PROJECT NARRATIVE

The Property

The property is located on 2123 Manchester Ave. Cardiff, California 92007. Manchester Avenue is two short blocks east of Hwy 101 and about half a mile west of Interstate 5, off the Birmingham Drive exit,  in the exclusive community of Cardiff. The property is approximately 7,500 sq. ft. and is subdivided into 3 legal parcels. There currently exists a 1,200 sq. ft. single family house which is approximately 40 years old.

The following is its legal description:

Lots 42,43,44 in block 59 of Cardiff “A” in the City of Encinitas, MAP No. 1334.

Project Description

The owners of the project 2123 Manchester LLC together with the developer/builder AJ Pacific Homes LLC plans the construction of three new, two story with basement, single family residences. Two of the homes are attached at the garage, and one single-family home stands alone. All three residences will have two car garages. The homes will be approximately 2,300 sq. ft. with roof decks. Each home will have corridor Ocean views from the second floor and panoramic Ocean Views from the roof decks. The project has been approved by the City of Encinitas and the approved plans for the project are accompanied in this package.

Cardiff by the Sea

Founded in 1911 by developer J. Frank Cullen, the community was named in honor of his wife's native Wales and many streets have English names. A later developer, German musician Victor Kramer added the "by-the-Sea".
 
The community takes pride in its "walkability" with the beach, lagoon, restaurants, markets, post office, library, and other commercial services in easy walking distance to each other.
 
Restaurant Row offers beach-side dining and a wide variety of choices, including Mexican, Italian and California Cuisine with an emphasis on seafood.
 
San Elijo State Beach Campground provides beach campsites and day-use beach parking and lifeguard service.
 
Recreational areas include Glen Park, with tennis and basketball courts, a children's play area and picnic tables. Cardiff Sports Park has multiple baseball and soccer fields.
 
One surf hotspot is Cardiff Reef, located alongside Historic Highway 101 at the mouth of San Elijo Lagoon. Surf at the reef consistently breaks both right and left attracting professional and amateur surfers from all over Southern California and beyond year round.
 
Carpentier Parkway borders the downtown area and is a volunteer community project.
 
Experience the unique identity of Cardiff-by-the-Sea - moderate climate, breathtaking views, two miles of Pacific coastline to the west, the 900-acre San Elijo Lagoon Ecological Reserve to the south and world-class surfing.
 
Cardiff-by-the-Sea, a community within the city of Encinitas, is located 95 miles south of Los Angeles and 25 miles north of San Diego.

Market Valuation

The owners of the project have evaluated all closed and pending transactions as well as all current active listings in the Cardiff area as of June 16, 2008. We have not analyzed transactions east of Interstate 5 as it is common knowledge that homes west of Interstate 5 sell at a premium compared to homes east of Interstate 5 because of there close proximity to the Ocean. It is a general rule that we seldom see property for sale for less than 1 million west of the Interstate 5 for homes approximately 2,000 sq. ft. or more. A summary of these transactions is accompanied in this package. The information provided has been categorized into 5 sections. They are the following:

Each group – closed, active, pending listings have been categorized using the categories above.

There have been 11 closings from the beginning of the year 2008 until June 16, 2008. All but four closed above 500 per square foot. Three of the homes that closed below $500 were either by the freeway or had no views or both. One was a distressed sale as described on the MLS listing “due to a divorce”. There were four homes we consider to be similar to our product type and three of those properties closed above $600 per square foot. One property closed for $494 per square foot.

As of June 16, 2008, there were three properties pending. All three properties had a listing price well over $500 per square feet. It would be a very reasonable assumption that these properties would be closing at above $500.

There are twenty-six active listings as of June 16, 2008 west of Interstate 5 in the Cardiff area. Ten of the twenty-six listings are below $500 per square feet. Six of the ten listings below $500 per square feet are close to the freeway or have no views or both. One of the listings is at $491, which we would consider similar to our project type and the remaining three are not comparable products. Of the twenty-six listings we would consider five listings similar to our proposed development and four of the five are priced well above $500 per square feet. One, as discussed previously is priced at $491 per square foot.

As of June 16^th there currently is a 6 – 9 month inventory in Cardiff, which is below the national averages, as well as the averages for California. If we were to take only the homes we consider similar to our proposed development, we would have a six month inventory on the Cardiff area. Again below the National and California averages.

When we purchased the property back in early 2007, a similar analysis was performed and there has not been any significant price decline. This supports the common perception that the drop in real estate prices has not affected the value of beach property. The volume may have decreased but the values have been relatively stable.

In conclusion, there seems to be strong support for our pro-forma pricing of $513 per square foot. This value seems to hold steady even in today’s down real estate market.

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