3.26.10 Appraisal Filing Exhibit B Part 4 Comps and Valuation Discussion

Case 8:09-bk-21712-TA Doc 217-5 Filed 03/26/10 Entered 03/26/10 18:41:32 Desc
VALUATION – BULK VALUE “AS IS” Exhibit B - Part 4 Page 1 of 43 58
C OMPARABLE I MPROVED D ATA S UMMARY

Total Unit Area Year Sales Status Price per Unadjusted
Data Location Units (Sq Ft) Built Sales Rate Unit Price per Sq Ft
1. Salt Pond 12 1,554- 2008 Sold out $724,000- $465.89-
301-312 Salt Pond 1,670 1.00 units/mo $699,000 $418.56
Cost Mesa
2. 330, 332, and 334 E 15th St 3 1,571- 2009 Currently $849,000- $450.93–
Costa Mesa 1,885 selling $899,000 $540.42
0.17 units/mo
3. Sycamore Stream 9 1,961- 2009 Currently $838,880- $427.78-
2453+ Orange Ave 2,184 selling $989,880 $453.24
Costa Mesa 0.67
units/month
4. SeaPoint at Crystal Cove 27 6,134- 2007 Sales stopped $3,914,450- $575.65-
Blue Shore and Sur 6,800 $6,775,450 $1,058.11
Newport Beach
5. The Tides at Crystal Cove 30 6,905- 2007 Currently $7,101,000- $955.10-
Reef Point Dr at Shore Walk 7,182 selling $8,000,000 $1,198.50
Newport Beach 0.39 units/mo
6. 710 Marguerite 1 1,747 2008 Sold 09-09 $1,020,000 $583.86
Corona del Mar
7. 605 14th St 1 2,875 2009 Sold 07-09 $1,425,000 $496.65
Huntington Beach
8. 1802 Park St 1 4,000 2008 Sold 06-09 $1,895,000 $473.75
Huntington Beach
9. 224 7th Pl 1 4,200 2009 Sold 05-09 $4,900,000 $1,166.67
Manhattan Beach
10. Carmel, Montecito, Sonoma, 328 2,027- 2009-10 Currently $661,000- $309.33-
Santa Cruz 3,050 selling $985,000 $352.66
Village of Woodbury n.a.
Irvine
11. 206 5th St 1 2,900 2009 Sold 09-09 $1,495,000 $515.52
Seal Beach
12. 278 Morning Canyon 1 5,700 2009 Sold 10-09 $6,015,000 $1,037.07
Corona del Mar
The map on the following page shows the location of the data in relation to the
subject property. Individual data sheets for each transaction appear on the
succeeding pages, followed by an analysis of the data and value estimate for the
subject individual homes.
DISTEFANO COMPANY
C OMPARABLE I MPROVED D ATA

DISTEFANO COMPANY
Comparable Improved Data 1 – Subdivision
property Salt Pond

301-312 Salt Pond
Costa Mesa
developer Waterpointe Homes
description Single-family, planned-unit-development. Year built: 2008. Two plans, two-story.
Two-car garages. Typical lot size: 1,800-2,300 sq ft. Project amenities: common
area street and landscaping. Target buyer: locals. Homeowner’s association fee:
$130/month. No Mello-Roos. No views.
unit mix and pricing Unit Area
Plan Stories BR/BA (Sq Ft) Price Price/Sq Ft
1 2 4BR-2½BA 1,554 $724,000 $465.89
2 2 4BR-2½BA 1,670 $699,000 $418.56
Lot/view premiums: none. Builder incentives: negotiable.
sales history Opened for sales June- 08 Sold out Aug-09
Und
Standing Const Planned Total
Sold 12 0 12
Unsold 0 0 0
Planned 0 0
Total 12 0 0 12
Sales rate per month 1.00
comment This is an infill small-lot planned-unit-development 10 miles southeast of the
subject property and about 4 miles inland from the coast. Original asking prices
were $724,000 for Plan 1 and $789,000 for Plan 2. Actual sale prices in 2009 ranged
from $560,000 to $650,000 ($360.36-$389.22 per sq ft). The project is sold out.
DISTEFANO COMPANY
Comparable Improved Data 2 - Subdivision
property 330, 332, and 334 East 15th Street

