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HomeMy WebLinkAboutSS2 - Beacon Bay Home Owners Association Proposed Rate Change to Current LeaseQ SEW Pp�T CITY OF �m z NEWPORT BEACH c�<,FORN'P City Council Staff Report February 12, 2019 Agenda Item No. SS2 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Seimone Jurjis, Community Development Director - 949-644-3232, sjurjis@newportbeachca.gov PREPARED BY: Lauren Wooding Whitlinger, Real Property Administrator, Iwooding@newportbeachca.gov PHONE: 949-644-3236 TITLE: Beacon Bay Home Owners Association Proposed Rate Change to Current Lease ABSTRACT: Beacon Bay is a residential neighborhood of 72 single-family homes located at the terminus of Harbor Island Road and Beacon Bay. The property contains both land owned in fee by the City of Newport Beach (City), and filled tidelands owned in fee by the State of California, which are managed by the City under California State Statutes commonly known as the Beacon Bay Bill. Ground lease agreements previously negotiated with representatives of the Beacon Bay Home Owners' Association (HOA), and approved by the State Lands Commission and the City Council, govern the private residential use of publicly -owned properties. The residents pay a monthly ground lease rent to the City. Representatives of the HOA have submitted a proposal to amend the rate of the most recent lease agreement. Staff has analyzed the HOA proposal and will present the findings and seek further direction from the City Council on next steps. RECOMMENDATION: Provide further direction to City staff. FUNDING REQUIREMENTS: There is no fiscal impact related to this study session. DISCUSSION - Background Beacon Bay is a residential community of 72 single-family homes, located on approximately 19 acres bayward of Bayside Drive, at the terminus of Harbor Island Road and Beacon Bay. With 27 bayfront lots, and 45 interior lots, the land is made up of property owned in fee by the City and filled tidelands owned in fee by the State held in trust by the City pursuant to the California State Statutes commonly known as the Beacon Bay Bill (Chapter 74, Statutes of 1978, as amended in 1997 by Chapter 317). The State Lands Commission holds oversight on land owned by the State. The residential properties are ground leased to the homeowners, who own the vertical improvements (i.e. dwelling unit, landscaping, personal property) only. SS2-1 Beacon Bay Home Owners Association Proposed Rate Change to Current Lease February 12, 2019 Page 2 History In 1919, the State legislatively granted tide and submerged lands to the City for development and management. Improvements to Newport Harbor, including dredging to create a channel to navigable waters required certain portions of the harbor to be filled, including portions of the area now known as Beacon Bay. The land in Beacon Bay was first leased by the City to J. A. Beek (Beek), for commerce and navigational use, in 1927. Then in 1938, the City directed Beek to convert the leased land to residential use. Beek subdivided and subleased the parcels to individuals for private residential use, and homes were constructed in Beacon Bay through the 1950's. The private, exclusive use of the tidelands for residential purposes was addressed by the State with an amendment to the legislative tidelands grant in 1978. The State approved continued residential use of approximately three -acres of tidelands in Beacon Bay, with the following conditions: 1. A property of similar size, value, and utility be transferred into the tidelands trust, to continue the trust's purpose of promoting commerce, navigation, and fisheries. 2. The portions of the tidelands in Beacon Bay over the streets and beaches shall not be converted to another use, and must remain in the trust for commerce, navigation, and fisheries. 3. The City must continue to hold the tidelands in Beacon Bay in trust, and abide by the other terms and provisions of the statutory grant, and other laws applicable to tide and submerged lands. 4. Should the City decide to continue its use of the tidelands in Beacon Bay for residential purposes, prior to its issuance the State must approve the form of such lease and the fair market rental value consideration of the lease. 5. The revenues from leasing the tidelands in Beacon Bay must be deposited into a separate fund for operations, maintenance, and capital improvements of tidelands, and to further the purposes of the trust. With the Beek leases expiring in 1987, and the State's requirement to obtain fair market value rent for the use of parcels in Beacon Bay, the City entered into market rent leases with the residents in 1981. The City lease term ran concurrent with the remaining term of the Beek lease, but deducted the amount of the Beek rent. The lease automatically renewed in 1988 and expired in 2006, limiting the term to a total of 25 -years in accordance with the City Charter at the time. In 1994 new leases were negotiated with the HOA, the State, and the City. The leases were for a static 50 -year term that started in 1994 and end in 2044. There are 22 properties under this lease version. In 2010 the HOA again approached the City, requesting a rolling lease term, rather than the static 50 -year term, to allow residents to obtain a traditional 30 -year mortgage when financing or refinancing their home. The lease was amended and in June 2012, the current lease agreement was approved by the HOA, State Lands Commission, and the City Council (Attachment A). SS2-2 Beacon Bay Home Owners Association Proposed Rate Change to Current Lease February 12, 2019 Page 3 Current Leases Three versions of the Beacon Bay lease template are currently in use, as the lease agreement only changes to the most current version when a property changes ownership. Below is a table outlining the key differences in the terms of the three versions of the lease, and the current distribution of each lease: Current Beacon Bay Lease Agreement Templates Description Lease Term CPI* Number of Adjustment Properties Pre-existing Tenancy 50 -year lease, No CPI Tenant— started prior expires in 2044 adjustment 27 1994 Lease to 1994 Tenancy Lease expires in CPI adjustment 1994 Lease started after 2044 applied every 7 22 July 1, 1994 years Tenancy 50 -years from CPI adjustment 2012 Lease started after date of applied every 23 June 2012 acquisition year *Consumer Price Index, published by the United States Department of Labor, Bureau of Labor Statistics Rental Rate and City Council Policy In addition to the State's requirement under the tidelands trust to charge fair market value, City Council Policy F-7 — Income Property (Policy F-7) (Attachment B), requires the City charge fair market value rent to private third -parties of City -owned property. Rent for leases in Beacon Bay are set at 2.5% of the sale price of the improvements, which are transferred on the open residential real estate market. Sale prices are negotiated by the buyer and seller in the open market, with consideration for the leasehold interest and the ongoing responsibility to pay the leasehold rent to the City. City staff works closely with the escrow companies whenever a transaction takes place to ensure the Beacon Bay lease agreement is disclosed and properly assigned to the new owner(s). Staff also works with trustees or estate attorneys when the property is part of an estate plan. SS2-3 Beacon Bay Home Owners Association Proposed Rate Change to Current Lease February 12, 2019 Page 4 Current Revenues Collected The City collects approximately $2,850,000 per year from the Beacon Bay leases. Of the revenue collected 51% is placed in the Tidelands account, 49% is placed in the General Fund, and 10% of the revenue placed in the Tidelands account is remitted back to the State. HOA Proposed Changes to Lease Terms In 2018, the HOA approached the City and proposed changing several of the key terms of the template lease agreement. The HOA proposes to reduce the rental rate from 2.5% of the purchase price to 1 % of the purchase price, and to eliminate the CPI cost of living adjustment to the rent. The HOA's proposal to changing the terms of the template lease agreement can be found in Attachment C. Revenue Modeling To better evaluate how the HOA's proposal would affect the City's revenue, City staff contracted with Keyser Marston Associates, Inc. (KMA) to review and model the HOA's proposed changes to the lease terms (Attachment D). KMA could not exactly duplicate the mathematical data in the HOA's tables and spreadsheets to verify the proposed revenue projections. However, using the HOA's proposed changes to the rent structure, and most of the same price and sales volume assumptions, KMA determined the City would experience a $31,631,694 loss in revenue from Beacon Bay leases between 2019 and 2037 (approximately $1,757,316 per year reduction in revenue), as compared to current revenue figures only adjusted by an average annual inflation rate of 2.5% per year, and assuming no resales. It should be noted that staff and KMA have met with HOA representatives to discuss their proposal. The HOA disputes the assumptions that were used in KMA's modeling. State Lands Commission After receipt of the HOA's proposed changes to the lease, staff provided detail of the HOA's proposal with the State Lands Commission's Executive Officer, External Affairs Division Chief, and Legal Counsel. The State responded with a letter confirming any change to the form of the lease will require State approval. The letter also notified the City that the State will thoroughly analyze any proposed reduction in the lease amount, and will require "ironclad and indisputable justification and rationale to prove that the reduced amount reflects fair market value" (Attachment E). SS2-4 Beacon Bay Home Owners Association Proposed Rate Change to Current Lease February 12, 2019 Page 5 ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A — 2012 Beacon Bay Template Lease Agreement Attachment B — City Council Policy F-7 — Income Property Attachment C — HOA Proposed Changes to Lease Terms Attachment D — Keyser Marston Associates, Inc. Beacon Bay Revenue Modeling Attachment E — State Lands Commission Letter, Dated September 5, 2018 SS2-5 Attachment A 2012 Beacon Bay Template Lease Agreement SS2-6 BEACON BAY LEASE THIS BEACON BAY LEASE ("Lease") is entered into as of the _ day of , 20_ ("Effective Date"), by and between the City of Newport Beach, a California municipal corporation, tideland's trustee, and charter city ("Lessor" or "City") and , a ("Lessee"). Lessor and Lessee are sometimes individually referred to herein as "Party" and collectively as the "Parties." RECITALS A. Lessor by virtue of a 1978 legislative grant found in Chapter 74 of the Statutes of 1978, as amended ("Beacon Bay Bill"), holds the right, title, and interest to certain tidelands and uplands commonly known as Beacon Bay and generally depicted in Exhibit "A" attached hereto and incorporated by reference. B. The Beacon Bay Bill frees the "Westerly portion" of the filled tidelands from the public trust and specifically authorizes the lease of the property for residential purposes subject to certain express statutory conditions. C. As required by the Beacon Bay Bill, the consideration to be received by the City for the residential leases is the fair market rental value of such lots as finished subdivided lots with streets constructed and all utilities installed. D. On November 3, 1987, a majority of the electors in the City approved a measure authorizing the City Council to enter into residential leases in Beacon Bay for a period not to exceed fifty (50) years. E. On November 3, 1992, a majority of the electors in the City approved Measure M authorizing the City Council to lease tidelands and waterfront property consistent with the provisions of state law. F. The City Council, pursuant to the authority conferred by the electors and the Beacon Bay Bill, leased out the residential lots within Beacon Bay for fifty (50) year terms. G. The current residential leases are set to expire on July 1, 2044, which is preventing certain persons with existing leases within Beacon Bay from obtaining a traditional thirty (30) year mortgage. H. Lessor and Lessee desire a new residential lease for Beacon Bay with a new fifty (50) year term and new provisions that are reflective of current conditions. I. City has determined this Lease is consistent with the Beacon Bay Bill, the City's Charter, General Plan, Zoning Ordinances, and all other applicable state and local laws. 1 SS2-7 J. The California State Lands Commission reviewed the form of this Lease and the range of consideration to be received by the City and determined that the Lease is in conformance with the provisions in the Beacon Bay Bill. 1. AGREEMENT TO LEASE 1.1 Lease. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor hereby leases to Lessee the real property commonly known as Beacon Bay Lot , ("Property") which is more particularly described in Exhibit "B", and generally depicted on Exhibit "A", each attached hereto and incorporated by reference herein. If Lessee is a Limited Liability Corporation ("LLC") Lessee shall provide Lessor with the name of its majority share holder at the time of execution of this Lease. The LLC may not change its majority shareholder without the prior written consent of the City's City Manager or his/her designee. If approved, a change of the majority shareholder triggers a re -appraisal of the Property and an adjustment of Base Rent pursuant to the re -appraisal process in Section 3.6(b). 1.2 Reservation of Mineral Rights. Lessor expressly reserves all oil, oil rights, gas, minerals, mineral rights, natural gas rights and other hydrocarbon substances in and under the Property and the right to grant and transfer the same, together with all necessary and convenient rights to explore for, develop, produce and extract and take the same, subject to the express limitation that any and all operations shall be carried on at levels below the depth of five hundred feet (500') from the surface of the land by means of wells, derricks and other equipment from surface locations on adjoining or neighboring land, and subject further to all restrictions and regulations concerning the drilling for, and production of, oil, gas, minerals, petroleum and other hydrocarbon substances specified in the City's Charter and Municipal Code. 1.3 Net Lease. This Lease is a net lease, pursuant to which Lessor has no obligation with respect to the payment of taxes, insurance, the cost of maintenance, utilities and repairs or other costs or obligations associated with the Property, except as expressly stated herein. 1.4 Termination of Prior Lease(s). Lessee affirmatively represents that: (a) the persons executing this Lease have a hundred percent (100°/x) of all interests in any prior lease(s) covering the Property; and (b) have authority to execute this Lease and be bound by the terms herein. Upon the execution of this Lease, any lease(s) between the City and the Lessee or any other party covering the Property shall automatically terminate and be of no further effect. Lessee shall execute and record any document(s) that may be required by City to evidence the termination of any prior lease(s) covering the Property. City shall owe no compensation to Lessee or any other party for the termination of a lease under this section. Lessee shall indemnify and hold the City harmless from any and all liability, loss, expense, damage, or claims which may arise directly or indirectly from or in connection with any allegation that the representations made is this section are false. 2 SS2-8 2. TERM OF LEASE 2.1 Fixed Term. The term of this Lease shall be for a fixed period of years commencing as of , 20_ ("Commencement Date") and terminating on , 20 . The total term may not exceed fifty (50) years pursuant to the Beacon Bay Bill. 2.2 Options. Upon the written request of Lessee and in the sole and absolute discretion of City, this Lease may be terminated and a new lease (with the most current terms approved by the City and/or State Lands Commission) executed with a term not to exceed fifty (50) years pursuant to the payment of the "Option Fee" by Lessee for each year the term is extended. The new lease's term shall be the cumulative total of the purchased years under this section and the remaining years in this Lease (i.e., if ten (10) years and one (1) month remain in this Lease and five (5) years are purchased under this section the new lease shall be for a term of fifteen (15) years and one (1) month). The Option Fee shall be calculated pursuant to a specified percentage, as provided in Exhibit "C", attached hereto and incorporated by reference, of the fair market value of the Property as determined by an appraisal, multiplied by the number of years that are purchased by the Lessee (i.e., for illustrative purposes, if the specified percentage is one percent (1%) and the appraised Property value is one hundred dollars ($100) and Lessee desires to extend the term five (5) years, Lessee would owe the City five dollars ($5) [$1 x 5 years= $5]). The Option Fee shall be paid to City by Lessee at the time of execution of the new lease. The Property appraisal shall be conducted after the City's approval of the written request submitted by Lessee. The City's approval of the written request shall be valid for six (6) months or some other time period as may be agreed upon by the parties. Lessor shall submit three (3) California licensed appraisers to Lessee; Lessee shall select one (1) appraiser from the three (3) submitted appraisers to appraise the Property. Lessee shall pay all costs associated with the appraiser and the appraisal. For purposes of the Option Fee calculation, in no event shall the appraised fair market value be less than the Property value used to determine Base Rent (as defined in Section 3.2) in Sections 3.1 and 3.2 of the then effective Lease. Because there will be no sale of the Property, the Base Rent for the new lease shall be calculated pursuant to Section 3.6(b), notwithstanding the appraisal requirement in Section 3.6(b), the parties may rely upon the appraisal conducted pursuant to this section to calculate the Base Rent. 2.3 Holdover. This Lease shall terminate and become null and void without further notice upon the expiration of the term of this Lease. Any holding over by Lessee after the expiration of the term shall not constitute a renewal or extension and shall not give Lessee any rights in or to the Property or any part thereof except as expressly provided in this Lease. Any holding over after the expiration of the term with the consent of Lessor shall be construed to be a tenancy from month-to-month on the same terms and conditions set forth in this Lease insofar as such terms and conditions can be applicable to a month-to-month tenancy, except that the rental for each month or any portion thereof during such holdover period shall be an amount equal to one 3 SS2-9 hundred fifty percent (150%) of one -twelfth (1/12) of the annual rent for the most recent year paid. The month-to-month tenancy may be terminated by Lessee or Lessor upon thirty (30) calendar days' prior written notice to the other. 3. RENT & TRANSFERABILITY 3.1 Rent Calculation. Annual rent for the Property shall be calculated at the rate of two and half percent (2.5%) of the total of all consideration paid for the Property or the appraised value of the Property, including any improvements or structures, but excluding any consideration paid for the transfer of personal property in connection with such transaction. The annual rent shall be adjusted from time -to -time pursuant to Section 3.3. The rent calculation provided in this section shall serve as the basis for the Base Rent (defined below) in Section 3.2. 3.2 Base Rent. Lessee agrees to pay Lessor rent for the use and occupancy of the Property, in twelve (12) equal monthly installments on the first day of each month ("Base Rent"). Said sums shall be paid in lawful money of the United States of America. If the Commencement Date is other than the first day of a month, rent during any partial month at the beginning and at the end of the lease term will be prorated. Base Rent hereunder will be Dollars ($ .00) for an annual total of Dollars ($ .00). Base Rent due hereunder will be subject to the rent adjustment provisions of Section 3.3 below. Lessee shall send said rent to the mailing address or send an electronic fund transfer via the web address provided in Section 3.5. Lessee shall be responsible for any delays in the mode of sending the rent payment to Lessor. (a) Base Rent shall be due on the first day of each month. If said rent is received later than the fifteenth (15th) day of the month, there shall be a delinquency charge equal to five percent (5%) of the month's Base Rent due. (b) Each monthly installment of Base Rent shall bear interest if not paid promptly on or before the date it becomes delinquent at the rate of five percent (5%) per annum from the date it becomes delinquent until it is paid by Lessee to Lessor. This interest charge shall be in addition to the delinquency charge set forth in Section 3.2(a). 3.3 Rent Adjustments. Monthly Base Rent may be adjusted on July 1 St of each Lease Year (the term "Lease Year" as used herein refers to successive twelve (12) month periods, commencing with the Commencement Date of this Lease) to reflect increases or decreases in the cost of living as indicated by the Consumer Price Index described below. Monthly Base Rent may be adjusted if the Consumer Price Index for the Los Angeles — Orange County - Riverside Area, All Urban Consumers, All Items ("Index"), as published by the United States Department of Labor, Bureau of Labor Statistics ("Bureau"), increases or decreases over the Base Period Index. The initial "Base Period Index" shall be the Index for the calendar month which is four (4) months prior to the month of the Commencement Date (thus, , 20_, which equals ). The initial Base Period Index shall be compared with the Index for the same calendar month for each subsequent Lease Year ("Comparison Index"). The Comparison Index used for a given year's adjustment calculation will become the Base Period Index for 0 SS2-10 purposes of the next annual rent adjustment calculation. If the Comparison Index is higher or lower than the Base Period Index, then Base Rent for the next Lease Year shall be increased or decreased by the amount of such percentage change. Should the Bureau discontinue the publication of the above Index, or publish same less frequently, or alter same in some other manner, then the Parties shall adopt a substitute Index or substitute procedure which reasonably reflects and monitors consumer prices. Notwithstanding the Index adjustments described above, if Lessor, in its sole and absolute discretion, believes that notwithstanding such adjustments, monthly Base Rent, as adjusted, does not accurately reflect the fair market rental value of the Property, Lessor may elect to further adjust monthly Base Rent at the commencement of the thirtieth (30th) Lease Year. Lessor will provide notice to Lessee not earlier than six (6) months nor later than three (3) months prior to the expiration of the twenty-ninth (29th) Lease Year of Lessor's election to further adjust monthly Base Rent. Within fifteen (15) days thereafter, Lessor and Lessee will attempt to agree upon an adjustment in Base Rent. If Lessor and Lessee are unable to agree, the Property will be appraised to determine its fair market rental value. Lessor shall submit three (3) California licensed appraisers to Lessee; Lessee shall select one (1) appraiser from the three (3) submitted appraisers to appraise the Property. Lessor shall pay all costs associated with the appraiser and the appraisal. The fair market rental value determined by the appraiser will constitute monthly Base Rent for the thirtieth (30th) Lease Year and each successive year remaining on the Lease; provided, however, that in no event will monthly Base Rent so determined be less than that otherwise payable through the annual Index adjustments described above. 3.4 Additional Rent. All other payments from Lessee described in this Lease, whether to Lessor or third parties (i.e., for the payment of taxes, utilities, insurance, maintenance and the like) constitute "Additional Rent." Included within Additional Rent is any service charge incurred by City when processing the Rent (e.g., credit card transaction fee, etc.), such service charged shall be passed onto Lessee without any additional mark-up by the City. All references in this Lease to "Rent" include Base Rent and Additional Rent. 3.5 Place for Payment of Rent. All Rent that becomes due and payable under this Lease shall be paid to Lessor in person or by United States mail at the Cashier's Office located at 3300 Newport Boulevard, Newport Beach, California 92658, or electronically at www.newportbeachca.gov, or at any other place or places that Lessor may designate by written notice to Lessee. 3.6 Calculation of Base Rent for Leases Without Corresponding Sale. (a) Through January 1, 2015, Lessor will allow current lessees within Beacon Bay to voluntarily terminate their prior lease (that had an effective date of July 1, 1994 and an expiration date of July 1, 2044) and enter into this Lease. No transfers from the prior lease to this Lease are allowed after January 1, 2015. If a current lessee terminates their prior lease and enters into this Lease prior to January 1, 2015 or if 5 SS2-11 Lessee purchases additional years pursuant to Section 2.2, there will not be a sale price to calculate Base Rent. (b) The Base Rent shall be calculated at the rate of two and half percent (2.5%) of the appraised fair market value of the Property including any improvements or structures, but excluding any personal property. Lessor shall submit three (3) California licensed appraisers to Lessee; Lessee shall select one (1) appraiser from the three (3) submitted appraisers to appraise the Property. Lessee shall pay all costs associated with the appraiser and the appraisal. In no event shall the Base Rent be less than the dollar amount received by the Lessor under the former lease. The annual Base Rent shall be adjusted from time -to -time pursuant to Section 3.3. 3.7 Prohibition Against Transfer or Assignment. With the exception of the transfer and assignment provisions in Section 7 and Section 3.8, this Lease may not be transferred or assigned by Lessee. Any attempt to transfer or assign this Lease shall be an event of default subject to the remedies provided in Section 13.2. Any purported assignment or transfer in violation of this section shall be null and void. 3.8 Exempt Transfers or Assignments. Notwithstanding the prohibition against transfer and assignment provided in Section 3.7, the Lease may be transferred by Lessee if: (a) the transfer is caused by the death of a spouse and the full interest of the deceased spouse is transferred to a surviving spouse; (b) the transfer of an interest in this Lease is between or among tenants in common or joint tenants in ownership of the leasehold estate created by this Lease, and such tenants in common or joint tenants first acquired their respective interests in this Lease simultaneously; (c) the transfer is caused by the dissolution of the marriage of Lessee and the full interest of one of the spouses is transferred to the other spouse; (d) the transfer is to an inter vivos trust, living trust, or other similar estate planning arrangement of Lessee and the sole beneficiaries are the Lessee, the Lessee's spouse, or a tenant as contemplated in Section 3.8(b); or (e) the transfer is to a LLC; provided at the time of transfer the Lessee is the majority share holder of the LLC. The LLC may not change its majority shareholder without the prior written consent of the City's City Manager or his/her designee. If approved, a change of the majority shareholder triggers a re -appraisal of the Property and an adjustment of Base Rent pursuant to the re -appraisal process in Section 3.6(b). In the event of any transfer under this Section 3.8 the Lease term shall be for the remaining years existing on the Lease prior to the transfer (i.e., the term shall not be extended due to the transfer). n SS2-12 4. LESSOR'S TITLE Lessor covenants, represents and warrants that Lessee, its guests and permitted successors and assigns shall peaceably and quietly have, hold and enjoy the sole and exclusive use and enjoyment of the Property, or any part thereof, for the full term of this Lease and as the same may be extended as provided herein. This covenant and warranty of quiet enjoyment shall only apply to Lessor and those claiming or acting by, through or under Lessor. 5. USE AND CONDITION OF PROPERTY 5.1 Use of Property. The Property shall be used solely for residential purposes consistent with the City's Zoning and Municipal Code. Lessee may demolish, construct, remodel, reconstruct and maintain structures on the Property for residential purposes so long as the structures and construction are authorized by appropriate City permits and fully comply with all City ordinances, resolutions, regulations, policies, and plans. Lessee shall also obtain permission to construct and/or maintain structures from the Beacon Bay Community Association, California Coastal Commission, and any other private or governmental agency if required by law. Nothing in this section shall be interpreted as a pre -approval of any permit or other approval required for the use of the Property. 5.2 Maintenance of Improvements. Lessor shall not be required to make any changes, alterations, additions, improvements, or repairs in on or about all or part of the Property. Lessee shall, at all times during the term of this Lease and without any cost or expense to Lessor, keep and maintain, the Property, including, without limitation, all structures, facilities, walks, curbs, parkways and other improvements, in good order and repair and in a clean, safe, sanitary and orderly condition. Lessee shall cause to be constructed, maintained and repaired all utilities, pipes, walls, sewers, drains, and other improvements on the Property to the extent required by law or as necessary to maintain the improvement in good order and repair and safe and sanitary condition. 5.3 Compliance with Laws. Lessee shall make, or cause to be made, any additions, alterations or repairs to any structure or improvement on the Property which may be required by, and Lessee shall otherwise observe and comply with, any law, statute, ordinance, plan, resolution or policy applicable to the Property. Lessee shall indemnify, defend and hold Lessor harmless from and against any loss, liability, action, claim or damage, arising out of, or in any way related, to Lessee's failure to comply with, and perform pursuant to provisions of this Lease. All repairs, additions, and alterations to the structures or improvements on the Property shall conform to all applicable laws, ordinances, regulations, plans, policies and resolutions and all work shall be performed with reasonable diligence, completed within a reasonable time, and performed at the sole cost and expense of Lessee. 5.4 As Is Condition of Property. Lessee expressly accepts the Property "as is" and acknowledges that Lessor has made no representations or warranties as to the suitability of the Property or any construction or improvement. Lessee shall conduct all 7 SS2-13 tests necessary to determine the suitability of the Property for any proposed construction or improvement, including, without limitation, the amount and extent of any fill, and related factors. Lessee expressly acknowledges that Lessor shall not be liable for any damage or loss resulting from any subsurface or soil condition in, on, or under the Property or adjacent property. Lessee expressly acknowledges that, while the legislature of the State of California has purportedly removed the public trust restrictions on use of the Property pursuant to the Beacon Bay Bill, the Property may constitute filled tidelands, and Lessor has made no representation or warranty relative to the validity of the Beacon Bay Bill or the power of the legislature of the State of California to remove public trust restrictions on tidelands through legislation. Notwithstanding the foregoing, in the event of any challenge to the right and power of Lessor to lease the Property for the purposes provided in this Lease, Lessor agrees, at its sole cost and expense, to use all reasonable efforts to resist and defend against such challenge and to seek a ruling or judgment affirming and upholding the right and power of Lessor to lease the Property for the purposes provided in this Lease. 5.5 Tidelands Grant. The Property may be located on land that is the subject of a Tidelands Grant from the State of California to the City. Lessee shall not take any action that would cause the City to be in violation of any provisions of that Tidelands Grant. If the Property is located upon tidelands and the State of California terminates, or modifies the Tidelands Grant to prohibit the uses contemplated under this Lease, this Lease shall terminate as a result and the Parties shall be released from all liabilities and obligations under this Lease and Lessor shall owe no compensation to Lessee. 6. TAXES AND UTILITIES 6.1 Lessee to Pay Taxes. In addition to the Base Rent required to be paid under this Lease, Lessee shall pay any and all real and personal property taxes, including possessory interest tax (California Revenue and Taxation Code § 107.6), assessments, and other charges of any description levied or assessed during the term of this Lease by any governmental agency or entity on or against the Property, any portion of or interest in the Property, or any improvements on the Property. 6.2 Proration of Taxes. In the event that this Lease commences, terminates or expires during a tax year, Lessee shall pay the taxes for the period of such year during which this Lease was in effect. 6.3 Payment Before Delinquency. Any and all taxes and assessments and installments of taxes and assessments required to be paid by Lessee under this Lease shall be paid when due and the official and original receipt for the payment of such tax, assessment, or installment shall be given to Lessor upon request. 6.4 Contest of Tax. Lessee shall have the right to contest, oppose, or object to the amount or validity of any tax, assessment, or other charge levied on or assessed against the Property or any part thereof; provided, however, that the contest, opposition or objection must be filed before the tax, assessment or other charge at which it is directed becomes delinquent and written notice of the contest, opposition or objection SS2-14 must be given to Lessor at least twenty (20) days before the date the tax, assessment, or other charge becomes delinquent. Furthermore, no such contest, opposition or objection shall be continued or maintained after the date the tax, assessment, or other charge at which it is directed becomes delinquent unless Lessee has: (a) Paid such tax, assessment, or other charge under protest prior to its becoming delinquent; or (b) Obtained and maintained a stay of all proceedings for enforcement and collection of the tax, assessment, or other charge by posting such bond or other matter required by law for such a stay; or (c) Delivered to Lessor a good and sufficient undertaking in an amount reasonably specified by Lessor and issued by a bonding corporation authorized to issue undertakings in California conditioned on the payment by Lessee of the tax, assessment or other charge together with any fines, interest, penalties, costs and expenses that may have accrued or been imposed thereon within thirty (30) days after final determination of Lessee's contest, opposition or objection to such tax, assessment or other charge. 6.5 Tax Returns and Statements. Lessee shall, as between Lessor and Lessee, have the duty of attending to, preparing, making, and filing any statement, return, report, or other instrument required or permitted by law in connection with the determination, equalization, reduction or payment of any taxes, assessments or other charges that are or may be levied on or assessed against the Property, any portion or interest in the Property, or any improvements on the Property. 6.6 Tax Hold -Harmless Clause. Lessee shall indemnify and hold Lessor and the property of Lessor, including the Property and any improvements now or hereafter located thereon, free and harmless from any liability, loss, or damage resulting from any taxes, assessments, or other charges required by this Lease to be paid by Lessee and from all interests, penalties, and other sums imposed thereon and from any sales or other proceedings to enforce collection of any such taxes, assessments, or other charges. 6.7 Utilities. Lessee shall contract in its own name and fully and promptly pay for all water, gas, heat, light, power, telephone service, and other public utilities of every kind furnished to the Property throughout the term hereof, and all other costs and expenses of every kind whatsoever of or in connection with the use, operation, and maintenance of the Property and all activities conducted thereon, and Lessor shall have no responsibility of any kind for any thereof. In the event that it is necessary for Lessor to provide any of the foregoing utilities to Lessee on a pass through basis, Lessee shall provide a separate meter for the Property and shall reimburse Lessor for Lessee's usage of such utility service within ten (10) days of Lessor's invoice to Lessee. Furthermore, Lessee shall be solely responsible for the cost and expense of any upgrade, modification or other utility installation which is required as a result of Lessee's use of the Property. 9 SS2-15 6.8 Payment by Lessor. Should Lessee fail to pay within the time specified in this Lease any taxes, assessments, or other charges required by this Lease to be paid by Lessee, Lessor may, upon ten (10) days prior written notice and demand to Lessee, pay, discharge or adjust such tax, assessment, or other charge for the benefit of Lessee. In such event, Lessee shall promptly on written demand of Lessor reimburse Lessor for the full amount paid by Lessor in paying, discharging or adjusting such tax, assessment or other charge, together with interest thereon at the rate of ten percent (10%) per annum from the date of payment by Lessor until the date of repayment by Lessee. Where no time within which any charge required by this Lease to be paid by Lessee is specified in this Lease, such charge must be paid by Lessee before it becomes delinquent. 7. ENCUMBERANCES 7.1 Right to Encumber. Lessee may encumber this Lease by deed of trust, mortgage, or similar instrument, in favor of any bona fide lender ("Lender" or "Mortgagee") in a bona fide loan transaction for any purpose without the consent of Lessor. To determine whether a loan is a bona fide lending transaction, and not an arrangement for transfer of the possession or title to the Property to the putative lender, Lessee and the Lender agree to provide Lessor with all documentation executed between Lessee and the Lender concerning the loan upon request of Lessor. Neither Lessee nor Lessor shall have the power to encumber Lessor's interest in the Property. Any encumbrance shall be subject to all covenants, conditions and restrictions in this Lease and to all rights and interests of Lessor except as otherwise expressly provided in this Lease. Lessee shall give Lessor prior written notice of any encumbrance. 7.2 Notice to Lender. Lessor shall have no obligation to give any Lender any written notice pursuant to this Lease unless the Lender has given Lessor written notice of its name, address, and nature of encumbrance ("Complying Lender(s)"). Lessor shall give all Complying Lenders a copy of any written notice of default, notice of termination or other notice which may affect Lessee's rights under this Lease. Notice shall be deemed given by Lessor to Lender five (5) days following deposit in the United States mail, certified and return receipt requested, postage prepaid, and sent to Complying Lender at the address furnished in writing by Complying Lender. Failure by Complying Lender to actually receive notice shall not affect Lessor's compliance with this section provided notice was deposited in the United States mail. 7.3 Modification. Lessor and Lessee agree that they will not modify, surrender or cancel this Lease by mutual agreement without providing prior written notice to the Lender. 7.4 Rights of Lender. Any Lender holding or the beneficiary of a security interest or lien on this Lease and the leasehold estate created hereby shall have the right, during the term of the Lease, to: (a) perform any act required of Lessee pursuant to this Lease; 10 SS2-16 (b) transfer this Lease to the purchaser at any foreclosure sale, the assignee in the event of an assignment in lieu of foreclosure, or to acquire the interest of Lessee pursuant to foreclosure or assignment and thereafter transfer this Lease to the Lender's successor. Lender shall have no right to transfer this Lease unless and until Lender has cured all defaults requiring the payment or expenditure of money by Lessee. 7.5 Right of Lender to Cure Default. Lessor shall give written notice of any default or breach of this Lease by Lessee to Complying Lenders and afford Complying Lenders the opportunity, after notice, to: (a) cure the breach or default within ten (10) days after expiration of the time period granted to Lessee for curing the default if the default can be cured by payment of money; (b) cure the breach or default within thirty (30) days after expiration of the time period granted to Lessee for curing the default when the breach or default can be cured within that period of time; or (c) cure the breach or default in a reasonable time when something other than money is required to cure the breach or default and cannot be performed within thirty (30) days after expiration of the time period granted to Lessee for curing the default, provided the acts necessary to cure the breach are commenced within thirty (30) days and thereafter diligently pursued to completion by Complying Lender. 7.6 Foreclosure in Lieu of Cure. Complying Lender may forestall termination of this Lease for a default or breach by Lessee by commencing foreclosure proceedings subject to strict compliance with the following: (a) proceedings are commenced within thirty (30) days after the later of (i) expiration of the time period granted to Lessee for curing the default, or (ii) service on Complying Lender of the notice describing the breach or default; (b) the proceedings are diligently pursued to completion in the manner authorized by law; and (c) Complying Lender performs all of the terms, covenants and conditions of this Lease requiring the payment or expenditure of money by Lessee until the proceedings are complete or are discharged by redemption, satisfaction, payment or conveyance of this Lease to Complying Lender. 