TO: Scotina Associates, LLC

FROM: Hicks Properties, LLC

DATE: May 19, 2015

RE: Inglewood Business Park

Asset SummaryInglewood Business Park is a 24.228-acre complex in Largo, MD that contains four industrial/flex buildings occupying 256,877 square feet. The four buildings are 73.8% occupied, and brought in $3,968,135 in rents in 2012.

Location SummaryInglewood Business Park is strategically located less than ½ mile from Exits 16 and 17 of the Capital Beltway (I-95/I-495), with easy access to Washington, DC and Annapolis via U.S. Route 50 and Baltimore via I-95. The business park is located in an institutional park setting with access to nearby retail, transportation, and entertainment. The site is also one mile north of the Largo Town Center Metro Station, which serves Metrorail’s Blue and Silver Lines. The metro station is accessible from the property via bus by Prince George’s County Transit Routes 21 and 28.

Market Summary The vacancy rate for the Suburban Maryland industrial/flex submarket was 9.8% as of March 2012, marking a 20% decrease since 2010. The submarket experienced 172,000 square feet of net absorption in the first quarter of 2012 for a total of 791,000 square feet of net absorption since 2010. The size of the market in square feet was not addressed in the Operating Manual. Sales and leases at five comparable properties, all located in the northern half of Prince George’s County, were described in the Operating Manual. Inglewood Business Park is larger than all five properties, and Inglewood Business Park commands higher rents than the five properties.

Tenant SummaryThe five largest tenants are Simplexity, LLC (51,667 sf), the Department of Health and Human Services/General Services Administration (GSA) (40,682 sf), Prince George’s County Property Standards Division (20,616 sf), Christ Embassy Church (16,118 sf), and Creative Options & Employment (15,263 sf). The types of tenants include federal government offices, local government offices, large companies, and churches and schools. There will be twelve-month downtimes in 2014, 2016, 2020, and 2022 for selected suites. The two largest tenants expected to vacate the premises are Prince George’s County in 2022 and Creative Options in 2020. The leasing coordinator must be aggressive in trying to re-sign these two tenants during the later years of the holding period.

Asset Strengths The strong federal government presence in the region is the reason for the growth and

stability of the Washington, DC region and its economy. The GSA, the federal government’s leasing agency, leases two suites within the property

The central location within Prince George’s County has created speculation that the county is considering moving the county seat from Upper Marlboro, located in southern

1

Prince George’s County, to Largo. The idea behind moving the county seat is to relocate many county government offices to better provide services to its residents. Inglewood Business Park would be in an excellent position to host many additional county offices

Property located near two Capital Beltway interchanges and a metro station along the Blue and Silver Lines

Neither capital improvements nor collection losses are expected during the 10-year holding period

Asset Weakness Federal austerity measures would greatly impact the property and the region by laying off

federal employees and eliminating or merging government agencies Prince George’s County is not experiencing the same growth that the rest of the region is

experiencing, and has a negative perception within the region due to its proximity to Washington, DC’s most crime-ridden neighborhoods

High capital and leasing costs during the first two years in the Cash Flow Schedule will lead to negative net cash flows

The vacancy rate of 26.2% is much higher than the submarket vacancy rate of 9.8%. This could potentially be addressed over the next ten years

Asset Opportunities The high vacancy rate of 26.2% means that there is potential for new tenants to move into

a currently-vacant suite. Some potential targets for new tenants could include Prince George’s County and the University of Maryland, both of whom are looking to expand to provide additional services to residents of central Prince George’s County. The federal government is not likely to be interested in signing additional leases with Inglewood Business Park due to federal austerity measures

Aerial photographs of Inglewood Business Park show an excess of vacant land surrounding the property. Prince George’s County GIS revealed that Inglewood Business Park’s property does not include the vacant land; however, depending on how the land is developed, the new development could make the property more attractive to potential tenants.

Prince George’s County has announced that it has selected a site near Largo Town Center Metro Station for its new $650 million hospital. The Washington Post said that the hospital is expected to open in 2019.1 This presents an opportunity to attract medical companies and doctors to the property as tenants.