Costa Mesa
developer HOM Realty
description Single-family, small lot planned-unit-development. Year built: 2009. Three plans,
all two-story. Two-car garages. Lot size: 3,000-3,500 sq ft. Project amenities:
common area drive and landscaping. Target buyer: locals. Homeowner’s
association fee: $150/month. No Mello-Roos. No views.
Plan Stories BR/BA (Sq Ft) Price Price/Sq Ft Status
1 2 3BR-2½BA 1,885 $850,000 $450.93 Closed
05-11-09
2 2 3BR-2½BA 1,571 $789,000 $502.23 Active listing
3 2 3BR-2½BA 1,818 $825,000 $453.80 Closed
11-04-09
Lot/view premiums: none. Builder incentives: negotiable.
sales history Opened for sales Mar-09
Und
Sold 2 0 2
Unsold 1 0 1
Planned 0 0
Total 3 0 0 3
comment This is an infill small-lot planned-unit-development in an established residential
district 10 miles southeast of the subject property and about 1¼ mile inland from
the coast. One unit is available at a reduced price $502.23 per sq ft (versus original
$560.39).
DISTEFANO COMPANY
property Sycamore Stream

2453+ Orange Ave
Costa Mesa
developer Waterpointe Homes
description Single-family, small lot planned-unit-development. Year built: 2009. Two plans, all
two-story. Two-car garages. Lot size: 3,000-3,500 sq ft. Project amenities: common
area drive and landscaping. Target buyer: locals. Homeowner’s association fee:
$150/month. No Mello-Roos. No views.
1 2 3BR-2½BA 1,961 $838,880 $427.78
2 2 3BR-2½BA 2,184 $989,880 $453.24
Lot-view premiums: none. Builder incentives: negotiable.
sales history Opened for sales Aug-09
Und
Sold 4 0 4
Unsold 5 0 5
Planned 0 0
Total 9 0 0 9
comment This is an infill small-lot planned-unit-development in an established residential
district 10 miles southeast of the subject property and about 3 miles inland from
the coast. The project opened for sales in August 2009. Four units are sold at prices
ranging from $410.50 to $434.98 per sq ft, a reduction of about 5% from the
original asking prices.
DISTEFANO COMPANY
property SeaPoint at Crystal Cove

Blue Shore and Sur
Newport Beach
developer John Laing Homes
description Single-family subdivision. Three plans, all two-story. Two- and three-car garages.
Average lot size: 21,000 sq ft. Target buyer: local move-up. Project amenities:
Crystal Cove clubhouse and pool. Monthly homeowner’s association fee: $545. No
Mello-Roos. Combination of ocean and canyon views.
unit mix Unit Area
1 2 6BR/6½BA 6,198 $5,851,250 $944.05
2 2 5BR/5½BA 6,134 $3,914,450- $638.15-
$6,490,450 $1058.11
3 2 5BR/5½BA 6,800 $3,914,450- $575.65-
$6,775,450 $996.38
Lot-view premiums: $1.5 million+. Builder incentives: negotiable.
sales history Opened for sales Oct-07
Und
Sold 9 2 11
Unsold 2 0 2
Planned 14 14
Total 11 2 27
comment This is a luxury subdivision in Crystal Cove 15 miles southeast of the subject
property and about 1 mile inland from the beach. Crystal Cove is a master-
planned lot development by The Irvine Company, inland from Coast Highway and
Crystal Cove state beach. The project has a mix of luxury homes by various
builders and some custom lots. The Plan 2 and 3 higher prices are for ocean views,
lower prices for canyon views. The developer is in bankruptcy-liquidation, and
sales are stopped for the planned 14 units. SeaPoint sold 2 units in 2007, 9 units in
2008. A model unit with view sold at auction in March 2009 at $5,250,000
($846.77 per sq ft) above the asking price of $4,950,000.
DISTEFANO COMPANY
property The Tides at Crystal Cove

Reef Point Drive at Shore Walk
Newport Beach
developer Standard Pacific
description Single-family subdivision. Three plans, all three-story. Three and four-car garages.
Average lot size: 13,000 sq ft. Target buyer: local move-up. Project amenities:
Crystal Cove clubhouse and pool. Monthly homeowner’s association fee: $600. No
Mello-Roos. All ocean views.
unit mix Unit Area
1 3 4BR/6½BA 7,182 $6,294,000- $876.36-
$6,489,000 $903.51
2 3 4BR/4½BA 6,675 $6,295,000- $943.07-
$7,000,000 $1,048.69
3 3 5BR/5BA 6,905 $5,595,000- $810.28-
$6,101,000 $883.56
Lot/view premiums: all in price. Builder incentives: negotiable.
sales history Opened for sales Apr-07 Under const 3
Und
Sold 13 0 13
Unsold 3 2 5
Planned 12 12
Total 15 3 12 30
comment This is a luxury, ocean-view subdivision in Crystal Cove 15 miles southeast of the
subject property and about ½ mile inland from the beach. Crystal Cove is a
master-planned lot development by The Irvine Company, inland from Coast
Highway and Crystal Cove state beach. The project has a mix of luxury homes by
various builders and some custom lots. The developer recently reduced prices by
$1 million per house.
DISTEFANO COMPANY
Comparable Improved Data 6 – Spot Sale
property 710 Marguerite Ave, Corona del Mar

