ReMax Fine Properties of Scottsdale as of October, 2013.  This BPO values each VCC finished lot  between $45,000 and $60,000

LTV: 53% to 71%

Term: 12 months with two six month extensions if necessary to provide the borrower with sufficient time to achieve an orderly exit strategy 

Comments:

The VCC project represents a unique opportunity at a unique point in time.  The project was built with better amenities than would make economic sense in today’s post-crash market.  The $6 million clubhouse and another $1 million in other community amenities could not be supported by the profit margins homebuilders are generating today.  However, the borrower is buying the lots for a fraction of what they cost the original developer to build and essentially inheriting these amenities.  By buying lots in a high quality community at a “reset” price and getting today’s reduced pricing from his subcontractors, the borrower can sell homes at a time when supply has finally been absorbed by the market (after nearly six years) and demand (population and job growth) has returned to historical norms. The borrower expects to generate profit margins on the homes he builds and sells in VCC in the 20+% range.  That is at or above the top end of what public home builders are generating by buying land on the open market, finishing lots and building homes in communities that have inferior amenities (and in many cases, inferior location) compared to VCC. In the two communities where the borrower is already building homes nearby, his construction costs are between $50.00 and $65.00 per square foot (compared to well over $100.00 at the peak of the housing cycle). The average square footage of the homes Roberts will be building in VCC is 1,700. So, with a lot price of $40,000 (compared to around $100,000 at the peak), his total home cost will be under $90.00 per square foot (1,700 times $65.00 plus $40,000 lot cost divided by 1,700), or around $150,000. Comparable sales in the area (in communities with inferior amenities compared to VCC) are in the $110.00 to $140.00 per square foot range. The borrower believes he will be able to sell his homes for at least $125.00 per square foot, or around $210,000 for a gross profit margin of around 40%. After project marketing and overhead, his margin will still be well over 20%.