7.7 New Lease. Notwithstanding any other provision of this Lease, should this Lease terminate or be terminated because of any default or breach by Lessee, Lessor shall enter into a new lease with Lender as lessee provided: 11 SS2-17 (a) the written request for the new lease is served on Lessor by Lender within thirty (30) days after the termination of this Lease. (b) the new lease contains the same terms and conditions as this Lease except for those which have already been fulfilled or are no longer applicable. (c) on execution of the new lease by Lessor, Lender shall pay any and all sums that would be due upon execution of the new lease, but for its termination, and shall fully remedy, or agree in writing to remedy, any other default or breach committed by Lessee that can reasonably be remedied by Lender. (d) Lender shall, upon execution of the new lease, pay all reasonable costs and expenses (including attorney's fees) incurred in terminating this Lease, recovering possession of the Property from Lessee, in preparing the new lease. (e) The new lease with Lender shall be for the remainder of the term existing in the prior Lease (i.e., if twenty-five (25) years remain on the Lease at the time of termination/breach the new lease shall be for a term of twenty-five (25) years). 7.8 Lender: Miscellaneous The following provisions shall apply to Lessee and any (a) Any Lender shall be liable to perform the obligations of the Lessee under this Lease only so long as the Lender holds title to this Lease; and (b) Lessee shall, within ten (10) days after the recordation of any trust deed or other security instrument, record, at Lessee's sole expense, Lessor's written request for a copy of any notice of default and/or notice of sale under any deed of trust as provided by state law. 8. RESTORATION AND ENVIRONMENTAL MATTERS 8.1 Restoration of the Property. Should any improvements on the Property be damaged or destroyed by fire or other casualty or any cause whatsoever, Lessee, will cause the commencement of reconstruction to the damaged or destroyed improvements within ninety (90) days, or such other time period as may be mutually agreed upon by the Parties, after such damage and destruction and will thereafter cause such reconstruction to be diligently prosecuted to completion. 8.2 Environmental Matters. (a) Definitions. The following terms will be defined as follows: (i) Environmental Law. "Environmental Law" shall include all federal, state, and local environmental, health, and safety laws, statutes, ordinances, regulations, rules, judgments, orders, and notice requirements, which were in effect as of the date of closing, which regulate or relate to (a) the protection or clean-up of the 12 SS2-18 environment; (b) the use, treatment, storage, transportation, handling or disposal of hazardous, toxic or otherwise dangerous substances, wastes or materials; (c) the quality of the air and the discharge of airborne wastes, gases, particles, or other emissions; (d) the preservation or protection of waterways, groundwater, or drinking water; (e) the health and safety of persons or property; or (6) impose liability with respect to any of the foregoing, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) [42 USCS §§ 9601 et seq.]; the Resource Conservation and Recovery Act of 1976 (RCRA) [42 USCS §§ 6901 et seq.]; the Clean Water Act, also known as the Federal Water Pollution Control Act (FWPCA) [33 USCS §§ 1251 et seq.]; the Toxic Substances Control Act (TSCA) [15 USCS §§ 2601 et seq.]; the Hazardous Materials Transportation Act (HMTA) [49 USCS §§ 1801 et seq.]; the Insecticide, Fungicide, Rodenticide Act [7 USCS §§ 136 et seq.]; the Superfund Amendments and Reauthorization Act [42 USCS §§ 6901 et seq.]; the Clean Air Act [42 USCS §§ 7401 et seq.]; the Safe Drinking Water Act [42 USCS §§ 300f et seq.]; the Solid Waste Disposal Act [42 USCS §§ 6901 et seq.]; the Surface Mining Control and Reclamation Act [30 USCS §§ 1201 et seq.]; the Emergency Planning and Community Right to Know Act [42 USCS §§ 11001 et seq.]; the Occupational Safety and Health Act [29 USCS §§ 655 and 657]; the California Underground Storage of Hazardous Substances Act [H & S C §§ 25280 et seq.]; the California Hazardous Substances Account Act [H & S C §§ 25300 et seq.]; the California Hazardous Waste Control Act [H & S C §§ 25100 et seq.]; the California Safe Drinking Water and Toxic Enforcement Act [H & S C §§ 24249.5 et seq.]; the Porter -Cologne Water Quality Act [Water C §§ 13000 et seq.] together with any amendments of or regulations promulgated under the statutes cited above. (ii) Hazardous Materials. "Hazardous Materials" shall include any substance which falls within the definition of hazardous substance, hazardous waste, hazardous material, toxic substance, solid waste, or pollutant or contaminant, under any Environmental Law. (b) Lessee's Obligations. Lessee will not use, occupy, or permit any portion of the Property to be used or occupied in violation of any Environmental Law or to store any Hazardous Material. (c) Environmental Indemnity. Lessee shall indemnify, defend, and hold Lessor and Lessor's, City Council, officers, appointees, volunteers, employees, agents, successors and assigns free and harmless from and against all Damages (as defined below) that may at any time be imposed upon, incurred by, or asserted or awarded against Lessor or any of them in connection with or arising from any breach of Lessee's obligations hereunder or out of any violation by Lessee of any Environmental Law; or resulting in the imposition of any lien or claim for the recovery of any costs for environmental cleanup or other response costs relating to the release or threatened release of Hazardous Materials due to the construction of any improvements on the Property or the use or misuse of the Property by the Lessee. The term "Damages" shall mean all liabilities, demands, claims, actions or causes of action, regulatory, legislative or judicial proceedings, assessments, levies, losses, fines, penalties, damages, costs and expenses, in each case as awarded by a court or arbitrator, including, without 13 SS2-19 limitation: (i) reasonable attorneys', accountants', investigators', and experts' fees and expenses sustained or incurred in connection with the defense or investigation of any such liability, and (ii) costs and expenses incurred to bring the Property into compliance with Environmental Laws. The term "Damages" also includes, expressly, those Damages that arise as a result of strict liability, whether arising under Environmental Laws and regulations or otherwise. Lessee's obligations hereunder will survive the expiration or sooner termination of this Lease. 9. INDEMNITY 9.1 Indemnity Agreement. In addition to the Environmental Indemnity provided above, except to the extent caused by the sole negligence and/or willful misconduct of the Lessor, Lessee shall defend, indemnify and hold Lessor and Lessor's City Council, officers, appointees, volunteers, employees, agents, successors and assigns free and harmless from any and all liability, claims, loss, damages, or expenses resulting from Lessee's occupation and use of the Property, specifically including, without limitation, any liability, claim, loss, damage, or expense arising by reason of: (a) The death or injury of any person, including any person who is a guest or invitee of Lessee, or by reason of the damage to or destruction of any property, including property owned by Lessee or by any person who is a guest or invitee of Lessee, from any cause whatever while such person or property is in or on the Property or in any way connected with the Property or with any of the improvements or personal property on the Property; (b) The death or injury of any person, including any person who is a guest or invitee of Lessee, or by reason of the damage to or destruction of any property, including property owned by Lessee or any person who is a guest or invitee of Lessee, caused or allegedly caused by either (i) the condition of the Property, or improvements on the Property, or (ii) some act or omission on the Property by Lessee or any person in, on, or about the Property with or without the permission and consent of Lessee; (c) Any work performed on the Property or material furnished to the Property at the request of Lessee or any person or entity acting for or on behalf of Lessee; or (d) Lessee's failure to comply with any material legal or other requirement validly imposed on Lessee or the Property by a governmental agency or authority having jurisdiction over the Property. 10. CONDEMNATION 10.1 Definitions of Terms. (a) The term "total taking" as used in this Lease shall mean the taking of the entire Property under the power of eminent domain or the taking of so much of the Property as to prevent or substantially impair the use thereof by Lessee for residential purposes. 14 ss2-20 (b) The term "partial taking" shall mean the taking of only a portion of the Property which does not constitute a total taking as defined above. (c) The term "taking" shall include a voluntary conveyance by Lessor to an agency, authority or public utility under threat of a taking under the power of eminent domain in lieu of formal proceedings. (d) The term "date of taking" shall be the date upon which title to the Property or portion thereof passes to and vests in the condemner. 10.2 Effect of Taking. If, during the term hereof, there shall be a total taking or partial taking under the power of eminent domain, then the leasehold estate of the Lessee in and to the Property or the portion thereof taken shall cease and terminate as of the date of taking of said Property. If this Lease is so terminated in whole or in part, all Rent and other charges payable by Lessee to Lessor hereunder and attributable to the Property or portion thereof taken shall be paid by Lessee up to the date of taking by the condemner, and the Parties shall thereupon be released from all further liability in relation thereto. 10.3 Allocation of Award for Total Taking. All compensation and damages awarded for the total taking of the Property and Lessee's leasehold interest therein shall be allocated as follows: (a) The Lessor shall be entitled to an amount equal to the sum of the following: (i) The fair market value of the Property as improved (exclusive of the dwelling and appurtenances to such dwelling) as of the date of taking, discounted by multiplying such fair market value by the factor for the present worth of one dollar ($1.00) at five percent (5%) per annum compound interest for the number of years remaining from the date of taking to the date of the expiration of the term of this Lease; and (ii) The present worth of Rent due during the period from the date of taking to the date of the expiration of the term of this Lease, computed by multiplying the annual rent then payable by the factor for the present worth of one dollar ($1.00) per annum at five percent (5%) per annum compound interest (Inwood Coefficient) for the number of years in such period. (b) The Lessee and the Mortgagee, if any shall be entitled to the amount remaining of the total award after deducting therefrom the sums to be paid to Lessor as hereinafter provided. Lessee and Mortgagee may decide between themselves how an award will be divided between them. In the event of any dispute between the Lessee and Mortgagee as to the division of an award the City may satisfy its responsibilities under this Lease by transferring any money due under this section to 15 SS2-21 Lessee. Lessee shall indemnify City from any and all claims or actions brought by Mortgagee or any other party for any award under this section. 10.4 Allocation of Award for Partial Taking. All compensation and damages awarded for the taking of a portion of the Property shall be allocated and divided as follows: (a) The Lessor shall be entitled to an amount equal to the sum of the following: (i) The proportionate reduction of the fair market value of the Property as improved (exclusive of the dwelling and appurtenances to such dwelling) as of the date of taking, discounted by multiplying such proportionate reduction in fair market value by the factor for the present worth of one dollar ($1.00) at five percent (5%) per annum compound interest for the number of years remaining from the date of taking to the date of expiration of the term of this Lease; and (ii) The present worth of the amount by which the Rent is reduced computed by multiplying the amount by which the annual Rent is reduced by the factor for the present worth of one dollar ($1.00) per annum at five percent (5%) per annum compound interest (Inwood Coefficient) for the number of years remaining from the date of taking to the date of expiration of the term of this Lease. (b) The Lessee and the Mortgagee, if any shall be entitled to the amount remaining of the total award after deducting therefrom the sums to be paid to Lessor as hereinabove provided. Lessee and Mortgagee may decide between themselves how an award will be divided between them. In the event of any dispute between the Lessee and Mortgagee as to the division of an award the City may satisfy its responsibilities under this Lease by transferring any money due under this section to Lessee. Lessee shall indemnify City from any and all claims or actions brought by Mortgagee or any other party for any award under this section. 10.5 Reduction of Rent on Partial Taking. In the event of a partial taking, the Rent payable by Lessee hereunder shall be adjusted from the date of taking to the date of the expiration of the term of this Lease. Such rental adjustment will be made by reducing the Base Rent payable by Lessee in the ratio that the Fair Market Rental Value of the Property at the date of taking bears to the Fair Market Rental Value of the Property immediately thereafter. 11. BEACON BAY COMMUNITY ASSOCIATION 11.1 Membership in Association. As a material part of the consideration of this Lease, and as an express condition to the continuance of any of the rights of Lessee pursuant to this Lease, Lessee agrees to become, and during the term of this Lease to remain, a member in good standing of the Beacon Bay Community Association ("Association"). 16 SS2-22 11.2 Compliance with Rules and Regulations. Lessee agrees to abide by the articles of incorporation, bylaws, covenants, conditions and restrictions and any amendment thereto ("CC&Rs") attached hereto as Exhibit "D" and incorporated herein by reference, and all rules and regulations of the Association, and to pay to the Association, before delinquency, all valid dues, fees, assessments and other charges properly levied or assessed by the Association. Lessee's failure to comply with the provisions of Section 11.1 or 11.2 shall constitute a material breach of this Lease. 11.3 Use of Common Area. Lessee shall have the right to use the streets, beaches, walkways, tennis courts, docks, piers, and common landscaped areas in Beacon Bay (as depicted on Exhibit "A") and which are leased to the Association by Lessor in consideration of the maintenance thereof by such Association and Rent to be paid by individual Lessees under their respective leases. 11.4 Maintenance of Infrastructure. Lessor has no obligation to install, improve, repair, or maintain streets, curbs, gutters, water lines, sewer lines, drainage facilities, street lighting or other facilities used by the residents of Beacon Bay (Infrastructure). Lessor reserves the right to maintain streets, curbs, gutters, water lines, sewer lines', drainage facilities, street lighting, telephone and electricity lines and other Infrastructure facilities in Beacon Bay at its initial cost and to assess Lessee for a pro rata share of such costs, and to collect such costs from Lessee in the form of Rent over the remaining term of this Lease. Subject to a public health, safety, and welfare finding, Lessor reserves the right to commence improvements to the streets, curbs, gutters, water lines, sewer lines', drainage facilities, street lighting, telephone and electricity lines and other Infrastructure facilities in Beacon Bay. If Lessor constructs any improvements Lessor has the right to assess Lessee for a pro rata share of such costs, and to collect such costs from Lessee in the form of Rent over the remaining term of this Lease. 11.5 Lessor Maintenance of Common Areas. If the Association, after receiving prior written notice from Lessor, fails or ceases to maintain community facilities, Lessor may, at its option and without obligation, assume the obligations of the Association to maintain, repair, install or improve community facilities. In such event, Lessee shall pay a pro rata share of Lessor's reasonable expenses in maintaining and operating the community facilities, including a reasonable management fee or the fee charged by a management agent. Lessee's pro rata share shall be determined by dividing Lessor's costs by the number of residential lots within Beacon Bay (currently seventy-two (72) lots). Lessee's pro rata share of the annual costs incurred by Lessor shall be paid within thirty (30) days after written notice of the amount due, and any failure to pay shall constitute a material breach of this Lease. The costs of maintaining and operating community facilities shall be determined annually and solely from the financial records of Lessor. 12. INSURANCE 12.1 General Conditions. All insurance required to be carried pursuant to this Lease shall be obtained from reputable carriers licensed to conduct business in the 17 SS2-23 State of California. Each policy required to be carried pursuant to this Lease shall name Lessee and Lessor as additional named insureds, and shall provide that the policy may not be surrendered, cancelled or terminated, or coverage reduced, without less than twenty (20) days prior written notice to Lessor. 12.2 Fire Insurance. Lessee shall, during the term of this Lease, insure all structures and improvements on the Property against loss or damage by fire or other risk for residential structures. The insurance shall provide coverage to one hundred percent (100%) of the full insurable replacement value of all improvements on the Property, with the loss payable to Lessee and Lessor unless this Lease is terminated by Lessor for default of Lessee in which case the proceeds of insurance shall be paid to Lessor. 12.3 Liability Insurance. Lessee shall, at Lessee's sole cost and expense, procure and maintain during the term of this Lease, a broad form comprehensive coverage policy of public liability insurance which insures Lessee and Lessor against any loss or liability caused by, or in any way related to, the condition, for Lessee's use and occupation, of the Property in amounts not less than: (a) $1,000,000 per occurrence for injury to or death of, one (1) person; (b) $1,000,000 for damage to or destruction of property. These dollar amounts may be adjusted by Lessor with no less than ninety (90) days prior written notice to Lessee. 12.4 Primary Insurance Coverage. Lessee's insurance coverage shall be primary insurance and/or primary source of recovery as respects to City, its elected or appointed officers, agents, officials, employees and volunteers as respects to all claims, losses, or liability arising directly or indirectly from the Lessee's use and occupation of Property. Any insurance or self-insurance maintained by City, its officers, officials, employees and volunteers shall be excess of the Lessee's insurance and shall not contribute with it. 13. DEFAULT 13.1 Events of Default. The occurrence of any one (1) or more of the following events shall constitute a material default and breach of this Lease by Lessee: (a) The maintenance of the Property in violation of any applicable provisions of the City's Municipal Code and Zoning Code, State Law, Federal Law, and/or the Association's CC&Rs; (b) The failure by Lessee to make any payment of Rent when due if the failure continues for three (3) days after written notice has been given to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to in SS2-24 applicable unlawful detainer statutes, such Notice to Pay Rent or Quit shall also constitute the notice required by this paragraph; (c) The failure by Lessee to perform any of the provisions of this Lease and any Exhibits attached hereto to be performed by Lessee, if the failure to perform continues for a period of thirty (30) days after written notice thereof has been given to Lessee. If the nature of Lessee's default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be in default if Lessee commences the cure within said thirty (30) day period and thereafter diligently prosecutes the cure to completion; or (d) The making by Lessee of any general assignment, or general arrangement for the benefit of creditors; the filing by or against Lessee of a petition to have Lessee adjudged a bankrupt or a petition for reorganization or arrangement of any law relating to bankruptcy unless the same is dismissed within sixty (60) days; the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Property or of Lessee's interest in the Lease, where possession is not restored to Lessee within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Property or of Lessee's interest in the Lease, where such seizure is not discharged within thirty (30) days. Notices given under this paragraph shall specify the alleged default and the applicable Lease provisions, and shall demand that Lessee perform the provisions of this Lease or pay the rent that is in arrears, as the case may be, within the applicable period of time. No such notice shall be deemed a forfeiture or a termination of this Lease unless Lessor so elects in the notice. 13.2 Lessor's Remedies. In the event of any default by Lessee as defined in this Lease, Lessor may, in addition to any rights or remedies permitted by law, do the following: (a) Terminate Lessee's right to possession of the Property by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Property to Lessor. In such event, Lessor shall be entitled to recover from Lessee all amounts to which Lessor is entitled pursuant to Section 1951.2 of the California Civil Code, or any other provision of law, including, without limitation, the following: (i) The worth at the time of award of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of the loss that Lessee proves could be reasonably avoided: and (ii) Any other amount necessary to compensate Lessor for all detriment proximately caused by Lessee's failure to perform obligations pursuant to this Lease or which in the ordinary course of things would be likely to result from the breach, including, without limitation, the cost of recovering possession, expenses of reletting (including necessary repair, renovation and alteration, and any other reasonable costs. 19 SS2-25 The "worth at the time of award" of all rental amounts other than that referred to in clause (i) above shall be computed by allowing interest at the rate of five percent (5%) per annum from the date amounts accrue to Lessor. The worth at the time of award of the amount referred to in clause (i) shall be computed by discounting such amount at one (1) percentage point above the discount rate of the Federal Reserve Bank of San Francisco at the time of award. (b) Without terminating or affecting the forfeiture of this Lease or, in the absence of express written notice of Lessor's election to do so, relieving Lessee of any obligation pursuant to this Lease, Lessor may, but need not, relet all or a portion of the Property at any time, or from time -to -time, and on such terms and conditions as Lessor, at its sole discretion, deems appropriate. Whether or not the Property is relet, Lessee shall pay all amounts required by this Lease up to the date that Lessor terminates Lessee's right to possession of the Property. Lessee shall make such payments at the time specified in the Lease and Lessor need not wait until termination of the Lease to recover sums due by legal action. If Lessor relets all or a portion of the Property, the reletting shall not relieve Lessee of any obligation pursuant to this Lease; provided, however, Lessor shall apply the Rent or other proceeds actually collected by virtue of the reletting against amounts due from Lessee. Lessor may execute any agreement reletting all or a portion of the Property and Lessee shall have no right to collect any proceeds due Lessor by virtue of any reletting. Lessor shall not, by any reentry or reletting or other act, be deemed to: Property; (i) Have accepted any surrender by Lessee of this Lease or the (ii) Have terminated this Lease; or (iii) Have relieved Lessee of any obligation pursuant to this Lease unless Lessor has given Lessee express written notice of Lessor's election to do so. (c) Lessor may terminate this Lease by express written notice to Lessee of its election to do so. The termination shall not relieve Lessee of any obligation which has accrued prior to the date of termination. In the event of termination, Lessor shall be entitled to recover the amounts specified in this Lease. 13.3 Default By Lessor. Lessor shall not be in default under this Lease unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor specifying wherein Lessor has failed to perform such obligation. If the nature of Lessor's obligation is such that more than thirty (30) days are required for performance, then Lessor shall not be in default if Lessor commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. Alternatively, Lessor may in its sole and absolute discretion decide not to cure a default and instead elect to terminate this Lease. In the event of termination under this section Lessor shall owe no compensation to Lessee. 20 SS2-26 (a) No Damages. The parties acknowledge that Lessor would not have entered into this Lease if it were to be liable in damages under, or with respect to, this Lease or any of the matters referred to in this Lease. Accordingly, Lessee covenants on behalf of itself and its successors and assigns, not to sue Lessor (either in its capacity as lessor in this Lease or in its capacity as the City of Newport Beach) for damages or monetary relief for any breach of this Lease by Lessor or arising out of or connected with any dispute, controversy, or issue between Lessor and Lessee regarding this Lease or any of the matters referred to in this Lease or any future amendments or enactments thereto, or any land use permits or approvals sought in connection with the Property, the parties agreeing that declaratory and injunctive relief, mandate, and specific performance shall be Lessee's sole and exclusive judicial remedies. 13.4 Stay of Obligations. Neither Party shall be under any obligation to perform or comply with its obligations pursuant to this Lease after the date of any default by the other Party. 13.5 Determination of Rental Value. In any action or unlawful detainer commenced by Lessor, the reasonable rental value of the Property shall be deemed to be the amount of Rent and/or additional monies due (such as reimbursement for costs of Infrastructure improvements or the payment of taxes or assessments) for the period of the unlawful detainer, unless Lessee shall prove to the contrary by competent evidence. 13.6 Waiver of Rights. The failure or delay of either Party to exercise any right or remedy shall not be construed as a waiver of such right or remedy or any default by the other Party. Lessor's acceptance of any Rent shall not be considered a waiver of any preexisting breach of default by Lessee other than the failure to pay the particular Rent accepted regardless of Lessor's knowledge of the preexisting breach of default at the time Rent is accepted. 13.7 Waiver of Right of Redemption. Lessee waives any right of redemption or relief from forfeiture pursuant to California Code of Civil Procedure Sections 1174 and 1179 and/or pursuant to any existing or future statutory or decisional law in the event Lessee is evicted or Lessor takes possession of the Property by reason of Lessee's default. 14. SURRENDER OF POSSESSION UPON EXPIRATION OR TERMINATION 14.1 Surrender of Property. Upon the expiration or termination of this Lease. Lessee agrees to peaceably deliver possession of, and agrees to vacate without contest, legal or otherwise, the Property. Lessor, at its sole discretion, may record a document evidencing the expiration or termination of the leasehold interest. Lessee waives any right to receive relocation assistance or similar form of payment from Lessor. 21 SS2-27 14.2 Removal of Improvements. Upon the expiration of the term of this Lease, and on condition that Lessee is not then in default of any of the provisions of this Lease, Lessee shall have the right to remove from the Property all buildings and improvements built or installed on the Property. Removal of any building or improvement shall be at the sole cost and expense of Lessee and removal must be complete no later than ninety (90) days after expiration of the term of this Lease. Lessee shall fill all excavations and remove all foundations, debris and other parts of the buildings or improvements remaining after removal and surrender possession of the Property to Lessor in a clean and orderly condition. In the event any of the buildings and improvements are not removed within the time provided in this paragraph they shall become the property of Lessor without the payment of any consideration to Lessee. 15. NO ATTORNEYS' FEES Should either Party be required to employ counsel to enforce the terms, conditions and covenants of this Lease, the prevailing Party shall not be entitled to attorneys' fees. 16. REMEDIES CUMULATIVE The rights, powers, elections and remedies of the Lessor or Lessee contained in this Lease shall be construed as cumulative and no one (1) of them shall be considered exclusive of the other or exclusive of any rights or remedies allowed by law, and the exercise of one (1) or more rights, powers, elections or remedies shall not impair or be deemed a waiver of Lessor's or Lessee's rights to exercise any other. 17. NO WAIVER No delay or omission of either Party to exercise any right or power arising from any omission, neglect or default of the other Party shall impair any such right or power or shall be construed as a waiver of any such omission, neglect or default on the part of the other Party or any acquiescence therein. No waiver of any breach of any of the terms, covenants, agreements, restrictions or conditions of this Lease shall be construed as a waiver of any succeeding breach of the same or of any of the terms, covenants, agreements, restrictions or conditions of this Lease. 18. COMPLIANCE WITH LAWS Lessee covenants and agrees to comply with all rules, regulations, statutes, ordinances and laws of the State of California. County of Orange, City of Newport Beach, or any other governmental body or agency having lawful jurisdiction over the Property. 19. NOTICES Any notice or notices provided for by this Lease or by law, to be given or served by Lessee, may be given or served by mail, registered or certified, with postage prepaid, on the City of Newport Beach, addressed to the City Manager and City Clerk, 3300 Newport Boulevard, P.O. Box 1768. Newport Beach. California 92659-1768, or at such 22 SS2-28 other address as may be hereafter furnished to Lessee in writing. If notice is intended to be served by Lessor on Lessee, it may be served either: (a) By delivering a copy to the Lessee personally; or (b) By depositing the notice in the United States Mail, registered or certified, with postage prepaid, to the Property or business address furnished by Lessee; or (c) If the Lessee is absent from the Property by leaving a copy with some person of suitable age and discretion who may be occupying the Property; or (d) If no one can be found, then by affixing a copy of the notice in a conspicuous place on the Property and also sending a copy through the mail addressed to the Lessee at the Property. Such service upon Lessor or Lessee shall be deemed complete upon the earlier of (i) actual delivery, or (ii) the expiration of seventy-two (72) hours from and after the deposit in the United States mail of such notice, demand or communication. 20. SEVERABILITY If any term or provision of this Lease shall, to any extent be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each term and provision of this Lease shall remain valid and enforceable to the fullest extent permitted by law. 21. MISCELLANEOUS 21.1 Representations. Lessee agrees that no representations as to the Property have been made by Lessor or by any person or agent acting for Lessor. Lessor and Lessee agrees and acknowledges that this document contains the entire agreement of the Parties, that there are no verbal agreements, representations, warranties or other understandings affecting this Lease, and Lessor and Lessee, as a material part of the consideration of this Lease, waives all claims against the other for recision, damages, or otherwise by reason of any alleged covenant, agreement or understanding not contained in this Lease. 21.2 Inurement. Each and all of the covenants, conditions and agreements herein contained shall, in accordance with the context, inure to the benefit of Lessor and Lessee and apply to and bind Lessor and Lessee, as the case may be, their respective heirs, legatees, devisees, executors and administrators, successors, assigns, licensees, permittees, or any person who may come into possession or occupancy of the Property or any part thereof in any manner whatsoever. 21.3 Joint Several Liability. If Lessee consists of more than one (1) person, the covenants, obligations and liabilities of Lessee pursuant to this Lease shall be the joint and several covenants, obligations and liabilities of such persons. 23 SS2-29 21.4 Captions. The section and paragraph captions used in this Lease are for the convenience of the Parties and shall not be considered in the construction or interpretation of any provision. 21.5 Gender. In this Lease, the masculine gender includes the feminine and neuter and the singular number includes the plural whenever the context so requires. 21.6 Governing Law and Venue. This Lease, and all matters relating to this Lease, shall be governed by the laws of the State of California in force at the time any need for interpretation of this Lease or any decision or holding concerning this Lease arises. Venue for any legal action between the parties shall be in Orange County, California or, if appropriate, the nearest federal district court having jurisdiction over the Property. 21.7 Time of Essence. Time is expressly declared to be of the essence in this Lease. 21.8 Memorandum of Lease. Pursuant to California Government Code Section 37393 the Parties shall execute, acknowledge and Lessor may record at any time following the date hereof, a memorandum of this Lease, in the same form as that attached hereto as Exhibit "E" and incorporated herein by reference. [SIGNATURES ON NEXT PAGE] 24 SS2-30 IN WITNESS WHEREOF, the Parties have caused this Lease to be executed on the dates written below. APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY Date: Bv: Aaron Harp City Attorney ATTEST: Date: Bv: Leilani I. Brown City Clerk Attachments: Exhibit "A" Exhibit "B" Exhibit "C Exhibit "D" Exhibit "E" CITY OF NEWPORT BEACH, A California municipal corporation Date: Bv: Grace K. Leung City Manager LESSEE Date: in Date: go Depiction of Beacon Bay Legal Description of Property Option Fee Percentages CC&Rs Memorandum of Lease [END OF SIGNATURES] 25 SS2-31 EXHIBIT "A" DEPICTION OF BEACON BAY See Attached 26 SS2-32 74 hr.ti Is oD N�P\S� 16S 519 Beacon Bay Lease Area ^ 00M o(00 A�04'ONTORVpRw' U 0 1;, 525 $) n i y 530 N N 78 531 00^ �e `'V N 9 536 00� o eAYs7pFpR 153 � � 542 �o 147 ^N 6Q 733 141 � 5 2 1 000 4p 135 S 000 0�00 O 134 (0 ro CON Cl) O N 00 54O 128 m ^ ^ N 00 d C\1 00O 12j 122 55 47 1 HARBOR ISLgND DR 1j 56 1/2 41 56 48 35 29 107 11 421/2 23 69 70 6 �� 57 49 42 36 30 24 0 43 z 68 D 58 50 37 31 25 ^\y u x w z 25 1/2 67 59 0 51 Y 44 > 38 0 32 2 v 0 0 W[A,:3 66 72 73 �p�� 60 a 52 45 W 39 331/2 0}7S33 LL 65 3�4 1561 53 461/2 40 341/2641/2 Q� 46 34 64 31 33 34 36 S BEACON BAY 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 62 63 N W E S 0 100 200 MIL Feet y N was o h Nv0 A u ryo^^ moo do ryo� ryoe ry^ o E T N qA,F 09 N 181�^ .-1... �..— ,... 12/17/2010 Beacon Bay_LeaseAma Detail SS2-33 EXHIBIT "B" LEGAL DESCRIPTION OF THE PROPERTY That certain real property located in the City of Newport Beach, County of Orange, California, described as follows: SS2-34 EXHIBIT "C" OPTION FEE PERCENTAGES LENGTH OF EXTENSION % OF FAIR MARKET VALUE OF (YEARS) PROPERTY PER YEAR OF EXTENSION 1 - 5 0.10% 6-10 0.15% 11-50 0.25% SS2-35 EXHIBIT "D" CC&Rs See Attached SS2-36 RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: City Clerk City of Newport Beach 3300 Newport Boulevard P. O. Box 1768 Newport Beach, CA 92658-8915 D-2246 Recorded in Official Records, Orange County Tom Daly, Clerk -Recorder !III. II IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII IIII 1111111 NO FEE *$ R 0 0 0 5 0 5 6 0 8 9$ 201200046439010:26 am 08114112 210 403 A17 36 0.00 0.00 0.00 0.00 105.00 0.00 0.00 0.00 THIS SPACE FOR RECORDER'S USE ONLY. Exempt Recording Request per Government Code 27383 AMENDED AND RESTATED DECLARATION FOR BEACON BAY COMMUNITY ASSOCIATION, A PLANNED DEVELOPMENT SS2-37 TABLE OF CONTENTS Page ARTICLE I DEFMTIONS............................................................................................................2 Section 1.01 Organization of the Association...................................................................7 "Architectural Committee" ............... . ..........................................................2 Section3.02 Section1.02 "Articles".....................................................................................................2 Transfer........................................................................................................8 Section 1.03 Section 3.04 "Assessments.".............................................................................................2 Section 1,04 Voting Rights...............................................................................................8 "Association"...............................................................................................3 Section 3.06 Section1.05 "Board"................................................................... ................................3 Section1.06 "Bylaws"......................................................................................................3 Section1.07 "City"..........................................................................................................3 Section1.08 "Common Area".........................................................................................3 Section 1.09 "Common Expenses.....................................................................................3 Section 1.10 "Covered Property........................................................................................4 Section1.11 "Declarant"..................................................................................................4 Section 1.12 "Declaration"...............................................................................................4 Section 1.13 "Development"............................................................................................4 Sectionl .14 "Exhibit"......................................................................................................4 Section 1.15 "Governing Instruments".............................................................................4 Section1.16 "Lessee".......................................................................................................4 Section1.17 "Manager"....................................................................................................4 Section1.18 "Member"....................................................................................................4 Section1.19 "Mortgage"..................................................................................................4 Section1.20 "Mortgagee".................................................................................................4 Section1.21 "Mortgagor".................................................................................................5 Section1.22 "Person".......................................................................................................5 Section1.23 "Residence"..................................................................................................5 Section 1.24 "Residential Lot".........................................................................................5 Section 1.25 "Rules and Regulations"..............................................................................5 Section1.26 "Setback".....................................................................................................5 Section 1.27 "Subdivision Map".......................................................................................5 ARTICLE II THE PROPERTY.......................................................................................................5 Section 2.01 Property Subject to Declaration ................... ................................................ 5 Section 2.02 Use and Enjoyment of Common Area.........................................................5 Section 2.03 Maintenance by Members............................................................................7 Section 2.04 Prohibition Against Severance of Elements of Residence ...........................7 ARTICLE III THE ASSOCIATION...............................................................................................7 Section 3.01 Organization of the Association...................................................................7 Section3.02 Membership.................................................................................................8 Section3.03 Transfer........................................................................................................8 Section 3.04 Classes of Membership ................ . .. .............................................................8 Section 3.05 Voting Rights...............................................................................................8 Section 3.06 Approval of Members..................................................................................9 Section 3.07 Membership Meetings.................................................................................9 311112 10120,4 #114293 v1 1 SS2-38 Section 3.08 General Powers and Authority.....................................................................9 Section 3.09 Duties of the Association...........................................................................10 Section 3.10 Board of Directors......................................................................................13 Section 3.11 Inspection of Books and Records..............................................................13 Section 3.12 Resolution of Disputes ......................... .. ..... 13 ARTICLE IV ASSESSMENTS AND COLLECTION PROCEDURES......................................14 Section4.01 Covenant to Pay.........................................................................................14 Section 4.02 Purpose of Assessments.............................................................................14 Section 4.03 Assessment Period.....................................................................................14 Section 4.04 Regular Assessments.................................................................................14 Section 4.05 Special Assessments..................................................................................14 Section 4.06 Limitations on Assessments.......................................................................14 Section 4.07 Late Charges..............................................................................................15 Section 4.08 Enforcement of Assessments and Late Charges........................................16 Section 4.09 Statement Regarding Assessments............................................................17 Section4.10 Reserves.....................................................................................................17 ARTICLE V USE RESTRICTIONS AND COVENANTS..........................................................17 Section 5.01 General Restrictions on Use.......................................................................17 Section 5.02 Damage Liability.......................................................................................18 Section 5.03 Equitable Servitudes..................................................................................18 ARTICLE VI ARCHITECTURAL AND DESIGN CONTROL..................................................19 Section 6.01 Architectural and Design Approval...........................................................19 Section 6.02 Architectural Committee............................................................................19 Section 6.03 Procedural Rules and Fees.........................................................................19 Section 6.04 The Board of Directors..............................................................................19 Section 6.05 No Power to Modify Setback Requirements.............................................19 Section 6.06 Nonliability for Approval of Plans............................................................19 ARTICLE VII INSURANCE........................................................................................................20 Section 7.01 Fire and Casualty Insurance.......................................................................20 Section 7.02 General Liability and Individual Liability Insurance.................................20 Section 7.03 Other Association Insurance......................................................................20 Section 7.04 Trustee for Policies....................................................................................20 Section 7.05 Individual Insurance...................................................................................20 Section 7.06 Insurance Premiums...................................................................................21 Section 7.07 Additional Provisions.................................................................................21 ARTICLE VIII DAMAGE OR DESTRUCTION.........................................................................21 Section 8.01 Duty to Restore and Replace......................................................................21 Section 8.02 Proceeds Justifying Automatic Restoration and Repair .............................21 Section 8.03 Approval by Members of Special Assessment for Certain Restorations and Repairs............................................................................21 Section 8.04 Ordering Reconstruction or Repair ................... Section 8.05 Election Not to Rebuild.............................................................................22 Section 8.06 Minor Restoration and Repair Work..........................................................22 311112 10120.4 4114293 v1 11 SS2-39 ARTICLE 1X EMINENT DOMAIN.............................................................................................23 Section 9.01 Sale to Condemning Authority..................................................................23 Section 9.02 Distribution of Sales Proceeds...................................................................23 Section 9.03 Taking and Condemnation Awards...........................................................23 ARTICLE X RIGHTS OF MORTGAGEES.................................................................................23 Section10.01 Warranty....................................................................................................23 Section 10.02 Subordination.............................................................................................23 Section 10.03 Notice of Default........................................................................................24 Section 10.04 Unpaid Assessments..................................................................................24 Section 10.05 Mortgagee Approval of Material Amendments.........................................24 Section 10.06 Mortgagee Approval of Other Actions......................................................24 Section10.07 Liens......................................................................................................25 Section10.08 Priority.......................................................................................................25 Section 10.09 Reserve Fund.............................................................................................25 Section 10.10 Management...............................................................................................25 Section 10.11 Right to Inspect Books and Records..........................................................25 Section 10.12 Right to Furnish Mortgage Information.....................................................25 ARTICLEXI AMENDMENTS....................................................................................................25 Section 11.01 Amendments by Members.........................................................................25 Section 11.02 Amendments Pursuant to Court Order.......................................................26 ARTICLE XII GENERAL PROVISIONS....................................................................................26 Section12.01 Term........................................................................................................26 Section 12.02 Enforcement....................I..........................................................................26 Section 12.03 Cumulative Remedies................................................................................27 Section 12.04 Nonwaiver of Remedies .............................................................................27 Section 12.05 Attorneys' Fees..........................................................................................27 Section12.06 Severability................................................................................................27 Section12.07 Binding.......................................................................................................27 Section1.2.08 Interpretation..............................................................................................27 Section 12.09 Effect of Declaration..................................................................................27 Section 12.10 Limitation of Liability................................................................................27 Section 12.11 Nonliability of Officials .............................................................................27 Section 12.12 Fair Housing..............................................................................................27 Section12.13 Subleases....................................................................................................28 Section12.14 Notices.......................................................................................................28 Section 12.1.5 Numbers and Headings....... .......................................................................28 EXHIBITS Exhibit A Legal Description Exhibit B Common Area Legal Description 3!1112 10120.4 #114293 v 1 117 SS2-40 AMENDED AND RESTATED DECLARATION FOR BEACON BAY COMMUNITY ASSOCIATION, A PLANNED DEVELOPMENT THIS DECLARATION is made as of February 28, 2012, by the City of Newport Beach ("Declarant"), a chartered municipal corporation, having been approved and adopted by Beacon Bay Community Association, a California non-profit mutual benefit corporation. RECITALS A. This Declaration amends and restates the Declaration of Covenants, Conditions and Restrictions imposed upon the Covered Property, as hereinafter defined, on or about September 24, 1979 and has been approved by the Members of Beacon Bay Community Association, a California non-profit corporation (the "Association"), in accordance with the provisions of that Declaration, B. The City of Newport Beach, referred to herein as Declarant, by virtue of a 1978 legislative grant found in Chapter 74 of the Statutes of 1978 (the "Beacon Bay Bill"), holds the right, title and interest to certain tidelands and uplands commonly known as Beacon Bay, more particularly described in Exhibit "A" attached to and made part of this Declaration. C. Beacon Bay has been divided into individual residential lots, commonly known as 1 through and including 69 Beacon Bay and 101, 107 and 115 Harbor Island Drive, Newport Beach (the "Residential Lots"). Within Beacon Bay are certain streets, walkways, beaches, common landscaped areas and tennis courts, identified as Lots A through J and Lot 62 (the "Common Area"). Both the Residential Lots and the Common Area are shown on Exhibit "B." attached to and made part of this Declaration. D. Declarant has leased the Residential Lots to the respective members of the Association and the Common Area to the Association until July 1, 2044. The leasehold interests in the Residential Lots and in the Common Area are together referred to herein as the Covered Property. E. This Declaration is imposed by Declarant, with the approval of the Association, upon the Covered Property, a planned development subject to the provisions of the Davis - Stirling Common Interest Development Act contained in Division 11, pt. 4, Title 6 of the California Civil Code. F. In furtherance of this intent, Declarant hereby declares that all of the Covered Property shall be held, conveyed, hypothecated, encumbered, leased, rented, used, occupied, and improved subject to the declarations, limitations, covenants, conditions, restrictions, reservations, rights, and easements set forth in this Declaration, as this Declaration may be amended from time to time, all of which are declared and agreed to be in furtherance of a general plan established for the purpose of enhancing and perfecting the value, desirability, and attractiveness of the Covered Property. All covenants and restrictions set forth in this Declaration shall constitute covenants running with the land and enforceable equitable servitudes upon the Covered Property, and shall be binding on and for the benefit of all of the Covered Property and all parties having or 311112 10120,4 4114293 v1 SS2-41 acquiring any right, title, or interest in all or any part of the Covered Property, including the heirs, executors, administrators, and assigns of these parties and all subsequent Lessees of all or any part of any Residential Lot within the Development. G. It is desirable for the efficient management of the Covered Property and the preservation of the value, desirability and attractiveness of the Covered Property to continue to delegate and assign the powers of managing the Covered Property, maintaining and administering the Common Area and administering and enforcing these covenants, conditions and restrictions and collecting and disbursing funds pursuant to the assessment and charges hereinafter created and referred to and to perform such other acts as shall generally benefit the Covered Property to the Beacon Bay Community Association, a California nonprofit corporation. H. The Association and the respective owners of the Residential Lots have held title to their lcaschold interests in the Covered Property, and shall continue to hold title to their leasehold interests in the Covered Property subject to the protective covenants, conditions and restrictions hereafter set forth. NOTICE OF AIRPORT IN VICINITY This property is presently located in the vicinity of an airport, within what is known as an airport influence area. For that reason, the property may be subject to some of the annoyances or inconveniences associated with proximity to airport operations (for example, noise, vibration, or odors). Individual sensitivities to those annoyances can vary from person to person. You may wish to consider what airport annoyances, if any, are associated with the property before you complete your purchase and determine whether they are acceptable to you. ARTICLE I DEFINITIONS Section 1.01 "Architectural Committee" means.the committee or committees provided for in the Article entitled "Architectural Control". Section 1.02 "Articles" means the Articles of Incorporation of Beacon Bay Community Association and any amendments to the Articles that are filed in the Office of the Secretary of State of the State of California. Section 1.03 "Assessments." The following meanings shall be given to the Assessments hereinafter defined: "Regular Assessment" means the amount which is to be paid by each Member of the Association for Common Expenses. "Special Assessment" means a charge against a particular Member and his Residential Lot, directly attributable to the Member, to reimburse the Association for costs incurred in bringing the Member and his Residential Lot into compliance with the provisions of this Declaration, the Articles, Bylaws or Association Rules, or any other charge designated as a 311112 10120.4 tl 114293 v 1 2 SS2-42 Special Assessment, together with attorneys' fees and other charges payable, plus interest thereon as provided for in this Declaration, Section 1.04 "Association" means Beacon Bay Community Association, a California nonprofit mutual benefit corporation. Section 1.05 "Board" means the Board of Directors of the Association. Section 1.06 "Bylaws" means the Bylaws of the Association and any amendments to the Bylaws that are or shall be adopted by the Board and approved by the Members. Section 1.07 "City" means the City of Newport Beach, a municipal corporation of the State of California. Section 1.08 "Common Area" means those portions of the Development leased by the Association for the common use and enjoyment of the Members. This Common Area includes all streets, beaches, walkways, tennis courts, docks, piers, storage areas and common landscaped areas within the Covered Property and, includes without limitation, Lots A through J, inclusive, as shown on the Subdivision Map. Section 1.09 "Common Expenses" means the actual and estimated costs of: (a) maintenance, management, operation, repair and replacement of the Common Area, and all other areas on the Covered Property which are maintained by the Association; (b) maintenance by the Association of areas within the public right-of-way of public streets in the vicinity of the Covered Property as provided in this Declaration or pursuant to agreements with the City; (c) costs of management and administration of the Association, including, but not limited to compensation paid by the Association to managers, accountants, attomeys and employees; (d) the costs of utilities, gardening and other services which generally benefit and enhance the value and desirability of the Residential Lot; (e) the costs of fire, casualty, liability, workmen's compensation and other insurance covering the Common Area; (f) the costs of any other insurance obtained by the Association; (g) reasonable reserves deemed appropriate by the Board; (h) the costs of bonding of the members of the Board, and any professional managing agent or any other person handling the funds of the Association; (i) taxes paid by the Association; 3/1/12 10120.4 8114293 v1 3 SS2-43 0) amounts paid by the Association for discharge of any lien or encumbrance levied against the Common Area or portions thereof; (k) costs incurred by the Architectural Committee or other committee established by the Board; and (1) other expenses incurred by the Association for any reason whatsoever in connection with the Common Area, or the costs of any other item or items designated by this Declaration, the Articles, Bylaws or Association Rules, or in furtherance of the purposes of the Association or in discharge of any duties or powers of the Association. Section 1.10 "Covered Property" means the leasehold interests in the Residential Lots and in the Common Area, as such terms are defined in the Recitals. Section 1.11 "Declarant" means the City of Newport Beach, the fee Lessor of the Covered Property, its successors and assigns. Section 1,12 "Declaration" means this Declaration and any amendments thereto. Section l .1 a "Development" means the Beacon Bay subdivision. Section 1,14 "Exhibit" means those documents so designated herein and attached hereto and each of such Exhibits is by this reference incorporated in this Declaration. Section 1.1 5 "Governing Instruments" means this Declaration, the Articles and Bylaws of the Association, and any Rules and Regulations of the Association_ Section 1. t G "Lessee" means the holder or holders of record of the leasehold interest in a Residential Lot created by and arising out of a lease with Declarant. "Lessee" shall not include any persons or entities who hold an interest in a Residential Lot merely as security for performance of an obligation. Section 1.17 "Manager" means any person or entity appointed by the Board to manage the Development. Sectioji 1.18 "Member" means every person or entity entitled to membership in the Association as provided in this Declaration. Section 1.19 "Mortgage" means a mortgage or deed of trust encumbering a Residential Lot within the Development. "First Mortgage" means a mortgage that has priority over all other mortgages encumbering the same Residential Lot within the Development. Section 1.20 "Mortgagee" means a Person to whom a Mortgage is made and includes the beneficiary of a deed of trust and any guarantor or insurer of a mortgage. "Institutional Mortgagee" means a mortgagee that is a financial intermediary or depository, such as a bank, savings and loan, or mortgage company, that is chartered under federal or state law and that lends money on the security of real property or invests in such loans, or any insurance company or governmental agency or instrumentality, including the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), and the Government 311/12 10120.4 #114293 Y1 4 SS2-44 National Mortgage Association (GNMA). "First Mortgagee" means a Mortgagee that has priority over all other mortgages or holders of mortgages encumbering the same Residential Lot or other portion of the Development. The term "Beneficiary" shall be synonymous with the term "Mortgagee." Section 1.21 "Mortgagor" means a Person who mortgages his, her, or its Residential Lot to another (i.e., the maker of a mortgage), and shall include the trustor of a deed of trust. The term "Trustor" shall be synonymous with the term "Mortgagor." Section 1.22 "Person" means a natural individual, a corporation, or any other entity with the legal right to hold title to real property. Section 1.23 "Residence" means the residential dwelling unit Including garages, structures and other improvements on a Residential Lot. Section 1.24 "Residential Lot" means a numbered lot shown on the Subdivision Map not including any Common Area, but including the residential dwelling unit together with garages, structures and other improvements on the same lot or parcel. Beacon Bay has been divided into individual residential lots, commonly known as 1 through and including 69 Beacon Bay and 101, 107 and 115 Harbor Island Drive, Newport Beach (the "Residential Lots"). Section 1.25 "Rules and Regulations" means any Rules and Regulations for Beacon Bay Community Association regulating the use of the Common Area and adopted by the Association pursuant to Section 3.08(b) of this Declaration. Section 1.26 "Setback" means those internal distances from the property line of each Residential Lot as shown on Exhibit II. Section 1.27 "Subdivision Map" means the Record of Survey Map of Beacon Bay Subdivision recorded in Book 9, Pages 42 and 43, Records of Survey, on file in the Office of the County Recorder, Orange County, California. ARTICLE II THE PROPERTY Section 2.01 Property Subject to Declaration. All of the Covered Property shall be subject to this Declaration. Section 2.02 Use and Enjoyment of Common Area. The following provisions govern the use and enjoyment of the Common Area: (a) The Common Area shall be used solely and exclusively for vehicular ingress and egress and parking, boat storage and launching, pedestrian walkway purposes, recreational uses for Beacon Bay residents, and the property designated as Lot "62" shall be used exclusively for tennis court and park purposes and for construction and maintenance of an office and meeting facilities for Lessee in connection with the maintenance and operation of the homeowners' association in Beacon Bay. The property designated as beach property hereunder shall be used exclusively for beach purposes. 311112 1412D.4 4114293 v 1 5 SS2-45 (b) Subject to the provisions of this Declaration and the provisions of the Common Area Lease between the Declarant and the Association (the "Common Area Lease"), there is an easement for ingress, egress, and support through the Common Area appurtenant to each Residential Lot. These easements shall grass with title to the Residential Lot. (c) The Members' easements over, and rights of use and enjoyment of, the Common Area shall be subject to the restrictions set forth in the Common Area Lease and in the Governing Instruments, including the following; (1) The right of the Association to adopt and enforce Rules and Regulations for the use of the Common Area. (2) The right of the Association to reasonably limit the number of guests and tenants using the Common Area while allowing for open public access to the tidelands around Beacon Bay. (3) The right of the Association to assign or otherwise control the use of any unassigned parking spaces within the Common Area; provided, however, the Association shall position any signs that limit parking and beach access to Members and their guests in a manner that does not discourage visitor and public use of the tidelands around Beacon Bay (4) The right of the Association to suspend the right of any Member, and the Persons deriving rights from any Member, to use and enjoy the Common Area for any period during which the Member is delinquent in the payment of any assessment. (5) The right of the Association to cause the construction of additional improvements in the Common Area, or to cause the alteration or removal of existing improvements in the Common Area, (6) The right of the Association to join with the Declarant in the grant or conveyance of easements, licenses, or rights-of-way in, on, or over the Common Area. (7) The rights of Declarant as described in this Declaration and in the Common Area Lease. (S) The right of the Association to reasonably restrict access to maintenance facilities or areas, landscaped areas, and similar areas of the Development. (9) The right of the Board to approve any proposed alteration or modification to the Common Area or any Residence. (d) The Association may join with the Declarant in granting to third parties easements in, on, and over the Common Area for the purpose of constructing, installing, or maintaining necessary utilities and services, and each Member expressly consents to these easements. However, no such easement can be granted if it would interfere with Member's use, occupancy, or enjoyment of his or her Residence. (e) A Member who has sold his or her Residence to a contract purchaser or who has leased the Residence shall be entitled to delegate his or her rights to use and enjoy the 311112 10120.4 6114293 v 6 SS2-46 Common Area to any contract purchaser or subtenant who resides in the Member's Residence, subject to reasonable regulation by the Board. If the Member makes such a delegation of rights, the Member and the Member's family, guests, employees, and invitees shall not be entitled to use and enjoy the Common Area for so long as the delegation remains effective. (f) Each Member shall be liable to the Association for any damage to the Common Area or to Association -owned property, to the extent that the damage is not covered by insurance, if the damage is sustained because of the negligence, willful misconduct, or unauthorized or improper installment or maintenance of any improvement by the Member or the Member's family, guests, sub -tenants, contract purchasers or invitees. In the case of joint ownership of a Residence, the liability of the co-owners shall be joint and several, unless the co- owners and the Association have agreed in writing to an alternative allocation of liability. (g) Nothing in this Declaration shall limit Declarar>t's right to use any properties held in trust by Declarant (including tidelands) for the purposes of establishing, maintaining, and operating mitigation bank locations for Eelgrass (zoostera marina) or projects that are intended to enhance the water quality or ecosystem of Newport Bay without infringing on or limiting Beacon Bay residents' ability to operate and maintain legal and permitted residential piers. (h) The Association may not encumber the Common Area except to finance improvements thereon. Section 2.03 Maintenance by Members. Except as the Association shall be obligated to maintain and repair as provided in this Declaration, every Member shall: (a) maintain all portions of the exterior of his Residence, including without limitation, the walls, fences and roof of such Residence in good condition and repair; and (b) install and thereafter maintain in attractive condition yard landscaping of his Residential Lot in accordance with the provisions of this Article. Section 2.04 Prohibition Against Severance of Elements of Residence. Any conveyance, judicial sale, or other voluntary or involuntary transfer of the Member's entire estate shall also include the Member's Membership interest in the Association, as provided in Section 3.02 of this Declaration. Any transfer that attempts to sever those component interests shall be void. ARTICLE III THE ASSOCIATION Section 3.01 Organization of the Association. The Association is incorporated under the name of Beacon Bay Community Association, as a nonprofit corporation organized under the California Nonprofit Mutual Benefit Corporation Law. The Association is charged with the duties and invested with the powers prescribed by law and set forth in this Declaration, the Articles of Incorporation, the Bylaws and the Common Area Lease, 3/1/12 10120.4 N114293 v1 7 SS2-4 7 Section 3.02 Membershit2. Every Lessee shall be a Member but there shall be only one Membership and one Voting Member per Residence. The term and provisions set forth in this Declaration, which are binding upon all Members are not exclusive, as Members shall, in addition, be subject to the terms and provisions of the Articles, Bylaws and Association Rules to the extent the provisions thereof are not in conflict with this Declaration. Membership shall be appurtenant to and may not be separated from the interest of such Member in any Residential Lot. Ownership of a leasehold interest in a Residential Lot shall be the sole qualification for membership; provided, however, a Member's voting rights may be regulated or suspended as provided in this Declaration, the Bylaws or the Association Rules. Section 3.03 Transfer. The Membership held by any Member shall not be transferred, pledged or alienated in any way, except that such Membership shall automatically be transferred to the transferee of the interest required for Membership. Any attempt to make a prohibited transfer is void and will not be reflected upon the books and records of the Association. The Association shall have the right to record the transfer upon the books of the Association without any further action or consent by the transferring Member. Section 3.04 Classes of Membership. The Association shall have one (1) class of voting membership. Section 3.05 Voting Rights. All voting rights of the Members shall be subject to the following restrictions, limitations, and requirements: (a) Except as provided in this Article, on each matter submitted to a vote of the Members, one vote may be cast for each Residential Lot owned. The Member entitled to cast the vote with respect to a Residential Lot is referred to herein as the Voting Member. (b) Fractional votes shall not be allowed. When there is more than one record Lessee of a Residential Lot ("co -Lessees), all of the co -Lessees shall be Members, but only one of them shall be entitled to cast the single vote attributable to the Residential Lot. Co -Lessees should designate in writing one of their number to vote. If no such designation is made or if it is revoked, the co -Lessees shall decide among themselves, by majority vote, how the vote associated with that Residential Lot is to be cast and which of them is the Voting Member as to that vote. Unless the Board receives a written objection in advance from a co -Lessee, it shall be conclusively presumed that the voting co -Lessee is acting with the consent of his or her co - Lessees and is the Voting Member of that Residential Lot. No vote shall be cast for a Residential Lot on a particular matter if a majority of the co -Lessees present in person or by proxy cannot agree on a vote. (c) Except as provided in Section 3.05 of the Bylaws governing the removal of directors, any provision of this Declaration, the Articles, or the Bylaws that requires the approval of a specified percentage of the voting power of the Association shall require the vote or written consent of the Voting Members representing the specified percentage of the total voting power of the Association. ` (d) The Board shall fix, in advance, a record date or dates for the purpose of determining the Members entitled to notice of and to vote at any meeting of Members. The record date for notice of a meeting shall not be more than 90 or less than 10 days before the date 311112 10120.4 # 114243 v1 8 SS2-48 of the meeting. The record date for voting shall not be more than 60 days before the date of the meeting or before the date on which the first written ballot is mailed or solicited, The Board may also fix, in advance, a record date for the purpose of determining the Members entitled to exercise any rights in connection with any other action. Any such date shall not be more than 60 days prior to the action. (e) Every Member entitled to vote at any election of the Directors in which more than two Directors are to be elected may cumulate the Member's votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which the Member is entitled, or distribute the Member's votes on the same principle among as many candidates as the Member thinks fit. No Member shall be entitled to cumulate votes for a candidate or candidates unless more than two Directors are to be elected. (f) All voting rights shall be subject to the restrictions and limitations provided herein and in the Articles, Bylaws and Association Rules. Section 3.06 Approval of Members. Unless elsewhere otherwise specifically provided in this Declaration or the Bylaws, any provision of this Declaration or the Bylaws which requires the vote or written assent of the voting power of the Association shall be deemed satisfied by the following: (a) The vote in person or by proxy of the specified percentage of the Voting Members present at a meeting duly called and noticed pursuant to the provisions of the Bylaws dealing with annual or special meetings of the Members at which a quorum is present as determined in accordance with Section 2.08 of the Bylaws. (b) Written consents signed by the specified percentage of Voting Members as provided in the Bylaws. Section 3.07 Membership Meetings. Article II of the Bylaws governing meetings of the Members is hereby incorporated by reference. Section 3.08 General Powers and Authority. The Association shall have all the powers of a nonprofit mutual benefit corporation organized under the California Nonprofit Mutual Benefit Corporation Law, subject to any limitations set forth in this Declaration or in the Articles and Bylaws of the Association. It may perform all acts that may be necessary for or incidental to the performance of the obligations and duties imposed upon it by this Declaration or the other Governing Instruments. Its powers shall include, but are not limited to, the following: (a) The Association shall have the power to establish, fix, levy, collect, and enforce, and shall enforce, the payment of assessments against the Members in accordance with the procedures set out in Article IV of this Declaration. (b) The Association shall have the power to adopt reasonable Rules and Regulations governing the use of the Common Area and its facilities, and of any other Association property. These Rules and Regulations may include, but are not limited to: reasonable restrictions on use by the Members and their family, guests, employees, tenants, and invitees; rules of conduct; and the setting of reasonable fees for the use of recreational facilities. A copy of the current Rules and Regulations, if any, shall be given to each Member and shall be 311112 10124.4 ##114293 v1 9 SS2-49 posted at conspicuous places in the Common Area. If any provision of the Rules and Regulations conflicts with any provision of this Declaration, the Articles, or the Bylaws, the Declaration, Articles, or Bylaws shall control to the extent of the inconsistency. (c) The Association shall have the right to institute, defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings in its own name as the real party in interest and without joining with it the Members, in matters pertaining to the following; and Regulations. (1) Enforcement of this Declaration, the Articles, Bylaws, and Rules (2) Damage to the Common Area. (d) In addition to the general power of enforcement described above, the Association may discipline its Members for violation of any of the provisions of the Governing Instruments or Rules and Regulations by suspending the violator's voting rights and privileges for use of the Common Area, or by imposing monetary penalties, subject to the following Iimitations: (1) The accused Member shall be given notice and an opportunity to be heard with regard to the alleged violation in accordance with the provisions of Corporations Code Section 7341 and Civil Code Section 1363(b). (2) Any suspension of a Member's association privileges shall not exceed thirty (30) days for each violation. (3) If the Association imposes a monetary penalty, the Board shall distribute to each Member, by personal delivery or first-class mail, a schedule of the monetary penalties that may be assessed for those violations. (4) Except as provided in Article IV of this Declaration, relating to foreclosure for failure to pay assessments, or as a result of the judgment of a court or a decision arising out of arbitration, the Association shall in no way abridge the right of any Member to the full use and enjoyment of his or her Residence. (e) The Association, acting through the Board, shall have the power to delegate its authority, duties, and responsibilities to its officers, employees, committees, or agents, including a professional management agent. The term of any agreement with a manager for the furnishing of maintenance, repair, and related services shall not exceed one year, renewable by agreement of the parties for successive one-year periods. Such an agreement shall be terminable by either party (1) for cause on 30 days' written notice, and (2) without cause or the payment of a termination fee on 90 days' written notice. Section 3.09 Duties of the Association. In addition to the duties delegated to the Association or its agents and employees elsewhere in these Governing Instruments, the Association shall be responsible for the following. 3/1/12 10120.4 4 114293 vl 10 SS2-50 (a) The Association, acting through the Board, shall operate, maintain, repair, and replace the Common Area, its improvements including all landscaping within the Common Area, or contract for the performance of that work, subject to the provisions of Article VIII of this Declaration relating to destruction of improvements, Article IX of this Declaration pertaining to eminent domain, and Section 2.02(f) of this Declaration relating to damage caused by Members. The foregoing areas and improvements shall be kept in a clean, sanitary, and attractive condition. The Association shall also have the exclusive right and duty to acquire and maintain any furnishings and equipment for the Common Area that it determines are necessary and proper. As a general rule, maintenance costs shall be included in the regular assessments. (b) The Association shall use the maintenance fund described in Section 4.02 of this Declaration to, among other things, acquire and pay for the following: (1) Water, sewer, trash, electrical, gas, and other necessary utility service for the Common Area; (2) The insurance policies described in Article VII of this Declaration; (3) The services of any personnel that the Board determines are necessary or proper for the operation of the Common Area; and (4) Legal and accounting services necessary or proper in the operation of the Common Area or the enforcement of this Declaration. (c) The Association shall prepare a pro forma operating budget for each fiscal year, and shall distribute a copy of the budget to each Member not less than 45 and not more than 60 days before the beginning of the fiscal year. As an alternative to the foregoing distribution of the budget, the Association may elect to do all of the following in the manner required by statute: distribute a summary of the budget to each Member, make the budget available for inspection at a designated location, and provide copies of the budget to Members on request and at the expense of the Association. The budget shall contain at least the following: (1) The estimated revenue and expenses on an accrual basis; (2) A summary (printed in bold type) of the Association's reserves that is based on the most recent review or study conducted pursuant to Civil Code Section 1365.5. This summary shall include the following: (i) the current estimated replacement cost, estimated remaining life, and estimated useful life of each major component that the Association is obligated to maintain (hereafter referred to as the "major components"); (ii) the current estimate, as of the end of the fiscal year for which the study is prepared, of the amount of cash reserves necessary to repair, replace, restore, or maintain the major components; (iii) the current amount, as of the end of the fiscal year for which the study is prepared, of accumulated cash reserves actually set aside to repair, replace, restore, or maintain the major components; and (iv) the percentage that the amount described in (iii), above, is of the amount determined for purposes of (ii), above (that is, the percentage obtained by dividing the amount described in (iii), above, by the amount described in (ii), above). 311112 10120.4 #114293 v I 11 SS2-51 (3) A statement as to whether the Board has determined or anticipates that the levy of one or more special assessments will be required to repair, replace, or restore any major component or to provide adequate reserves for such work. (4) A general statement addressing the procedures used for the calculation and establishment of reserves to defray the future repair, replacement, or additions to the major components. (d) Within 120 days after the close of each fiscal year, the Association shall prepare and distribute to the Members an annual report consisting of the following: (1) A balance sheet as of the end of the fiscal year. (2) An operating (income) statement for the fiscal year. (3) A statement of changes in financial position for the fiscal year. (4) For any fiscal year in which the gross income to the Association exceeds $75,000, a copy of the review of the annual report prepared in accordance with generally accepted accounting principles by a licensee of the California State Board of Accountancy. If this report is not prepared by an independent accountant, it shall be accompanied by the certificate of an authorized officer of the Association that the statement was prepared without independent audit or review from the books and records of the Association. (e) Within 60 days before the beginning of each fiscal year, the Association shall prepare and distribute to the Members a statement describing the Association's policies and practices in enforcing lien rights or other Iegal remedies for default in payment of assessments against Members. (f) Each year, the Association must provide the Owners with a summary of the provisions of Civil Code Sections 1369.510 through 1369.590. These statutes require that alternative dispute resolution be pursued before a civil action may be filed in connection with certain disputes related to enforcement of the governing documents, the Davis -Stirling Common Interest Development Act (Civ. Code § 1350 et seq. ), or the Nonprofit Mutual Benefit Corporation Law (Corp. Code § 7110 et seq.). The required summary must include a specific reference to Civil Code Sections 1369.510 through 1369.590, and the statutory language set forth in Civil Code Section 1369.590(a). This summary must be provided either (1) at the time the pro forma operating budget described in Section 3.09(c) of this Declaration is distributed, or (2) in the manner specified in Corporations Code Section 5016. (g) The Association shall provide any Member with the following documents within 10 days of the mailing or delivery of a written request therefor: (1) A copy of the Governing Instruments. (2) A copy of the most recent financial statement distributed pursuant to Section 3.09(4) of this Declaration. 