RIGA SHOPPING MALL RIGA, LATVIA FEASIBILITY STUDY

RIGA SHOPPING MALLRIGA SHOPPING MALLRIGA, LATVIA RIGA, LATVIA

FEASIBILITY STUDYFEASIBILITY STUDY

Preparation and Analysis:Preparation and Analysis:

Bank Financing of Bank Financing of

Construction ProjectConstruction Project

The ProjectThe Project

► Two stories of a commercial Western Two stories of a commercial Western standard "mall" areastandard "mall" area retail commercial establishmentsretail commercial establishments a banka bank service establishments (laundry, dry-cleaning service establishments (laundry, dry-cleaning

etc)etc) up-scale restaurantsup-scale restaurants fast-food facilitiesfast-food facilities a night-club and disco a night-club and disco office and residential office and residential

► This shopping mall space will be the first of This shopping mall space will be the first of its kind in and around Rigaits kind in and around Riga


►The project site is situated on the main The project site is situated on the main highway between Riga and Riga highway between Riga and Riga International Airport. International Airport. 3 - 4 minutes to reach the Mall site from 3 - 4 minutes to reach the Mall site from

the center of Riga by way of the bridge the center of Riga by way of the bridge over the Daugava River over the Daugava River

3 minutes' drive to the southwest is an 3 minutes' drive to the southwest is an old-Soviet-style multiple high-rise housing old-Soviet-style multiple high-rise housing complexes in which close to a quarter of a complexes in which close to a quarter of a million persons presently reside. million persons presently reside.


►The project site is situated on the main The project site is situated on the main highway between Riga and Riga highway between Riga and Riga International Airport. International Airport. Most of these people work in Riga and must Most of these people work in Riga and must

reach their jobs by using the highway, thus reach their jobs by using the highway, thus ensuring that they will pass the Mall twice a ensuring that they will pass the Mall twice a dayday

There are virtually no shopping facilities of There are virtually no shopping facilities of any size or substance in the vicinity of this any size or substance in the vicinity of this housing area.housing area.

Term SheetTerm Sheet

► DESCRIPTION: DESCRIPTION: $48 million conventional $48 million conventional construction and/or take out loan construction and/or take out loan (mortgage); term: (mortgage); term: 7 – 107 – 10 Years (Terms Years (Terms flexible), rate: 10% (or lower).flexible), rate: 10% (or lower).

► SECURITY: SECURITY: (1)(1) Mortgage of land and improvement to be Mortgage of land and improvement to be

executed by MESA (land - or such other entity as executed by MESA (land - or such other entity as to which the land may be conveyed at the start to which the land may be conveyed at the start of construction) and MOS-MALL (improvement); of construction) and MOS-MALL (improvement);

(2) Full guarantee of initial draw- down; (2) Full guarantee of initial draw- down; (3) Performance and payment (subcontractors (3) Performance and payment (subcontractors

and suppliers) bond.and suppliers) bond.


►EQUITY: EQUITY: Flexible in terms of debt – Flexible in terms of debt – equity mix but can be structured to equity mix but can be structured to include:include: (1) straight equity injections(1) straight equity injections (2) land; worth after clearing which has been (2) land; worth after clearing which has been

completed - $1.5 million presently owned by completed - $1.5 million presently owned by MESA and investors;MESA and investors;

(3) preparation of design and engineering (3) preparation of design and engineering drawings by MESA ($1 million +/-) drawings by MESA ($1 million +/-)

(4) condo sales $3 - $5 million held in escrow. (4) condo sales $3 - $5 million held in escrow. (4) LOC enhancements and/or structures. (4) LOC enhancements and/or structures.