description Unit Area Lot Area
(Sq Ft) BR-BA Stories Built Garage (Sq Ft)
1,747 3BR-3BA 2 2008 2 det 3,540
sale information Price Days on
Sale Date Price /Sq Ft Mkt
09-16-09 $1,020,000 $583.86 133
comment This a new infill home in an established upscale residential area 12 miles southeast
of the subject property and about ½ mile inland from the coast. The original list
price was $1,295,000. No Mello-Roos. No views.
property 605 14th St, Huntington Beach

2,875 3BR-5BA 3 2009 2 att 2,900
07-27-09 $1,425,000 $496.65 39
comment This a new infill home in Huntington Beach 4 miles southeast of the subject
property, and about 6 blocks inland from the beach. The original list price was
$1,995,000. No Mello-Roos. No views.
DISTEFANO COMPANY
property 1802 Park St, Huntington Beach

4,000 4BR-5BA 2 2008 3 att 7,500
06-01-09 $1,895,000 $473.75 119
comment This a new infill home in Huntington Beach 4 miles southeast of the subject
property and about 1½ miles inland from the coast. The original list price was
$1,995,000. No Mello-Roos. No views.
property 224 7th Pl, Manhattan Beach

4,200 5BR-5BA 3 2009 3 att 2,696
05-06-09 $4,900,000 $1,166.67 140
comment This a new infill home in an upscale residential area 24 miles northwest of the
subject property. The original list price was $5,695,000. The home has ocean views
from upper floors and a roof-top deck 2 blocks from the beach. No Mello-Roos.
DISTEFANO COMPANY
Comparable Improved Data 10 – Subdivision
property Carmel, Montecito, Sonoma, and Santa Cruz

Village of Woodbury
Irvine
developer The Irvine Company
description Four single-family, subdivisions. Year built: 2009-10. Twelve plans, all two-story. Two-
car garages. Lot sizes: 2,600-3,500 sq ft. Project amenities: master-planned community
with common pools, clubhouse, and parks. Homeowner’s association fee: $105-
$115/month. Mello-Roos: yes. Overall tax rate approximately 1.7% of value. No views.
carmel - 64 units 1 2 4BR-4BA 2,625 $897,500 $341.90
2 2 4BR-4BA 2,630 $927,500 $352.66
3 2 4BR-4BA 3,050 $985,000 $322.95
montecito - 72 units 1 2 3BR-2½BA 2,156 $736,000 $341.37
2 2 4BR-3BA 2,308 $778,000 $337.09
3 2 4BR-3BA 2,336 $806,000 $345.03
sonoma - 90 units 1 2 3BR-2½BA 2,345 $771,700 $329.08
2 2 4BR-3BA 2,463 $807,200 $327.73
3 2 4BR-3BA 2,627 $853,500 $324.90
santa cruz - 112 units 1 2 3BR-2½BA 2,027 $661,000 $326.10
2 2 3BR-2½BA 2,144 $696,200 $324.72
3 2 3BR-2½BA 2,283 $706,200 $309.33
Lot-view premiums: none. Builder incentives: negotiable.
sales history Opened for sales Jan-10
comment These are four subdivisions all under construction as part of 700 new residential units
in the master-planned Village of Woodbury 17 miles east of the subject property and
9 miles inland from the coast. The Irvine Company has contracted with various
builders to build the units for a fee, with The Irvine Company providing construction
financing. Model complexes for each subdivision are complete with production units
under construction. Approximately 70 units have been sold since the grand opening
in late January 2010. The project has seen very strong interest from well qualified
buyers. The units represent the first substantial new residential construction in
Orange County since the recession.
DISTEFANO COMPANY
property 206 5th St, Seal Beach