3/1/12 10120.4 4 114293 vi 12 SS2-52 (3) A written statement from an authorized representative of the Association specifying (i) the amount of any assessments levied on the Member's Residence that are unpaid on the date of the statement; and (ii) the amount of late charges, interest, and costs of collection that, as of the date of the statement, are or may be made a lien on the Member's Residential Lot pursuant to Section 4.08 of this Declaration. The Association may charge the Member a reasonable fee to cover its cost to prepare and reproduce those requested items. (h) The Association shall pay all real and personal property taxes and assessments levied against it, its personal property and the Common Area. Section 3.10 Board of Directors. The affairs of the Association shall be managed and its rights, duties and obligations performed by an elected Board of Directors, as provided in Article III of the Bylaws, which is hereby incorporated by reference. Section 3.11 Inspection of Books and Records. Article XI of the Bylaws, governing the duty of the Association to maintain certain books and records and the rights of Members and Directors to obtain and inspect those books and records, is hereby incorporated by reference. Section 3.12 Resolution of Disputes. As required by Civil Code Section 1363.820(a), the Association shall offer a fair, reasonable, and expeditious procedure for resolving any dispute between the Association and a member involving their rights, duties, or liabilities under the Davis -Stirling Common Interest Development Act (Civil Code Section 1350 et seq.), the Nonprofit Mutual Benefit Corporation Law (Corporations Cade Section 7110 et seq.), or under the Association's governing documents. This dispute resolution procedure is supplementary to the alternative dispute resolution procedure prescribed by Civil Code Section 1369, 510 et seq. as a prerequisite to commencing civil action. The dispute resolution procedure shall consist of the following: (a) Either party may initiate the procedure by making a written request to the other party to meet and confer in an effort to resolve the dispute. If the request is by the Association, the member may refuse to participate. If the request is by a member, however, the Association may not refuse to participate. (b) Within 5 days of the written request, the Board of Directors shall designate a member of the Board to meet and confer with the other party. (c) Within 10 days of the Board member's designation, the parties shall meet at a mutually convenient time and place, explain their positions to each other, and confer in good faith in an effort to resolve the dispute. (d) If the parties reach agreement on a resolution of the dispute, that resolution shall be memorialized in writing and signed by the parties with the Board designee signing on behalf of the Association. (e) An agreement reached by the parties is binding on them and may be judicially enforced provided the agreement is consistent with the authority granted by the Board of Directors to its designee, and further provided the agreement is not in conflict with law or the Association's governing documents. M112 10120.4 # 114293 v! 13 SS2-53 (f) A member of the Association may not be charged a fee to participate in the dispute resolution procedure. ARTICLE IV ASSESSMENTS AND COLLECTION PROCEDURES Section 4.01 Covenant to Pay. Each Member is deemed to covenant and agree to pay to the Association the regular and special assessments levied pursuant to the provisions of this Declaration. A regular or special assessment and any late charges, reasonable costs of collection, and interest, as assessed in accordance with the provisions of this Article, shall be a debt of the Member at the time the assessment or other sums are levied. The Member may not waive or otherwise escape liability for these assessments by nonuse of the Common Area or abandonment of the Member's Residence. Section 4.02 Ppoose of Assessments. The assessments levied by the Association shall be used exclusively to defray Common Expenses and to discharge any other obligations of the Association under this Declaration. Subject to Section 4. 10, all assessment payments shall be put into a maintenance fund to be used for the foregoing purposes. Section 4.03 Assessment Period. The fiscal year for the Association shall commence June 1 and end May 31, unless the Board decides otherwise. The regular assessment period shall commence on June 1 and terminate on May 31 of each year. Section 4.04 Regular Assessments. Within 60 days prior to the beginning of each fiscal year of the Association, the Board shall estimate the net charges to be paid during that year, including a reasonable provision for contingencies and replacements, with adjustments made for any expected income and surplus from the prior year's fund. The estimated cash requirement shall be assessed and allocated in an equal amount for each Residential Lot. Each Member is obligated to pay assessments to the Board in equal monthly installments on or before the first day of each month unless the Board adopts an alternative method for payment. Section 4.05 'Special Assessments. If the Board determines that the amount to be collected from regular assessments will be inadequate to defray the common expenses for the year due to the cost of any construction, unexpected repairs or replacements of capital improvements upon the Common Area, or any other reason, it shall make a special assessment for the additional amount needed. Special assessments shall be levied and collected in the same manner as regular assessments, except the method of payment shall be as determined by the Board. Section 4.06 Limitations on Assessments. The Board shall comply with the following requirements governing the imposition and amounts of assessments: (a) For any fiscal year, the Board may impose a regular assessment per Residential Lot that is as much as 20 percent greater than the regular assessment for the preceding fiscal year, provided (1) the Board has distributed the pro forma operating budget described in Section 3.09(c) for the current fiscal year or (2) the increase is approved by Voting 311112 10120.4 # 114293 v1 14 SS2-54 Members constituting a majority of the votes at a meeting or in an election of the Association conducted in accordance with Corporations Code Sections 7510-7527 and 7613 . (b) The Board may impose, for any fiscal year, a regular assessment per Residential Lot that is more than 20 percent greater than the regular assessment for the preceding fiscal year, or may levy special assessments that in the aggregate exceed 5 percent of the budgeted gross expenses of the Association for that fiscal year, provided the increase or levy is approved by Voting Members constituting a majority of the votes of the Association and casting a majority of the votes at a meeting or election of the Association conducted in accordance with Corporations Code Sections 7510-7527 and 7613 . (c) The Board may, without complying with the foregoing requirements, make an assessment increase that is necessary for an emergency situation. An emergency situation is an extraordinary expense that is: (1) Required by a court order. (2) Necessary to repair or maintain the Common Area or any part of it for which the Association is responsible when a threat to personal safety in the Development is discovered. (3) Necessary to repair or maintain the Common Area or any part of it for which the Association is responsible that could not have been reasonably foreseen by the Board in preparing and distributing the pro forma operating budget pursuant to Section 3.09(c). Before the Board may impose or collect an assessment in the type of emergency situation described in (3) above, it shall pass a resolution containing written findings as to the necessity of the extraordinary expense and why the expense was not or could not have been reasonably foreseen in the budgeting process, and shall distribute the resolution to the Members with the notice of assessment. (d) The Board shall notify the Members in writing of any increase in the amount of a regular or special assessment. The Board shall provide this notice by first-class mail not less than 30 or more than 60 days prior to the due date of the increased assessment. Section 4.07 Late Charges. Late charges may be levied by the Association against a Member for the delinquent payment of regular or special assessments. An assessment is delinquent 15 days after its due date. If an assessment is delinquent the Association may recover all of the following from the Member: (a) Reasonable costs incurred in collecting the delinquent assessment, including reasonable attorneys' fees. (b) A late charge not exceeding ten (10) percent of the delinquent assessment or $10, whichever is greater. (c) Interest on the foregoing sums, at an annual percentage rate of ten (10) percent, commencing 30 days after the assessment becomes due. 3/1/12 10120.4 # 114293 v1 15 SS2-55 No late charge may be imposed more than once for the delinquency of the same payment. However, the imposition of a late charge on any delinquent payment shall not eliminate or supersede charges imposed on prior delinquent payments. Section 4.08 Enforcement of Assessments and Late Charges. At least 30 days before the Association can place a lien on a Residence for a past due debt for a regular or special assessment, the Association must notify the Member by certified mail of the following: (a) A general description of the Association's collection and lien enforcement procedures. (b) The method of calculation of the amount due. (c) A statement that the Member has the right to inspect the Association records. (d) A statement informing the Member that the Member's Residence may be subject to foreclosure and sale without court action. (e) An itemized statement of the charges owed by the Member, including items on the statement that 'indicate the amount of any delinquent assessments, the fees and reasonable costs of collection, reasonable attorney's fees, and any late charges and interest. (f) A statement that the Member will not be liable to pay the charges, interest, and costs of collection, if it is determined the assessment was paid on time. (g) The Member's right to request a meeting with the Board if the Member disputes the debt. A Member may dispute the debt by submitting to the Board a written explanation within 15 days of the mailing of the Association's notice. The Board must respond to a Member's timely explanation within 15 days of the mailing of the Member's explanation. A Member also may submit a written request to meet with the Board to discuss a payment plan for the debt. The request must be mailed within 15 days of the mailing of the Board's notice. The Board must then meet with the Member in executive session within 45 days of the mailing of the Member's request. If there is no regularly scheduled Board meeting within that time period, the Board may designate a committee of one or more members to meet with the Member. Any partial payments made toward the debt will first be applied to the assessments owed, and only after the principal owed is paid in full will the payments be applied to the fees and costs of collection, attorneys' fees, late charges, or interest. When a Member makes a payment, the Member may request a receipt and the Association shall provide it. The receipt shall indicate the date of payment and the person who received it. The Association shall provide a mailing address for overnight payment of assessments. 3/1/12 10120.4 it 114293 v1 16 SS2-56 A debt for a delinquent regular or special assessment and any late charges, reasonable fees and costs of collection, reasonable attorneys' fees, and interest shall become a lien on the Residence when a notice of delinquent assessment is duly recorded and mailed as provided in Section 1367.1 of the California Civil Code. Except as provided below regarding debts arising from delinquent assessments when the debt arose on or after January 1, 2006, and the delinquent amount is less than $1,800, any such lien may be enforced in any manner permitted by law, including judicial foreclosure or nonjudicial foreclosure. Any nonjudicial foreclosure shall be conducted by the trustee named in the notice of delinquent assessment or by a trustee substituted pursuant to Section 2934a of the California Civil Code, in accordance with the provisions of Sections 2924, 2924b, and 2924c of the California Civil Code. If the sums specified in the notice of delinquent assessment are paid before the completion of any judicial or nonjudicial foreclosure, the Association shall record a notice of satisfaction and release of the lien. On receipt of a written request by the Member, the Association shall also record a notice of rescission of any declaration of default and demand for sale. In accordance with Section 1367.4 of the California Civil Code, a lien securing a debt arising from a delinquent regular or special assessment when the debt arose on or after January 1, 2006, and the delinquent amount is less than $1,800, excluding accelerated assessments, late charges, fees and costs of collection, attorney's fees, and interest, shall not be enforced by judicial or nonjudicial foreclosure unless and until either (1) the debt equals or exceeds $1,800, excluding accelerated assessments, late charges, fees and costs of collection, attorney's fees, and interest, or (2) the debt secured by the lien is more than 12 months delinquent. Section 4.09 Statement Regarding Assessments. The Association shall provide any Member, upon written request, with a statement specifying (1) the amounts of the Association's current regular and special assessments and fees, and (2) the amounts of any delinquent assessments and related late charges, interest, and costs levied against the Member's Residential Lot, as provided in Section 4.08 of this Declaration. Section 4.10 Reserves. All amounts collected as reserves shall be deposited by the Association in a separate bank account to be held in trust for the purposes for which they are collected and are to be segregated from and not commingled with any other funds of the Association. ARTICLE V USE RESTRICTIONS AND COVENANTS Section 5.01 General Restrictions on Use. In exercising the right to occupy or use a Residence, Residential Lot or the Common Area and its improvements, the Member and the Member's family, guests, employees, tenants, and invitees shall not do any of the following: (a) Attempt to further subdivide a Residential Lot without obtaining the prior approval of the Association and the Declarant. 3/1/12 10120A #114293 vi 17 SS2-57 (b) Occupy or use a Residential Lot, or permit all or any part of a Residential Lot to be occupied or used, for any purpose other than as a private residence. Nothing in this Declaration shall prevent a Member from leasing or renting out his or her Residence, provided that it is not for transient or hotel purposes, is for a period of at least 60 days, and is subject to the Governing Instruments. (c) Permit anything to obstruct the Common Area or store anything in the Common Area without the prior consent of the Board, except as otherwise provided in the Governing Instruments. (d) Perform any act or keep anything on or in any Residential Lot or in the Common Area that will increase the rate of insurance on the Common Area without the Board's prior written consent. Further, no Member shall permit anything to be done or kept in his or her Residential Lot or in the Common Area that would result in the cancellation of insurance on any Residence or Exclusive Use Common Area or on any part of the Common Area or that would violate any law. (e) Display any sign to the public view on or from any Residential Lot or the Common Area without the prior written consent of the Board, except a sign advertising the property for sale, lease, or exchange, or advertising directions to the property, as provided in Section 712 of the California Civil Code and display any sign that discourages visitor and public use of the tidelands around Beacon Bay (f) Raise, breed, or keep animals, livestock, or poultry of any kind on a Residence or in the Common Area, except dogs, cats, or other household pets, which may be kept on Residences, subject to the Rules and Regulations. (g) Engage in any noxious or offensive activity in any part of the Development. (h) Alter or modify the exterior of any Residence without first obtaining the written consent of the Architectural Control Committee. (i) Alter, construct, or remove anything on or from the Common Area, except upon the written consent of the Board. Section 5.02 _Damage Liability. Each Member shall be liable to the Association for all damage to the Common Area or other Association property that is sustained by reason of the negligence or willful misconduct of that Member or his or her family, guests, employees, tenants, and invitees to the extent that the damage is not covered by the casualty insurance obtained and maintained by the Association pursuant to Section 7.01 of this Declaration. Section 5.03 Equitable Servitudes. The covenants and restrictions set forth in this Declaration shall be enforceable equitable servitudes and shall inure to the benefit of and bind all Members. These servitudes may be enforced in accordance with the provisions of Section 12.02 of Article XII. 311112 10120.4 # 114293 v 1 18 SS2-58 ARTICLE VI ARCHITECTURAL AND DESIGN CONTROL Section 6.01 Architectural and Design Approval. No building, addition, wall, fence, or alteration shall be begun, constructed, maintained, or permitted to remain on any Residential Lot, or on the Common Area, until complete plans and specifications of the proposed work have been submitted to the Architectural Committee and approved by the Board as to harmony of external design and location in relation to surrounding structures and topography. The Architectural Committee shall review the plans and specifications to determine whether they are compatible with the aforementioned standards and, if they are not, shall require that changes be made before recommending approval to the Board. Section 6.02 Architectural Committee. The Architectural Committee shall consist of not less than three nor more than five members, as fixed by the Board from time to time. (a) The Board shall have the right to appoint all members of the Committee. (b) Members appointed to the Committee shall be Members of the Association. (c) The term of the appointees shall be one year. Notwithstanding the foregoing, all members of the Committee shall serve at the will of the Board, and may be removed by the Board at any time with or without cause. (d) The Committee shall meet as often as it deems necessary to properly carry out the obligations imposed on it, unless otherwise directed by the Board. Section 6.03 Procedural Rules and Fees. The Board may establish reasonable procedural rules and assess a fee in connection with review of plans and specifications including, without limitation, the number of sets of plans to be submitted. In the event the Board fails to approve or disapprove such plans and specifications within thirty (30) days after the same have been properly submitted in accordance with any rules regarding such submission adopted by the Board, such plans and specifications will be deemed approved. Section 6.04 The Board of Directors. After the Architectural Committee has completed its review of plans and specifications submitted under this Article, the Architectural Committee shall submit such plans and specifications, together with its recommendation as to approval or disapproval, to the Board for approval or disapproval by the Board. Thereafter, the Board shall take any actions it deems necessary, in accordance with the provisions of this Declaration. Section 6.05 No Power to Modify Setback Re Nothing in this Declaration or in the Association's Articles, Bylaws or Rules shall be construed or amended to allow the Board to modify or eliminate the Setback requirements shown on the Beacon Bay Subdivision Survey Map, and any attempt to do so shall have no effect. Section 6.06 Nonliability for Approval of Plans. Plans and specifications shall be approved by the Board as to style, exterior sign, appearance and Iocation, and are not approved for engineering design or for compliance with zoning and building ordinances, and by approving 311112 10120.4 4114293 v1 19 SS2-59 such plans and specifications neither the Architectural Committee, the members thereof, the Association, the Members, the Board nor Declarant assumes liability or responsibility therefor, or for any defect in any structure constructed from such plans and specifications. ARTICLE VII INSURANCE Section 7.01 Fire and Casualty Insurance. The Association shall obtain and maintain a policy or policies of fire and casualty insurance with an extended coverage endorsement for the full insurable replacement value of the improvements in the Common Area. The amount of coverage shall be determined by the Board. This insurance shall be maintained for the benefit of the Association, the Members, and their Mortgagees, as their interests may appear as named insured, subject, however, to any loss payment requirements set forth in this Declaration. Section 7.02 General Liability and Individual Liability Insurance. The Association shall obtain and maintain one or more policies of insurance that must include coverage for (1) general liability of the Association and (2) individual liability of Officers and Directors of the Association for negligent acts or omissions in that capacity. Both of the above types of coverage shall not be less than $1,000,000 covering all claims for death, personal injury, and property damage arising out of a single occurrence. The limits and coverage shall be reviewed at least annually by the Board and increased in its discretion. Section 7.03 Other Association Insurance. The Association shall purchase and maintain workers' compensation insurance to the extent necessary to comply with any applicable laws. The Association also shall purchase and maintain fidelity bond coverage that names the Association as an obligee, for any person or entity handling funds of the Association, whether or not such persons or entities are compensated for their services. This coverage shall be in an amount that is at Ieast equal to the estimated maximum of funds, including reserve funds, in the custody of the Association or the Manager at any given time during the term of each bond. However, the aggregate amount of these bonds must not be less than 150 percent of each year's estimated annual operating expenses and reserves. The Association also may purchase and maintain a blanket policy of flood insurance, and demolition insurance in an amount that is sufficient to cover any demolition that occurs following the total or partial destruction of the Development and a decision not to rebuild. Section 7.04 Trustee for Policies. The Association, acting through its Board, is hereby appointed and shall be deemed trustee of the interests of all named insureds under all insurance policies purchased and maintained by the Association. All insurance proceeds under any of those policies shall be paid to the Board as trustee. The Board shall use the proceeds for any of the purposes specified in Article VIII of this Declaration. The Board also is authorized to negotiate loss settlements with the appropriate insurance carriers, to compromise and settle any claim or enforce any claim by any lawful action, and to execute loss claim forms and release forms in connection with such settlements. Section 7.05 Individual Insurance. Each Member shall provide fire and casualty insurance for the improvements on his or her Residence. A Member may separately insure his or her personal property, and may obtain and maintain personal liability and property damage 311112 10120.4 0114293 v 1 20 SS2-60 liability insurance for his or her Residence, provided that the insurance contains a waiver of subrogation rights by the carrier as to the Association, Declarant, and the institutional First Mortgagees of the Member's Residential Lot. Section 7.06 Insurance Premiums. Insurance premiums for any insurance coverage obtained by the Association shall be included in the regular assessments. That portion of the regular assessments necessary for the required insurance premiums shall be used solely for the payment of the premiums when due. Section 7.07 Additional Provisions. The Association shall file a copy of each of the above insurance policies with Declarant. Except for workers compensation insurance, all of the above insurance policies shall include Declarant and its elected officials, officers, agents, representatives and employees as additional insureds. Except for worker's compensationinsurance, all policies shall be endorsed to state that coverage shall not be canceled by the insurer except after thirty (30) days' prior written notice to Declarant. The Assocaition shall give Declarant prompt and timely notice of claim made or suit instituted againt the Associaton. The Association shall grant to Declarant, on behalf of the insurer providing general liability insurance to the Association, a waiver of any right of subrogation which any such insurer may acquire against Declarant by virtue of the payment of any loss under such insurance. ARTICLE VIII DAMAGE OR DESTRUCTION Section 8.01 Duty to Restore and Replace. If any of the improvements in the Common Area are destroyed or damaged, the Association shall restore and replace the improvements, using the proceeds of insurance maintained pursuant to Article VII of this Declaration, subject to the provisions of this Article. Section 8.02 Proceeds Justifying Automatic Restoration and Repair, If the proceeds of any insurance maintained pursuant to Article VII of this Declaration for reconstruction or repair of the Common Area are equal to at least eighty-five (85) percent of the estimated cost of restoration and repair, the Board shall use the insurance proceeds for that purpose, shall levy a special assessment to provide the necessary additional funds, and shall have the improvements promptly rebuilt, unless the Members by the vote or written consent of not less than seventy-five (75) percent of the total voting power of the Association object to the restoration or repair work within sixty (60) days of the damage or destruction. Section 8.03 Approval by Members of Special Assessment for Certain Restorations and Repairs. If the proceeds of any insurance maintained pursuant to Article VII of this Declaration for reconstruction or repair of the Property are less than eighty-five (85) percent of the estimated cost of restoration and repair, any restoration and repair work must be authorized by the vote or written consent of Members representing at least seventy-five (75) percent of the total voting power of the Association. This authorization must be given within ninety (90) days of the damage or destruction and must authorize the Board to levy a special assessment to provide the necessary funds over and above the amount of any insurance proceeds available for the work. 311112 10120.4 # 114243 vi 21 SS2-61 Section 8.04 Ordering Reconstruction or Repair. If reconstruction or repair work is to take place pursuant to this Article, the Board shall take the following steps: (a) Prepare the necessary documents, including an executed and acknowledged certificate stating that damage has occurred, describing it, identifying the improvement suffering the damage, the name of any insurer against whom claim is made, and the name of any insurance trustee, stating (if applicable) that the consent described in Section 8.03 has been obtained, and reciting that the certificate is recorded pursuant to this paragraph. That declaration shall be recorded with the Recorder of Orange County within ninety (90) days from the date of the damage or destruction. (b) Should the Association elect to replace rather than repair the improvement suffering the damage, obtain the approval of Declarant of the architectural plans of the proposed improvement. (c) Obtain firm bids (including the obligation to obtain a performance bond) from two or more responsible contractors to rebuild the Common Area in accordance with its original plans and specifications and, as soon as possible thereafter, call a special meeting of the voting Members to consider the bids. If the Board fails to do so within 60 days after the casualty occurs, any Member may obtain the bids and call and conduct the special meeting in the manner required by this paragraph. At the meeting, Members representing at least 67 percent of the total voting power may elect to reject all of the bids and thus not to rebuild, or Members representing at least 51 percent of the total voting power may elect to reject all bids requiring amounts exceeding the available insurance proceeds by more than $25,000. Failure to reject all bids shall authorize the Board to accept the unrejected bid it considers most favorable. Failure to call the special meeting or to repair the casualty damage within 12 months from the date the damage occurred shall be deemed for all purposes to be a decision not to rebuild. (d) If a bid is accepted, let the contract to the successful bidder and distribute the insurance proceeds to the contractor as required by the contract. (e) Levy a special assessment to make up any deficiency between the total insurance proceeds and the contract price for the repair or rebuilding, with the assessment and all insurance proceeds, whether or not subject to liens of mortgagees, to be used solely for the rebuilding. This assessment shall be apportioned equally to each Residential Lot. If any Member fails to pay the special assessment within 15 days after it is levied, the Board shall enforce the assessment in the manner described in Section 4.08 of this Declaration. Section 8.05 Election Not to Rebuild. Upon an election not to rebuild, the Board, as soon as reasonably possible and as agent for the Members, shall execute and record a certificate stating that the Association shall not rebuild. The net proceeds shall then be distributed to the owners of the Residential Lots equally. Section 8.06 Minor Restoration and Repair Work. The Association shall order restoration or repair work without complying with the other provisions of this Article whenever the estimated cost of the work does not exceed Twenty-five Thousand Dollars ($25,000). If insurance proceeds are unavailable or insufficient, the Association shall levy a special 311/12 10120.4 #114293 v 1 22 SS2-62 assessment for the cost of the work. The Assessment shall be levied in the manner described in Section 4.05 of this Declaration. ARTICLE IX EMINENT DOMAIN Section 9.01 Sale to Condemning _Authority, If a governmental agency proposes to condemn all or a portion of the Common Area, the Association, with the approval of the Declarant, may sell all or any portion of its interest in the Common Area to the condemning authority if seventy-five (75) percent of the voting power of the Associations and sixty (60) percent of all institutional First Mortgagees approve the sale in advance. Any such sale shall be made by the Association in the capacity of attorney-in-fact for the Members, acting under an irrevocable power of attorney which each Member grants to the Association. The sales price shall be any amount deemed reasonable by the Board. Section 9.42 Distribution of Sales Proceeds. That portion of proceeds of a sale conducted pursuant to Section 9.01 which constitutes compensation for the condemnation of all or any portion of the improvements constructed by the Association on the Common Area and any and all compensation for the termination or diminution of the Association's interest in the Common Area Lease shall be distributed among the Members and their respective Mortgagees, as their interests may appear, and the balance of such proceeds shall be paid to the Declarant. Section 9.03 Taking and Condemnation Awards. If there is a taking by a governmental agency of all or any portion of the Common Area, the condemnation award shall be distributed to among the Declarant, the Members and their respective Mortgagees in accordance with the court judgment, if any such judgment exists. In all other cases, the proceeds shall be distributed as set forth in Section 9.02 above, ARTICLE X RIGHTS OF MORTGAGEES Section 10.01 Warranty. The Association hereby warrants that Mortgagees of Residential Lots in the Development shall be entitled to the rights and guaranties set forth in this Article. No amendment of this Article shall affect the rights of the holder of any Mortgage recorded prior to the recordation of the amendment who does not join in the execution of the amendment. Section 10.02 Subordination. Notwithstanding any other provision of this Declaration, liens created under Section 4.08 of this Declaration upon any Residential Lot shall be subject and subordinate to, and shall not affect the rights of the holder of, the indebtedness secured by any recorded First Mortgage upon such an interest made in good faith and for value, provided that any transfer of a Residential Lot as the result of a foreclosure or exercise of a power of sale shall not relieve the new Member from liability for assessments that become due after the transfer. Such a transfer shall extinguish the lien of assessments that were due and payable prior to the transfer of the Residential Lot. 311112 10120.4 #114293 v 1 23 SS2-63 Section 10.03 Notice of Default. A First Mortgagee, upon request, shall be entitled to written notification from the Association of any default in the performance by the Mortgagor of any obligation under the Association's Governing Instruments that is not cured within 60 days. Section 10.04 Unpaid Assessments. Any First Mortgagee who obtains title to a Residential Lot pursuant to the remedies provided in the Mortgage or foreclosure of the Mortgage shall not be liable for the Residential Lot's unpaid assessments that accrue prior to the acquisition of title to the Residential Lot by the Mortgagee. Section 10.05 Mortgagee Approval of Material Amendments. Notwithstanding Article XI of this Declaration, any amendments governing any of the following shall require the prior written approval of at least 51 percent of the First Mortgagees and at Ieast 67 percent of the total voting power of the Members: (a) Rights to use the Common Area; (b) Members' interests in the Common Area; and (c) Any provisions expressly benefiting First Mortgagees or insurers or governmental guarantors of First Mortgages. Notwithstanding the foregoing, any First Mortgagee who receives a written request from the Board to approve a proposed amendment or amendments requiring consent under this Section who does not deliver a negative response to the Board within 30 days of the receipt of the request shall be deemed to have approved the proposed amendment or amendments. Section 10.06 Mortgagee Approval of Other Actions. Unless at least 67 percent of the First Mortgagees (based upon one vote for each First Mortgage owned), or 67 percent of the total voting power of the Members, have given their prior written approval, the Association shall not be entitled to: (a) Change the pro rata interest or obligations of any individual Residential Lot for either of the following purposes: (1) Levying assessments or charges, or allocating distributions of hazard insurance proceeds or condemnation awards; or (2) Determining the pro rata interest of each Member in the Common Area and the improvements thereon. (b) By act or omission, seek to abandon, partition, subdivide, encumber, sell, or transfer the Common Area (the granting of easements for public utilities or for other public purposes consistent with the intended use of the Common Area shall not be deemed a transfer within the meaning of this clause),- (c) lause);(c) Use hazard insurance proceeds for losses to the Common Area for other than the repair, replacement, or reconstruction of that property, except as provided by statute in case of substantial loss to the Common Area. 3/1112 10120.4 4 114293 v 1 24 SS2-64 Section 10.07 Liens. All taxes, assessments, and charges that may become liens prior to the First Mortgage under local law, shall relate only to the individual Residential Lot and not to the Development as a whole. Section 10.08 Priority. No provision of the Governing Instruments gives any Member, or any other party, priority over any rights of the First Mortgagee of the Residential Lot pursuant to its Mortgage in the case of a distribution to the Member of insurance proceeds or condemnation awards for losses to, or a taking of, all or a portion of the Common Area. Section 10.09 Reserve Fund. Association assessments shall be large enough to provide for an adequate reserve fund for maintenance, repairs, and replacement of those common elements that must be replaced on a periodic basis. The reserve fund shall be funded by the regular assessments rather than by special assessments. Section 10. 10 Management. Any agreement for professional management of the Development shall not exceed three years and shall provide that either party may terminate the agreement, with or without cause and without the imposition of a termination fee, on 90 days written notice. Section 10.11 Richt to Inspect Books and Records. Institutional First Mortgagees, upon written request, shall have the right to (1) examine the books and records of the Association during normal business hours; and (2) require the submission of any financial data furnished to the Members by the Association. Section 10.12 Right to Furnish Mormau Information. Each Member hereby authorizes the First Mortgagee of a First Mortgage on the Member's Residential Lot to furnish information to the Board concerning the status of the First Mortgage and the loan that it secures. ARTICLE XI AMENDMENTS Section 11.01 Amendments by Members. Subject to the other provisions of this Declaration, this Declaration may be amended as follows: (a) Any amendment or modification of the Articles hereof entitled "Covenant for Maintenance Assessments," "Nonpayment of Assessments," "Architectural Control," and "Repair and Maintenance," or of this Section shall require the affirmative vote or written approval of not less than sixty percent (60%) of the of the voting power of the Association. (b) Any amendment or modification of any Article other than those specified in subparagraph (a) above shall require the affirmative vote or written approval of a majority of the voting power of the Association. (c) An amendment or modification that requires the vote and written assent of the of the voting power of the Association as hereinabove provided shall be effective when executed by the President and Secretary of the Association who shall certify that the amendment or modification has been approved as hereinabove provided, and when recorded in the Official 3/1/12 10120.4 #114293 v1 25 SS2-65 Records of the County. The notarized signatures of the Members shall not be required to effectuate an Amendment of this Declaration. (d) Notwithstanding the foregoing, any provision of this Declaration, or the Articles, Bylaws or Association Rules which expressly requires the approval of a specified percentage of the voting power of the Association for action to be taken under said provision can be amended only with the affirmative vote or written assent of not less than the same percentage of the Voting Power of the Association. Section 11.02 Amendments Pursuant to Court Order. If this Declaration requires a proposed amendment to be approved by the affirmative vote of a specified percentage (exceeding 50 percent) of the voting power of the Association, and more than 50 percent but less than the required supermajority of the voting power of the Association approve the amendment, the Association or any Member may petition the Superior Court of Orange County, California, subject to the requirements, limitations, and exceptions set forth in Civil Code Section 1356 , for an order reducing the percentage of the affirmative votes necessary for the amendment or approving the amendment. If such an order is issued, the amendment shall be acknowledged by any person designated by the Association for that purpose or, if no such designation is made, by the President of the Association, and that person shall have the amendment and the court order recorded in Orange County, California. Upon recordation, the amended provision or provisions of this Declaration shall have the same force and effect as if the amendment were adopted in compliance with every requirement imposed by this Declaration and the other governing documents. Within a reasonable time after recordation, the Association shall mail a copy of the amendment and a statement regarding the amendment to each Member. ARTICLE XII GENERAL PROVISIONS Section 12.01 Term. The provisions of this Declaration shall continue in effect for a term of twenty-five (25) years from the date of execution. Thereafter, it shall be automatically extended for successive periods of ten (10) years, until the membership of the Association decides to terminate it. Section 12.02 Enforcement. The Association, or any Member, shall have the right to enforce by proceedings at law or in equity, all restrictions, conditions, covenants and reservations, now or hereafter imposed by the provisions of this Declaration or any amendment thereto, including the right to prevent the violation of such restrictions, conditions, covenants, or reservations and the right to recover damages or other dues for such violation. The Association or any Member shall also have the right to enforce by proceedings at law or in equity the provisions of the Articles or Bylaws and any amendments thereto. With respect to architectural control and Association Rules, the Association shall have the exclusive right to the enforcement thereof unless the Association refuses or is unable to effectuate such enforcement, in which case any Member who otherwise has standing shall have the right to undertake such enforcement. With respect to Assessment Liens, the Association shall have the exclusive right to the enforcement thereof. 