► PURPOSE: PURPOSE: Construction of commercial Construction of commercial Western standard "mall" area which will Western standard "mall" area which will contain retail commercial establishments (a contain retail commercial establishments (a large western "department store selling mid- large western "department store selling mid- range goods priced to be affordable, and a range goods priced to be affordable, and a large auto show‑room will serve as an anchor large auto show‑room will serve as an anchor tenants), up‑scale restaurants, a general-tenants), up‑scale restaurants, a general-purpose hall, above ground parking, a petrol purpose hall, above ground parking, a petrol and refueling station, and a 13-14-story and refueling station, and a 13-14-story office/residential apartment tower. With a office/residential apartment tower. With a tentative list of viable, interested parties, tentative list of viable, interested parties, tenant commitments will grow quickly once tenant commitments will grow quickly once project receives a conditional commitment.project receives a conditional commitment.


►PROJECT SITEPROJECT SITE: Situated on principal : Situated on principal route to new Riga International airport. route to new Riga International airport. Most people work in Riga and must Most people work in Riga and must reach jobs by using the highway, reach jobs by using the highway, ensuring that they pass the Mall twice ensuring that they pass the Mall twice a day.a day. Virtually no shopping facilities Virtually no shopping facilities of any size or substance exist in of any size or substance exist in vicinity of this project.vicinity of this project.


►EQUITY YIELDS: EQUITY YIELDS: Final deal structure will Final deal structure will determine project equity yields. determine project equity yields. While preliminary analysis point to average While preliminary analysis point to average

equity ROE 31.9%, returns appear equity ROE 31.9%, returns appear understated.understated.

If rents increase beyond projection If rents increase beyond projection assumptions relative to supply/demand assumptions relative to supply/demand factors, increase in GDP, continuing control of factors, increase in GDP, continuing control of inflation, and expected increase in disposable inflation, and expected increase in disposable income, average ROE should income, average ROE should increase beyond increase beyond 45%.45%.


► LENDERS PRIMARY SOURCE OF PAYMENT LENDERS PRIMARY SOURCE OF PAYMENT CASH FLOW: CASH FLOW: Conservative projections Conservative projections geared to test viability of the project to geared to test viability of the project to protect construction (and/or take out lender) protect construction (and/or take out lender) in terms ofin terms of (1) ability of the project to generate operating cash (1) ability of the project to generate operating cash

flows over debt serviceflows over debt service (2) probabilities that the project requires additional (2) probabilities that the project requires additional

equity over $7 million andequity over $7 million and (3) whether, after debt service, returns are (3) whether, after debt service, returns are

available to service equity participants. Given available to service equity participants. Given conservative projections, it appears the project is conservative projections, it appears the project is solid and sound in terms of full lender payout.solid and sound in terms of full lender payout.


►CONSTRUCTION: CONSTRUCTION: MESA HOUSING GROUP, MESA HOUSING GROUP, INCINC.: (Architect / designer-builder). .: (Architect / designer-builder). Principal participant for design and Principal participant for design and

construction, MESA is highly experienced in construction, MESA is highly experienced in working in Russia and the surrounding working in Russia and the surrounding republics, as well as in North Africa and, of republics, as well as in North Africa and, of course, Turkey. course, Turkey.

►The firm received international recognition for the The firm received international recognition for the massive housing project at Tchailkowvka, Russia, to massive housing project at Tchailkowvka, Russia, to house contingents of Russian officers and their house contingents of Russian officers and their families returning from postings in East Germany. families returning from postings in East Germany.


►The MESA GROUP of Companies (MESA), The MESA GROUP of Companies (MESA), based in Ankara, Turkey, is a fifteen (15) based in Ankara, Turkey, is a fifteen (15) corporation conglomerate which has corporation conglomerate which has operated for over 25 years in real estate operated for over 25 years in real estate development, construction, engineering development, construction, engineering and architectural, resort and tourism, and and architectural, resort and tourism, and marketing fields. marketing fields. The firm developed, designed and delivered The firm developed, designed and delivered

more than twenty-five major housing more than twenty-five major housing complexes with all related facilities, in complexes with all related facilities, in Turkey and abroad. Turkey and abroad.