2,900 3BR-3BA 2 2009 2 att 2,937
09-30-09 $1,495,000 $515.52 150
comment This a new infill home in Seal Beach 4 miles northwest of the subject property, and
3 blocks inland from the beach. The property sold for the asking price. No Mello-
Roos. No views.
property 278 Morning Canyon, Corona del Mar

5,800 5BR-6BA 2 2009 3 att 10,504
10-07-09 $6,015,000 $1,037.07 24
comment This a new infill home in an established upscale residential area 13 miles southeast
of the subject property and about ¼ mile inland from the coast. The seller is a
builder who paid $3,700,000 in April 2006 for the lot with a 1950s tear-down
house. No Mello-Roos. Side-ways ocean view down canyon.
DISTEFANO COMPANY
Comparable Improved Data Analysis

Data 1, 2, 3, 6, 10, and 11 are provided as indicators for the subject Trails and
Sands units. Data 4, 5, 7, 8, 9, and 12 are provided as indicators for the subject
Cliffs and Breakers units. All of the comparable data are new houses sold by
builders.
Data 1 is a small infill subdivision clearly less attractive than the subject Trails
and Sands units. The data has smaller lots, less-attractive facades, and lacks the
overall master-planned appeal of the subject property indicating higher prices
per sq ft for the subject Trails and Sands units.
Data 2 is three new infill houses built on a former single-family lot. The houses
share a common driveway and lack the street presence and distinctive design
of the subject property indicating higher prices per sq ft for the subject Trails
and Sands units.
Data 3 is a small infill subdivision built by the same builder at Data 1. The data
has less-attractive facades and lacks the appeal of the subject property
indicating higher prices per sq ft for the subject Trails and Sands units.
Data 6 is a new single infill house in an established upscale residential district.

The location is more prestigious than the subject location, although the house
fronts on a fairly busy street. Overall a lower price per sq ft is indicated for the
subject Trails and Sands units.
Data 10 is new single-family residential construction in the master-planned

Village of Woodbury in Irvine. The data is provided as an indicator of prices
for the first substantial new construction in Orange County in 2 years. The
location is inland, lots are small, and unit designs are somewhat plain. The
Irvine school district has strong appeal for buyers seeking that amenity, but
otherwise these units are clearly less appealing compared with the subject
Trails and Sands units, indicating higher prices per sq ft.
Data 11 is a new in-fill house in an established residential district. The data is

closer to the coast than the subject property, although the house covers most
of the lot with minimal yard space, and the plain facade and very narrow, deep
floor plan are less attractive compared with the subject Trails and Sands units.
DISTEFANO COMPANY
Each comparable data is compared and contrasted with the subject units to
arrive at a value indication by sales comparison. The price per sq ft is the unit of
comparison employed by developers in pricing new houses for sale.
Subject Trails and Sands - Price-per-Sq-Ft Analysis

Potential adjustments to each comparable data are considered for the
following elements of comparison: property rights conveyed, financing,
conditions of sale, market conditions, location, and physical characteristics.
The following grid shows a summary of the adjustments, along with a
discussion of the adjustment process for each element of comparison.
A DJUSTMENT G RID – T RAILS AND S ANDS

Improved Data Data 1 Data 2 Data 3 Data 6 Data 10 Data 11
Area (sq ft) low 1,554 1,571 1,961 1,747 2,027 2,900
Area (sq ft) high 1,670 1,885 2,184 3,540 2,627
3BR/2½BA-
BR/BA 4BR/2½BA 3BR/2½BA 3BR/2½BA 3BR/3BA 4BR-4BA 3BR/3BA
Average lot size 1,800-2,300 3,000-3,500 3,000-3,500 3,540 2,600-3,500 2,937
Garages 2 2 2 2 2 2
Low price $560,000 $849,000 $804,991 $1,020,000 $661,000 $1,495,000
High price $650,000 $899,000 $949,996 $985,000
Low price per sq ft $360.36 $540.42 $410.50 $583.86 $309.33 $515.52
High price per sq ft $389.22 $572.25 $434.98 $0.00 $352.66 $0.00
Mid price $605,000 $850,000 $877,493 $1,020,000 $823,000 $1,495,000
Mid price per sq ft $374.79 $450.93 $422.74 $583.86 $331.00 $515.52
Conditions of sale 0% 0% 0% 0% 3% 0%
Adjustment 0.00 0.00 0.00 0.00 9.93 0.00
Market conditions (time) 0% 0% 0% 0% 0% 0%
Adjustment 0.00 0.00 0.00 0.00 0.00 0.00
Adjusted price per sq ft $374.79 $450.93 $422.74 $583.86 $340.92 $515.52
Physical characteristics
Location 10% 5% 10% -10% 10% -5%
Adjustment 37.48 22.55 42.27 (58.39) 34.09 (25.78)
Appeal 5% 5% 5% 0% 5% 5%
Adjustment 18.74 22.55 21.14 0.00 17.05 25.78
Bedrooms/baths 0% 0% 0% 0% 0% 0%
Adjustment 0.00 0.00 0.00 0.00 0.00 0.00
Garages 0% 0% 0% 0% 0% 0%
Adjustment 0.00 0.00 0.00 0.00 0.00 0.00
Unit size 0% 0% 0% 0% 5% 5%
Adjustment 0.00 0.00 0.00 0.00 17.05 25.78
Mello Roos 0% 0% 0% 0% 4% 0%
Adjustment 0.00 0.00 0.00 0.00 13.64 0.00
Upgrades 0% 0% 0% 0% 5% 0%
Adjustment 0.00 0.00 0.00 0.00 17.05 0.00
Lot size 5% 0% 0% 0% 5% 5%
Adjustment 18.74 0.00 0.00 0.00 17.05 25.78
Sub-total physical adjustments $74.96 $45.10 $63.41 ($58.39) $115.93 $51.56
Adjusted price per sq ft $449.75 $496.03 $486.15 $525.47 $456.85 $567.08
DISTEFANO COMPANY
property rights conveyed, financing, conditions. All transactions