311112 10120.4 4114293 v1 26 SS2-66 Section 12.03 Cumulative Remedies. All rights, options and remedies of Declarant, the Association, or the Members under this Declaration are cumulative, and no one of them shall be exclusive of any other, and Declarant, the Association, and the Members shall have the right to pursue any one or all of such rights, options and remedies or any other remedy or relief which may be provided by law, whether or not stated in this Declaration. Section 12.04 Nonwaiver of Remedies. Each remedy provided for in this Declaration is separate, distinct, and nonexclusive. Failure to exercise a particular remedy shall not be construed as a waiver of the remedy. Section 12.05 Attorneys' __Fees. In any action to enforce this Declaration, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs. Section 12.06 Severabilit . The provisions of this Declaration shall be deemed independent and severable, and the invalidity or partial invalidity or unenforceability of any one provision shall not affect the validity or enforceability of any other provision. Section 12.07 Binding. This Declaration, as well as any amendment to it and any valid action or directive made pursuant to it, shall be binding on the Declarant and the Members and their heirs, grantees, tenants, successors, and assigns. Section 12.08 Interpretation. The provisions of this Declaration shall be liberally construed and interpreted to effectuate its purpose of creating a uniform plan for the operation of a planned development. Failure to enforce any provision of this Declaration shall not constitute a waiver of the right to enforce that provision or any other provision of this Declaration. Section 12.09 Effect of Declaration. This Declaration is made for the purpose set forth in the Recitals to this Declaration and Declarant makes no warranties or representations, express or implied as to the binding effect or enforceability of all or any portion of this Declaration, or as to the compliance of any of these Provisions with public laws, ordinances and regulations applicable thereto. Section 12.10 Limitation of Liability. The liability of any Member for performance of any of the provisions of this Declaration shall terminate upon sale, transfer, assignment, or other divestment of the Member's entire interest in his or her Residential Lot with respect to obligations arising from and after the date of the divestment. Section 12.11 Nonliability of Officials. To the fullest extent permitted by law, neither the Board, the Architectural Committee, and other committees of the Association or any member of such Board or committee shall be liable to any Member or the Association for any damage, loss or prejudice suffered or claimed on account of any decision, approval or disapproval of plans or specifications (whether or not defective), course of action, act, omission, error, negligence or the like made in good faith within which such Board, committees or persons reasonably believed to be the scope of their duties. Section 12.12 Fair Housing. Neither Declarant nor any Member shall, either directly or indirectly, forbid the conveyance, encumbrance, renting, leasing, or occupancy of the Member's Residence or Residential Lot to any person on the basis of race, color, sex, religion, ancestry, or national origin. 311!12 10120.4 # 114293 vl 27 SS2-67 Section 12.13 Subleases. Any agreement for the subleasing or rental of a Residence or Residential Lot (hereinafter in this Section referred to as a "sublease") shall provide that the terms of such sublease shall be subject in all respects to the provisions of this Declaration, the Articles, the Bylaws and the Association Rules. Said sublease shall further provide that any failure by the sublessee thereunder to comply with the terms of the foregoing documents shall be a default under the sublease. All subleases shall be in writing. Any Member who shall sublease his Residence or Residential Lot shall be responsible for assuring compliance by such Member's sublessee with this Declaration, the Articles, the Bylaws and the Association Rules. Section 12.14 Notices. Any notice to be given hereunder shall be in writing and may be delivered as follows: (a) Notice to a Member shall be deemed to have been properly delivered when delivered to the Member's Residence, or placed in first class United States mail, postage prepaid, to the most recent address furnished by such Member in writing to the Association for the purpose of giving notice, or if no such address shall have been furnished, then to the street address of such Member's Residence. Any notice so deposited in the mail within the City shall be deemed delivered forty-eight (48) hours after such deposit. in the case of joint owners of a Residence any such notice may be delivered or sent to any one of the joint owners on behalf of all joint owners and shall be deemed delivery on all such joint owners. (b) Notice to the Association shall be deemed to have been properly delivered when placed in the first class United States mail, postage prepaid, to the address furnished by the Association or the address of its principal place of business. (c) The affidavit of an officer or authorized agent of the Association declaring under penalty of perjury that a notice has been mailed to any Member or Members, or to all Members, to the address or addresses shown on the records of the Association, shall be deemed conclusive proof of such mailing, whether or not such notices are actually received. Section 12.15 Numbers and Headings. As used in this Declaration, the singular shall include the plural, unless the context requires the contrary. The headings are not a part of this Declaration, and shall not affect the interpretation of any provision. Executed on ?(I C1 /12' at Newport Beach, Orange, California. 3/1/12 10120.4 #114293 v1 28 DECLARANT CITY OF NEWPORT BEACH, a California chartered municipal c By: Nancy G er, Mayor SS2-68 AcknowIedgment STATE OF CALIFORNIA ) ss COUNTY OF ORANGE ) On (U , befor me, L, f 'f Ac CP4 _S , a Notary Public, personall)appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose nameN is/�%g subscribed to the within instrument, and acknowledged to me that Nshe/tf�ky executed the same in Yl /her/tblijZ authorized capacity(k), and that by)tWher/*r signature(>)= the instrument the person(s), or the entity upon behalf of which the person(;kacted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. N6dry Puglic 3/1/12 10120.4 #114293 vl 99 L. HARRIS Commission #F 1640150 Notary Public • California KWU Orange County M Comm. ExiresMar 12, 2019 SS2-69 EXHIBIT A LEGAL DESCRIPTION A parcel of land situatbd in the projected Northwest quarter of Section 35, Township 6 South, Range 10 West, S.B.B. & M., Orange County, California, more particularly described as follows, to -wit: Beginning at the U.S. Bulkhead Station No. 200, as shown upon a map entitled "Harbor Trines, Newport Bay Harbor, Callfomia", approved May 2"d, 1936, by the Secretary of War and on file in the office of the United States District Engineer at Los Angles, California; running thence Vilest along the U.S. Bulkhead line 147.50 feet to U.S. Station No. 137; thence North 391 48' West along said Bulkhead line 535.53 feet; thence North 230 57' 30" East 126.34 feet to an angle point in the ordinary high tide of the Pacific Ocean in Newport Bay, as described in Court Case No. 24026 of the Superior Court of the State of California, in and for the County of Orange; thence South 39° 48' East along said ordinary high tide Ane 334.47 feet to the most Westerly comer of that certain parcel of land conveyed to the City of Newport Beach by the Irvine Company, as described in deed recorded September 25th, 1929, in Book 305, page 375 of Official Records of Orange County, California, thence North 230 57' 30" East along the Northwesterly line of said parcel of land 317.57 feet, thence South 711, 54' East along the Northerly line of said parcel of land 290.24; them South 850 43' East along the Northerly line of said parcel of land, said Northerly line being the Southerly line of Bayside Drive, 606.01 feet; thence South 424,71 feet to a point In the U.S. Gout. Bulkhead line between U.S. Statlnns Nos. 101 and 200; thence West along said Bulkhead line 784.25 feet to the point of beginning containing approximately twelve (12) acres. 3/1/12 10120.4 #114293 v A-1 SS2-70 EXHIBIT B COMMON AREA LEGAL DESCRIPTION Lots fit and A through J as shown on that certain record of Survey fled in the Official Records of the County of Orange, State of Catiforriia, as Instrument Number 5383 on February 28, 1939 covering a portion of the projected Northwest one-quarter (1/4) of section 35, Township 8 South, Range 14 West, S.B.B.Ni. 3/1112 10120.4 # 114293 v I M. SS2-71 :It w I I ' 14,> / '1 `r It a r40 �• \, Oa 4 rr �� r0, 1 / r07 n q& N", I 0�5 TO 140F4"t !/ I II / t t/ I I N'D stihM'KO.H f �a Beacon Bay - 1 tp j N ��j to N � t 54. co t0 t d meq. jC� a0 cn 1`8 i O tf � 00 � y � / t 5.5 w 47 . 14ARBOR tstnNp aR 5 56 0 112 41 - `� 56412 w 48 u 3529 `- — 23 69 57 a 49 42 Iii o 36 w 30 N 24 S 68 3 5$. 50 3 37 3 31 25 25 +r2 67 as 59, 51 44 .... 38 a 32 26 a B6 60 52 5z 33 z > 39 o 33 V227 a 65 61 53 cc40 10 34 0 28 rn } 64 u2w 34112 28 vz64 W BEACON DAY LOT It 6 7 8 9"71' 10 ,11.E 12 13 14. N 15 16 17 1'8 . 19 20 21. 22 62 53 E } uaa,Itt�a u,r ----------------------------------------------------------- us Ps"r..d Ia— SS2-72 EXHIBIT "E" Recording Requested By and When Recorded Return To: City of Newport Beach 3300 Newport Beach Blvd. P.O. Box 1768 Newport Beach, California 92658-8915 Attn: City Clerk (Exempt From Recording Fees Pursuant to Government Code § 27383) (SPACE ABOVE THIS LINE FOR RECORDER'S USE) MEMORANDUM OF LEASE THIS LEASE is made and entered into between the City of Newport Beach, a California municipal corporation and charter city ("Lessor") and a ("Lessee"). Lessor hereby leases to Lessee that real property located in the City of Newport Beach, County of Orange, California, described in Exhibit 1" attached hereto ("Property"). The term of the Lease is (_) years, commencing and ending This Lease is subject to the terms, conditions and provisions of an unrecorded lease between the parties dated , which is incorporated herein by reference. Unless extended by a recorded amendment or supplement hereto, this Memorandum of Lease will automatically terminate as of , 20 APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY Date: By: Aaron Harp City Attorney ATTEST: Date: By: Leilani I. Brown CITY OF NEWPORT BEACH, A California municipal corporation Date: By: Grace K. Leung City Manager LESSEE Date: By: 3 SS2-73 City Clerk Date: SS2-74 EXHIBIT "1" LEGAL DESCRIPTION OF THE PROPERTY That certain real property located in the City of Newport Beach, County of Orange, California, described as follows: SS2-75 Attachment B City Council Policy F-7 — Income Property SS2-76 F-7 INCOME PROPERTY The City owns and manages an extensive and valuable assortment of property including streets, parks, beaches, public buildings and service facilities. The City also owns and operates a yacht basin, a mobile home park, a luxury residential development and various other income properties. Most of the income property is tidelands, filled tidelands or waterfront. Unencumbered fee value of income property is estimated at upwards of one hundred million dollars, and income typically contributes ten percent of all City revenues. As owner/manager of property, the City is the steward of a public trust, and state law requires the City to maximize its returns on state -managed property or be subject to a charge of making a gift of public funds. Nevertheless, the City Council recognizes the importance of this property not only as a revenue generator, but also as a means to provide otherwise unfeasible uses and facilities to benefit the community. In managing its property, the City will continually evaluate the potential of all City owned property to produce revenue. This may include leasing unused land, renting vacant space, and establishing concessions in recreation areas or other similar techniques. The City Council will evaluate the appropriateness of establishing new income properties using sound business principles and after receiving input from neighbors and users. The policy of the City Council is that income property be managed in accordance with the following: A. Whenever a lease, management contract, concession, sale or similar action regarding income property is considered by the City, an analysis shall be conducted to determine the maximum or open market value of the property. This analysis shall be conducted using appraisals or other techniques to determine the highest and best use of the property and the highest value of the property. B. All negotiations regarding the lease, management contract, concession, sale or similar action regarding income property shall include review of an appraisal or analysis of the use being considered for the property conducted by a reputable and independent professional appraiser, real estate consultant or business consultant. C. The City shall seek, whenever practical and financially advantageous, to operate or manage all property and facilities directly with City staff or contractors. D. In all negotiations regarding the lease, management contract, concession, sale or similar action regarding a non-residential income property, the City shall seek 1 SS2-77 F-7 revenue equivalent to the open market value of the highest and best use; and, whenever possible the City shall conduct an open bid or proposal process to insure the highest financial return. E. Whenever less than the open market or appraised value is received or when an open bid process is not conducted, the City shall make specific findings setting forth the reasons thereof. Such findings may include but need not be limited to the following: 1. The City is prevented by tideland grants, Coastal Commission guidelines or other restrictions from selling the property or converting it to another use. 2. Redevelopment of the property would require excessive time, resources and costs which would outweigh other financial benefits. 3. Converting the property to another use or changing the manager, concessionaire or lessee of the property would result in excessive vacancy, relocation or severance costs, which would outweigh other financial benefits. 4. Converting residential property to another use or opening residential leases to competitive bid would create recompensable liabilities and other inequities for long-term residents. 5. The property provides an essential or unique service to the community that might not otherwise be provided were full market value of the property be required. 6. The property serves to promote other goals of the City such as affordable housing, preservation of open space or marine related services. F. Generally, lengths of leases, management contracts, concessions or similar agreements will be limited to the minimum necessary to meet market standards and will contain appropriate reappraisal and inflation protection provisions. Also, all agreements shall contain provisions to assure complete audits periodically through their terms. G. All negotiations regarding the lease, management contract, concession, sale or similar action regarding income property shall be conducted by the City Manager or his/her designee under the direction of any appropriate City committees. H. To provide an accurate accounting of actual net revenues generated by the City's income property, all costs and charges directly attributable to the management of 2 SS2-78 F-7 a specific income property shall be debited against the gross revenues collected on that property in the fiscal year the costs are incurred. Costs and charges include property repairs and maintenance, property appraisals, and consultant fees, as authorized by the City Council, City Manager or by this Income Property Policy. I. The City Manager or his/her designee is authorized to sign a lease, management contract, concession or similar agreement or any amendment thereto, on behalf of the City. Notwithstanding the foregoing, the City Manager or his/her designee, or a City Council member, may refer any lease, management contract, concession or similar agreement or any amendment thereto, to the City Council for its consideration and/or action. Adopted - July 27,1992 Amended - January 24,1994 Amended - February 27,1995 Amended - February 24,1997 Amended - May 26,1998 Amended - August 11, 2009 Amended - May 14, 2013 Formerly F-24 3 SS2-79 Attachment C HOA Proposed Changes to Lease Terms ss2-80 From: Drew Lawler To: Woodina, Lauren; Jeff Herdman; Jim Helfrich Subject: Positional Summary for Beacon Bay Lease Correction and Comps Date: Wednesday, May 02, 2018 10:28:43 AM Attachments: Beacon Bay Lease Correction Meeting with City Council and City Manaaement.doc Beacon Bay Lease Comps.xls Hi Lauren: Please find attached the positional summary for the Beacon Bay lease correction and lease comps for our meeting this afternoon at 3pm. I will also bring with me the revenue projection forecast showing projected revenue with the new lease rate phased in over four years and how increased revenue from future home sales mitigates a revenue dip from current levels while also providing for generous increases into the future. Thanks and, Best regards, Drew Lawler 240 Newport Center Drive Suite 205 Newport Beach, CA 92660 drewna-jlawler.com Phone: 949-631-7660 / Fax: 949-631-7661 SS2-81 Beacon Bay Lease Correction Meeting w/Councilman Jeff Herdman TYPE OF LEASES There are currently three types of leases in Beacon Bay as follows: "1994 Leases" that expire in 2044 with no CPI increase "1994 Leases" that expire in 2044 with an annual CPI increase "2012 Leases" on an automatic 50 year roll-over with an annual CPI increase Each of these above leases are calculated at the rate of 2.5% of the original purchase price of the home divided into 12 monthly lease payments. Each homeowner has their own lease with the city. PRIMARY REASON WHY THE LEASE RATE NEEDS TO BE RESET • The current lease rate of 2.5% of the purchase price was initiated 35 years ago back in 1983 and has become economically obsolete. So much so, that the City is now charging at least 4x more for Beacon Bay leases than the Irvine Company is charging for its comparable residential leasehold properties on Linda Isle, Bayshores, Irvine Terrace, Bayside Drive. • The Irvine Company owns 106 residential leasehold properties in Newport. As the largest private landowner, they are the market. It is indefensible for the City to charge 4x more than the Irvine Company. SECONDARY REASON WHY THE LEASE RATE NEEDS TO BE RESET The recent change to the airport flight path now takes jets overhead of Beacon Bay. This is a significant change of circumstance that adversely affects the quality of life in Beacon Bay. Any time a landlord owns residential property where — for example — a freeway is built adjacent to their property, that landlord will not be able to charge the same rents. In effect, a "freeway" — only much louder -- has been redirected overhead Beacon Bay and thus a similar economic reset needs to apply. PROPOSED RESTRUCTURE Instead of 2.5% of the purchase price, the rate would be 1% of the purchase price. This new rate would apply as follows: • 1994 LESSEES: would have the option but not the obligation to roll into a new 50 year lease by: 1. Having their home appraised for current value. 2. Rate is reduced to 1% of the appraised value 3. New rate goes into effect immediately. 4. Conversion fee is waived 5. No CPI increase. 2012 LESSEES 1. Reduces the rate to 1% of their original purchase price. However, this rate is phased in over a four year period as follows: • Months 1-12: 2.5% of the first $3 million in purchase price and 1% for remaining value • Months 13-24: 2.5% of the first $2.5 million in purchase price and 1% for remaining value • Months 25-36: 2.5% of the first $2 million in purchase price and 1% for remaining value • Months 37-48: 2.5% of the first $1.5 million in purchase price and 1% for remaining value • Months 49-61: 2.5% of the first $1 million in purchase price and 1% for remaining value • Months 62 and beyond: 1% of the purchase price 2. No CPI Increase NEW BUYERS 1. 1% of the purchase price 2. No CPI increase. SS2-82 JUSTIFICATION FOR NO CPI INCREASE Unlike Irvine Company residential leases where lease payments are assumable, Beacon Bay lease payments are not assumable but instead reset to the selling price. If they were assumable, a CPI index may be warranted. Because they are not assumable, the lease resets and becomes based on the current sales price of the house, thereby generating a huge "waterfall" increase in revenue to the city which negates the need for a CPI index increase and more than satisfies the State's requirement that Newport Beach obtains a "reasonable return" on Beacon Bay. Since homeowners are paying the property tax for land owned by the city (in addition to a significant possessory interest surcharge tax adding upwards of $1 million in appraised value) of which approximately 17% of both taxes flows through to the city, this results in substantial additional annual revenue the city collects from Beacon Bay lessees and once again, more than compensates the city for any annual CPI increase. SUMMARY AND IMPACT TO THE CITY This newly proposed rate is still an aggressive posture for the city to take and will continue to put Beacon Bay rates well ahead of what the Irvine Company is charging. • SHORTERM: No anticipated revenue dip to city because huge revenue "waterfall" events occur for city's benefit each time a house sells in Beacon Bay and rents reset to current home value (see projected revenue chart). If there is any dip it will be minor and short-lived. • LONGTERM: This new lease rate with no CPI increase provides for generous — and sustainable -- revenue increases to the city over a 5, 10 and 20 year horizon and beyond, resulting in responsible economic planning for the City. • Property prices will be allowed to appreciate more commensurate with market, which benefits city. SS2-83 BEACON BAY LEASE COMPS VS. IRVINE COMPANY NOTES: 1. The Irvine Company currently has over 103 residential leases including leases in Bayshores, Linda Isle, Irvine Terrace, etc. 2. Unlike Beacon Bay leases, their leases can be assumed at the same monthly amount by the buyer. 3. Irvine Company Leases can be converted to a purchase at any time. As such, city leases should be less than Irvine Co because we do not have an option to purchase. Proposed Rate at Address 1201 Sand Key At 1% across Close of Escrow 05/03/2017 the board Sale / Listing Price without land $1,550,000 Annual Assumable Irvine Co Lease $3,504 Annual Lease at Beacon Bay 2.5% Rate $38,750 $15,500 Multiplier City is ahead of Irvine Co 11x 4.5x Address 336 Otero Close of Escrow 05/24/2016 Sale / Listing Price without land $855,000 Annual Assumable Irvine Co Lease $3,667 Annual Lease at Beacon Bay 2.5% Rate $21,375 $8,550 Multiplier City is ahead of Irvine Co 6x 2.4x Address 2685 Bayshore Drive Close of Escrow 02/01/2014 Sale / Listing Price without land $2,200,000 Annual Assumable Irvine Co Lease $13,565 Annual Lease at Beacon Bay 2.5% Rate $55,000 $22,000 Multiplier City is ahead of Irvine Co 4x 1.6x Address 409 Bayside Drive Close of Escrow 03/01/2016 Sale / Listing Price without land $2,000,000 Annual Assumable Irvine Co Lease $3,809 Annual Lease at Beacon Bay 2.5% Rate $50,000 $20,000 Multiplier City is ahead of Irvine Co 13x 5.2x SS2-84 From: Drew Lawler To: Juriis, Seimone; Wooding, Lauren; Jim Helfrich; Jeff Herdman; Duffield, Duffy; Muldoon, Kevin Subject: Beacon Bay Lease Revenue Projections Date: Wednesday, May 02, 2018 6:11:06 PM Attachments: Beacon Bay Rent Proiections Cover Page Notes.doc Beacon Bay Lease Comps.As Beacon Bay Rent Proiections at 1% with phase in for 2012 lessees.xls Hi Seimone and Lauren: Thank you for your time today. We appreciate it. Attached are the spreadsheet projections in Excel along with a cover page detailing the assumptions and the comps. There are two tabs. The second tab projects the revenue by year going out 20 years. Please let me know what other questions you may have. One point I forgot to make is this: The Irvine Company residential leases can be converted to a land purchase at any time. As such, the Beacon Bay leases should be LESS than the Irvine Company leases as we do not have the option to purchase. Yet, even after adjusting the lease to 1% of the purchase price, Beacon Bay leases will still average something like 3.5X more than the 100 -plus Irvine Company leases. That said, we can live with the 1% rate but if the City would like to offer half or three quarters of 1% -- which would put us closer to Irvine Company rates (and keeping in mind we pay the property tax on land owned by the city plus the possessory property tax surcharge of which 17% of both taxes flow back to the city) we would be grateful! Thanks and, Best regards, Drew Lawler jp logo I 240 Newport Center Drive Suite 205 Newport Beach, CA 92660 drew &aj1awler.com Phone: 949-631-7660 / Fax: 949-631-7661 SS2-85 BEACON BAY REVENUE PROJECTIONS WITH LEASE CORRECTION OVERVIEW We have a strategic moment in time to correct the economically obsolete lease rate and reset it to a sustainable market rate of 1% of the purchase price (or current appraisal). This is accomplished by: Phasing in the new rate of 1% over a five year period for all 2012 Lessees which will align the city closer to — but still substantially ahead of -- comparable Irvine Company residential leases. Using the increased revenue resulting from ongoing home sales to mitigate a revenue dip from current levels which will also provide for generous and sustainable annual revenue increases to the City. ASSUMPTIONS FOR PROJECTIONS 11ease rate for new sales is calculated at 1% of the purchase price 2. All 2012 leases are phased in over a 5 year schedule to 1% of their original purchase price See Phase in rate table below. 3. Current ave. sales price of bayfront home at $5.3 million / ave. interior home $2.8 million 4. Under new lease, home prices increase 5% per year 5. No CPI rent increases. As homes turn over the leases reset to market providing more than ample increases on macro basis. Plus BB residents are paying the property tax for land owned by the city which also more than compensates for CPI increases. 6. Assumes on average 5 homes per year will be resold and/or convert to new 50 year lease of which one is a bayfront home and the remaining 4 are on the strada 7. Projected increases begin with lowest lease rates on the books as they will be long time residents and hence more likely to be among the first to turnover. PHASE IN RATE FOR 2012 LESSEES Year 1: 2.5% of the first $3 million in purchase price and 1% of the remainder Year 2: 2.5% of the first $2.5 million in purchase price and 1% of the remainder Year 3: 2.5% of the first $2 million in purchase price and 1% thereafter Year 4: 2.5% of the first $1.5 million in purchase price and 1% thereafter Year 5: 2.5% of the first $1 million in purchase price and 1% thereafter Year 6: 1% of the purchase price SS2-86 BEACON BAY LEASE COMPS VS. IRVINE COMPANY NOTES: 1. The Irvine Company currently has over 103 residential leases including leases in Bayshores, Linda Isle, Irvine Terrace, etc. 2. Unlike Beacon Bay leases, their leases can be assumed at the same monthly amount by the buyer. 3. Irvine Company Leases can be converted to a purchase at any time. As such, city leases should be less than Irvine Co because we do not have an option to purchase. Proposed Rate at Address 1201 Sand Key At 1% across Close of Escrow 05/03/2017 the board Sale / Listing Price without land $1,550,000 Annual Assumable Irvine Co Lease $3,504 Annual Lease at Beacon Bay 2.5% Rate $38,750 $15,500 Multiplier City is ahead of Irvine Co 11x 4.5x Address 336 Otero Close of Escrow 05/24/2016 Sale / Listing Price without land $855,000 Annual Assumable Irvine Co Lease $3,667 Annual Lease at Beacon Bay 2.5% Rate $21,375 $8,550 Multiplier City is ahead of Irvine Co 6x 2.4x Address 2685 Bayshore Drive Close of Escrow 02/01/2014 Sale / Listing Price without land $2,200,000 Annual Assumable Irvine Co Lease $13,565 Annual Lease at Beacon Bay 2.5% Rate $55,000 $22,000 Multiplier City is ahead of Irvine Co 4x 1.6x Address 409 Bayside Drive Close of Escrow 03/01/2016 Sale / Listing Price without land $2,000,000 Annual Assumable Irvine Co Lease $3,809 Annual Lease at Beacon Bay 2.5% Rate $50,000 $20,000 13x 5.2x SS2-87 1994 Lease w/o annual CPI adjustments expiring in 2044 1994 Leases w/annual CPI adjustments expiring 2044 ____ ______ __, � CPI adjustments on 50 year rollovers 10 years 15 years 20 years BAYFRONT LOTS at $5.5m at $5.8m at $6.1m at $6.3m at $6.7m at $7.Om at $7.4m at $7.7m at $8.1m at $8.5m at $10.8m at $13.9m 2017 Actual Rents 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2032 2037 (Monthly) $1,625 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $1,686 $1,686 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $1,771 $1,771 $1,771 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $2,403 $2,403 $2,403 $2,403 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $2,435 $2,435 $2,435 $2,435 $2,435 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $2,454 $2,454 $2,454 $2,454 $2,454 $2,454 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $2,630 $2,630 $2,630 $2,630 $2,630 $2,630 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $2,795 $2,795 $2,795 $2,795 $2,795 $2,795 $2,795 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $2,855 $2,855 $2,855 $2,855 $2,855 $2,855 $2,855 $2,855 $6,750 $6,750 $6,750 $6,750 $6,750 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $7,083 $7,083 $7,083 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $7,416 $7,500 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $7,833 $7,833 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $8,166 $8,166 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $8,583 $8,583 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $9,000 $9,083 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $9,500 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $10,000 $3,476 $3,333 $3,476 $3,476 $3,476 $2,500 $1,333 $1,333 $1,333 $1,333 $1,333 $1,333 $10,500 $6,035 $5,833 $5,375 $4,750 $4,125 $3,500 $2,333 $2,333 $2,333 $2,333 $2,333 $2,333 $11,000 $6,789 $6,416 $5,625 $5,000 $4,375 $3,750 $2,666 $2,666 $2,666 $2,666 $2,666 $2,666 $11,583 $7,407 $6,666 $5,958 $5,333 $4,708 $4,083 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,91 $7,888 $6,833 $6,125 $5,500 $4,875 $4,250 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,08 $8,303 $7,000 $6,291 $5,666 $5,041 $4,416 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,25 $8,774 $7,166 $6,458 $5,833 $5,208 $4,583 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,41 $9,415 $7,416 $6,708 $6,083 $5,458 $4,833 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $9,868 $7,583 $6,875 $6,250 $5,625 $5,000 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,83 $10,937 $8,166 $7,541 $6,916 $6,291 $5,666$4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $143,018 sub -total $133,496 $130,663 $128,350 $125,572 $122,119 $117,365 $121,028 $124,923 $124,923 $128,311 $148,681 $175,950 SS2-88 INTERIOR LOTS 2017 Actual Rents (Monthly) $504 $526 $578 $601 $608 $613 $639 $654 $706 $707 $860 $876 $963 $1,009 $1,014 $1,072 $1,102 $1,131 $694 $836 $1,194 $1,315 $1,350 $1,360 $1,530 $1,883 $2,120 $2,138 at $2.94m at $3.08m at $3.24m at $3.40m at $3.57m at $3.75m at $3.93m at $4.12m at $4.33m at $4.54m at $5.7m at $7.4m 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2032 2037 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $4,166 $4,166 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $4,166 $4,166 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $4,166 $4,166 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $4,333 $4,333 $608 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $4,333 $4,333 $613 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $4,333 $4,333 $639 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $4,333 $4,333 $654 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $4,583 $4,583 $706 $706 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $4,583 $4,583 $707 $707 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $4,583 $4,583 $860 $860 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $4,583 $4,583 $876 $876 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $4,750 $4,750 $963 $963 $963 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $4,750 $4,750 $1,009 $1,009 $1,009 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $4,750 $4,750 $1,014 $1,014 $1,014 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $4,750 $4,750 $1,072 $1,072 $1,072 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $5,000 $1,102 $1,102 $1,102 $1,102 $2,975 $2,975 $2,975 $2,975 $2,975 $2,975 $2,975 $5,000 $1,131 $1,131 $1,131 $1,131 $2,975 $2,975 $2,975 $2,975 $2,975 $2,975 $2,975 $5,000 $694 $694 $694 $694 $2,975 $2,975 $2,975 $2,975 $2,975 $2,975 $2,975 $5,000 $836 $836 $836 $836 $2,975 $2,975 $2,975 $2,975 $2,975 $2,975 $2,975 $5,250 $1,194 $1,194 $1,194 $1,194 $1,194 $3,125 $3,125 $3,125 $3,125 $3,125 $3,125 $5,250 $1,315 $1,315 $1,315 $1,315 $1,315 $3,125 $3,125 $3,125 $3,125 $3,125 $3,125 $5,250 $1,350 $1,350 $1,350 $1,350 $1,350 $3,125 $3,125 $3,125 $3,125 $3,125 $3,125 $5,250 $1,360 $1,360 $1,360 $1,360 $1,360 $3,125 $3,125 $3,125 $3,125 $3,125 $3,125 $5,500 $1,530 $1,530 $1,530 $1,530 $1,530 $1,530 $3,275 $3,275 $3,275 $3,275 $3,275 $5,500 $1,883 $1,883 $1,883 $1,883 $1,883 $1,883 $3,275 $3,275 $3,275 $3,275 $3,275 $5,500 $2,120 $2,120 $2,120 $2,120 $2,120 $2,120 $3,275 $3,275 $3,275 $3,275 $3,275 $5,500 $2,138 $2,138 $2,138 $2,138 $2,138 $2,138 $3,275 $3,275 $3,275 $3,275 $3,275 $5,833 SS2-89 $2,360 $2,360 $2,360 $2,360 $2,360 $2,360 $2,360 $2,360 $3,433 $3,433 $3,433 $3,433 $5,833 $2,380 $2,380 $2,380 $2,380 $2,380 $2,380 $2,380 $2,380 $3,433 $3,433 $3,433 $3,433 $5,833 $2,689 $2,689 $2,689 $2,689 $2,689 $2,689 $2,689 $2,689 $3,433 $3,433 $3,433 $3,433 $5,833 $2,790 $2,790 $2,790 $2,790 $2,790 $2,790 $2,790 $2,790 $3,433 $3,433 $3,433 $3,433 $6,166 $2,808 $2,808 $2,808 $2,808 $2,808 $2,808 $2,808 $2,808 $2,808 $3,608 $3,608 $3,608 $6,166 $3,363 $3,363 $3,363 $3,363 $3,363 $3,363 $3,363 $3,363 $3,363 $3,608 $3,608 $3,608 $6,166 $3,843 $3,843 $3,843 $3,843 $3,843 $3,843 $3,843 $3,843 $3,843 $3,608 $3,608 $3,608 $6,166 $2,018 $2,018 $2,018 $2,018 $2,018 $2,018 $766 $766 $766 $3,608 $3,608 $3,608 $5,700 $2,565 $2,500 $2,500 $2,500 $2,500 $2,250 $1,000 $1,000 $1,000 $1,000 $3,783 $3,783 $5,985 $2,678 $2,500 $2,500 $2,500 $2,500 $2,250 $1,000 $1,000 $1,000 $1,000 $3,783 $3,783 $5,985 $3,013 $2,916 $2,916 $2,916 $2,916 $2,416 $1,166 $1,166 $1,166 $1,16CP $3,783 $3,783 $5,985 $3,177 $2,916 $2,916 $2,916 $2,916 $2,416 $1,166 $1,166 $1,166 $1,166 $3,783 $3,783 $5,985 $3,725 $3,541 $3,541 $3,541 $3,291 $2,666 $1,416 $1,416 $1,416 $1,416 $1,416 $3,9161 $6,335 $4,166 $3,958 $3,958 $3,958 $3,458 $2,833 $1,583 $1,583 $1,583 $1,583 $1,583 $3,916 $6,335 $4,241 $3,958 $3,958 $3,958 $3,458 $2,833 $1,583 $1,583 $1,583 $1,583 $1,583 $3,916 $6,335 $4,444 $4,166 $4,166 $4,166 $3,541 $2,916 $1,666 $1,666 $1,666 $1,666 $1,666 $3,916 $6,335 $5,306 $5,000 $5,000 $4,500 $3,875 $3,250 $2,000 $2,000 $2,000 $2,000 $2,000 $4,166 $6,700 $84,149 sub -total $89,880 $97,630 $104,781 $109,555 $113,067 $107,846 $113,275 $116,788 $120,440 $131,240 $170,621 $239,838 $227,167 TOTAL $223,376 $228,293 $233,131 $235,127 $235,186 $225,211 $234,303 $241,711 $245,363 $259,551 $319,302 $415,788 10 years 15 years 20 years 2017 Annual Revenue: $2,726,004 2027 Proj. Annual Revenue: $3,114,612 2032 Proj. Annual Revenue: $3,831,624 2037 Proj. Annual Revenue: $4,989,456 SS2-90 1994 Lease w/o annul CPI adjustments expiring in 2044 1994 Leases w/annual CPI adjustments expiring 2044 2012 Leases w/ anny3 CPI adjustments on 50 year rollovers BAYFRONT LOTS at $5.5m at $5.8m at $6.1m at $6.3m at $6.7m at $7.Om at $7.4m at $7.7m at $8.1m at $8.5m AT $8.9M at $9.4m at $9.8m at $10.3m at $10.8m at $11.4m at $11.9m at $12.5m at $13.1m at $13.9m 2017 Actual Rents 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 (Monthly) $1,621 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $1,686 $1�6f $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $4,833 $1,771 $1,771 $1,771 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $5,083 $2,403 $2,403 $2,403 .M $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $5,250 $2,435 $2,435 $2,435 $2,435 $2,435 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $5,583 $2,454 $2,454 $2,454 $2,454 $2,454 $2,454 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $5,833 $2,630 $2,630 $2,630 $2,630 $2,630 $2,630 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $6,166 $2,795 $2,795 $2,795 $2,795 $2,795 $2,795 $2,795 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $6,458 $2,855 $2,855 $2,855 $2,855 $2,855 $2,855 $2,855 $2,855 $6,77 $6,750 $6,750 $6,750 $6,750 $6,750 $6,750 $6,750 $6,750 $6,750 $6,750 $6,750 $6,750 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $3,695 $7,083 $7,083 $7,083 $7,083 $7,083 $7,083 $7,083 $7,083 $7,083 $7,083 $7,083 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $2,578 $7,416 $7,416 $7,416 $7,416 $7,416 $7,416 $7,416 $7,416 $7,416 $7,500 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $2,754 $7,833 $7,833 $7,833 $7,833 $7,833 $7,833 $7,833 $7,833 $7,833 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $2,905 $8,166 $8,166 $8,166 $8,166 $8,166 $8,166 $8,166 $8,166 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $5,124 $8,583 $8,583 $8,583 $8,583 $8,583 $8,583 $8,583 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $7,267 $9,000 $9,000 $9,000 $9,000 $9,000 $9,083 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $7,969 $9,500 $9,500 $9,500 $9,500 $9,500 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $11,180 $9,916 $9,916 $9,916 $10,000 $10,416 $10,416 $10,500 $6,035 $5,833 $5,375 $4,750 $4,125 $3,500 $2,333 $2,333 $2,333 $2,333 $2,333 $2,333 $2,333 $2,333 $2,333 $2,333 $2,333 $2,33 $10,916 $11,000 $6,789 $6,416 $5,625 $5,000 $4,375 $3,750 $2,666 $2,666 $2,666 $2,666 $2,666 $2,666 $2,666 $2,666 $2,666 $2,666 $2,666 $2,666 $11,583 $7,407 $6,666 $5,958 $5,333 $4,708 $4,083 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,916 $2,91al $7,888 $6,833 $6,125 $5,500 $4,875 $4,250 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $3,083 $8,303 $7,000 $6,291 $5,666 $5,041 $4,416 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $3,250 $8,774 $7,166 $6,458 $5,833 $5,208 $4,583 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $3,416 $9,415 $7,416 $6,708 $6,083 $5,458 $4,833 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $3,666 $9,868 $7,583 $6,875 $6,250 $5,625 $5,000 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $3,833 $10,937 $8,166 $7,541 $6,916 $6,291 $5,666 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $4,416 $143,018 sub -total $133,496 $130,663 $128,350 $125,572 $122,119 $117,365 $121,028 $124,923 $124,923 $128,311 $133,149 $138,228 $143,489 $146,948 $148,681 $150,212 $148,948 $158,031 $166,614 $175,950 SS2-91 INTERIOR LOTS 2017 Actual Rents (Monthly) 4 $526 $578 $601 $608 $613 $639 $654 $706 $707 $860 $876 $963 $1,009 $1,014 $1,072 $1,102 $1,131 $694 $836 $1,194 $1,315 $1,350 $1,360 $1,530 $1,883 $2,120 $2,138 $2,360 $2,380 $2,689 $2,790 $2,808 $3,363 $3,843 $2,565 $2,678 $3,013 $3,177 $3,725 $4,166 j$4,2 $4 $84,149 sub -total at $2.94m at $3.08m at $3.24m at $3.40m at $3.57m at $3.75m at $3.93m at $4.12m at $4.33m at $4.54m at $4.7m at $5m at $5.2m at $5.5m at $5.7m at $6m at $6.3m at $6.6m at $7m at $7.4m 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $2,450 $6 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $61 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $63 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $654 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $2,566 $706 $706 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $707 $707 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $860 $860 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $876 $876 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $963 $963 'M $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $1,009 $1,009 $1,009 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $1,014 $1,014 $1,014 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $1,072 $1,072 $1,072 $2,833 $2,833 $2,833 $2,833 $2,833 $2,833 $1,102 $1,102 $1,102 $1,10? $2,975 $2,975 $2,975 $2,975 $2,975 $1,131 $1,131 $1,131 $1,131 $2,975 $2,975 $2,975 $2,975 $2,975 $694 $694 $694 $694 $2,975 $2,975 $2,975 $2,975 $2,975 $836 $836 $836 $836 $2,975 $2,975 $2,975 $2,975 $2,975 $1,194 $1,194 $1,194 $1,194 $1,194 $3,125 $3,125 $3,125 $3,125 $1,315 $1,315 $1,315 $1,315 $1,315 $3,125 $3,125 $3,125 $3,125 $1,350 $1,350 $1,350 $1,350 $1,350 $3,125 $3,125 $3,125 $3,125 $1,360 $1,360 $1,360 $1,360 $1,360 $3,125 $3,125 $3,125 $3,125 $1,530 $1,530 $1,530 $1,530 $1,530 $1,530 $3,275 $3,275 $3,275 $1,883 $1,883 $1,883 $1,883 $1,883 $1,883 $3,275 $3,275 $3,275 $2,120 $2,120 $2,120 $2,120 $2,120 $2,120 $3,275 $3,275 $3,275 $2,138 $2,138 $2,138 $2,138 $2,138 $2,138 $3,275 $3,275 $3,275 $2,360 $2,360 $2,360 $2,360 $2,360 $2,360 $2,360 $3,433 $3,433 $2,380 $2,380 $2,380 $2,380 $2,380 $2,380 $2,380 $3,433 $3,433 $2,689 $2,689 $2,689 $2,689 $2,689 $2,689 $2,689 $3,433 $3,433 $2,790 $2,790 $2,790 $2,790 $2,790 $2,790 $2,790 $3,433 $3,433 $2,808 $2,808 $2,808 $2,808 $2,808 $2,808 $2,808 $2,808 $3,608 $3,363 $3,363 $3,363 $3,363 $3,363 $3,363 $3,363 $3,363 $3,608 $3,843 $3,843 $3,843 $3,843 $3,843 $3,843 $3,843 $3,843 $3,608 $2,500 $2,500 $2,500 $2,500 $2,250 $1,000 $1,000 $1,000 $2,500 $2,500 $2,500 $2,500 $2,250 $1,000 $1,000 $1,000 $2,916 $2,916 $2,916 $2,916 $2,416 $1,166 $1,166 $1,166 $2,916 $2,916 $2,916 $2,916 $2,416 $1,166 $1,166 $1,166 $3,541 $3,541 $3,541 $3,291 $2,666 $1,416 $1,416 $1,416 $3,958 $3,958 $3,958 $3,458 $2,833 $1,583 $1,583 $1,583 $3,958 $3,958 $3,958 $3,458 $2,833 $1,583 $1,583 $1,583 $4,166 $4,166 $4,166 $3,541 $2,916 $1,666 $1,666 $1,666 $5,000 $5,000 $4,500 $3,875 $3,250 $2,000 $2,000 $2,000 $89,880 $97,630 $104,781 $109,555 $113,067 $107,846 $113,275 $116,788 $2,450 $2,450 $2,450 $2,450 $2,566 $2,566 $2,566 $2,566 $2,700 $2,700 $2,700 $2,700 $2,833 $2,833 $2,833 $2,833 $2,975 $2,975 $2,975 $2,975 $3,125 $3,125 $3,125 $3,125 $3,275 $3,275 $3,275 $3,275 $3,433 $3,433 $3,433 $3,433 $3,608 $3,608 $3,608 $3,608 $3,783 $3,783 $3,783 $3,783 $1,416 $1,583 $1,58 $1,583 $1,58 $1,666 $1,66 $2,000 $2,000 $120,440 $131,240 $227,167 TOTAL $223,376 $228,293 $233,131 $235,127 $235,186 $225,211 $234,303 $241,711 $245,363 $259,551 2017 Annual Revenue: $2,726,004 2027 Proj. Annual Revenue: $3,114,612 2032 Proj. Annual Revenue: $3,831,624 2037 Proj. Annual Revenue: $4,989,456 $2,450 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $2,450 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $2,450 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $2,450 $2,450 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $2,566 $2,566 