►SURVEY OF EXISTING FACILITIES IN SURVEY OF EXISTING FACILITIES IN RIGA RELEVANT TO THE MALL:RIGA RELEVANT TO THE MALL: a) Existing office stock versus needa) Existing office stock versus need

►A shortage of Western standard office A shortage of Western standard office space continues to dog the Riga market. space continues to dog the Riga market. Much of the trading and office spaces in Much of the trading and office spaces in Riga do not correspond to Western Riga do not correspond to Western standards.standards.

As a result, rental agreements with upwards As a result, rental agreements with upwards of 30% of future tenants are generally of 30% of future tenants are generally reached while construction is still in progress;reached while construction is still in progress;


►b) Current rental/purchase rates: b) Current rental/purchase rates: As of April 1998, rents for offices and As of April 1998, rents for offices and

shops in downtown Riga is 40‑60 US$ shops in downtown Riga is 40‑60 US$ per square meter per month. (Lower per square meter per month. (Lower rates pertain for so called "Russian rates pertain for so called "Russian standard" offices) standard" offices)

Higher rates are generally available Higher rates are generally available for fully equipped "Western for fully equipped "Western standard" offices. Purchase of office standard" offices. Purchase of office and residential space is over $US and residential space is over $US 1,000 per M2 and climbing1,000 per M2 and climbing


►ECONOMIC AND MARKET ECONOMIC AND MARKET CONDITIONS IN LATVIA AND RIGACONDITIONS IN LATVIA AND RIGA: : Since regaining independence in 1991, Since regaining independence in 1991, Latvia has put in place a comprehensive Latvia has put in place a comprehensive program of economic reforms which will program of economic reforms which will develop an open market economy develop an open market economy based on free trade and competition. based on free trade and competition. Latvia now is welcoming extensive Latvia now is welcoming extensive international trade and investment. international trade and investment.

The Budget and Construction The Budget and Construction CostsCosts

0 500 1000 1500 2000 2500 3000 3500 4000 4500

Excavation

Foundation and Structural System

Civil Works Course

Civil Works Finishing

Fixed Furniture and Decoration

Electric and Electromechanic Works

Passenger Lift and Escalator

Sanitary System

HVAC Works

Shopping Center


►STARTING WORKSSTARTING WORKS Land FeeLand Fee Design and PermitsDesign and Permits Advance PaymentAdvance Payment SubtotalSubtotal


►RESIDENCESRESIDENCES ExcavationExcavation Foundation and Structural SystemFoundation and Structural System Civil WorksCivil Works Garage Foundation and Structural SystemGarage Foundation and Structural System Garage Civil WorksGarage Civil Works


►RESIDENCESRESIDENCES Civil Works FinishingCivil Works Finishing Fixed Furniture and DecorationFixed Furniture and Decoration Electric and Electro-mechanic WorksElectric and Electro-mechanic Works Passenger LiftsPassenger Lifts Sanitary SystemSanitary System Heating SystemHeating System

►SubtotalSubtotal


► SHOPPING CENTERSHOPPING CENTER ExcavationExcavation Foundation and Structural SystemFoundation and Structural System Civil Works CourseCivil Works Course Civil Works FinishingCivil Works Finishing Fixed Furniture and DecorationFixed Furniture and Decoration Electric and Electro-mechanic WorksElectric and Electro-mechanic Works Passenger Lift and EscalatorPassenger Lift and Escalator Sanitary SystemSanitary System

► SubtotalSubtotal


►FINISHING WORKSFINISHING WORKS Infrastructure and LandscapingInfrastructure and Landscaping Approvals and PermissionsApprovals and Permissions

►SubtotalSubtotal Project TotalProject Total

Development of a Development of a Project Budget: Project Budget:

DetailsDetails

The Riga ProjectThe Riga Project

Excel Workbook Analysis Excel Workbook Analysis

Documents

RIGA SHOPPING MALL RIGA, LATVIA FEASIBILITY STUDY