involve the purchase of the fee simple estate, with no seller financing or
concessions, and arm’s-length buyer-seller motivation.
conditions of sale. Data 10 are base prices for the initial phases of a large
subdivision, where the developer would be expected to price the units to
generate early excitement. Sales agents indicate that later phases will have price
increases. The data is adjusted upward by 3%.
market conditions. All of the data represent relatively recent current prices
and are not adjusted.
location. Data 1, 2, and 3, and 10 are all farther from the coast and lack the
beach proximity of the subject property and are adjusted upward by 5% to 10%.
Data 6 is in a more prestigious location and is adjusted downward by 10%.
appeal. Data 1, 2, 3, 10, and 11 are all denser projects, some with common
drives, and lack the distinctive exteriors of the subject units and are adjusted
upward by 5%.
bedrooms-baths. The data all have similar bedrooms and baths and are not
adjusted.
garages. The data all have two-car garages and are not adjusted.
unit size. Data 10 and 11 are larger than the subject Trails and Sands units
and are adjusted upward by 5% (smaller units tend to sell for higher prices per
sq ft because the core plumbing and mechanical costs are spread over a smaller
area).
mello-roos assessments. Data 10 has special assessments collected with the

property taxes that increase the annual expenses and reduce the amount that
can be borrowed to finance a purchase. The data is adjusted upward by 4%,
based on the estimated influence on amount that can be borrowed.
upgrades. The prices for Data 10 are base prices without any upgrades or lot
premiums. The data is adjusted upward by 5%.
DISTEFANO COMPANY
lot size. Data 1, 10, and 11 have smaller lots and are adjusted upward by 5%.
After adjustments the data range from $449.75 to $567.08 per sq ft. The
subject Trails and Sands units are all priced within the range of the adjusted
comparable data and appear to be priced at market.
Subject Cliffs and Breakers - Price-per-Sq-Ft Analysis

Data 4, 5, 7, 8, 9 and 12 are provided as indicators for the subject Cliffs and
Breakers units.
Data 4 and 5 are luxury subdivisions in a more prestigious location at the top
of the market in Orange County. The unit sizes are larger, indicating higher
prices per sq ft for the subject units, although otherwise these data are clearly
superior to the subject location indicating lower prices per sq ft for the subject
Cliffs and Breakers units. Data 4 also provides useful information for
comparing view premiums.
Data 7 is a new infill house in Huntington Beach in the size range of the
subject units. The data is a little closer to the beach but lacks the presence of
the subject subdivision indicating overall higher prices per sq ft for the subject
Cliffs and Breakers units.
Data 8 is a new infill house in Huntington Beach in the size range of the
subject units. The data lacks the presence of the subject subdivision but is
otherwise similar indicating overall higher prices per sq ft for the subject Cliffs
and Breakers units.
Data 9 is a new infill house two blocks from the beach with views in a
somewhat more prestigious location indicating lower prices per sq ft for the
subject Cliffs and Breakers units.
Data 12 is a new infill house somewhat closer to the coast with views in a more
prestigious location indicating lower prices per sq ft for the subject Cliffs and
Breakers units.
The following grid shows a summary of the adjustments, along with a

discussion of the adjustment process for each element of comparison.
DISTEFANO COMPANY
A DJUSTMENT G RID – C LIFFS AND B REAKERS