Operations Analysis

1 http://www.washingtonpost.com/local/prince-georges-legislators-press-ahead-on-regional-hospital-despite-funding-doubts/2015/01/06/c92f3f08-9521-11e4-aabd-d0b93ff613d5_story.html

2

Year 1 PSF Year 2 PSF Year 4 PSF Year 6 PSF Year 8 PSF Year 10 PSFTotal Potential Gross Revenues 3,380,004 13.16 3,667,177 14.28 4,356,399 16.96 4,893,425 19.05 4,883,615 19.01 4,841,861 18.85

Vacancy 146,769 0.57 164,345 0.64 165,955 0.65 168,735 0.66 170,671 0.66 165,268 0.64 Collection Loss - - - - - - - - - - - -

Effective Gross Revenue 3,233,235 12.59 3,502,832 13.64 4,190,444 16.31 4,724,690 18.39 4,712,944 18.35 4,676,592 18.21

Total Operating Expenses 2,430,326 9.46 2,503,235 9.74 2,655,683 10.34 2,817,414 10.97 2,988,994 11.64 3,171,024 12.34

Net Operating Income 802,909 3.13 999,596 3.89 1,534,762 5.97 1,907,277 7.42 1,723,950 6.71 1,505,569 5.86

Total Leasing & Capital Costs 428,332 1.67 982,089 3.82 38,532 0.15 258,892 1.01 38,532 0.15 38,532 0.15

Cash Flow Before Debt Service & Taxes 374,577 1.46 17,508 0.07 1,496,230 5.82 1,648,385 6.42 1,685,418 6.56 1,467,037 5.71

Total Debt Service 642,327 2.50 642,327 2.50 642,327 2.50 642,327 2.50 642,327 2.50 642,327 2.50 Principal 471,903 1.84 464,074 1.81 447,319 1.74 428,991 1.67 408,939 1.59 387,003 1.51 Interest 170,425 0.66 178,254 0.69 195,008 0.76 213,337 0.83 233,388 0.91 255,325 0.99

Debt Service Coverage Ratio (NOI/DS) 1.25 1.56 2.39 2.97 2.68 2.34

Cash Flow Before Tax (267,750) (1.04) (624,820) (2.43) 853,903 3.32 1,006,058 3.92 1,043,091 4.06 824,710 3.21 Taxes - State & Federal (35%)Net Cash Flow After Taxes (174,038) (0.68) (406,133) (1.58) 555,037 2.16 653,937 2.55 678,009 2.64 536,061 2.09

SCHEDULE OF PROSPECTIVE CASH FLOW

ValuationInglewood Business Park’s going-in value is $14,598,351, or $56.83 PSF. For the going-in value, a 5.5% cap rate was used. This is due to a lack of market activity in Prince George’s County when compared to other business centers in the Washington, DC region, such as Arlington, VA, Bethesda, MD, and Downtown Washington. The exit value in Year 10 is projected to be $25,092,811, or $97.68 PSF. The exit value uses a 6% cap rate. The region is expected to keep growing, and thus cap rates should not change much during the next 10 years.

FinancialUsing a 6% exit cap rate and a 10% discount rate, the before-tax NPV is expected to be $5,263,177. The property will experience negative net cash flow its first two years because of high leasing and capital costs during the first two years. Despite the lost cash flow, the property can still expect a before-tax IRR of 20.52%. Although the financial ratios suggest that the investment still carries a lot of risk, the ratios should be taken lightly due to the high leasing and capital costs during the first two years. The Cash-on-Cash Ratio of -4.31% indicates that the long-term performance of the rental property may not match expectations. The Gross Rent Multiplier of 4.32, Break Even Ratio of 95.03%, and the Operating Expense Ratio of 75.17% are all undesirable ratios, and reflect the property’s relatively low income. However, after Year 2, lower leasing and capital costs will lead to net cash flows of over $500,000 in each year between Years 3 and 9.

Conclusion/RecommendationDespite financial ratios that suggest this property carries a lot of risk, Inglewood Business Park is a promising property. A 20.52% before-tax IRR at a 6% exit cap rate indicates that the property will be highly profitable despite experiencing losses during the first two years of the holding period. After evaluating the information currently available, my preliminary recommendation to Scotina Associates, LLC would be to purchase the property. In order to make a final recommendation, I would need to review more information on the Suburban Maryland Submarket, including the total industrial/flex submarket size and how properties in Prince

3

George’s County are performing when compared to the Columbia, Washington, DC, and Northern Virginia Submarkets and properties in Montgomery County.

4