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $2,566 $2,566 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $2,566 $2,566 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $4,333 $2,566 $2,566 $2,566 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $2,700 $2,700 $2,700 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $2,700 $2,700 $2,700 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $2,700 $2,700 $2,700 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $4,583 $2,700 $2,700 $2,700 $2,700 $4,750 $4,750 $4,750 $4,750 $4,750 $4,750 $2,833 $2,833 $2,833 $2,833 $4,750 $4,750 $4,750 $4,750 $4,750 $4,750 $2,833 $2,833 $2,833 $2,833 $4,750 $4,750 $4,750 $4,750 $4,750 $4,750 $2,833 $2,833 $2,833 $2,833 $4,750 $4,750 $4,750 $4,750 $4,750 $4,750 $2,833 $2,833 $2,833 $2,833 $2,833 $5,000 $5,000 $5,000 $5,000 $5,000 $2,975 $2,975 $2,975 $2,975 $2,975 $5,000 $5,000 $5,000 $5,000 $5,000 $2,975 $2,975 $2,975 $2,975 $2,975 $5,000 $5,000 $5,000 $5,000 $5,000 $2,975 $2,975 $2,975 $2,975 $2,975 $5,000 $5,000 $5,000 $5,000 $5,000 $2,975 $2,975 $2,975 $2,975 $2,975 $2,975 $5,250 $5,250 $5,250 $5,250 $3,125 $3,125 $3,125 $3,125 $3,125 $3,125 $5,250 $5,250 $5,250 $5,250 $3,125 $3,125 $3,125 $3,125 $3,125 $3,125 $5,250 $5,250 $5,250 $5,250 $3,125 $3,125 $3,125 $3,125 $3,125 $3,125 $5,250 $5,250 $5,250 $5,250 $3,125 $3,125 $3,125 $3,125 $3,125 $3,125 $3,125 $5,500 $5,500 $5,500 $3,275 $3,275 $3,275 $3,275 $3,275 $3,275 $3,275 $5,500 $5,500 $5,500 $3,275 $3,275 $3,275 $3,275 $3,275 $3,275 $3,275 $5,500 $5,500 $5,500 $3,275 $3,275 $3,275 $3,275 $3,275 $3,275 $3,275 $5,500 $5,500 $5,500 $3,275 $3,275 $3,275 $3,275 $3,275 $3,275 $3,275 $3,275 $5,833 $5,833 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $5,833 $5,833 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $5,833 $5,833 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $5,833 $5,833 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $3,433 $6,166 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $6,166 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $6,166 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $6,166 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $3,608 $5,700 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $5,985 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $5,985 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $5,985 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $3,783 $5,985 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $6,335 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $6,335 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $6,335 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $3,916 $6,335 _m"m $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $4,166 $6,700 $140,656 $147,970 $155,154 $162,820 $170,621 $178,863 $187,513 $196,563 $206,321 $239,838 $273,805 $286,198 $298,643 $309,768 $319,302 $329,075 $336,461 $354,594 $372,935 $415,788 SS2-92 From: Drew Lawler <drew@ajlawler.com> Sent: Wednesday, January 23, 2019 11:43 AM To: Wooding, Lauren Cc: Jim Helfrich Subject: Re: Beacon Bay - Revenue Modeling Attachments: image003.jpg Hi Lauren: Jim and I have been reviewing this and we anticipate having a response to you later today. Thanks. Best regards, Drew Lawler 240 Newport Center Drive Suite 205 Newport Beach, CA 92660 drewA ilawler.com Phone: 949-631-7660 / Fax: 949-631-7661 On Wed, Jan 23, 2019 at 9:47 AM Wooding, Lauren <LWooding9newportbeachca. og_v> wrote: Hi Drew, Wanted to check in regarding your review of Kathe's tables, and any changes to your assumptions. She will be going out of town, and needs your revisions by Monday of next week, January 28, in order to revise her modeling before we take this to City Council on February 12. Please let me know if you have any questions. Thank you, Lauren SS2-93 a LAUREN WOODING WHITLINGER Community Development Department f8 Real Property Administrator Iwooding(cil newportbeachca.4ov 949-644-3236 CA Broker License #01943711 From: Drew Lawler [mailto:drewgailawler.com] Sent: Wednesday, January 16, 2019 1:49 PM To: Wooding, Lauren <LWooding�rc,neMortbeachca.gov> Cc: Jim Helfrich <Jhghmcassets.com> Subject: Re: Beacon Bay - Revenue Modeling Thanks Lauren. We will review and circle back. Thank you also for your time as well. Drew Lawler AJ LAWLER Partners Land Line: 949-631-7660 Cell: 949-275-1810 www.ajlawler.com Drew(a),ailawler.com 240 Newport Center Drive Suite 205 Newport Beach, CA 92660 Sent from my iPhone SS2-94 On Jan 16, 2019, at 11:18 AM, Wooding, Lauren <LWoodingknewportbeachca.gov> wrote: Hi Jim and Drew, Thanks for taking the time to meet with us yesterday afternoon to review the revenue modeling with Kathe from Keyser Marston Associates, Inc. Attached are the tables Kathe prepared using your proposed change in lease terms, and an electronic copy of the summary sheet we discussed at the meeting. Please let us know if some of the assumptions should be changed to reflect your intended proposal. Thank you, Lauren <image003.jpg>LAUREN WOODING WHITLINGER Community Development Department Real Property Administrator Iwooding(anew,00rtbeachca.gov 949-644-3236 CA Broker License #01943711 CITY OF NEWPORT BEACH 100 Civic Center Drive, First Floor Bay D, Newport Beach, California 92660 newportbeachca.gov <Beacon Bay Modeling Revenue Projections (KMA)_01152019.pdf> <Beacon Bay Revenue Modeling - Methodology Analysis (KMA)_01152019.pdf> SS2-95 image003.jpg SS2-96 From: Drew Lawler <drew@ajlawler.com> Sent: Thursday, January 24, 2019 3:22 PM To: Wooding, Lauren; Jurjis, Seimone Cc: Herdman, Jeff; Jim Helfrich Subject: Follow up to our meeting on the Beacon Bay Ground Lease Restructure Attachments: image003.jpg Hi Seimone and Lauren: Thank you for the meeting last week. We appreciate the opportunity to discuss what we believe are excessive and unfair Ground Rents and to work with the city on restructuring the Beacon Bay Lease. Beacon Bay believes that the existing Ground Rents charged to residents is far in excess of what is fair, equitable and market. We believe that the existing terms of the Ground Leases will continue to exacerbate this issue and we ask that the City make changes to the existing Leases. With that in mind, Beacon Bay has proposed restructuring the lease that would: a) Use a Phased -In program to bring the ground leases from their existing above -market levels to Fair Market levels and, b) Help retain the existing rental income levels to the City. SS2-97 The consultant's formula is off significantly from ours and we disagree with their assumptions and conclusions. For example, in the first year we show annual revenue moving very little. Current revenue is approximately $2.72 million. We estimate it becoming: $2.67 in year one of the phase in period; $2.73 in year two of the phase in period; $2.79 in year three of the phase in period; $2.82 in year four of the phase in period; $2.7 in year five of the phase in period; And then it begins to climb from there above the current 2018 levels. Our assumptions, as provided, are based on existing conditions in Beacon Bay. Our math is straightforward, color coded and easy to follow. There could be several reasons for the differences, including: We are basing sales going forward starting at an average basis for bayfront and interior homes of $5.3 million and $2.8 million respectively. As I understand it, her basis is much lower. However, we would argue two points: • Once the new rate of 1 % goes into effect, it will unleash value increases in Beacon Bay that has been stymied due to the above market rate of 2.5%. In fact, our table which shows a 5% annual increase may be too conservative. • Recent comps place the value of the Beacon Bay waterfront homes at $5.3m. Yes, depending on their condition, in the short term bayfront homes may trade for less than $5.3 million while others will trade for significantly more. And the same applies to the interior lots. SS2-98 2. The consultant assumes that homes will trade on a rotating basis between newer residents and longer term residents. We would argue that: • Once the lease resets to market, newer residents that otherwise have not been able to afford the significant annual increases will now be able to afford to live in their homes and will not have to put them on the market. Thus, the older leases primarily are the ones that will trade hands first going forward due to the advancing age of the residents. Notwithstanding the above, while Beacon Bay has proposed a five year "phase in period" to help mitigate a dip in revenue to the city, it's important to keep in mind that the current annual $2.7 million in revenue to the city is an inflated (above Fair Market Value) amount to begin with. Beacon Bay residents have been charged above market rates for years. This is evidenced by the fact that according to the market study by Leaper Appraisal, comprised of nine recent residential ground lease comps in Newport Beach, the current market average for ground lease rents of like -residential properties in comparable neighborhoods is 4/10ths of 1 % of the selling price vs. the 2.5% the city is currently charging. Thus, while we are willing to help by phasing in the new rate over a five year period which very well may mitigate a dip in revenue, it should not be incumbent upon the residents to make the city whole on the current above market and unfair revenue of $2.7 million which is artificially too high to begin with. While these differences cause the study not to match up with our study and findings, we think that our proposal will never the less accomplish the goals of both parties in helping to maintain income levels constant to the City. We would also like to share these additional thoughts. 1. We encourage the city to hire its own appraiser for a Ground Rent Study to confirm accuracy of the SS2-99 residential ground lease comps Leaper Appraisal was able to find. 2. As an option, we could collectively decide on arbitration to resolve this matter which could move the needle in unforeseen ways. For example, while a judge could decide to set the lease at an amount higher than our proposed 1 %, he or she could also decide to set the rate at the current rolling average of 4/10ths of 1 %, resulting in revenue to the city that would be 60% less than what we are proposing. Further, the judge may decide that rate should take effect immediately, without a five year phase in period. Thus when you consider all factors, we trust you will agree that the 1 % rate phased in over a five year period is in fact a fiscally prudent solution Beacon Bay is offering to the city. 3. We want to make sure that we are on the same page with regards to eliminating the CPI annual increases. Again our position is that because ground lease rents are not assumable to the buyer but instead reset to the selling price each time a property sells -- generating huge "waterfall" increases to the city -- this negates the need for CPI increases. These waterfall increases are a hidden burden to Beacon Bay residents in that the substantial increase is rent that a new buyer has to incur acts to reduce the appreciating value of Beacon Bay homes. Years ago the city recognized this which is why 28 of the homes in Beacon Bay are not subject to CPI increases. Thus to be fair, all 72 homes should have no CPI increases because all Beacon Bay leases reset to the selling price. Secondary to this fundamental reason is that Beacon Bay residents pay property tax based on their purchase price plus an additional "possessory interest surcharge" that can add upwards of $10,000 or more in property tax on land that is owned by city. Not only are Beacon Bay residents paying property tax on behalf of land owned by the city, approximately 17% of both of these taxes paid by Beacon Bay residents flow back to the city in additional revenue. SS2-100 In conclusion, restructuring the lease to "PHASE IN" a 1 % ground rent with no CPI increases is the right thing to do. While still substantially higher than the average comparable residential ground lease rate of 4/10ths of 1 %, it at least brings Beacon Bay closer to market. But more than that, it also creates a financially -wise and sustainable pathway forward for the city. Nobody lives forever and eventually all 72 homes will continue to turn over time and time again resulting in ever increasing revenue streams well above the current $2.7 million. We believe that this immediate revision to the Ground Leases in Beacon Bay is both fair and equitable. Best regards, Drew Lawler 71 240 Newport Center Drive Suite 205 Newport Beach, CA 92660 drewgai lawler. com Phone: 949-631-7660 / Fax: 949-631-7661 SS2-101 image003.jpg SS2-102 Attachment D Keyser Marston Associates, Inc. Beacon Bay Revenue Modeling SS2-103 BEACON BAY GROUND LEASE ANALYSIS FEBRUARY 4, 2019 The City of Newport Beach (City) holds the ground leases for the 72 Beacon Bay properties. At your request, Keyser Marston Associates, Inc. (KMA) evaluated the proposal submitted by the Lease Committee of the Beacon Bay Home Owners Association (HOA) to modify the financial terms of the existing ground leases. BACKGROUND INFORMATION The following tables provide summaries of the key financial terms of the Beacon Bay ground leases. Existing Ground Lease Structures Pre -Existing Leases 1994 Leases 2012 Leases Distribution of Leases Description These leases were converted to 1994 leases that expire in 2044. These leases expire in 2044. These leases expire 50 years after execution. The lease term restarts on each sale. CPllncreases No CPI adjustments are applied. CPI adjustments are applied once every 7 years. Annual CPI adjustments are applied. Number of Leases Bayfront Lots Interior Lots Lease Category Pre -Existing Leases 10 17 1994 Leases 6 16 2012 Leases 11 12 Tota 1 27 45 1902002. N B: KH H 16092.008.003 Page 1 SS2-104 HOA PROPOSAL Premise The stated premise of the HOA's proposed ground lease restructuring can be summarized as follows: To reduce the ground lease payment obligation to 1% of each home's value; and 2. To phase in the ground lease payment reductions over time to minimize the near-term impacts on the revenues to be received by the City of Newport Beach (City). Proposed Structuring Modifications The HOA is proposing to make the following modifications to the existing ground leases: Pre -Existing Leases & 1994 Leases The home owners with 1994 Leases have the option, but not the requirement, to convert to a 50 year lease with a lease payment set at 1% of the property's appraised value at the time of conversion. 1 No CPI escalations are applied. When the home is sold the ground lease payment is set at 1% of the sale price. No CPI escalations are applied. 2012 Leases The purchase price paid when the home was acquired is used as the basis for the ground lease payments. The ground lease payment reduction is phased in over five years to reach 1% of the original acquisition cost of the home. No CPI escalations are applied. The thresholds are: Year 1: 2.5% of the first $3.0 million acquisition price & 1% of the balance Year 2: 2.5% of the first $2.5 million acquisition price & 1% of the balance Year 3: 2.5% of the first $2.0 million acquisition price & 1% of the balance Year 4: 2.5% of the first $1.5 million acquisition price & 1% of the balance 1 The HOA proposal does not specifically call out the Pre -Existing Leases in the lease conversion section of the proposal. However, it can be inferred from the HOA cash flow projections that the conversion proposal includes a conversion option for the Pre -Existing Leases. Beacon Bay Ground Lease Analysis 1902002. N B: KH H / 16092.008.003 Page 2 February 4, 2019 SS2-105 Year 5: 2.5% of the first $1.0 million acquisition price & 1% of the balance Year 6+: 1% of the acquisition price COMPARISON OF ASSUMPTIONS The HOA submitted a cash flow projection to illustrate the ground lease revenues anticipated to be generated under the modified ground lease structure. KMA reviewed the HOA projections and then independently prepared a set of projections. The results of the comparative analysis are presented in Table 1, and the differences are summarized in the following table: NPV at a 6% Projected Ground Lease Revenues 2 Total Discount Rate 3 Proposed Lease Modifications HOA Projections $65,228,000 $36,209,000 KMA Projections $41,299,000 $23,298,000 Difference $23,929,000 $12,911,000 Existing Lease Structure — No Resales $72,931,000 $40,972,000 It is also important to note that the ground lease revenues generated under the existing ground lease terms are projected to be higher than the revenue generated under the proposed ground lease structure even if it is assumed that the no homes will be resold during the projection period. The reduction in ground lease revenue is estimated at $7.7 million under the HOA projections and $31.6 million under the KMA projections. 4 As can be seen in the preceding table, the ground lease revenues projected by KMA are significantly lower than the HOA revenue projections. The key differences in assumptions relate to the following factors: 2 Based on the projection period set by the HOA. Covers 18 years, from 2019 through 2037. 3 NPV = Net Present Value. 4 See Table 1. The net present values of the differences are estimated at $4.76 million and $17.67 million, respectively. Beacon Bay Ground Lease Analysis 1902002. N B: KH H / 16092.008.003 Page 3 February 4, 2019 SS2-106 Differences in Assumptions Projected Average Home Sales Prices Conversion Timing for 1994 Leases Order of Home Sales Difference NPV at a 6% Total Discount Rate $11,199,000 $5,431,000 5,930,000 3,581,000 6,800,000 3,899,000 $23,929,000 $12,911,000 The differences in assumptions can be described as follows: Average Home Sales Prices — ($11,199,000 Total Difference/$5,431,000 NPV) The HOA projections are based on the assumption, in 2018 dollars, that Bayfront homes will sell at an average price of $5.5 million and that homes on interior lots will sell at an average value of $2.94 million. These prices are projected to increase at an average rate of 5% annually. 2. KMA compiled historical sales information for each home, and then escalated the price at 5% annually to arrive at estimates of each home's value in 2018 dollars. The resulting average values are $4.31 million for the Bayfront homes and $1.81 million for the homes on the interior lots. The values for each individual home were then escalated at 5% annually throughout the projection period. The HOA representatives contend that using historical sales values understates the values that will be achieved if the ground lease terms are modified. However, it should be noted that the home values would have to increase by an average rate of approximately 42% over the current average to achieve the sales price projections being used by the HOA. Conversion Timing for 1994 Leases — ($5,930,000 Total Difference/$3,581,000 NPV) The HOA proposal provides the option for home owners with Pre -Existing Leases and 1994 Leases to convert to new 50 year leases at 1% of the home's appraised value at the time of conversion. The HOA projections comingle the 1994 Ground Lease conversions with the future home sales. 2. KMA reviewed the ground rent revenue being generated by each of the Pre -Existing Leases and the 1994 Leases to evaluate the benefits home owners would potentially receive from converting to the proposed structure. Based on that review and given that Beacon Bay Ground Lease Analysis Page 4 1902002.NB:KHH / 16092.008.003 February 4, 2019 SS2-107 a large number of factors go into a home owner's decision making process, KMA applied the assumption that none of the Pre -Existing Leases and all of the 1994 Leases would be converted immediately to the 1% of value lease option being proposed. It is KMA's opinion that the HOA's projected conversion timing likely underestimates how quickly the Pre -Existing Leases and 1994 Leases ground leases would be converted. Both the number and the timing of the conversions are important, because each conversion reduces the ground lease revenues that will be received by the City. Order of Home Sales — ($6,800,000 Total Difference/$3,899,000 NPV) The HOA projections are based on the assumption that homes are sold in chronological order from the oldest to the newest ground leases. 2. The data indicates that historically home sales are a mix of old and new leases. The KMA projections are based on the assumption that home sales alternate between old and new ground leases. ISSUES FOR CONSIDERATION By their nature, projections are based on a variety of assumptions and estimates regarding future market and financial conditions. The actual results will vary from the projections, and the differences may be material. The revenue projections for the existing lease structure and the modified structure being proposed should only be used to provide an order -of -magnitude perspective on the revenues that could potentially be generated. 2. The HOA's stated objective is to minimize the City's revenue loss impact during the first five years following the proposed modifications to the ground leases. However, it is important to understand that factors such as the conversion rate for the 1994 Leases could have a significant impact on the ground lease revenue generation. 3. It needs to be understood that the City's ground lease revenue is predicated on the sales price of the home, not the home's value after any remodeling/modernization work performed by the new owner: a. It is reasonable to assume the sales prices generated by the homes located on lots with the oldest ground leases will be lower than the sales prices achieved by homes that were recently renovated or constructed. Beacon Bay Ground Lease Analysis 1902002. N B: KH H / 16092.008.003 Page 5 February 4, 2019 SS2-108 b. The HOA projections can be considered aggressive given that they are based on home values that exceed the prices that have actually been achieved historically. This issue is magnified by the HOA assumption that the homes on the properties with the oldest ground leases will be sold first. POLICY DECISIONS The policy decisions for the City to consider are: It should be assumed that the existing home owners factored the ground rent payment obligation into the price they were willing to pay to purchase a home. If the ground rent payment amount is reduced, the home owners will effectively be receiving a windfall financial benefit. 2. The HOA's contention is that the ground lease payment obligations exceed the current market rate, and that the City should be required to reduce the ground rent to the current market level. The key matters to consider are: Market conditions change overtime. It should be assumed that at different points in time a long-term ground lease will carry above market and below market rent payment obligations. b. If the City wishes to consider modifying the ground lease terms a qualified appraiser should be engaged to identify the appropriate terms given the specific characteristics of the property. 3. If it is the City's goal is to maintain the existing revenue stream the ground lease structure should not be modified. Beacon Bay Ground Lease Analysis 1902002. N B: KH H / 16092.008.003 Page 6 February 4, 2019 SS2-109 TABLE 1 PROJECTED ANNUAL GROUND LEASE PAYMENTS GROUND LEASE ANALYSIS BEACON BAY - NEWPORT BEACH i Assumes five resales or conversion of 2014 leases to 50 year leases at 1% of the 2018 value per year: One Bayfront Lot and Four Interior Lots are sold or leases are converted per year. Sales are in chronological order, with the properties with the oldest leases sold first. In the Proposer's submission, appreciation in home prices ranges from 3.28% to 6.35% per year. The average appreciation rate equates to 5% per year. The home values in 2018 are set at: $5.50 million for Bayfront Lots and $2.94 million for Interior Lots. z Assumes that in Year 1 all the 1994 leases convert to 50 year leases at 1% of the 2018 values. Assumes four resales per year based on historical sales activity. The projected sales prices are based on the last actual sale or appraisal escalated at 5% per year through 2018: One Bayfront Lot is sold per year alternating between 1994 and 2012 Lease Lots. Three Interior Lots are sold each year, allocated to two 1994 and one 2012 Lease Lots. Appreciation in home prices is set at 5.0% per year based on Proposer's stated assumption. 3 Assumes no resales. As pertinent, the average annual inflation rate is set at 2.5%. Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 2 4 19, Sum SS2-110 PROPOSER'S 1 KMA PROJECTIONS z EXISTING LEASE 3 SUBMISSION BASED ON PROPOSED STRUCTURE WITH NO PROJECTIONS STRUCTURE RESALES 2019 $2,739,556 $2,132,045 $3,057,908 2020 2,797, 616 2,048, 235 3,111, 720 2021 2,821, 584 1,988, 351 3,181, 518 2022 2,822,296 1,887,348 3,245,712 2023 2,702,611 1,831,009 3,306,761 2024 2,811,715 1,651,413 3,399,810 2025 2,900,627 1,712,427 3,476,018 2026 2,944,463 1,785, 853 3,656,180 2027 3,114,722 1,888,284 3,722,361 2028 3,285,776 1,971,214 3,808,204 2029 3,455,120 2,083, 263 3,887,155 2030 3,603,060 2,182, 824 3,959, 740 2031 3,734, 972 2,298,508 4,074,178 2032 3,824, 768 2,433, 828 4,167,904 2033 3,942,040 2,571,552 4,389,481 2034 4,030,680 1,988,351 4,470,876 2035 4,248,284 2,824,985 4,576,451 2036 4,468,388 2,964,808 4,673,551 2037 4,979,616 3,054,860 4,765,320 Total $65,227,894 $41,299,156 $72,930,850 NPV @ 6% Discount Rate $36,209,000 $23,298,000 $40,972,000 i Assumes five resales or conversion of 2014 leases to 50 year leases at 1% of the 2018 value per year: One Bayfront Lot and Four Interior Lots are sold or leases are converted per year. Sales are in chronological order, with the properties with the oldest leases sold first. In the Proposer's submission, appreciation in home prices ranges from 3.28% to 6.35% per year. The average appreciation rate equates to 5% per year. The home values in 2018 are set at: $5.50 million for Bayfront Lots and $2.94 million for Interior Lots. z Assumes that in Year 1 all the 1994 leases convert to 50 year leases at 1% of the 2018 values. Assumes four resales per year based on historical sales activity. The projected sales prices are based on the last actual sale or appraisal escalated at 5% per year through 2018: One Bayfront Lot is sold per year alternating between 1994 and 2012 Lease Lots. Three Interior Lots are sold each year, allocated to two 1994 and one 2012 Lease Lots. Appreciation in home prices is set at 5.0% per year based on Proposer's stated assumption. 3 Assumes no resales. As pertinent, the average annual inflation rate is set at 2.5%. Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 2 4 19, Sum SS2-110 BEACON BAY GROUND LEASE ANALYSIS KEYSER MARSTON ASSOCIATES, INC. (KMA) METHODOLOGY AND FINDINGS JANUARY 15, 2019 Existing Ground Lease Types Pre -Existing Leases 1994 Leases 2012 Leases Distribution of Leases Description These leases were converted to 1994 leases that expire in 2044. These leases expire in 2044. These leases expire 50 years after execution. The lease term restarts on each sale. CPllncreases No CPI adjustments are applied. CPI adjustments are applied once every 7 years. Annual CPI adjustments are applied. Number of Leases Bayfront Lots Interior Lots Lease Category Pre -Existing Leases 10 17 1994 Leases 6 16 2012 Leases 11 12 Total 27 45 Table 1: This is a re-creation of Mr. Lawler's projections. The table is annotated to identify issues identified in preparing this scenario. Page 1 SS2-111 Table 2: KMA Lease Projections — Before Resales Pre -Existing Leases — The projections are based on the 2018 lease payments. No CPI escalations are applied. 1994 Leases — Assumes that all the lessees choose to convert to a lease payment set at 1% of the 2018 home value with no CPI increases. The 2018 home value was projected based on the original acquisition price for the home escalated at 5% annually to reach the estimated 2018 value. 2012 Leases — Based on a five year phase in period to reach 1% of the original acquisition cost of the home. No CPI escalations are applied. The thresholds are: Year 1: 2.5% of the first $3.0 million acquisition price & 1% of the balance Year 2: 2.5% of the first $2.5 million acquisition price & 1% of the balance Year 3: 2.5% of the first $2.0 million acquisition price & 1% of the balance Year 4: 2.5% of the first $1.5 million acquisition price & 1% of the balance Year 5: 2.5% of the first $1.0 million acquisition price & 1% of the balance Table 3: Home Sales Projections Home values are projected to increase at an average rate of 5% per year. Four homes are projected to be sold each year based on historical activity. Sales are allocated as follows: One home located on a Bayfront Lot is sold per year, alternating between Pre - Existing Leases and 2012 Leases. Once all the Pre -Existing Bayfront Lease Lots have been sold once, homes on Bayfront Lots with 1994 Leases are sold. Once all the 2012 Bayfront Lease Lots have been sold once, the remaining Bayfront Lots with 1994 Leases are sold. Three homes located on Interior Lots are sold each year, allocated to two Pre - Existing Lease Lots and one 2012 Lease Lot. Once all the Pre -Existing Lease Lots are sold once, two 1994 Interior Lease Lots are sold. Once all the 2012 Interior Lease Lots have been sold once, the remaining 1994 Interior Lease Lots are sold. Once all the Interior Lots have been sold, the pattern repeats. Table 4: KMA Ground Lease Projections — this table incorporates the assumptions presented in Tables 2 and 3 to provide ground lease revenue projections based on the proposed ground lease restructuring terms. Beacon Bay Ground Lease Analysis Methodology and Findings Page 2 January 15, 2019 SS2-112 Assumptions Comparisons Lease Rate Upon Sale Mr. Lawler and KMA both set the lease rates for new sales at 1% of the sales price of the home. Five Year Phase In of KMA was unable to identify a consistent methodology to the 2012 2012 Leases to 1% of Lease rates applied in Mr. Lawler's projections. In Table 1, KMA Value hard coded the lease rates shown in Mr. Lawler's projections and provided notes on the assumptions that appeared to be applied. KMA applied the phase-in schedule methodology identified in Mr. Lawler's proposal. The first year lease payment was based on the original acquisition price of the home with no escalation for passage of time. Sales Price Projections As the basis for projecting future sales prices, Mr. Lawler used average current prices of $5.3 million for homes on Bayfront Lots and $2.8 million for homes on Interior Lots. KMA projected sales prices for each home based on the home's original acquisition price escalated at 5% per year from the date the home was originally acquired through the projected sale date. Sales Price Appreciation Mr. Lawler's assumptions sheet indicates that appreciation is estimated at an average rate of 5% per year. The projections use escalations that range from a low of 3.28% to a high of 6.11%. The overall average equals 5.0% The KMA projections are based on a straight line escalation of 5% per year. It should be noted that a long-term projection based on an average appreciation rate of 5% per year should be considered aggressive. KMA used the 5% rate applied by Mr. Lawler to provide for a consistent comparison. CPI Increases No CPI increases were applied to the lease payments in either Mr. Lawler's projections or KMA's projections. Beacon Bay Ground Lease Analysis Methodology and Findings Page 3 January 15, 2019 SS2-113 Timing of Resales Mr. Lawler assumed that five homes will be sold per year. One home is assumed to be on a Bayfront Lot and four homes are assumed to be located on Interior Lots. Based on historical sales information, KMA assumed that four homes will be sold per year. One home is assumed to be located on a Bayfront Lot and three homes are assumed to be located on Interior Lots. Order of Lot Sales Mr. Lawler assumed that the homes will be sold in chronological order with the homes located on lots with the oldest ground leases being sold first. KMA alternated the sales between the oldest leases and the 2012 leases. Summary A summary comparison table is attached. The results of the comparison can be summarized as follows: 1. In Mr. Lawler's projections, the ground lease revenues total $65.2 million over the 19 year projection period. Comparatively, the KMA projections result in total ground lease revenues of $41.3 million. This represents a $23.9 million difference. 2. When the projected revenues are discounted to present value at a 6% rate, Mr. Lawler's projections generate $36.2 million in revenues versus $23.3 million in the KMA projections. This represents a $12.9 million difference. 3. KMA also prepared a ground lease revenue projection based on the terms imposed by the executed ground leases for the 72 lots. This projection is also based on the assumption that no homes will be resold during the 19 year projection period. Even given the assumption that no homes are resold, the total ground lease revenues are projected to be $7.7 million higher than the revenues projected by Mr. Lawler in nominal terms, and $4.7 million in present value terms. Beacon Bay Ground Lease Analysis Methodology and Findings Page 4 January 15, 2019 SS2-114 COMPARISON TABLE PROJECTED ANNUAL GROUND LEASE PAYMENTS GROUND LEASE ANALYSIS BEACON BAY - NEWPORT BEACH i See TABLE 1. Assumes five resales per year: One Bayfront Lot and Four Interior Lots are sold per year. Sales are in chronological order, with the properties with the oldest leases sold first. In the Proposer's submission, appreciation in home prices ranges from 3.28% to 6.35% per year. Proposer's stated average annual appreciation rate is 5%. The home values in 2018 are set at: $5.50 million for Bayfront Lots and $2.94 million for Interior Lots. z See TABLE 4. Assumes four resales per year based on historical sales activity: One Bayfront Lot is sold per year alternating between 1994 and 2012 Lease Lots. Three Interior Lots are sold each year, allocated to two 1994 and one 2012 Lease Lots. Appreciation in home prices is set at 5.0% per year based on Proposer's stated assumption. Each home is valued based on the last sale price escalated to 2018 at 5.0% per year. 3 See TABLE 5. As pertinent, the average annual inflation rate is set at 2.5%. Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Sum SS2-115 PROPOSER'S 1 KMA PROJECTIONS z EXISTING LEASE 3 SUBMISSION BASED ON PROPOSED STRUCTURE WITH NO PROJECTIONS STRUCTURE RESALES 2019 $2,739,556 $2,132,045 $3,057,908 2020 2,797, 616 2,048, 235 3,111, 720 2021 2,821, 584 1,988, 351 3,181, 518 2022 2,822,296 1,887,348 3,245,712 2023 2,702,611 1,831,009 3,306,761 2024 2,811,715 1,651,413 3,399,810 2025 2,900,627 1,712,427 3,476,018 2026 2,944,463 1,785, 853 3,656,180 2027 3,114,722 1,888,284 3,722,361 2028 3,285,776 1,971,214 3,808,204 2029 3,455,120 2,083, 263 3,887,155 2030 3,603,060 2,182, 824 3,959, 740 2031 3,734, 972 2,298,508 4,074,178 2032 3,824, 768 2,433, 828 4,167, 904 2033 3,942,040 2,571,552 4,389,481 2034 4,030,680 1,988,351 4,470,876 2035 4,248,284 2,824,985 4,576,451 2036 4,468,388 2,964,808 4,673,551 2037 4,979,616 3,054,860 4,765,320 Total $65,227,894 $41,299,156 $72,930,850 NPV @ 6% Discount Rate $36,209,000 $23,298,000 $40,972,000 i See TABLE 1. Assumes five resales per year: One Bayfront Lot and Four Interior Lots are sold per year. Sales are in chronological order, with the properties with the oldest leases sold first. In the Proposer's submission, appreciation in home prices ranges from 3.28% to 6.35% per year. Proposer's stated average annual appreciation rate is 5%. The home values in 2018 are set at: $5.50 million for Bayfront Lots and $2.94 million for Interior Lots. z See TABLE 4. Assumes four resales per year based on historical sales activity: One Bayfront Lot is sold per year alternating between 1994 and 2012 Lease Lots. Three Interior Lots are sold each year, allocated to two 1994 and one 2012 Lease Lots. Appreciation in home prices is set at 5.0% per year based on Proposer's stated assumption. Each home is valued based on the last sale price escalated to 2018 at 5.0% per year. 3 See TABLE 5. As pertinent, the average annual inflation rate is set at 2.5%. Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Sum SS2-115 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS 1 BEACON BAY - NEWPORT BEACH 1994 Lease without annual CPI adjustments expiring in 2044 1994 Leases with annual CPI adjustments expiring 2044 -2012 Leases with annual CPI adjustments on 50 year rollovers I. Bayfront Lots Projected Home Value $5,500,000 $5,800,000 $6,100,000 $6,300,000 $6,700,000 $7,000,000 $7,400,000 $7,700,000 $8,100,000 $8,500,000 Projected Appreciation 5.45% 5.17% 3.28% 6.35% 4.48% 5.71% 4.05% 5.19% 4.94% 3 Beacon Bay Adjusted Projected Home Value 7,749,600 Rent as a Percentage of Home Value 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 2017 Actual Rents 19 Beacon Bay $19,500 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 15 Beacon Bay 20,232 20,232 58,000 58,000 58,000 58,000 58,000 58,000 58,000 58,000 58,000 4 Beacon Bay 21,252 21,252 21,252 61,000 61,000 61,000 61,000 61,000 61,000 61,000 61,000 5 Beacon Bay 28,836 28,836 28,836 28,836 63,000 63,000 63,000 63,000 63,000 63,000 63,000 63 Beacon Bay 29,220 29,220 29,220 29,220 29,220 67,000 67,000 67,000 67,000 67,000 67,000 13 Beacon Bay 29,448 29,448 29,448 29,448 29,448 29,448 70,000 70,000 70,000 70,000 70,000 Beacon Bay 31,560 31,560 31,560 31,560 31,560 31,560 74,000 74,000 74,000 74,000 74,000 10 Beacon Bay 33,540 33,540 33,540 33,540 33,540 33,540 33,540 77,496 77,496 77,496 77,496 6 Beacon Bay 34,260 34,260 34,260 34,260 34,260 34,260 34,260 34,260 81,000 81,000 81,000 9 Beacon Bay 44,340 44,340 44,340 44,340 44,340 44,340 44,340 44,340 44,340 44,340 85,000 115 Harbor Island Road (C) 30,936 30,936 30,936 30,936 30,936 30,936 30,936 30,936 30,936 30,936 30,936 7 Beacon Bay 33,048 33,048 33,048 33,048 33,048 33,048 33,048 33,048 33,048 33,048 33,048 17 Beacon Bay 34,860 34,860 34,860 34,860 34,860 34,860 34,860 34,860 34,860 34,860 34,860 8 Beacon Bay 61,488 61,488 61,488 61,488 61,488 61,488 61,488 61,488 61,488 61,488 61,488 12 Beacon Bay 87,204 87,204 87,204 87,204 87,204 87,204 87,204 87,204 87,204 87,204 87,204 11 Beacon Bay 95,628 95,628 95,628 95,628 95,628 95,628 95,628 95,628 95,628 95,628 95,628 101 Harbor Island Road (A) 134,160 134,160 134,160 134,160 134,160 134,160 134,160 134,160 134,160 134,160 134,160 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas P e2of52 S92-116 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas P e3of52 S92-117 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 I. Bayfront Lots Projected Home Value $8,900,000 $9,400,000 $9,800,000 $10,300,000 $10,800,000 $11,400,000 $11,900,000 $12,500,000 $13,100,000 $13,900,000 Projected Appreciation 4.71% 5.62% 4.26% 5.10% 4.85% 5.56% 4.39% 5.04% 4.80% 6.11% Adjusted Projected Home Value Rent as a Percentage of Home Value 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 19 Beacon Bay $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 15 Beacon Bay 58,000 58,000 58,000 58,000 58,000 58,000 58,000 58,000 58,000 58,000 4 Beacon Bay 61,000 61,000 61,000 61,000 61,000 61,000 61,000 61,000 61,000 61,000 5 Beacon Bay 63,000 63,000 63,000 63,000 63,000 63,000 63,000 63,000 63,000 63,000 63 Beacon Bay 67,000 67,000 67,000 67,000 67,000 67,000 67,000 67,000 67,000 67,000 13 Beacon Bay 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 Beacon Bay ' 74,000 74,000 74,000 74,000 74,000 74,000 74,000 74,000 74,000 74,000 10 Beacon Bay 77,496 77,496 77,496 77,496 77,496 77,496 77,496 77,496 77,496 77,496 6 Beacon Bay 81,000 81,000 81,000 81,000 81,000 81,000 81,000 81,000 81,000 81,000 9 Beacon Bay 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 115 Harbor Island Road (C) 89,000 89,000 89,000 89,000 89,000 89,000 89,000 89,000 89,000 89,000 7 Beacon Bay 33,048 94,000 94,000 94,000 94,000 94,000 94,000 94,000 94,000 94,000 17 Beacon Bay 34,860 34,860 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 8 Beacon Bay 61,488 61,488 61,488 103,000 103,000 103,000 103,000 103,000 103,000 103,000 12 Beacon Bay 87,204 87,204 87,204 87,204 108,000 108,000 108,000 108,000 108,000 108,000 11 Beacon Bay 95,628 95,628 95,628 95,628 95,628 114,000 114,000 114,000 114,000 114,000 101 Harbor Island Road (A) 134,160 134,160 134,160 134,160 134,160 134,160 119,000 119,000 119,000 119,000 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas P e3of52 S92-117 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH Bayfront Lots Projected Home Value Projected Appreciation Adjusted Projected Home Value Rent as a Percentage of Home Value 19 Beacon Bay 15 Beacon Bay 4 Beacon Bay 5 Beacon Bay 63 Beacon Bay 13 Beacon Bay Beacon Bay 10 Beacon Bay 6 Beacon Bay 9 Beacon Bay 115 Harbor Island Road (C) 7 Beacon Bay 17 Beacon Bay 8 Beacon Bay 12 Beacon Bay 11 Beacon Bay 101 Harbor Island Road (A) This is a lease that was transferred in 2018. Also, the escalation occurred one year earlier than it should under the proposed formula. Mathematically this lease payment is based on a home value not listed on the HOA representative's projections. Based on the 2026 value. This is a Pre -Existing lease with no CPI adjustments. Incorrectly treated as a lease with CPI adjustments. Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 4 of 52 SS2-118 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS 1 BEACON BAY - NEWPORT BEACH 1 Beacon Bay 2 Beacon Bay 18 Beacon Bay 14 Beacon Bay 62 Beacon Bay 16 Beacon Bay 21 Beacon Bay 20 Beacon Bay 107 Harbor Island Road (B) 22 Beacon Bay Bayfront Lots Total 1994 Lease without annual CPI adjustments expiring in 2044 1994 Leases with annual CPI adjustments expiring 2044 -2012 Leases with annual CPI adjustments on 50 year rollovers 2018 2019 2020 2021 2022 01 ENJEW low 2023 2024 2025 2026 2027 41,71 39,996 41,712 41,712 0,000 15,996 15,996 15,996 15,996 15,99 72,420 69,996 64,500 57,000 49,500 42,000 27,996 27,996 27,996 27,996 27,99 81,468 76,992 67,500 60,000 52,500 45,000 31,992 31,992 31,992 31,992 31,992 88,884 79,992 71,496 63,996 56,496 48,996 34,992 34,992 34,992 34,992 34,992 94,656 81,996 73,500 66,000 58,500 51,000 36,996 36,996 36,996 36,996 36,996 99,636 84,000 75,492 67,992 60,492 52,992 39,000 39,000 39,000 39,000 39,000 105,288 85,992 77,496 69,996 62,496 54,996 40,992 40,992 40,992 40,992 40,992 112,980 88,992 80,496 72,996 65,496 57,996 43,992 43,992 43,992 43,992 43,992, 118,416 90,996 82,500 75,000 67,500 60,000 45,996 45,996 45,996 45,996 45,996 131,244 97,992 90,492 82,992 75,492 67,992 52,992 52,992 52,992 52,992 52,992 $1,716,216 $1,601,956 $1,567,964 $1,540,212 $1,506,876 $1,465,444 $1,408,408 $1,452,364 $1,499,104 $1,499,104 $1,539,764 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas P e5of52 S92-119 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH 1 Beacon Bay 2 Beacon Bay 18 Beacon Bay 14 Beacon Bay 62 Beacon Bay 16 Beacon Bay 21 Beacon Bay 20 Beacon Bay 107 Harbor Island Road (B) 22 Beacon Bay Bayfront Lots Total 15,996 15,996 15,996 15,996 15,996 15,996 15,996 125,000 125,000 126,000 27,996 27,996 27,996 27,996 27,996 27,996 27,996 27,996 131,000 132,000 31,992 31,992 31,992 31,992 31,992 31,992 31,992 31,992 31,992 139,000 34,992 34,992 34,992 34,992 34,992 34,992 34,992 34,992 34,992 34,992 36,996 36,996 36,996 36,996 36,996 36,996 36,996 36,996 36,996 36,996 39,000 39,000 39,000 39,000 39,000 39,000 39,000 39,000 39,000 39,000 40,992 40,992 40,992 40,992 40,992 40,992 40,992 40,992 40,992 40,992 43,992 43,992 43,992 43,992 43,992 43,992 43,992 43,992 43,992 43,992 45,996 45,996 45,996 45,996 45,996 45,996 45,996 45,996 45,996 45,996 52,992 52,992 52,992 52,992 52,992 52,992 52,992 52,992 52,992 52,992 $1,597,828 $1,658,780 $1,721,920 $1,763,432 $1,784,228 $1,802,600 $1,787,440 $1,896,444 $1,999,448 $2,108,456 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas P e6of52 S92-120 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH 1 Beacon Bay 2 Beacon Bay 18 Beacon Bay 14 Beacon Bay 62 Beacon Bay 16 Beacon Bay 21 Beacon Bay 20 Beacon Bay 107 Harbor Island Road (B) 22 Beacon Bay Bayfront Lots Total Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas 2018 rent is $1,716 less than 2017 rent. Then it reverts to the 2017 rent for three years. Then it decreases by $11,712 for one year. Then it decreases by 38.35% held flat for 12 years. Sale in 2035 based on formula assumptions, flat in 2036 and 38% unexplained escalation in 2037. 