Data 4 Data 4
Improved Data No View View Data 5 Data 7 Data 8 Data 9 Data 12
Area (sq ft) low 6,134 6,134 6,905 2,875 4,000 4,200 5,800
Area (sq ft) high 6,800 6,800 6,675
BR/BA 3BR/3BA 3BR/3BA 3BR/3BA 3BR/5BA 3BR/3BA 3BR/3BA 5BR/6BA
Average lot size 21,000 3,540 3,540 2,900 7,500 2,696 10,504
Garages 2 2 3-4 2 2 2 3
Low price $3,914,450 $5,851,250 $6,595,000 $1,425,000 $1,895,000 $4,900,000 $6,015,000
High price $3,914,450 $6,775,450 $7,295,000
Low price per sq ft $638.16 $953.90 $955.10 $495.65 $473.75 $1,166.67 $1,037.07
High price per sq ft $575.65 $996.39 $1,092.88
Mid price $3,914,450 $6,313,350 $6,945,000 $1,425,000 $1,895,000 $4,900,000 $6,015,000
Mid price per sq ft $606.91 $975.15 $1,023.99 $495.65 $473.75 $1,166.67 $1,037.07
Conditions of sale
Adjustment
Market conditions (time) 0% 0% 0% 0% 0% 0% 0%
Adjustment 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Adjusted price per sq ft $606.91 $975.15 $1,023.99 $495.65 $473.75 $1,166.67 $1,037.07
Physical characteristics
Location -15% -15% -10% 0% 5% -20% -20%
Adjustment (91.04) (146.27) (102.40) 0.00 23.69 (233.33) (207.41)
Appeal 0% 0% 0% 2% 2% 0% 0%
Adjustment 0.00 0.00 0.00 9.91 9.48 0.00 0.00
Bedrooms/baths 0% 0% 0% 0% 0% 0% 0%
Adjustment 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Garages 0% 0% -2% 0% 0% 0% 0%
Adjustment 0.00 0.00 (20.48) 0.00 0.00 0.00 0.00
Unit size 2% 2% 2% 0% 0% 0% 2%
Adjustment 12.14 19.50 20.48 0.00 0.00 0.00 20.74
Lot size -2% -2% 0% 2% 0% 2% 0%
Adjustment (12.14) (19.50) 0.00 9.91 0.00 23.33 0.00
Sub-total physical adjustments ($91.04) ($146.27) ($102.40) $19.82 $33.17 ($210.00) ($186.67)
Adjusted price per sq ft $515.87 $828.88 $921.59 $515.47 $506.92 $956.67 $850.40
location. Data 4 and 5 are in a more prestigious location and are adjusted
downward by 15%. Data 8 is farther from the coast and is adjusted upward by
5%. Data 9 and 12 are within walking distance of the coast in more upscale
areas and are adjusted downward by 20%.
appeal. The subject property has the appeal of a large planned subdivision
backed by a large developer. Data 7 and 8 lack that appeal and are adjusted
upward by 2%.
bedrooms-baths. The data all have similar bedrooms and baths and are not
adjusted.
DISTEFANO COMPANY
garages. Data 5 has three- and four-car garages and is adjusted downward by
2%.
unit sizes. Smaller units generally sell for higher prices per sq ft than larger
units. Data 4, 5, and 12 are larger than the subject units and are adjusted
upward by 2%.
lot sizes. Data 4 has larger lots and is adjusted downward by 2%. Data 7 and
9 have smaller lots and are adjusted upward by 2%. Data 12 has a large lot
although a portion is unusable in a canyon and is not adjusted.
After adjustments the non-view data range from $506.92 to $515.87 per sq ft.
The view data range from $828.88 to $956.67 per sq ft. The subject Cliffs and
Breakers units are all priced within or below the range of the comparable data
and appear to be at market.
View Premiums
View premiums depend on the quality of the view, distance, obstructions, and
permanence. The comparable data indicate ocean view premiums of
approximately 60% to 80% of value. The Crystal Cove views (Data 4 and 5)
are more elevated and uniformly panoramic compared with the subject
property, and the Manhattan Beach view (Data 9) is closer to the coast.
The subject views are permanent and unobstructed by rooftops, although
the wetlands are not yet fully restored. Generally the Breakers lots have better
views compared with the Cliffs lots. The subject view premiums average about
$977,000 (about 57% of underlying value) depending on the quality of the
view, and are supported by actual sales. Overall the subject view premiums
appear reasonable.
Brightwater Actual Sales and Escrows

The Brightwater closed sales and escrows are the most relevant indicators of
current market values for the subject unsold units. A total of 63 units are sold
and closed since the project opened in August 2007 through January 2010. An
additional 11 units are in escrow with closings scheduled from March 2010
through September 2010 (some units are not yet built).
The following chart shows a plot of prices per sq ft for sales and escrows by
actual closed date or projected closing date (small dots) and the appraisal
DISTEFANO COMPANY
estimated values per sq ft (large dots) as of the effective date of the appraisal
(February 1, 2010).
Price/Sq Ft (before commissions)

Sold and Closed Escrows
$950.00
Trails actual /sq ft
$850.00 Sands actual /sq ft
Cliffs no view actual /sq ft
$750.00 Cliffs view actual /sq ft
Breakers no view actual /sq ft
Breakers view actual /sq ft

$650.00
Appraisal avg value/sf Trails
Appraisal avg value/sf Sands

$550.00
Appraisal avg value/sf Cliffs no view
Appraisal avg value/sf Cliffs view
$450.00 Appraisal avg value/sf Breakers no view
Appraisal avg value/sf Breakers view
$350.00
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
B RIGHTWATER A CTUAL S ALES AND E SCROWS AND A PPRAISAL E STIMATED P RICES
As indicated in the preceding chart, Trails and Sands units were the first to come
on stream just as the market was beginning its decline (the subprime crash started
in September 2007) and started closing in late 2007. Cliffs and Breakers units
started closing in mid-2008. Sales have continued despite the adverse market
conditions.
Since January 2009 prices have ranged from approximately $450 to $550 per sq
ft with a few outliers. Price variations reflect lot sizes and upgrades. Ocean-view
units have been selling with substantial view premiums as indicated in the
preceding chart.
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Base prices were reduced after an initial flurry of sales in late 2007-early 2008.
Price reductions have ranged from about 15% to 21% for the Trails and Sands
units, and about 12% to 17% for the Cliffs and Breakers units, which started
marketing later than the Trails and Sands. The following table shows the base
price reductions.
B RIGHTWATER B ASE P RICE H ISTORY

% % % % Overall %
Change Change Change Change Change
Aug-07 Feb-08 Feb-08 Jan-09 Jan-09 May-09 May-09 Jan-10 Jan-10 Jan-10
Area Base Base vs Base vs Base vs Base vs vs
Project (Sq Ft) Price Price Aug-07 Price Feb-08 Price Jan-09 Price May-09 Aug-07
Trails 1,710 $1,020,990 $935,000 -8.4% $798,450 -14.6% $798,450 0.0% $810,450 1.5% -20.6%
Plan 1 1,755 $1,070,990 $980,000 -8.5% $850,000 -13.3% $850,000 0.0% $850,000 0.0% -20.6%
Plan 2 1,843 $1,115,990 $1,045,990 -6.3% $950,000 -9.2% $950,000 0.0% $950,000 0.0% -14.9%
Plan 2 1,953 $1,155,990 $1,095,990 -5.2% $1,050,000 -4.2% $990,000 -5.7% $990,000 0.0% -14.4%
Sands
Plan 1 1,927 $1,145,990 $1,059,990 -7.5% $949,000 -10.5% $925,000 -2.5% $925,000 0.0% -19.3%
Plan 2 1,988 $1,195,990 $1,074,990 -10.1% $979,000 -8.9% $950,000 -3.0% $950,000 0.0% -20.6%
Plan 3 2,161 $1,246,990 $1,216,990 -2.4% $1,095,000 -10.0% $999,500 -8.7% $999,500 0.0% -19.8%
Cliffs
Plan 1 2,729 $1,455,450 $1,455,450 0.0% $1,375,000 -5.5% $1,275,000 -7.3% -12.4%
Plan 2 3,125 $1,665,450 $1,655,450 -0.6% $1,575,000 -4.9% $1,395,000 -11.4% -16.2%
Plan 3 3,436 $1,755,450 $1,645,450 -6.3% $1,698,000 3.2% $1,495,000 -12.0% -14.8%
Plan 4 3,477 $1,845,450 $1,695,450 -8.1% $1,675,000 -1.2% $1,550,000 -7.5% -16.0%
Breakers
Plan 1 3,174 $1,805,450 $1,795,450 -0.6% $1,750,000 -2.5% $1,500,000 -14.3% -16.9%
Plan 2 3,548 $1,975,450 $1,975,450 0.0% $1,795,000 -9.1% $1,650,000 -8.1% -16.5%
Plan 3 3,940 $2,195,450 $2,195,450 0.0% $1,995,000 -9.1% $1,840,000 -7.8% -16.2%
Plan 4 4,100 $2,255,450 $2,255,450 0.0% $2,055,000 -8.9% $1,900,000 -7.5% -15.8%
As indicated in the preceding chart, the initial pricing for the Trails and Sands
units reflected market conditions before the bubble began collapsing in fall 2007.
As the market declined, base prices were reduced. By the time the Cliffs and
Breakers units came on stream, the initial pricing reflected the market decline, so
prices have been reduced less dramatically for the Cliffs and Breakers units. Base
prices for the Trails and Sands units have not changed since May 2009. Base prices
for the Cliffs and Breakers units were adjusted downward in January 2010, partly
in response to slower demand caused by the bankruptcy. Now that the availability
of jumbo loans is improving, further reductions will likely be unnecessary.
Recent Sales and Escrows