2018 rent is $2,424 less than 2017 rent. Then it reverts to the 2017 rent for three years. Then it decreases by $7,500 for one year. Then it decreases by 38.66% held flat for 13 years. Sale in 2036 based on formula assumptions, and unexplained 39% escalation in 2037. Five years of rent reductions: $4,476; $9,492; $7,500; $7,500; and $7,500. Then it decreases by 39.27% held flat for 14 years. 39% Sale in 2037 based on formula assumptions. 39% Five years of rent reductions: $8,892; $8,496; $7,500; $7,500; and $7,500. Then it decreases by 39.37% held flat for 15 years. 39% Five years of rent reductions: $12,660; $8,496; $7,500; $7,500; and $7,500. Then it decreases by 39.08% held flat for 15 years 39% Five years of rent reductions: $15,636; $8,508; $7,500; $7,500; and $7,500. Then it decreases by 39.14% held flat for 15 years 39% Five years of rent reductions: $19,296; $8,496; $7,500; $7,500; and $7,500. Then it decreases by 38.93% held flat for 15 years 39% Five years of rent reductions: $23,988; $8,496; $7,500; $7,500; and $7,500. Then it decreases by 38.94% held flat for 15 years 39% Five years of rent reductions: $27,420; $8,496; $7,500; $7,500; and $7,500. Then it decreases by 38.84% held flat for 15 years 40% Five years of rent reductions: $33,252; $7,500; $7,500; $7,500; and $7,500. Then it decreases by 40.38% held flat for 15 years Page 7 of 52 SS2-121 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS 1 BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas P e8of52 S924 22 1994 Lease without annual CPI adjustments expiring in 2044 1994 Leases with annual CPI adjustments expiring 2044 -2012 Leases with annual CPI adjustments on 50 year rollovers 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 II. Interior Lots Projected Home Value $2,940,000 $3,080,000 $3,240,000 $3,400,000 $3,570,000 $3,750,000 $3,930,000 $4,120,000 $4,330,000 $4,540,000 Projected Appreciation 4.76% 5.19% 4.94% 5.00% 5.04% 4.80% 4.83% 5.10% 4.85% Rent as a Percentage of Home Value 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 2017 Actual Rents 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 68 Beacon Bay $6,048 $29,400 $29,400 $29,400 $29,400 $29,400 $29,400 $29,400 $29,400 $29,400 $29,400 65 Beacon Bay 6,312 29,400 29,400 29,400 29,400 29,400 29,400 29,400 29,400 29,400 29,400 26 Beacon Bay 6,936 29,400 29,400 29,400 29,400 29,400 29,400 29,400 29,400 29,400 29,400 32 Beacon Bay 7,212 29,400 29,400 29,400 29,400 29,400 29,400 29,400 29,400 29,400 29,400 33 Beacon Bay 7,296 7,296 30,800 30,800 30,800 30,800 30,800 30,800 30,800 30,800 30,800 47 Beacon Bay 7,356 7,356 30,800 30,800 30,800 30,800 30,800 30,800 30,800 30,800 30,800 42 Beacon Bay 7,668 7,668 30,800 30,800 30,800 30,800 30,800 30,800 30,800 30,800 30,800 51 Beacon Bay 7,848 7,848 30,800 30,800 30,800 30,800 30,800 30,800 30,800 30,800 30,800 61 Beacon Bay 8,472 8,472 TT)T' 32,400 32,400 32,400 32,400 32,400 32,400 32,400 32,400 46 Beacon Bay 8,484 8,484 8,484 32,400 32,400 32,400 32,400 32,400 32,400 32,400 32,400 64 Beacon Bay 10,320 10,320 10,320 32,400 32,400 32,400 32,400 32,400 32,400 32,400 32,400 31 Beacon Bay 10,512 10,512 10,512 32,400 32,400 32,400 32,400 32,400 32,400 32,400 32,400 39 Beacon Bay 11,556 11,556 11,556 11,556 34,000 34,000 34,000 34,000 34,000 34,000 34,000 50 Beacon Bay 12,108 12,108 12,108 12,108 34,000 34,000 34,000 34,000 34,000 34,000 34,000 59 Beacon Bay 12,168 12,168 12,168 12,168 34,000 34,000 34,000 34,000 34,000 34,000 34,000 55 Beacon Bay 12,864 12,864 12,864 12,864 34,000 34,000 34,000 34,000 34,000 34,000 34,000 43 Beacon Bay 13,224 13,224 13,224 13,224 13,224 35,700 35,700 35,700 35,700 35,700 35,700 40 Beacon Bay 13,572 13,572 13,572 13,572 13,572 35,700 35,700 35,700 35,700 35,700 35,700 36 Beacon Bay 8,328 8,328 8,328 8,328 8,328 35,700 35,700 35,700 35,700 35,700 35,700 57 Beacon Bay 10,032 10,032 10,032 10,032 10,032 35,700 35,700 35,700 35,700 35,700 35,700 35 Beacon Bay 14,328 14,328 14,328 14,328 14,328 14,328 37,500 37,500 37,500 37,500 37,500 29 Beacon Bay 15,780 15,780 15,780 15,780 15,780 15,780 37,500 37,500 37,500 37,500 37,500 34 Beacon Bay 16,200 16,200 16,200 16,200 16,200 16,200 37,500 37,500 37,500 37,500 37,500 28 Beacon Bay 16,320 16,320 16,320 16,320 16,320 16,320 37,500 37,500 37,500 37,500 37,500 30 Beacon Bay 18,360 18,360 18,360 18,360 18,360 18,360 18,360 39,300 39,300 39,300 39,300 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas P e8of52 S924 22 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas P e9of52 S924 23 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 II. Interior Lots Projected Home Value $4,700,000 $5,000,000 $5,200,000 $5,500,000 $5,700,000 $6,000,000 $6,300,000 $6,600,000 $7,000,000 $7,400,000 Projected Appreciation 3.52% 6.38% 4.00% 5.77% 3.64% 5.26% 5.00% 4.76% 6.06% 5.71% Rent as a Percentage of Home Value 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 68 Beacon Bay $29,400 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 65 Beacon Bay 29,400 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 26 Beacon Bay 29,400 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 32 Beacon Bay 29,400 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 33 Beacon Bay 30,800 30,800 52,000 52,000 52,000 52,000 52,000 52,000 52,000 52,000 47 Beacon Bay 30,800 30,800 52,000 52,000 52,000 52,000 52,000 52,000 52,000 52,000 42 Beacon Bay 30,800 30,800 52,000 52,000 52,000 52,000 52,000 52,000 52,000 52,000 51 Beacon Bay 30,800 30,800 52,000 52,000 52,000 52,000 52,000 52,000 52,000 52,000 61 Beacon Bay ' 32,400 32,400 32,400 55,000 55,000 55,000 55,000 55,000 55,000 55,000 46 Beacon Bay 32,400 32,400 32,400 55,000 55,000 55,000 55,000 55,000 55,000 55,000 64 Beacon Bay 32,400 32,400 32,400 55,000 55,000 55,000 55,000 55,000 55,000 55,000 31 Beacon Bay 32,400 32,400 32,400 55,000 55,000 55,000 55,000 55,000 55,000 55,000 39 Beacon Bay 34,000 34,000 34,000 34,000 57,000 57,000 57,000 57,000 57,000 57,000 50 Beacon Bay 34,000 34,000 34,000 34,000 57,000 57,000 57,000 57,000 57,000 57,000 59 Beacon Bay 34,000 34,000 34,000 34,000 57,000 57,000 57,000 57,000 57,000 57,000 55 Beacon Bay 34,000 34,000 34,000 34,000 34,000 60,000 60,000 60,000 60,000 60,000 43 Beacon Bay 35,700 35,700 35,700 35,700 35,700 60,000 60,000 60,000 60,000 60,000 40 Beacon Bay 35,700 35,700 35,700 35,700 35,700 60,000 60,000 60,000 60,000 60,000 36 Beacon Bay 35,700 35,700 35,700 35,700 35,700 60,000 60,000 60,000 60,000 60,000 57 Beacon Bay 35,700 35,700 35,700 35,700 35,700 35,700 63,000 63,000 63,000 63,000 35 Beacon Bay 37,500 37,500 37,500 37,500 37,500 37,500 63,000 63,000 63,000 63,000 29 Beacon Bay 37,500 37,500 37,500 37,500 37,500 37,500 63,000 63,000 63,000 63,000 34 Beacon Bay 37,500 37,500 37,500 37,500 37,500 37,500 63,000 63,000 63,000 63,000 28 Beacon Bay 37,500 37,500 37,500 37,500 37,500 37,500 37,500 66,000 66,000 66,000 30 Beacon Bay 39,300 39,300 39,300 39,300 39,300 39,300 39,300 66,000 66,000 66,000 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas P e9of52 S924 23 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH II. Interior Lots Projected Home Value Projected Appreciation Rent as a Percentage of Home Value 68 Beacon Bay 65 Beacon Bay 26 Beacon Bay 32 Beacon Bay 33 Beacon Bay 47 Beacon Bay 42 Beacon Bay 51 Beacon Bay M Beacon Bay 46 Beacon Bay 64 Beacon Bay 31 Beacon Bay 39 Beacon Bay 50 Beacon Bay 59 Beacon Bay 55 Beacon Bay 43 Beacon Bay 40 Beacon Bay 36 Beacon Bay 57 Beacon Bay 35 Beacon Bay 29 Beacon Bay 34 Beacon Bay 28 Beacon Bay 30 Beacon Bay Transferred to Peter Crow in 2018 upon death of Sally Crow - now an annual increase property The escalation occurred one year later than it should have under the formula This is a Pre -Existing lease with no CPI adjustments. Incorrectly treated as a lease with CPI adjustments. The escalation occurred one year later than it should have under the formula The escalation occurred one year later than it should have under the formula Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 10 of 52 SS2-124 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS 1 BEACON BAY - NEWPORT BEACH 1994 Lease without annual CPI adjustments expiring in 2044 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 11 of 52 SS2-125 1994 Leases with annual CPI adjustments expiring 2044 -2012 Leases with annual CPI adjustments on 50 year rollovers 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 22,3MW 22,596 W 222,596 22,59. 39,300 39,300 39,300 39,300 45 Beacon Bay 25,440 25,440 25,440 25,440 25,440 25,440 25,440 39,300 39,300 39,300 39,300 69 Beacon Bay 25,656 25,656 25,656 25,656 25,656 25,656 25,656 39,300 39,300 39,300 39,300 67 Beacon Bay 28,320 28,320 28,320 28,320 28,320 28,320 28,320 28,320 41,200 41,200 41,200 25 Beacon Bay 28,560 28,560 28,560 28,560 28,560 28,560 28,560 28,560 41,200 41,200 41,200 27 Beacon Bay 32,268 32,268 32,268 32,268 32,268 32,268 32,268 32,268 41,200 41,200 41,200 44 Beacon Bay 33,480 33,480 33,480 33,480 33,480 33,480 33,480 33,480 41,200 41,200 41,200 23 Beacon Bay 33,696 33,696 33,696 33,696 33,696 33,696 33,696 33,696 33,696 43,300 43,300 56 Beacon Bay 40,356 40,356 40,356 40,356 40,356 40,356 40,356 40,356 40,356 43,300 43,300 54 Beacon Bay 46,116 46,116 46,116 46,116 46,116 46,116 46,116 46,116 46,116 43,300 43,300 Bacon Esay mor, Z1b 24,216 24,216 24,216 24,216 24,216 9,192 9,19243,296 43,296 48 Beacon Bay 30,780 30,000 30,000 30,000 30,000 27,000 12,001 12,001 12,001 12,001 45,396 38 Beacon Bay 32,136 30,000 30,000 30,000 30,000 27,000 12,000 12,000 12,000 12,000 45,396 60 Beacon Bay 36,156 34,992 34,992 34,992 34,992 28,992 13,992 13,992 13,992 13,99 45,396 49 Beacon Bay 38,124 34,992 34,992 34,992 34,992 28,992 13,992 13,992 13,992 13,99 45,396 37 Beacon Bay 44,700 42,492 42,492 42,492 39,492 31,992 16,990 16,990 16,990 16,990 16,990 53 Beacon Bay 49,992 47,496 47,496 47,496 41,496 33,996 18,997 18,997 18,997 18,997 18,997 24 Beacon Bay 50,892 47,496 47,496 47,496 41,496 33,996 18,998 18,998 18,998 18,998 18,998 66 Beacon Bay 53,328 49,992 49,992 49,992 42,492 34,992 19,993 19,993 19,993 19,993 19,993 52 Beacon Bay 63,672 60,000 60,000 4,000 46,500 39,000_ 24,000 � 24,000 4,000 24,000 124,000M Interior Lots Total $1,009,788 $1,078,560 $1,171,592 $1,257,404 $1,314,708 $1,356,852 $1,294,203 $1,359,351 $1,401,523 $1,445,359 $1,574,958 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 11 of 52 SS2-125 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH 52 Beacon Bay 49,992 49,992 49,992 49,992 49,992 49,992 49,992 49,992 80,400 Interior Lots Total $1,687,948 $1,796,340 $1,881,140 $1,971,540 $2,040,540 $2,139,440 $2,243,240 $2,351,840 $2,468,940 $2,871,160 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 12 of 52 SS2-126 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 39,300 39,300 39,300 39,300 39,300 39,300 39,300 66,000 66,000 66,000 45 Beacon Bay 39,300 39,300 39,300 39,300 39,300 39,300 39,300 66,000 66,000 66,000 69 Beacon Bay 39,300 39,300 39,300 39,300 39,300 39,300 39,300 39,300 70,000 70,000 67 Beacon Bay 41,200 41,200 41,200 41,200 41,200 41,200 41,200 41,200 70,000 70,000 25 Beacon Bay 41,200 41,200 41,200 41,200 41,200 41,200 41,200 41,200 70,000 70,000 27 Beacon Bay 41,200 41,200 41,200 41,200 41,200 41,200 41,200 41,200 70,000 70,000 44 Beacon Bay 41,200 41,200 41,200 41,200 41,200 41,200 41,200 41,200 41,200 74,000 23 Beacon Bay 43,300 43,300 43,300 43,300 43,300 43,300 43,300 43,300 43,300 74,000 56 Beacon Bay 43,300 43,300 43,300 43,300 43,300 43,300 43,300 43,300 43,300 74,000 54 Beacon Bay 43,300 43,300 43,300 43,300 43,300 43,300 43,300 43,300 43,300 74,000 Bacon Esay 43,296 43,296 43,296 43,296 43,296 43,296 43,296 43,296 43,296 68,400 48 Beacon Bay 45,396 45,396 45,396 45,396 45,396 45,396 45,396 45,396 45,396 71,820 38 Beacon Bay 45,396 45,396 45,396 45,396 45,396 45,396 45,396 45,396 45,396 71,820 60 Beacon Bay 45,396 45,396 45,396 45,396 45,396 45,396 45,396 45,396 45,396 71,820 49 Beacon Bay 45,396 45,396 45,396 45,396 45,396 45,396 45,396 45,396 45,396 71,820 37 Beacon Bay 46,992 46,992 46,992 46,992 46,992 46,992 46,992 46,992 46,992 76,020 53 Beacon Bay 46,992 46,992 46,992 46,992 46,992 46,992 46,992 46,992 46,992 76,020 24 Beacon Bay 46,992 46,992 46,992 46,992 46,992 46,992 46,992 46,992 46,992 76,020 66 Beacon Bay 46,992 46,992 46,992 46,992 46,992 46,992 46,992 46,992 46,992 76,020 52 Beacon Bay 49,992 49,992 49,992 49,992 49,992 49,992 49,992 49,992 80,400 Interior Lots Total $1,687,948 $1,796,340 $1,881,140 $1,971,540 $2,040,540 $2,139,440 $2,243,240 $2,351,840 $2,468,940 $2,871,160 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 12 of 52 SS2-126 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH 58 Beacon Bay Transferred to Greg Denk in 2018 45 Beacon Bay 69 Beacon Bay The escalation occurred one year later than it should have under the formula 67 Beacon Bay 25 Beacon Bay 27 Beacon Bay 44 Beacon Bay The escalation occurred one year later than it should have under the formula 23 Beacon Bay 56 Beacon Bay 54 Beacon Bay 1 Beacon Bay 38% 2017 lease payment for five years. 37.96% reduction held flat for two years. Then sale based on the formula assumptions. 2018 rent is $780 less than 2017 rent, then held flat for four years, then a $3,000 decrease. Then a 38.99% decrease from 48 Beacon Bay 39% 2017 held flat for four years. Then sale based on the formula assumptions. 2018 rent is $2,136 less than 2017 rent, then held flat for four years, then a $3,000 decrease. Then a 37.34% decrease from 38 Beacon Bay 37% 2017 held flat for four years. Then sale based on the formula assumptions. 2018 rent is $1,164 less than 2017 rent, then held flat for four years, then a $6,000 decrease. Then a 38.70% decrease from 60 Beacon Bay 39% 2017 held flat for four years. Then sale based on the formula assumptions. 2018 rent is $3,132 less than 2017 rent, then held flat for four years, then a $6,000 decrease. Then a 36.70% decrease from 49 Beacon Bay 37% 2017 held flat for four years. Then sale based on the formula assumptions. 2018 rent is $2,208 less than 2017 rent, then held flat for three years, then a $3,000 decrease, then a $7,500 decrease. Then 37 Beacon Bay 38% a 38.01% decrease from 2017 held flat for five years. Then sale based on the formula assumptions. 2018 rent is $2,496 less than 2017 rent, then held flat for three years, then a $6,000 decrease, then a $7,500 decrease. Then 53 Beacon Bay 38% a 38.00% decrease from 2017 held flat for five years. Then sale based on the formula assumptions. 2018 rent is $3,396 less than 2017 rent, then held flat for three years, then a $6,000 decrease, then a $7,500 decrease. Then 24 Beacon Bay 37% a 37.33% decrease from 2017 held flat for five years. Then sale based on the formula assumptions. 2018 rent is $3,336 less than 2017 rent, then held flat for three years, then a $7,500 decrease, then another $7,500 66 Beacon Bay 37% decrease. Then a 37.49% decrease from 2017 held flat for five years. Then sale based on the formula assumptions. 2018 rent is $3,672 less than 2017 rent, then held flat for two years, then a $6,000 increase, then a $7,500 decrease, then another $7,500 decrease. Then a 37.69% decrease from 2017 held flat for five years. Then sale based on the formula 38% assumptions. Interior Lots Total Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 13 of 52 SS2-127 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS 1 BEACON BAY - NEWPORT BEACH 1994 Lease without annual CPI adjustments expiring in 2044 1994 Leases with annual CPI adjustments expiring 2044 -2012 Leases with annual CPI adjustments on 50 year rollovers 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Grand Total - Annual Rent $2,726,004 $2,680,516 $2,739,556 $2,797,616 $2,821,584 $2,822,296 $2,702,611 $2,811,715 $2,900,627 $2,944,463 $3,114,722 2017 Annual Revenue: $2,726,004 2027 Projected Annual Revenue: $3,114,722 2032 Projected Annual Revenue: $3,824,768 2037 Projected Annual Revenue: $4,979,616 1 There are slight variations from the HOA representative's estimates due to rounding issues. There are numerous irregularities in the HOA representative's estimates. These irregularities are described in the columns following the rent projections. Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 14 of 52 SS2-128 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Grand Total - Annual Rent $3,285,776 $3,455,120 $3,603,060 $3,734,972 $3,824,768 $3,942,040 $4,030,680 $4,248,284 $4,468,388 $4,979,616 Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 15 of 52 SS2-129 TABLE 1 PROPOSER'S ANNUAL RENT PROJECTIONS MODIFIED TO INCLUDE FORMULAS BEACON BAY - NEWPORT BEACH Grand Total - Annual Rent Prepared by: Keyser Marston Associates, Inc. Based on HOA Representative's Projections File name: BB Projections 115 19, HOA Annual with formulas Page 16 of 52 SS2-130 TABLE 2 KMA LEASE PROJECTIONS -BEFORE RESALES PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 17 of 52 SS2-131 2019 2020 2021 2022 2023 2024 2025 2026 2027 I. Pre -Existing Leases 1 A. Bayfront Lots 63 Beacon Bay $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 13 Beacon Bay $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 19 Beacon Bay $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 6 Beacon Bay $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 9 Beacon Bay $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 15 Beacon Bay $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 4 Beacon Bay $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 5 Beacon Bay $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 10 Beacon Bay $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 7 Beacon Bay $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 B. Interior Lots 51 Beacon Bay $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 40 Beacon Bay $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 42 Beacon Bay $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 46 Beacon Bay $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 43 Beacon Bay $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 65 Beacon Bay $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 64 Beacon Bay $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 32 Beacon Bay $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 47 Beacon Bay $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 26 Beacon Bay $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 55 Beacon Bay $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 33 Beacon Bay $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 31 Beacon Bay $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 39 Beacon Bay $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 59 Beacon Bay $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 50 Beacon Bay $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 68 Beacon Bay $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 17 of 52 SS2-131 TABLE 2 KMA LEASE PROJECTIONS -BEFORE RESALES PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 18 of 52 SS2-132 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 I. Pre -Existing Leases A. Bayfront Lots 63 Beacon Bay $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 13 Beacon Bay $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 19 Beacon Bay $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 6 Beacon Bay $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 9 Beacon Bay $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 15 Beacon Bay $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 4 Beacon Bay $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 5 Beacon Bay $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 10 Beacon Bay $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 7 Beacon Bay $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 B. Interior Lots 51 Beacon Bay $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 40 Beacon Bay $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 42 Beacon Bay $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 46 Beacon Bay $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 43 Beacon Bay $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 65 Beacon Bay $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 64 Beacon Bay $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 32 Beacon Bay $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 47 Beacon Bay $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 26 Beacon Bay $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 55 Beacon Bay $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 33 Beacon Bay $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 31 Beacon Bay $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 39 Beacon Bay $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 59 Beacon Bay $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 50 Beacon Bay $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 68 Beacon Bay $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 18 of 52 SS2-132 TABLE 2 KMA LEASE PROJECTIONS -BEFORE RESALES PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 19 of 52 SS2-133 2038 2039 2040 2041 2042 2043 2044 2045 I. Pre -Existing Leases A. Bayfront Lots 63 Beacon Bay $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 13 Beacon Bay $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 $29,450 19 Beacon Bay $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 $19,500 6 Beacon Bay $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 9 Beacon Bay $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 15 Beacon Bay $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 4 Beacon Bay $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 5 Beacon Bay $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 10 Beacon Bay $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 7 Beacon Bay $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 B. Interior Lots 51 Beacon Bay $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 40 Beacon Bay $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 $13,572 42 Beacon Bay $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 $7,672 46 Beacon Bay $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 $8,492 43 Beacon Bay $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 $13,232 65 Beacon Bay $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 $6,322 64 Beacon Bay $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 $10,325 32 Beacon Bay $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 $7,217 47 Beacon Bay $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 $7,365 26 Beacon Bay $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 $6,942 55 Beacon Bay $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 $12,865 33 Beacon Bay $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 $7,307 31 Beacon Bay $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 39 Beacon Bay $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 59 Beacon Bay $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 50 Beacon Bay $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 68 Beacon Bay $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 19 of 52 SS2-133 TABLE 2 KMA LEASE PROJECTIONS -BEFORE RESALES PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH II. 1994 Leases A. Bayfront Lots 101 Harbor Island Road (A) 17 Beacon Bay 8 Beacon Bay 11 Beacon Bay 115 Harbor Island Road (C) 12 Beacon Bay B. Interior Lots 36 Beacon Bay 30 Beacon Bay 28 Beacon Bay 34 Beacon Bay 57 Beacon Bay 35 Beacon Bay 29 Beacon Bay 45 Beacon Bay 44 Beacon Bay 56 Beacon Bay 25 Beacon Bay 67 Beacon Bay 27 Beacon Bay 69 Beacon Bay 54 Beacon Bay 23 Beacon Bay Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 20 of 52 SS2-134 2019 2020 2021 2022 2023 2024 2025 2026 2027 z 2018 Est Home Value $4,595,000 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $950,000 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $1,750,000 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $3,277,000 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $625,000 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $3,488,000 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $548,000 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $450,000 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $450,000 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $450,000 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $546,000 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $400,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $440,000 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $775,500 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $980,000 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $1,185,600 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $839,325 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $825,000 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $1,116,250 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $842,160 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $1,700,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $1,348,000 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 20 of 52 SS2-134 TABLE 2 KMA LEASE PROJECTIONS -BEFORE RESALES PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH II. 1994 Leases A. Bayfront Lots 101 Harbor Island Road (A) 17 Beacon Bay 8 Beacon Bay 11 Beacon Bay 115 Harbor Island Road (C) 12 Beacon Bay B. Interior Lots 36 Beacon Bay 30 Beacon Bay 28 Beacon Bay 34 Beacon Bay 57 Beacon Bay 35 Beacon Bay 29 Beacon Bay 45 Beacon Bay 44 Beacon Bay 56 Beacon Bay 25 Beacon Bay 67 Beacon Bay 27 Beacon Bay 69 Beacon Bay 54 Beacon Bay 23 Beacon Bay 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 21 of 52 SS2-135 TABLE 2 KMA LEASE PROJECTIONS -BEFORE RESALES PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH II. 1994 Leases A. Bayfront Lots 101 Harbor Island Road (A) 17 Beacon Bay 8 Beacon Bay 11 Beacon Bay 115 Harbor Island Road (C) 12 Beacon Bay B. Interior Lots 36 Beacon Bay 30 Beacon Bay 28 Beacon Bay 34 Beacon Bay 57 Beacon Bay 35 Beacon Bay 29 Beacon Bay 45 Beacon Bay 44 Beacon Bay 56 Beacon Bay 25 Beacon Bay 67 Beacon Bay 27 Beacon Bay 69 Beacon Bay 54 Beacon Bay 23 Beacon Bay 2038 2039 2040 2041 2042 2043 2044 2045 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 22 of 52 SS2-136 TABLE 2 KMA LEASE PROJECTIONS -BEFORE RESALES PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 23 of 52 SS2-137 2019 2020 2021 2022 2023 2024 2025 2026 2027 3 Original Acq III. 2012 Leases Price A. Bayfront Lots 14 Beacon Bay $3,310,000 $78,100 $70,600 $63,100 $55,600 $48,100 $33,100 $33,100 $33,100 $33,100 1 Beacon Bay $1,550,000 $38,750 $38,750 $38,750 $38,000 $30,500 $15,500 $15,500 $15,500 $15,500 2 Beacon Bay $2,770,000 $69,250 $65,200 $57,700 $50,200 $42,700 $27,700 $27,700 $27,700 $27,700 107 Harbor Island Road (B) $4,500,000 $90,000 $82,500 $75,000 $67,500 $60,000 $45,000 $45,000 $45,000 $45,000 18 Beacon Bay $3,095,000 $75,950 $68,450 $60,950 $53,450 $45,950 $30,950 $30,950 $30,950 $30,950 21 Beacon Bay $4,000,000 $85,000 $77,500 $70,000 $62,500 $55,000 $40,000 $40,000 $40,000 $40,000 62 Beacon Bay $3,600,000 $81,000 $73,500 $66,000 $58,500 $51,000 $36,000 $36,000 $36,000 $36,000 20 Beacon Bay $4,400,000 $89,000 $81,500 $74,000 $66,500 $59,000 $44,000 $44,000 $44,000 $44,000 16 Beacon Bay $3,900,000 $84,000 $76,500 $69,000 $61,500 $54,000 $39,000 $39,000 $39,000 $39,000 22 Beacon Bay $5,250,000 $97,500 $90,000 $82,500 $75,000 $67,500 $52,500 $52,500 $52,500 $52,500 3 Beacon Bay $3,800,000 $83,000 $75,500 $68,000 $60,500 $53,000 $38,000 $38,000 $38,000 $38,000 B. Interior Lots 61 Beacon Bay $588,000 $14,700 $14,700 $14,700 $14,700 $14,700 $5,880 $5,880 $5,880 $5,880 41 Beacon Bay $900,000 $22,500 $22,500 $22,500 $22,500 $22,500 $9,000 $9,000 $9,000 $9,000 37 Beacon Bay $1,710,000 $42,750 $42,750 $42,750 $39,600 $32,100 $17,100 $17,100 $17,100 $17,100 66 Beacon Bay $2,000,000 $50,000 $50,000 $50,000 $42,500 $35,000 $20,000 $20,000 $20,000 $20,000 60 Beacon Bay $1,350,000 $33,750 $33,750 $33,750 $33,750 $28,500 $13,500 $13,500 $13,500 $13,500 24 Beacon Bay $1,900,000 $47,500 $47,500 $47,500 $41,500 $34,000 $19,000 $19,000 $19,000 $19,000 38 Beacon Bay $1,200,000 $30,000 $30,000 $30,000 $30,000 $27,000 $12,000 $12,000 $12,000 $12,000 48 Beacon Bay $1,175,000 $29,375 $29,375 $29,375 $29,375 $26,750 $11,750 $11,750 $11,750 $11,750 49 Beacon Bay $1,450,000 $36,250 $36,250 $36,250 $36,250 $29,500 $14,500 $14,500 $14,500 $14,500 52 Beacon Bay $2,480,000 $62,000 $62,000 $54,800 $47,300 $39,800 $24,800 $24,800 $24,800 $24,800 53 Beacon Bay $2,000,000 $50,000 $50,000 $50,000 $42,500 $35,000 $20,000 $20,000 $20,000 $20,000 58 Beacon Bay $2,950,000 $73,750 $67,000 $59,500 $52,000 $44,500 $29,500 $29,500 $29,500 $29,500 1 The projections are based on the 2018 lease payments. No CPI escalations are applied. z Assumes that all the lessees opt to convert to a lease payment equal to 1.0% of the 2018 home value. No CPI escalations are applied. 3 Based on a five year phase in period to reach 1.0% of the original acquisition cost of the home. No CPI Escalations are applied. The thresholds are: Year 1: 2.5% of the first $3.0 million acquisition price and 1.0% of the remainder. Year 2: 2.5% of the first $2.5 million acquisition price and 1.0% of the remainder. Year 3: 2.5% of the first $2.0 million acquisition price and 1.0% of the remainder. Year 4: 2.5% of the first $1.5 million acquisition price and 1.0% of the remainder. Year 5: 2.5% of the first $1.0 million acquisition price and 1.0% of the remainder. Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 23 of 52 SS2-137 TABLE 2 KMA LEASE PROJECTIONS -BEFORE RESALES PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 24 of 52 SS2-138 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 III. 2012 Leases A. Bayfront Lots 14 Beacon Bay $33,100 $33,100 $33,100 $33,100 $33,100 $33,100 $33,100 $33,100 $33,100 $33,100 1 Beacon Bay $15,500 $15,500 $15,500 $15,500 $15,500 $15,500 $15,500 $15,500 $15,500 $15,500 2 Beacon Bay $27,700 $27,700 $27,700 $27,700 $27,700 $27,700 $27,700 $27,700 $27,700 $27,700 107 Harbor Island Road (B) $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 18 Beacon Bay $30,950 $30,950 $30,950 $30,950 $30,950 $30,950 $30,950 $30,950 $30,950 $30,950 21 Beacon Bay $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 62 Beacon Bay $36,000 $36,000 $36,000 $36,000 $36,000 $36,000 $36,000 $36,000 $36,000 $36,000 20 Beacon Bay $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 16 Beacon Bay $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 22 Beacon Bay $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 3 Beacon Bay $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 B. Interior Lots 61 Beacon Bay $5,880 $5,880 $5,880 $5,880 $5,880 $5,880 $5,880 $5,880 $5,880 $5,880 41 Beacon Bay $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 37 Beacon Bay $17,100 $17,100 $17,100 $17,100 $17,100 $17,100 $17,100 $17,100 $17,100 $17,100 66 Beacon Bay $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 60 Beacon Bay $13,500 $13,500 $13,500 $13,500 $13,500 $13,500 $13,500 $13,500 $13,500 $13,500 24 Beacon Bay $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 38 Beacon Bay $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 48 Beacon Bay $11,750 $11,750 $11,750 $11,750 $11,750 $11,750 $11,750 $11,750 $11,750 $11,750 49 Beacon Bay $14,500 $14,500 $14,500 $14,500 $14,500 $14,500 $14,500 $14,500 $14,500 $14,500 52 Beacon Bay $24,800 $24,800 $24,800 $24,800 $24,800 $24,800 $24,800 $24,800 $24,800 $24,800 53 Beacon Bay $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 58 Beacon Bay $29,500 $29,500 $29,500 $29,500 $29,500 $29,500 $29,500 $29,500 $29,500 $29,500 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 24 of 52 SS2-138 TABLE 2 KMA LEASE PROJECTIONS -BEFORE RESALES PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 25 of 52 SS2-139 2038 2039 2040 2041 2042 2043 2044 2045 III. 2012 Leases A. Bayfront Lots 14 Beacon Bay $33,100 $33,100 $33,100 $33,100 $33,100 $33,100 $33,100 $33,100 1 Beacon Bay $15,500 $15,500 $15,500 $15,500 $15,500 $15,500 $15,500 $15,500 2 Beacon Bay $27,700 $27,700 $27,700 $27,700 $27,700 $27,700 $27,700 $27,700 107 Harbor Island Road (B) $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 18 Beacon Bay $30,950 $30,950 $30,950 $30,950 $30,950 $30,950 $30,950 $30,950 21 Beacon Bay $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 62 Beacon Bay $36,000 $36,000 $36,000 $36,000 $36,000 $36,000 $36,000 $36,000 20 Beacon Bay $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 16 Beacon Bay $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 22 Beacon Bay $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 3 Beacon Bay $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 B. Interior Lots 61 Beacon Bay $5,880 $5,880 $5,880 $5,880 $5,880 $5,880 $5,880 $5,880 41 Beacon Bay $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 37 Beacon Bay $17,100 $17,100 $17,100 $17,100 $17,100 $17,100 $17,100 $17,100 66 Beacon Bay $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 60 Beacon Bay $13,500 $13,500 $13,500 $13,500 $13,500 $13,500 $13,500 $13,500 24 Beacon Bay $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 38 Beacon Bay $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 48 Beacon Bay $11,750 $11,750 $11,750 $11,750 $11,750 $11,750 $11,750 $11,750 49 Beacon Bay $14,500 $14,500 $14,500 $14,500 $14,500 $14,500 $14,500 $14,500 52 Beacon Bay $24,800 $24,800 $24,800 $24,800 $24,800 $24,800 $24,800 $24,800 53 Beacon Bay $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 58 Beacon Bay $29,500 $29,500 $29,500 $29,500 $29,500 $29,500 $29,500 $29,500 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Proposed Lse Structure Page 25 of 52 SS2-139 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH I. Pre -Existing Leases A. Bayfront Lots 63 Beacon Bay 13 Beacon Bay 19 Beacon Bay 6 Beacon Bay 9 Beacon Bay 15 Beacon Bay 4 Beacon Bay 5 Beacon Bay 10 Beacon Bay 7 Beacon Bay B. Interior Lots 51 Beacon Bay 40 Beacon Bay 42 Beacon Bay 46 Beacon Bay 43 Beacon Bay 65 Beacon Bay 64 Beacon Bay 32 Beacon Bay 47 Beacon Bay 26 Beacon Bay 55 Beacon Bay 33 Beacon Bay 31 Beacon Bay 39 Beacon Bay 59 Beacon Bay 50 Beacon Bay 68 Beacon Bay Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs I Estimated 2018 Value 2019 2020 2021 2022 2023 2024 2025 2026 2027 $4,054,394 $4,257,113 $4,213,894 $4,878,109 $4,209,239 $5,372,174 $4,321,942 $6,081,407 $6,044,644 $9,377,226 $4,283,739 $4,463,216 $3,811,953 $4,116,136 $1,722,980 $1,760,905 $1,848,950 $1,923,264 $2,019,428 $1,855,723 $2,045,934 $1,913,291 $2,109,403 $1,852,261 $2,144,224 $1,605,132 $1,858,141 $1,838,672 $2,234,917 $1,760,905 $2,140,391 $1,825,245 $2,329,527 $1,730,427 $2,208,513 $1,749,358 $2,344,307 $1,787,995 $2,396,085 $1,512,680 $2,128,492 $1,826,164 $2,569,596 $1,512,050 $2,233,986 $1,771,064 $2,616,668 $1,561,110 $2,421,793 Page 26 of 52 SS2-140 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs Page 27 of 52 SS2-141 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 I. Pre -Existing Leases A. Bayfront Lots 63 Beacon Bay 13 Beacon Bay 19 Beacon Bay 6 Beacon Bay 9 Beacon Bay 15 Beacon Bay $7,326,647 4 Beacon Bay $8,416,059 5 Beacon Bay $7,924,777 10 Beacon Bay $9,434,258 7 Beacon Bay $4,353,885 B. Interior Lots 51 Beacon Bay $3,843,834 40 Beacon Bay $4,408,157 42 Beacon Bay $4,253,350 46 Beacon Bay $4,604,562 43 Beacon Bay $4,457,687 65 Beacon Bay $4,056,089 64 Beacon Bay $4,646,232 32 Beacon Bay 47 Beacon Bay 26 Beacon Bay 55 Beacon Bay 33 Beacon Bay 31 Beacon Bay 39 Beacon Bay 59 Beacon Bay 50 Beacon Bay 68 Beacon Bay Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs Page 27 of 52 SS2-141 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH 2038 2039 2040 2041 2042 2043 2044 2045 Pre -Existing Leases A. Bayfront Lots 63 Beacon Bay 13 Beacon Bay 19 Beacon Bay 6 Beacon Bay 9 Beacon Bay 15 Beacon Bay 4 Beacon Bay 5 Beacon Bay 10 Beacon Bay 7 Beacon Bay B. Interior Lots 51 Beacon Bay $5,963,048 40 Beacon Bay $6,512,856 42 Beacon Bay $6,598,342 46 Beacon Bay $6,803,035 43 Beacon Bay $6,915,336 65 Beacon Bay $5,992,691 64 Beacon Bay 32 Beacon Bay $4,672,204 47 Beacon Bay $4,842,919 26 Beacon Bay $4,820,906 55 Beacon Bay $4,873,645 33 Beacon Bay $5,230,353 31 Beacon Bay $4,424,983 39 Beacon Bay $5,609,106 59 Beacon Bay $4,644,297 50 Beacon Bay $5,711,857 68 Beacon Bay $5,034,735 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs Page 28 of 52 SS2-142 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH II. 1994 Leases A. Bayfront Lots 101 Harbor Island Road (A) 17 Beacon Bay 8 Beacon Bay 11 Beacon Bay 115 Harbor Island Road (C) 12 Beacon Bay B. Interior Lots 36 Beacon Bay 30 Beacon Bay 28 Beacon Bay 34 Beacon Bay 57 Beacon Bay 35 Beacon Bay 29 Beacon Bay 45 Beacon Bay 44 Beacon Bay 56 Beacon Bay 25 Beacon Bay 67 Beacon Bay 27 Beacon Bay 69 Beacon Bay 54 Beacon Bay 23 Beacon Bay Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs I Estimated 2018 Value 2019 $8,664,558 $2,520,633 $4,211,584 $6,179,272 $1,828,288 $4,674,254 $1,855,723 $1,316,367 $1,253,683 $1,253,683 $1,848,950 $1,010,780 $1,058,912 $1,692,819 $2,037,350 $2,464,777 $1,744,896 $1,715,116 $2,210,099 $842,160 $2,907,577 $1,896,771 2020 2021 2022 2023 2024 2025 2026 2027 $2,878,835 Page 29 of 52 SS2-143 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH 2028 2029 2030 2031 2032 2033 II. 1994 Leases A. Bayfront Lots 101 Harbor Island Road (A) 17 Beacon Bay 8 Beacon Bay 11 Beacon Bay 115 Harbor Island Road (C) 12 Beacon Bay B. Interior Lots 36 Beacon Bay 30 Beacon Bay $2,144,224 28 Beacon Bay $2,042,118 34 Beacon Bay $2,144,224 57 Beacon Bay $3,162,332 35 Beacon Bay $1,815,216 29 Beacon Bay $1,901,655 45 Beacon Bay $3,192,063 44 Beacon Bay $3,841,727 56 Beacon Bay $4,880,090 25 Beacon Bay $3,454,776 67 Beacon Bay $3,395,812 27 Beacon Bay $4,594,636 69 Beacon Bay $1,750,790 54 Beacon Bay $6,044,644 23 Beacon Bay Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs 2034 $4,140,414 2035 2036 2037 Page 30 of 52 SS2-144 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH II. 1994 Leases A. Bayfront Lots 101 Harbor Island Road (A) 17 Beacon Bay 8 Beacon Bay 11 Beacon Bay 115 Harbor Island Road (C) 12 Beacon Bay B. Interior Lots 36 Beacon Bay 30 Beacon Bay 28 Beacon Bay 34 Beacon Bay 57 Beacon Bay 35 Beacon Bay 29 Beacon Bay 45 Beacon Bay 44 Beacon Bay 56 Beacon Bay 25 Beacon Bay 67 Beacon Bay 27 Beacon Bay 69 Beacon Bay 54 Beacon Bay 23 Beacon Bay 2038 2039 2040 2041 2042 2043 2044 2045 $24,139,134 $7,742,184 $13,582,778 $20,925,209 $6,500,794 $17,451,122 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs Page 31 of 52 SS2-145 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH III. 2012 Leases A. Bayfront Lots 14 Beacon Bay 1 Beacon Bay 2 Beacon Bay 107 Harbor Island Road (B) 18 Beacon Bay 21 Beacon Bay 62 Beacon Bay 20 Beacon Bay 16 Beacon Bay 22 Beacon Bay 3 Beacon Bay B. Interior Lots 61 Beacon Bay 41 Beacon Bay 37 Beacon Bay 66 Beacon Bay 60 Beacon Bay 24 Beacon Bay 38 Beacon Bay 48 Beacon Bay 49 Beacon Bay 52 Beacon Bay 53 Beacon Bay 58 Beacon Bay I Estimated 2018 Value 2019 2020 2021 2022 2023 2024 2025 2026 2027 $4,435,717 $4,890,378 $2,181,006 $2,651,026 $3,535,300 $4,737,640 $5,743,267 $8,485,421 $3,761,992 $4,862,025 $4,167,450 $4,851,000 $4,299,750 $5,512,500 $3,800,000 $1,991,177 $2,090,736 $1,206,086 $1,329,710 $2,182,441 $2,526,449 $2,552,563 $3,102,656 $1,722,980 $2,199,008 $2,424,935 $3,249,645 $1,531,538 $2,155,028 $1,428,220 $2,110,131 $1,678,556 $2,603,992 $2,734,200 $2,100,000 $2,950,000 1 Home values are projected to increase at an average annual rate of 5%. Four homes per year are projected to be sold based on historical activity. Sales are allocated in lease date order as follows: One Bayfront Lot is sold per year alternating between Pre -Existing Leases and 2012 Leases. Once all the Pre -Existing Bayfront Lease Lots have been sold once, Bayfront Lots with 1994 Leases are sold. Once all the 2012 Bayfront Lease Lots have been sold once, the remaining Bayfront Lots with 1994 Leases are sold. Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs Page 32 of 52 SS2-146 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 III. 2012 Leases A. Bayfront Lots 14 Beacon Bay 1 Beacon Bay 2 Beacon Bay 107 Harbor Island Road (B) 18 Beacon Bay $6,127,888 21 Beacon Bay $8,731,498 62 Beacon Bay $8,251,266 20 Beacon Bay $10,589,125 16 Beacon Bay $10,347,861 22 Beacon Bay 3 Beacon Bay B. Interior Lots 61 Beacon Bay $4,346,489 41 Beacon Bay $2,764,371 37 Beacon Bay $5,252,306 66 Beacon Bay $6,450,200 60 Beacon Bay 24 Beacon Bay 38 Beacon Bay 48 Beacon Bay 49 Beacon Bay 52 Beacon Bay $4,453,724 53 Beacon Bay $3,591,713 58 Beacon Bay $5,297,776 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs Page 33 of 52 SS2-147 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH III. 2012 Leases A. Bayfront Lots 14 Beacon Bay 1 Beacon Bay 2 Beacon Bay 107 Harbor Island Road (B) 18 Beacon Bay 21 Beacon Bay 62 Beacon Bay 20 Beacon Bay 16 Beacon Bay 22 Beacon Bay 3 Beacon Bay B. Interior Lots 61 Beacon Bay 41 Beacon Bay 37 Beacon Bay 66 Beacon Bay 60 Beacon Bay 24 Beacon Bay 38 Beacon Bay 48 Beacon Bay 49 Beacon Bay 52 Beacon Bay 53 Beacon Bay 58 Beacon Bay 2038 $14,626,304 $4,571,579 2039 $6,755,778 2040 $11,115,991 $4,480,148 2041 $4,386,811 2042 $5,413,512 2043 $9,258,972 2044 $7,466,913 2045 $11,013,696 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs Page 34 of 52 SS2-148 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs Estimated 2018 Value 2019 2020 2021 2022 2023 2024 2025 2026 2027 Three Interior Lots are sold each year, allocated to two Pre -Existing Lease Lots and one 2012 Lease Lot. Once all the Pre -Existing Interior Lease Lots are sold once, two 1994 Interior Lease Lots are sold. Once all the 2012 Interior Lease Lots have been sold once, the remaining 1994 Interior Lease Lots are sold. Once all the Interior Lots have been sold, the sales pattern repeats. Page 35 of 52 SS2-149 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Page 36 of 52 SS2-150 TABLE 3 HOME SALES PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH 2038 2039 2040 2041 2042 2043 2044 2045 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Home Sale Projs Page 37 of 52 SS2-151 TABLE 4 KMA GROUND LEASE PROJECTIONS 1 PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 38 of 52 SS2-152 2019 2020 2021 2022 2023 2024 2025 2026 2027 I. Pre -Existing Leases A. Bayfront Lots 63 Beacon Bay $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 13 Beacon Bay $29,450 $29,450 $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 19 Beacon Bay $19,500 $19,500 $19,500 $19,500 $53,722 $53,722 $53,722 $53,722 $53,722 6 Beacon Bay $34,260 $34,260 $34,260 $34,260 $34,260 $34,260 $60,814 $60,814 $60,814 9 Beacon Bay $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $44,350 $93,772 15 Beacon Bay $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 $20,240 4 Beacon Bay $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 $21,260 5 Beacon Bay $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 $28,840 10 Beacon Bay $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 7 Beacon Bay $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 B. Interior Lots 51 Beacon Bay $18,489 $18,489 $18,489 $18,489 $18,489 $18,489 $18,489 $18,489 $18,489 40 Beacon Bay $20,194 $20,194 $20,194 $20,194 $20,194 $20,194 $20,194 $20,194 $20,194 42 Beacon Bay $7,672 $20,459 $20,459 $20,459 $20,459 $20,459 $20,459 $20,459 $20,459 46 Beacon Bay $8,492 $21,094 $21,094 $21,094 $21,094 $21,094 $21,094 $21,094 $21,094 43 Beacon Bay $13,232 $13,232 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 65 Beacon Bay $6,322 $6,322 $18,581 $18,581 $18,581 $18,581 $18,581 $18,581 $18,581 64 Beacon Bay $10,325 $10,325 $10,325 $22,349 $22,349 $22,349 $22,349 $22,349 $22,349 32 Beacon Bay $7,217 $7,217 $7,217 $21,404 $21,404 $21,404 $21,404 $21,404 $21,404 47 Beacon Bay $7,365 $7,365 $7,365 $7,365 $23,295 $23,295 $23,295 $23,295 $23,295 26 Beacon Bay $6,942 $6,942 $6,942 $6,942 $22,085 $22,085 $22,085 $22,085 $22,085 55 Beacon Bay $12,865 $12,865 $12,865 $12,865 $12,865 $23,443 $23,443 $23,443 $23,443 33 Beacon Bay $7,307 $7,307 $7,307 $7,307 $7,307 $23,961 $23,961 $23,961 $23,961 31 Beacon Bay $10,515 $10,515 $10,515 $10,515 $10,515 $10,515 $21,285 $21,285 $21,285 39 Beacon Bay $11,557 $11,557 $11,557 $11,557 $11,557 $11,557 $25,696 $25,696 $25,696 59 Beacon Bay $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $12,175 $22,340 $22,340 50 Beacon Bay $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $12,111 $26,167 $26,167 68 Beacon Bay $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $6,057 $24,218 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 38 of 52 SS2-152 TABLE 4 KMA GROUND LEASE PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 39 of 52 SS2-153 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 I. Pre -Existing Leases A. Bayfront Lots 63 Beacon Bay $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 13 Beacon Bay $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 19 Beacon Bay $53,722 $53,722 $53,722 $53,722 $53,722 $53,722 $53,722 $53,722 $53,722 $53,722 6 Beacon Bay $60,814 $60,814 $60,814 $60,814 $60,814 $60,814 $60,814 $60,814 $60,814 $60,814 9 Beacon Bay $93,772 $93,772 $93,772 $93,772 $93,772 $93,772 $93,772 $93,772 $93,772 $93,772 15 Beacon Bay $20,240 $73,266 $73,266 $73,266 $73,266 $73,266 $73,266 $73,266 $73,266 $73,266 4 Beacon Bay $21,260 $21,260 $21,260 $84,161 $84,161 $84,161 $84,161 $84,161 $84,161 $84,161 5 Beacon Bay $28,840 $28,840 $28,840 $28,840 $28,840 $79,248 $79,248 $79,248 $79,248 $79,248 10 Beacon Bay $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $33,540 $94,343 $94,343 $94,343 7 Beacon Bay $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $33,055 $43,539 B. Interior Lots 51 Beacon Bay $18,489 $18,489 $18,489 $18,489 $18,489 $18,489 $38,438 $38,438 $38,438 $38,438 40 Beacon Bay $20,194 $20,194 $20,194 $20,194 $20,194 $20,194 $20,194 $44,082 $44,082 $44,082 42 Beacon Bay $20,459 $20,459 $20,459 $20,459 $20,459 $20,459 $20,459 $42,533 $42,533 $42,533 46 Beacon Bay $21,094 $21,094 $21,094 $21,094 $21,094 $21,094 $21,094 $21,094 $46,046 $46,046 43 Beacon Bay $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $44,577 $44,577 65 Beacon Bay $18,581 $18,581 $18,581 $18,581 $18,581 $18,581 $18,581 $18,581 $18,581 $40,561 64 Beacon Bay $22,349 $22,349 $22,349 $22,349 $22,349 $22,349 $22,349 $22,349 $22,349 $46,462 32 Beacon Bay $21,404 $21,404 $21,404 $21,404 $21,404 $21,404 $21,404 $21,404 $21,404 $21,404 47 Beacon Bay $23,295 $23,295 $23,295 $23,295 $23,295 $23,295 $23,295 $23,295 $23,295 $23,295 26 Beacon Bay $22,085 $22,085 $22,085 $22,085 $22,085 $22,085 $22,085 $22,085 $22,085 $22,085 55 Beacon Bay $23,443 $23,443 $23,443 $23,443 $23,443 $23,443 $23,443 $23,443 $23,443 $23,443 33 Beacon Bay $23,961 $23,961 $23,961 $23,961 $23,961 $23,961 $23,961 $23,961 $23,961 $23,961 31 Beacon Bay $21,285 $21,285 $21,285 $21,285 $21,285 $21,285 $21,285 $21,285 $21,285 $21,285 39 Beacon Bay $25,696 $25,696 $25,696 $25,696 $25,696 $25,696 $25,696 $25,696 $25,696 $25,696 59 Beacon Bay $22,340 $22,340 $22,340 $22,340 $22,340 $22,340 $22,340 $22,340 $22,340 $22,340 50 Beacon Bay $26,167 $26,167 $26,167 $26,167 $26,167 $26,167 $26,167 $26,167 $26,167 $26,167 68 Beacon Bay $24,218 $24,218 $24,218 $24,218 $24,218 $24,218 $24,218 $24,218 $24,218 $24,218 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 39 of 52 SS2-153 TABLE 4 KMA GROUND LEASE PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 40 of 52 SS2-154 2038 2039 2040 2041 2042 2043 2044 2045 I. Pre -Existing Leases A. Bayfront Lots 63 Beacon Bay $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 $42,571 13 Beacon Bay $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 $48,781 19 Beacon Bay $53,722 $53,722 $53,722 $53,722 $53,722 $53,722 $53,722 $53,722 6 Beacon Bay $60,814 $60,814 $60,814 $60,814 $60,814 $60,814 $60,814 $60,814 9 Beacon Bay $93,772 $93,772 $93,772 $93,772 $93,772 $93,772 $93,772 $93,772 15 Beacon Bay $73,266 $73,266 $73,266 $73,266 $73,266 $73,266 $73,266 $73,266 4 Beacon Bay $84,161 $84,161 $84,161 $84,161 $84,161 $84,161 $84,161 $84,161 5 Beacon Bay $79,248 $79,248 $79,248 $79,248 $79,248 $79,248 $79,248 $79,248 10 Beacon Bay $94,343 $94,343 $94,343 $94,343 $94,343 $94,343 $94,343 $94,343 7 Beacon Bay $43,539 $43,539 $43,539 $43,539 $43,539 $43,539 $43,539 $43,539 B. Interior Lots 51 Beacon Bay $38,438 $38,438 $38,438 $38,438 $38,438 $59,630 $59,630 $59,630 40 Beacon Bay $44,082 $44,082 $44,082 $44,082 $44,082 $65,129 $65,129 $65,129 42 Beacon Bay $42,533 $42,533 $42,533 $42,533 $42,533 $42,533 $65,983 $65,983 46 Beacon Bay $46,046 $46,046 $46,046 $46,046 $46,046 $46,046 $68,030 $68,030 43 Beacon Bay $44,577 $44,577 $44,577 $44,577 $44,577 $44,577 $44,577 $69,153 65 Beacon Bay $40,561 $40,561 $40,561 $40,561 $40,561 $40,561 $40,561 $59,927 64 Beacon Bay $46,462 $46,462 $46,462 $46,462 $46,462 $46,462 $46,462 $46,462 32 Beacon Bay $46,722 $46,722 $46,722 $46,722 $46,722 $46,722 $46,722 $46,722 47 Beacon Bay $48,429 $48,429 $48,429 $48,429 $48,429 $48,429 $48,429 $48,429 26 Beacon Bay $22,085 $48,209 $48,209 $48,209 $48,209 $48,209 $48,209 $48,209 55 Beacon Bay $23,443 $48,736 $48,736 $48,736 $48,736 $48,736 $48,736 $48,736 33 Beacon Bay $23,961 $23,961 $52,304 $52,304 $52,304 $52,304 $52,304 $52,304 31 Beacon Bay $21,285 $21,285 $44,250 $44,250 $44,250 $44,250 $44,250 $44,250 39 Beacon Bay $25,696 $25,696 $25,696 $56,091 $56,091 $56,091 $56,091 $56,091 59 Beacon Bay $22,340 $22,340 $22,340 $46,443 $46,443 $46,443 $46,443 $46,443 50 Beacon Bay $26,167 $26,167 $26,167 $26,167 $57,119 $57,119 $57,119 $57,119 68 Beacon Bay $24,218 $24,218 $24,218 $24,218 $50,347 $50,347 $50,347 $50,347 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 40 of 52 SS2-154 TABLE 4 KMA GROUND LEASE PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH II. 1994 Leases A. Bayfront Lots 101 Harbor Island Road (A) 17 Beacon Bay 8 Beacon Bay 11 Beacon Bay 115 Harbor Island Road (C) 12 Beacon Bay B. Interior Lots 36 Beacon Bay 30 Beacon Bay 28 Beacon Bay 34 Beacon Bay 57 Beacon Bay 35 Beacon Bay 29 Beacon Bay 45 Beacon Bay 44 Beacon Bay 56 Beacon Bay 25 Beacon Bay 67 Beacon Bay 27 Beacon Bay 69 Beacon Bay 54 Beacon Bay 23 Beacon Bay Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs I 2019 2020 2021 2022 2023 2024 2025 2026 2027 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $5,480 $28,788 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $5,460 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $7,755 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $9,800 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $11,856 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,393 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $8,250 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $11,163 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $8,422 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 Page 41 of 52 SS2-155 TABLE 4 KMA GROUND LEASE PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 42 of 52 SS2-156 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 II. 1994 Leases A. Bayfront Lots 101 Harbor Island Road (A) $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 $45,950 17 Beacon Bay $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 8 Beacon Bay $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 $17,500 11 Beacon Bay $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 $32,770 115 Harbor Island Road (C) $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 12 Beacon Bay $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 B. Interior Lots 36 Beacon Bay $28,788 $28,788 $28,788 $28,788 $28,788 $28,788 $28,788 $28,788 $28,788 $28,788 30 Beacon Bay $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 28 Beacon Bay $20,421 $20,421 $20,421 $20,421 $20,421 $20,421 $20,421 $20,421 $20,421 $20,421 34 Beacon Bay $4,500 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 57 Beacon Bay $5,460 $31,623 $31,623 $31,623 $31,623 $31,623 $31,623 $31,623 $31,623 $31,623 35 Beacon Bay $4,000 $4,000 $18,152 $18,152 $18,152 $18,152 $18,152 $18,152 $18,152 $18,152 29 Beacon Bay $4,400 $4,400 $19,017 $19,017 $19,017 $19,017 $19,017 $19,017 $19,017 $19,017 45 Beacon Bay $7,755 $7,755 $7,755 $31,921 $31,921 $31,921 $31,921 $31,921 $31,921 $31,921 44 Beacon Bay $9,800 $9,800 $9,800 $38,417 $38,417 $38,417 $38,417 $38,417 $38,417 $38,417 56 Beacon Bay $11,856 $11,856 $11,856 $11,856 $48,801 $48,801 $48,801 $48,801 $48,801 $48,801 25 Beacon Bay $8,393 $8,393 $8,393 $8,393 $34,548 $34,548 $34,548 $34,548 $34,548 $34,548 67 Beacon Bay $8,250 $8,250 $8,250 $8,250 $33,958 $33,958 $33,958 $33,958 $33,958 $33,958 27 Beacon Bay $11,163 $11,163 $11,163 $11,163 $11,163 $45,946 $45,946 $45,946 $45,946 $45,946 69 Beacon Bay $8,422 $8,422 $8,422 $8,422 $8,422 $17,508 $17,508 $17,508 $17,508 $17,508 54 Beacon Bay $17,000 $17,000 $17,000 $17,000 $17,000 $60,446 $60,446 $60,446 $60,446 $60,446 23 Beacon Bay $13,480 $13,480 $13,480 $13,480 $13,480 $13,480 $41,404 $41,404 $41,404 $41,404 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 42 of 52 SS2-156 TABLE 4 KMA GROUND LEASE PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 43 of 52 SS2-157 2038 2039 2040 2041 2042 2043 2044 2045 II. 1994 Leases A. Bayfront Lots 101 Harbor Island Road (A) $45,950 $241,391 $241,391 $241,391 $241,391 $241,391 $241,391 $241,391 17 Beacon Bay $9,500 $9,500 $9,500 $77,422 $77,422 $77,422 $77,422 $77,422 8 Beacon Bay $17,500 $17,500 $17,500 $17,500 $135,828 $135,828 $135,828 $135,828 11 Beacon Bay $32,770 $32,770 $32,770 $32,770 $32,770 $209,252 $209,252 $209,252 115 Harbor Island Road (C) $6,250 $6,250 $6,250 $6,250 $6,250 $6,250 $65,008 $65,008 12 Beacon Bay $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $34,880 $174,511 B. Interior Lots 36 Beacon Bay $28,788 $28,788 $28,788 $28,788 $28,788 $28,788 $28,788 $28,788 30 Beacon Bay $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 28 Beacon Bay $20,421 $20,421 $20,421 $20,421 $20,421 $20,421 $20,421 $20,421 34 Beacon Bay $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 $21,442 57 Beacon Bay $31,623 $31,623 $31,623 $31,623 $31,623 $31,623 $31,623 $31,623 35 Beacon Bay $18,152 $18,152 $18,152 $18,152 $18,152 $18,152 $18,152 $18,152 29 Beacon Bay $19,017 $19,017 $19,017 $19,017 $19,017 $19,017 $19,017 $19,017 45 Beacon Bay $31,921 $31,921 $31,921 $31,921 $31,921 $31,921 $31,921 $31,921 44 Beacon Bay $38,417 $38,417 $38,417 $38,417 $38,417 $38,417 $38,417 $38,417 56 Beacon Bay $48,801 $48,801 $48,801 $48,801 $48,801 $48,801 $48,801 $48,801 25 Beacon Bay $34,548 $34,548 $34,548 $34,548 $34,548 $34,548 $34,548 $34,548 67 Beacon Bay $33,958 $33,958 $33,958 $33,958 $33,958 $33,958 $33,958 $33,958 27 Beacon Bay $45,946 $45,946 $45,946 $45,946 $45,946 $45,946 $45,946 $45,946 69 Beacon Bay $17,508 $17,508 $17,508 $17,508 $17,508 $17,508 $17,508 $17,508 54 Beacon Bay $60,446 $60,446 $60,446 $60,446 $60,446 $60,446 $60,446 $60,446 23 Beacon Bay $41,404 $41,404 $41,404 $41,404 $41,404 $41,404 $41,404 $41,404 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 43 of 52 SS2-157 TABLE 4 KMA GROUND LEASE PROJECTIONS 1 PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH IV. Grand Total - Annual Rent $2,132,045 $2,048,235 $1,988,351 $1,887,348 $1,831,009 $1,651,413 $1,712,427 $1,785,853 $1,888,284 i See TABLE 2 for the ground lease projections under the proposed restructuring assuming no resales occur. See TABLE 3 for home sales projections. The projections in this table apply the ground lease payments as scheduled in TABLE 2 until the home is resold. At that point the ground lease is fixed at 1.0% of the sales price until the home is resold again. No CPI escalations are applied. Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 44 of 52 SS2-158 2019 2020 2021 2022 2023 2024 2025 2026 2027 III. 2012 Leases A. Bayfront Lots 14 Beacon Bay $78,100 $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 1 Beacon Bay $38,750 $38,750 $38,750 $26,510 $26,510 $26,510 $26,510 $26,510 $26,510 2 Beacon Bay $69,250 $65,200 $57,700 $50,200 $42,700 $47,376 $47,376 $47,376 $47,376 107 Harbor Island Road (B) $90,000 $82,500 $75,000 $67,500 $60,000 $45,000 $45,000 $84,854 $84,854 18 Beacon Bay $75,950 $68,450 $60,950 $53,450 $45,950 $30,950 $30,950 $30,950 $30,950 21 Beacon Bay $85,000 $77,500 $70,000 $62,500 $55,000 $40,000 $40,000 $40,000 $40,000 62 Beacon Bay $81,000 $73,500 $66,000 $58,500 $51,000 $36,000 $36,000 $36,000 $36,000 20 Beacon Bay $89,000 $81,500 $74,000 $66,500 $59,000 $44,000 $44,000 $44,000 $44,000 16 Beacon Bay $84,000 $76,500 $69,000 $61,500 $54,000 $39,000 $39,000 $39,000 $39,000 22 Beacon Bay $97,500 $90,000 $82,500 $75,000 $67,500 $52,500 $52,500 $52,500 $52,500 3 Beacon Bay $83,000 $75,500 $68,000 $60,500 $53,000 $38,000 $38,000 $38,000 $38,000 B. Interior Lots 61 Beacon Bay $20,907 $20,907 $20,907 $20,907 $20,907 $20,907 $20,907 $20,907 $20,907 41 Beacon Bay $22,500 $13,297 $13,297 $13,297 $13,297 $13,297 $13,297 $13,297 $13,297 37 Beacon Bay $42,750 $42,750 $25,264 $25,264 $25,264 $25,264 $25,264 $25,264 $25,264 66 Beacon Bay $50,000 $50,000 $50,000 $31,027 $31,027 $31,027 $31,027 $31,027 $31,027 60 Beacon Bay $33,750 $33,750 $33,750 $33,750 $21,990 $21,990 $21,990 $21,990 $21,990 24 Beacon Bay $47,500 $47,500 $47,500 $41,500 $34,000 $32,496 $32,496 $32,496 $32,496 38 Beacon Bay $30,000 $30,000 $30,000 $30,000 $27,000 $12,000 $21,550 $21,550 $21,550 48 Beacon Bay $29,375 $29,375 $29,375 $29,375 $26,750 $11,750 $11,750 $21,101 $21,101 49 Beacon Bay $36,250 $36,250 $36,250 $36,250 $29,500 $14,500 $14,500 $14,500 $26,040 52 Beacon Bay $62,000 $62,000 $54,800 $47,300 $39,800 $24,800 $24,800 $24,800 $24,800 53 Beacon Bay $50,000 $50,000 $50,000 $42,500 $35,000 $20,000 $20,000 $20,000 $20,000 58 Beacon Bay $73,750 $67,000 $59,500 $52,000 $44,500 $29,500 $29,500 $29,500 $29,500 IV. Grand Total - Annual Rent $2,132,045 $2,048,235 $1,988,351 $1,887,348 $1,831,009 $1,651,413 $1,712,427 $1,785,853 $1,888,284 i See TABLE 2 for the ground lease projections under the proposed restructuring assuming no resales occur. See TABLE 3 for home sales projections. The projections in this table apply the ground lease payments as scheduled in TABLE 2 until the home is resold. At that point the ground lease is fixed at 1.0% of the sales price until the home is resold again. No CPI escalations are applied. Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 44 of 52 SS2-158 TABLE 4 KMA GROUND LEASE PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH IV. Grand Total - Annual Rent $1,971,214 $2,083,263 $2,182,824 $2,298,508 $2,433,828 $2,571,552 $2,703,874 $2,824,985 $2,964,808 $3,054,860 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 45 of 52 SS2-159 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 III. 2012 Leases A. Bayfront Lots 14 Beacon Bay $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 1 Beacon Bay $26,510 $26,510 $26,510 $26,510 $26,510 $26,510 $26,510 $26,510 $26,510 $26,510 2 Beacon Bay $47,376 $47,376 $47,376 $47,376 $47,376 $47,376 $47,376 $47,376 $47,376 $47,376 107 Harbor Island Road (B) $84,854 $84,854 $84,854 $84,854 $84,854 $84,854 $84,854 $84,854 $84,854 $84,854 18 Beacon Bay $61,279 $61,279 $61,279 $61,279 $61,279 $61,279 $61,279 $61,279 $61,279 $61,279 21 Beacon Bay $40,000 $40,000 $87,315 $87,315 $87,315 $87,315 $87,315 $87,315 $87,315 $87,315 62 Beacon Bay $36,000 $36,000 $36,000 $36,000 $82,513 $82,513 $82,513 $82,513 $82,513 $82,513 20 Beacon Bay $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $105,891 $105,891 $105,891 $105,891 16 Beacon Bay $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 $39,000 $103,479 $103,479 22 Beacon Bay $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 $52,500 3 Beacon Bay $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 $38,000 B. Interior Lots 61 Beacon Bay $20,907 $20,907 $20,907 $20,907 $20,907 $20,907 $43,465 $43,465 $43,465 $43,465 41 Beacon Bay $13,297 $13,297 $13,297 $13,297 $13,297 $13,297 $13,297 $27,644 $27,644 $27,644 37 Beacon Bay $25,264 $25,264 $25,264 $25,264 $25,264 $25,264 $25,264 $25,264 $52,523 $52,523 66 Beacon Bay $31,027 $31,027 $31,027 $31,027 $31,027 $31,027 $31,027 $31,027 $31,027 $64,502 60 Beacon Bay $21,990 $21,990 $21,990 $21,990 $21,990 $21,990 $21,990 $21,990 $21,990 $21,990 24 Beacon Bay $32,496 $32,496 $32,496 $32,496 $32,496 $32,496 $32,496 $32,496 $32,496 $32,496 38 Beacon Bay $21,550 $21,550 $21,550 $21,550 $21,550 $21,550 $21,550 $21,550 $21,550 $21,550 48 Beacon Bay $21,101 $21,101 $21,101 $21,101 $21,101 $21,101 $21,101 $21,101 $21,101 $21,101 49 Beacon Bay $26,040 $26,040 $26,040 $26,040 $26,040 $26,040 $26,040 $26,040 $26,040 $26,040 52 Beacon Bay $44,537 $44,537 $44,537 $44,537 $44,537 $44,537 $44,537 $44,537 $44,537 $44,537 53 Beacon Bay $20,000 $35,917 $35,917 $35,917 $35,917 $35,917 $35,917 $35,917 $35,917 $35,917 58 Beacon Bay $29,500 $29,500 $52,978 $52,978 $52,978 $52,978 $52,978 $52,978 $52,978 $52,978 IV. Grand Total - Annual Rent $1,971,214 $2,083,263 $2,182,824 $2,298,508 $2,433,828 $2,571,552 $2,703,874 $2,824,985 $2,964,808 $3,054,860 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 45 of 52 SS2-159 TABLE 4 KMA GROUND LEASE PROJECTIONS PROPOSED LEASE RESTRUCTURING BEACON BAY - NEWPORT BEACH IV. Grand Total - Annual Rent $3,222,800 $3,504,720 $3,652,439 $3,797,626 $4,001,130 $4,267,904 $4,410,849 $4,651,581 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 46 of 52 SS2-160 2038 2039 2040 2041 2042 2043 2044 2045 III. 2012 Leases A. Bayfront Lots 14 Beacon Bay $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 $48,904 1 Beacon Bay $26,510 $26,510 $26,510 $26,510 $26,510 $26,510 $26,510 $26,510 2 Beacon Bay $47,376 $47,376 $47,376 $47,376 $47,376 $47,376 $47,376 $47,376 107 Harbor Island Road (B) $84,854 $84,854 $84,854 $84,854 $84,854 $84,854 $84,854 $84,854 18 Beacon Bay $61,279 $61,279 $61,279 $61,279 $61,279 $61,279 $61,279 $61,279 21 Beacon Bay $87,315 $87,315 $87,315 $87,315 $87,315 $87,315 $87,315 $87,315 62 Beacon Bay $82,513 $82,513 $82,513 $82,513 $82,513 $82,513 $82,513 $82,513 20 Beacon Bay $105,891 $105,891 $105,891 $105,891 $105,891 $105,891 $105,891 $105,891 16 Beacon Bay $103,479 $103,479 $103,479 $103,479 $103,479 $103,479 $103,479 $103,479 22 Beacon Bay $146,263 $146,263 $146,263 $146,263 $146,263 $146,263 $146,263 $146,263 3 Beacon Bay $38,000 $38,000 $111,160 $111,160 $111,160 $111,160 $111,160 $111,160 B. Interior Lots 61 Beacon Bay $43,465 $43,465 $43,465 $43,465 $43,465 $43,465 $43,465 $43,465 41 Beacon Bay $27,644 $27,644 $27,644 $27,644 $27,644 $27,644 $27,644 $27,644 37 Beacon Bay $52,523 $52,523 $52,523 $52,523 $52,523 $52,523 $52,523 $52,523 66 Beacon Bay $64,502 $64,502 $64,502 $64,502 $64,502 $64,502 $64,502 $64,502 60 Beacon Bay $45,716 $45,716 $45,716 $45,716 $45,716 $45,716 $45,716 $45,716 24 Beacon Bay $32,496 $67,558 $67,558 $67,558 $67,558 $67,558 $67,558 $67,558 38 Beacon Bay $21,550 $21,550 $44,801 $44,801 $44,801 $44,801 $44,801 $44,801 48 Beacon Bay $21,101 $21,101 $21,101 $43,868 $43,868 $43,868 $43,868 $43,868 49 Beacon Bay $26,040 $26,040 $26,040 $26,040 $54,135 $54,135 $54,135 $54,135 52 Beacon Bay $44,537 $44,537 $44,537 $44,537 $44,537 $92,590 $92,590 $92,590 53 Beacon Bay $35,917 $35,917 $35,917 $35,917 $35,917 $35,917 $74,669 $74,669 58 Beacon Bay $52,978 $52,978 $52,978 $52,978 $52,978 $52,978 $52,978 $110,137 IV. Grand Total - Annual Rent $3,222,800 $3,504,720 $3,652,439 $3,797,626 $4,001,130 $4,267,904 $4,410,849 $4,651,581 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, Grd Lse Projs Page 46 of 52 SS2-160 TABLE 5 ANNUAL GROUND RENT PROJECTIONS EXISTING LEASE TERMS: NO RESALES GROUND LEASE ANALYSIS BEACON BAY - NEWPORT BEACH Total 2012 Leases $1,070,836 $1,117,058 $1,150,569 $1,185,086 $1,220,639 $1,257,258 $1,294,976 $1,333,825 $1,373,840 $1,415,055 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, KMA Base_No Resales Page 47 of 52 SS2-161 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 I. Bayfront Lots A. Pre -Existing Leases 1 63 Beacon Bay $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 13 Beacon Bay 29,450 29,450 29,450 29,450 29,450 29,450 29,450 29,450 29,450 29,450 19 Beacon Bay 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 6 Beacon Bay 34,260 34,260 34,260 34,260 34,260 34,260 34,260 34,260 34,260 34,260 9 Beacon Bay 44,350 44,350 44,350 44,350 44,350 44,350 44,350 44,350 44,350 44,350 15 Beacon Bay 20,240 20,240 20,240 20,240 20,240 20,240 20,240 20,240 20,240 20,240 4 Beacon Bay 21,260 21,260 21,260 21,260 21,260 21,260 21,260 21,260 21,260 21,260 5 Beacon Bay 28,840 28,840 28,840 28,840 28,840 28,840 28,840 28,840 28,840 28,840 10 Beacon Bay 33,540 33,540 33,540 33,540 33,540 33,540 33,540 33,540 33,540 33,540 7 Beacon Bay 33,055 33,055 33,055 33,055 33,055 33,055 33,055 33,055 33,055 33,055 Total Pre -Existing Leases $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 B. 1994 Leases z 101 Harbor Island Road (A) $134,171 $154,302 $154,302 $154,302 $154,302 $154,302 $154,302 $154,302 $189,772 $189,772 17 Beacon Bay 34,867 40,098 40,098 40,098 40,098 40,098 40,098 40,098 49,316 49,316 8 Beacon Bay 61,500 61,500 61,500 75,637 75,637 75,637 75,637 75,637 75,637 75,637 11 Beacon Bay 95,629 109,977 109,977 109,977 109,977 109,977 109,977 109,977 135,258 135,258 115 Harbor Island Road (C) 30,943 35,585 35,585 35,585 35,585 35,585 35,585 35,585 43,766 43,766 12 Beacon Bay 87,215 100,300 100,300 100,300 100,300 100,300 100,300 100,300 123,356 123,356 Total 1994 Leases $444,325 $501,763 $501,763 $515,900 $515,900 $515,900 $515,900 $515,900 $617,105 $617,105 C. 2012 Leases s 14 Beacon Bay $92,248 $96,230 $99,117 $102,090 $105,153 $108,308 $111,557 $114,904 $118,351 $121,901 1 Beacon Bay 41,714 43,515 44,820 46,165 47,550 48,976 50,445 51,959 53,518 55,123 2 Beacon Bay 74,670 77,893 80,229 82,636 85,115 87,669 90,299 93,008 95,798 98,672 107 Harbor Island Road (B) 122,663 127,958 131,796 135,750 139,823 144,018 148,338 152,788 157,372 162,093 18 Beacon Bay 84,418 88,062 90,703 93,424 96,227 99,114 102,087 105,150 108,305 111,554 21 Beacon Bay 109,102 113,811 117,226 120,742 124,365 128,096 131,938 135,897 139,973 144,173 62 Beacon Bay 98,094 102,328 105,398 108,560 111,816 115,171 118,626 122,185 125,850 129,626 20 Beacon Bay 117,071 122,124 125,788 129,562 133,449 137,452 141,576 145,823 150,198 154,703 16 Beacon Bay 99,645 103,946 107,064 110,276 113,585 116,992 120,502 124,117 127,841 131,676 22 Beacon Bay 136,211 142,091 146,353 150,744 155,266 159,924 164,722 169,664 174,754 179,996 3 Beacon Bay 95,000 99,101 102,074 105,136 108,290 111,539 114,885 118,331 121,881 125,538 Total 2012 Leases $1,070,836 $1,117,058 $1,150,569 $1,185,086 $1,220,639 $1,257,258 $1,294,976 $1,333,825 $1,373,840 $1,415,055 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, KMA Base_No Resales Page 47 of 52 SS2-161 TABLE 5 ANNUAL GROUND RENT PROJECTIONS EXISTING LEASE TERMS: NO RESALES GROUND LEASE ANALYSIS BEACON BAY - NEWPORT BEACH I. Bayfront Lots A. Pre -Existing Leases 63 Beacon Bay 13 Beacon Bay 19 Beacon Bay 6 Beacon Bay 9 Beacon Bay 15 Beacon Bay 4 Beacon Bay 5 Beacon Bay 10 Beacon Bay 7 Beacon Bay Total Pre -Existing Leases B. 1994 Leases 101 Harbor Island Road (A) 17 Beacon Bay 8 Beacon Bay 11 Beacon Bay 115 Harbor Island Road (C) 12 Beacon Bay Total 1994 Leases C. 2012 Leases 14 Beacon Bay 1 Beacon Bay 2 Beacon Bay 107 Harbor Island Road (B) 18 Beacon Bay 21 Beacon Bay 62 Beacon Bay 20 Beacon Bay 16 Beacon Bay 22 Beacon Bay 3 Beacon Bay Total 2012 Leases 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 $29,220 29,450 29,450 29,450 29,450 29,450 29,450 29,450 29,450 29,450 29,450 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 34,260 34,260 34,260 34,260 34,260 34,260 34,260 34,260 34,260 34,260 44,350 44,350 44,350 44,350 44,350 44,350 44,350 44,350 44,350 44,350 20,240 20,240 20,240 20,240 20,240 20,240 20,240 20,240 20,240 20,240 21,260 21,260 21,260 21,260 21,260 21,260 21,260 21,260 21,260 21,260 28,840 28,840 28,840 28,840 28,840 28,840 28,840 28,840 28,840 28,840 33,540 33,540 33,540 33,540 33,540 33,540 33,540 33,540 33,540 33,540 33,055 33,055 33,055 33,055 33,055 33,055 33,055 33,055 33,055 33,055 $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 $293,715 $189,772 $189,772 $189,772 $189,772 $189,772 $233,396 $233,396 $233,396 $233,396 $233,396 49,316 49,316 49,316 49,316 49,316 60,652 60,652 60,652 60,652 60,652 93,024 93,024 93,024 93,024 93,024 93,024 93,024 114,407 114,407 114,407 135,258 135,258 135,258 135,258 135,258 166,350 166,350 166,350 166,350 166,350 43,766 43,766 43,766 43,766 43,766 53,826 53,826 53,826 53,826 53,826 123,356 123,356 123,356 123,356 123,356 151,713 151,713 151,713 151,713 151,713 $634,491 $634,491 $634,491 $634,491 $634,491 $758,961 $758,961 $780,345 $780,345 $780,345 $125,558 $129,325 $133,205 $137,201 $141,317 $145,557 $149,923 $154,421 $159,054 $163,825 56,777 58,480 60,235 62,042 63,903 65,820 67,795 69,828 71,923 74,081 101,632 104,681 107,822 111,056 114,388 117,820 121,354 124,995 128,745 13 2, 607 166,956 171,964 177,123 182,437 187,910 193,547 199,354 205,335 211,495 217,839 114,900 118,347 121,898 125,555 129,321 133,201 137,197 141,313 145,552 149,919 148,498 152,953 157,541 162,268 167,136 172,150 177,314 182,634 188,113 193,756 133,515 137,520 141,646 145,895 150,272 154,780 159,424 164,206 169,132 174,206 159,345 164,125 169,049 174,120 179,344 184,724 190,266 195,974 201,853 207,908 135,626 139,695 143,886 148,202 15 2, 648 157,228 161,945 166,803 171,807 176,961 185,396 190,958 196,687 202,587 208,665 214,925 221,373 228,014 234,854 241,900 129.304 133.183 137.178 141.294 145.533 149.899 154.396 159.027 163.798 168.712 $1,457,507 $1,501,232 $1,546,269 $1,592,657 $1,640,437 $1,689,650 $1,740,339 $1,792,549 $1,846,326 $1,901,716 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, KMA Base_No Resales Page 48 of 52 SS2-162 TABLE 5 ANNUAL GROUND RENT PROJECTIONS EXISTING LEASE TERMS: NO RESALES GROUND LEASE ANALYSIS BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, KMA Base_No Resales Page 49 of 52 SS2-163 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 II. Interior Lots A. Pre -Existing Leases 51 Beacon Bay $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 40 Beacon Bay 13,572 13,572 13,572 13,572 13,572 13,572 13,572 13,572 13,572 13,572 42 Beacon Bay 7,672 7,672 7,672 7,672 7,672 7,672 7,672 7,672 7,672 7,672 46 Beacon Bay 8,492 8,492 8,492 8,492 8,492 8,492 8,492 8,492 8,492 8,492 43 Beacon Bay 13,232 13,232 13,232 13,232 13,232 13,232 13,232 13,232 13,232 13,232 65 Beacon Bay 6,322 6,322 6,322 6,322 6,322 6,322 6,322 6,322 6,322 6,322 64 Beacon Bay 10,325 10,325 10,325 10,325 10,325 10,325 10,325 10,325 10,325 10,325 32 Beacon Bay 7,217 7,217 7,217 7,217 7,217 7,217 7,217 7,217 7,217 7,217 47 Beacon Bay 7,365 7,365 7,365 7,365 7,365 7,365 7,365 7,365 7,365 7,365 26 Beacon Bay 6,942 6,942 6,942 6,942 6,942 6,942 6,942 6,942 6,942 6,942 55 Beacon Bay 12,865 12,865 12,865 12,865 12,865 12,865 12,865 12,865 12,865 12,865 33 Beacon Bay 7,307 7,307 7,307 7,307 7,307 7,307 7,307 7,307 7,307 7,307 31 Beacon Bay 10,515 10,515 10,515 10,515 10,515 10,515 10,515 10,515 10,515 10,515 39 Beacon Bay 11,557 11,557 11,557 11,557 11,557 11,557 11,557 11,557 11,557 11,557 59 Beacon Bay 12,175 12,175 12,175 12,175 12,175 12,175 12,175 12,175 12,175 12,175 50 Beacon Bay 12,111 12,111 12,111 12,111 12,111 12,111 12,111 12,111 12,111 12,111 68 Beacon Bay 6,057 6,057 6,057 6,057 6,057 6,057 6,057 6,057 6,057 6,057 Total Pre -Existing Leases $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 B. 1994 Leases 36 Beacon Bay $8,336 $8,336 $8,336 $8,336 $8,336 $8,336 $10,252 $10,252 $10,252 $10,252 30 Beacon Bay 18,362 18,362 18,362 18,362 18,362 18,362 22,582 22,582 22,582 22,582 28 Beacon Bay 4 18,650 21,449 21,449 21,449 21,449 21,449 21,449 21,449 26,379 26,379 34 Beacon Bay 16,205 18,615 18,615 18,615 18,615 18,615 18,615 18,615 22,894 22,894 57 Beacon Bay 10,034 11,540 11,540 11,540 11,540 11,540 11,540 11,540 14,192 14,192 35 Beacon Bay 14,331 14,331 17,625 17,625 17,625 17,625 17,625 17,625 17,625 21,677 29 Beacon Bay 15,785 15,785 15,785 19,414 19,414 19,414 19,414 19,414 19,414 19,414 45 Beacon Bay 25,442 25,442 25,442 25,442 25,442 31,290 31,290 31,290 31,290 31,290 44 Beacon Bay 33,490 33,490 33,490 33,490 33,490 33,490 41,189 41,189 41,189 41,189 56 Beacon Bay 40,367 40,367 40,367 40,367 40,367 40,367 49,646 49,646 49,646 49,646 25 Beacon Bay 28,564 28,564 28,564 28,564 28,564 28,564 35,131 35,131 35,131 35,131 67 Beacon Bay 28,323 28,323 28,323 28,323 28,323 28,323 34,833 34,833 34,833 34,833 27 Beacon Bay 38,468 38,468 38,468 38,468 38,468 38,468 38,468 47,311 47,311 47,311 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, KMA Base_No Resales Page 49 of 52 SS2-163 TABLE 5 ANNUAL GROUND RENT PROJECTIONS EXISTING LEASE TERMS: NO RESALES GROUND LEASE ANALYSIS BEACON BAY - NEWPORT BEACH Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, KMA Base_No Resales Page 50 of 52 SS2-164 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 II. Interior Lots A. Pre -Existing Leases 51 Beacon Bay $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 $7,857 40 Beacon Bay 13,572 13,572 13,572 13,572 13,572 13,572 13,572 13,572 13,572 13,572 42 Beacon Bay 7,672 7,672 7,672 7,672 7,672 7,672 7,672 7,672 7,672 7,672 46 Beacon Bay 8,492 8,492 8,492 8,492 8,492 8,492 8,492 8,492 8,492 8,492 43 Beacon Bay 13,232 13,232 13,232 13,232 13,232 13,232 13,232 13,232 13,232 13,232 65 Beacon Bay 6,322 6,322 6,322 6,322 6,322 6,322 6,322 6,322 6,322 6,322 64 Beacon Bay 10,325 10,325 10,325 10,325 10,325 10,325 10,325 10,325 10,325 10,325 32 Beacon Bay 7,217 7,217 7,217 7,217 7,217 7,217 7,217 7,217 7,217 7,217 47 Beacon Bay 7,365 7,365 7,365 7,365 7,365 7,365 7,365 7,365 7,365 7,365 26 Beacon Bay 6,942 6,942 6,942 6,942 6,942 6,942 6,942 6,942 6,942 6,942 55 Beacon Bay 12,865 12,865 12,865 12,865 12,865 12,865 12,865 12,865 12,865 12,865 33 Beacon Bay 7,307 7,307 7,307 7,307 7,307 7,307 7,307 7,307 7,307 7,307 31 Beacon Bay 10,515 10,515 10,515 10,515 10,515 10,515 10,515 10,515 10,515 10,515 39 Beacon Bay 11,557 11,557 11,557 11,557 11,557 11,557 11,557 11,557 11,557 11,557 59 Beacon Bay 12,175 12,175 12,175 12,175 12,175 12,175 12,175 12,175 12,175 12,175 50 Beacon Bay 12,111 12,111 12,111 12,111 12,111 12,111 12,111 12,111 12,111 12,111 68 Beacon Bay 6,057 6,057 6,057 6,057 6,057 6,057 6,057 6,057 6,057 6,057 Total Pre -Existing Leases $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 $161,583 B. 1994 Leases 36 Beacon Bay $10,252 $10,252 $10,252 $12,609 $12,609 $12,609 $12,609 $12,609 $12,609 $12,609 30 Beacon Bay 22,582 22,582 22,582 27,774 27,774 27,774 27,774 27,774 27,774 27,774 28 Beacon Bay 26,379 26,379 26,379 26,379 26,379 32,443 32,443 32,443 32,443 32,443 34 Beacon Bay 22,894 22,894 22,894 22,894 22,894 28,157 28,157 28,157 28,157 28,157 57 Beacon Bay 14,192 14,192 14,192 14,192 14,192 17,455 17,455 17,455 17,455 17,455 35 Beacon Bay 21,677 21,677 21,677 21,677 21,677 21,677 26,660 26,660 26,660 26,660 29 Beacon Bay 23,876 23,876 23,876 23,876 23,876 23,876 23,876 29,365 29,365 29,365 45 Beacon Bay 31,290 31,290 35,985 35,985 35,985 35,985 35,985 35,985 35,985 44,257 44 Beacon Bay 41,189 41,189 41,189 50,657 50,657 50,657 50,657 50,657 50,657 50,657 56 Beacon Bay 49,646 49,646 49,646 61,059 61,059 61,059 61,059 61,059 61,059 61,059 25 Beacon Bay 35,131 35,131 35,131 43,206 43,206 43,206 43,206 43,206 43,206 43,206 67 Beacon Bay 34,833 34,833 34,833 42,841 42,841 42,841 42,841 42,841 42,841 42,841 27 Beacon Bay 47,311 47,311 47,311 47,311 58,186 58,186 58,186 58,186 58,186 58,186 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, KMA Base_No Resales Page 50 of 52 SS2-164 TABLE 5 ANNUAL GROUND RENT PROJECTIONS EXISTING LEASE TERMS: NO RESALES GROUND LEASE ANALYSIS BEACON BAY - NEWPORT BEACH 69 Beacon Bay 54 Beacon Bay 23 Beacon Bay Total 1994 Leases C. 2012 Leases 61 Beacon Bay 41 Beacon Bay 37 Beacon Bay 66 Beacon Bay 60 Beacon Bay 24 Beacon Bay 38 Beacon Bay 48 Beacon Bay 49 Beacon Bay 52 Beacon Bay 53 Beacon Bay 58 Beacon Bay Total 2012 Leases Grand Total - Annual Rent 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 4 25,660 29,476 29,476 29,476 29,476 29,476 29,476 29,476 36,252 36,252 46,117 46,117 46,117 46,117 56,718 56,718 56,718 56,718 56,718 56,718 38,290 38,290 38,290 38,290 38,290 38,290 38,290 47,092 47,092 47,092 $406,424 $416,954 $420,248 $423,877 $434,478 $440,326 $476,518 $494,163 $512,801 $516,852 $39,375 $41,075 $42,307 $43,576 $44,883 $46,230 $47,617 $49,045 $50,517 $52,032 24,221 25,267 26,025 26,805 27,609 28,438 29,291 30,170 31,075 32,007 46,096 48,085 49,528 51,014 52,544 54,121 55,744 57,416 59,139 60,913 53,334 55,636 57,305 59,024 60,795 62,619 64,498 66,432 68,425 70,478 36,166 37,727 38,859 40,025 41,225 42,462 43,736 45,048 46,400 47,792 50,900 53,097 54,690 56,331 58,021 59,762 61,555 63,401 65,303 67,262 32,148 33,535 34,541 35,578 36,645 37,744 38,877 40,043 41,244 42,481 31,896 33,273 34,271 35,299 36,358 37,449 38,573 39,730 40,922 42,149 39,510 41,215 42,452 43,725 45,037 46,388 47,780 49,213 50,690 52,210 65,985 68,834 70,899 73,026 75,216 77,473 79,797 82,191 84,657 87,196 50,000 52,158 53,723 55,335 56,995 58,705 60,466 62,280 64,148 66,073 73.750 76.933 79.241 81.619 84.067 86.589 89.187 91.862 94.618 97.457 $543,381 $566,836 $583,841 $601,356 $619,397 $637,979 $657,118 $676,832 $697,137 $718,051 $2,920,264 $3,057,908 $3,111,720 $3,181,518 $3,245,712 $3,306,761 $3,399,810 $3,476,018 $3,656,180 $3,722,361 1 Pre-existing leases that were converted to 1994 leases that expire in 2044. No CPI adjustments are applied. z 1994 leases that expire in 2044. CPI adjustments are applied once every seven years. 3 2012 leases that expire 50 years after execution. Annual CPI adjustments are applied. 4 The adjustment dates for these leases is in December. For projection purposes, the leases were escalated at the beginning of the following year. Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, KMA Base_No Resales Page 51 of 52 SS2-165 TABLE 5 ANNUAL GROUND RENT PROJECTIONS EXISTING LEASE TERMS: NO RESALES GROUND LEASE ANALYSIS BEACON BAY - NEWPORT BEACH 69 Beacon Bay 54 Beacon Bay 23 Beacon Bay Total 1994 Leases C. 2012 Leases 61 Beacon Bay 41 Beacon Bay 37 Beacon Bay 66 Beacon Bay 60 Beacon Bay 24 Beacon Bay 38 Beacon Bay 48 Beacon Bay 49 Beacon Bay 52 Beacon Bay 53 Beacon Bay 58 Beacon Bay Total 2012 Leases Grand Total - Annual Rent 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 36,252 36,252 36,252 36,252 36,252 44,585 44,585 44,585 44,585 44,585 56,718 69,756 69,756 69,756 69,756 69,756 69,756 69,756 85,791 85,791 47,092 47,092 47,092 47,092 57,917 57,917 57,917 57,917 57,917 57,917 $521,315 $534,353 $539,047 $583,559 $605,259 $628,182 $633,165 $638,653 $654,688 $662,960 $53,593 $55,201 $56,857 $58,563 $60,319 $62,129 $63,993 $65,913 $67,890 $69,927 32,967 33,956 34,975 36,024 37,105 38,218 39,364 40,545 41,762 43,015 62,741 64,623 66,561 68,558 70,615 72,733 74,915 77,163 79,478 81,862 72,593 74,770 77,013 79,324 81,704 84,155 86,679 89,280 91,958 94,717 49,225 50,702 52,223 53,790 55,404 57,066 58,778 60,541 62,357 64,228 69,280 71,359 73,499 75,704 77,975 80,315 82,724 85,206 87,762 90,395 43,756 45,069 46,421 47,813 49,248 50,725 52,247 53,814 55,429 57,092 43,414 44,716 46,058 47,439 48,863 50,328 51,838 53,393 54,995 56,645 53,777 55,390 57,052 58,763 60,526 62,342 64,212 66,138 68,123 70,166 89,812 92,507 95,282 98,140 101,085 104,117 107,241 110,458 113,772 117,185 68,055 70,096 72,199 74,365 76,596 78,894 81,261 83,699 86,210 88,796 100.381 103.392 106.494 109.689 112.979 116.369 119.860 123.455 127.159 130.974 $739,593 $761,780 $784,634 $808,173 $832,418 $857,390 $883,112 $909,606 $936,894 $965,000 $3,808,204 $3,887,155 $3,959,740 $4,074,178 $4,167,904 $4,389,481 $4,470,876 $4,576,451 $4,673,551 $4,765,320 Prepared by: Keyser Marston Associates, Inc. File name: BB Projections 115 19, KMA Base_No Resales Page 52 of 52 SS2-166 Attachment E State Lands Commission Letter, dated September 5, 2018 SS2-167 STATE OF CALIFORNIA EDMUND G. BROWN JR., Governor CALIFORNIA STATE LANDS COMMISSION 100 Howe Avenue, Suite 100 -South Sacramento, CA 95825-8202 ��CVVED BY COMMUNITY DEVELOPMENT SEP 112018 JENNIFER LUCCHESI, Executive Officer (916) 574-1800 Fax (916) 574-1810 California Relay.5ervice TDD Phone 1-800-735-2929 from Voice Phone 1-800-735-2922 Contact Phone: (916) 574-1800 Contact Fax: (916) 574-1810 crrY or September 5, 2018 File Ref: G 09-02.6 �I`'FWP BEPG� Honorable Duf'yR buffield Mayor, City of Newport Beach 100 Civic Center Drive Newport Beach, CA 92660 RE: Potential change to the terms of the Beacon Bay leases Dear Mayor Duffield: It is the California State Lands Commission staffs' understanding that the City of Newport Beach is considering contracting with an appraiser to assess the fair market value of the lease governing the 72 residential lots located in Beacon Bay. The appraisal would consider the possibility of lowering the consideration set in the existing lease at 2.5 percent of the appraised value of the property. It is also our understanding that the City is considering eliminating the Consumer Price Index adjustment, a standard element in Commission leases and other leases for granted Public Trust lands. The area known as Beacon Bay is owned in part by the City in its capacity as a municipality and in part in its capacity as a trustee for the State under Chapter 74, Statutes of 1978, as amended. The Legislature has found that while the Beacon Bay lots located within the trust grant are no longer needed for purposes of navigation, commerce and fisheries, the City should continue to hold them in trust. State law requires that the City.lease the lots for fair market value and that the revenues derived from the lease are used for purposes consistent with the City's statutory trust grant and the Public Trust Doctrine. An amendment or modification to the form of the lease requires Commission approval. In 1994, the City hired an appraiser to determine the fair market rental value of the Beacon Bay lots. Commission and City staff collaborated closely during the appraisal process and in May 1994, the Commission approved the lease rental consideration. The Commission approved a revised lease form in March 2012, which set the rent at 2.5 percent of appraised value with annual Consumer Price Index adjustments. Consistent with our past practice, should the City proceed with developing a new appraisal, we recommend that the City direct any contracted appraiser to work closely with the Commission staff. The Commission and staff intends to thoroughly analyze any proposed reduction in lease consideration. The lands underlying the Beacon Bay lots are Public Trust lands and the statute requires fair market value for their use. If the City proceeds with revising SS2-168 Honorable Duffy Duffield September 5, 2018 Page 2 the rental amount, it must provide ironclad and indisputable justification and rationale to prove that the reduced amount reflects fair market value. And any decision to change the rental amount or amend the lease terms will require Commission approval to be effective. We also wanted to point out that the State Legislature has recently scrutinized rental rates for State sovereign land and will likely closely review any proposed rental reductions affecting the Beacon Bay lease. For example, earlier this year the State Legislature reviewed rental rates for sovereign land at Lake Tahoe and provided funding for the Commission to contract for an independent study and evaluation of rent -setting methodologies. The results of this evaluation, which are expected later this year or early next year, may be of interest to the C ity. Commission staff appreciates its long history of working collaboratively with the City to manage the State's Public Trust lands in Newport Beach. Please do not hesitate to contact me at (916) 574-1800 if you have questions about our letter or the City's granted lands. Sincerely, SHERIPEMBERTON Chief, External Affairs Division cc: Councilmembers, City of Newport Beach Reid Boggiano, Public Lands Management Specialist, California State Lands Commission Ben Johnson, Staff Attorney, California State Lands Commission Lauren Wooding Whitlinger, Community Development Department, City of Newport Beach SS2-169