Since January 2009 (last 13 months) there are 42 data points (31 sales, 11
escrows) that are the most relevant indicators of market values for the subject
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unsold units. A detailed list of closed sales and escrows is attached in

Appendix D. The following table summarizes the sales since January 2009.
Number
of Sales- Price/Sq Ft
Escrows Minimum Maximum
Trails 21 $466.93 $527.76
Sands 7 $462.78 $533.37
Cliffs no view 5 $429.22 $509.50
Breakers no view 3 $463.20 $475.61
Cliffs view 3 $632.73 $680.42
Breakers view 3 $770.74 $863.36
Total 42
Conclusion of Retail Value for Unsold Units

I rely primarily on the Brightwater data but also consider the off Brightwater
data. I also consider that, as of the effective date of the appraisal, we are
looking back over the trough of a very severe recession, and prices established
in the trough may not reflect current values now that the market appears on
the rebound.
The following table summarizes the value ranges per sq ft from the
adjusted comparable data off Brightwater (pages 60 to 68), and the January
2009 to date closed sales and escrows on Brightwater, along with the estimated
value ranges for the subject unsold units.
Comparable Data off

Brightwater Brightwater Actual Sales Retail Value Estimate
Prices per Sq Ft (after adjustments) and Escrows since Jan-09 (detail in Appendix D)
Minimum Maximum Minimum Maximum Minimum Maximum
Trails and Sands $449.75 $567.08 $462.78 $533.37 $469.51 $505.82
Cliffs and Breakers no view $506.92 $515.87 $429.22 $509.50 $436.05 $488.18
Cliffs and Breakers view $828.88 $956.67 $632.73 $863.36 $661.00 $796.79
The Brightwater actual prices are within (or below) the range of the
comparable data off Brightwater, so it can be concluded that the Brightwater
units are reasonably priced. The unit list in Appendix D shows the estimated
retail prices for each unsold unit. The aggregate retail values are summarized
as follows:
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Value Estimate - Sales Comparison Approach - Retail Values
On the basis of the comparable data and the Brightwater closed sales and current
escrows, I estimate the retail values of the subject unsold units as follows:
Value of Unsold Units

Retail
Unsold Average Total Value Total
Trails Units Area (Sq Ft) Area (Sq Ft) /Unit Retail Value /Sq Ft
Plan 1 7 1,710 11,970 $802,857 $5,620,000 $469.51
Plan 2 7 1,755 12,285 845,493 5,918,450 481.76
Plan 3 12 1,898 22,776 956,325 11,475,900 503.86
Subtotal Trails 26 1,809 47,031 $885,167 $23,014,350 $489.34
Sands
Plan 1 18 1,927 34,686 $974,722 $17,545,000 $505.82
Plan 2 17 1,988 33,796 967,353 16,445,000 486.60
Plan 3 23 2,161 49,703 1,068,152 24,567,500 494.29
Subtotal Sands 58 2,038 118,185 $1,009,612 $58,557,500 $495.47
Cliffs
Plan 1 22 2,836 62,392 $1,281,500 $28,193,000 $451.87
Plan 2 15 3,260 48,900 1,421,533 21,323,000 436.05
Plan 3 15 3,410 51,150 1,512,000 22,680,000 443.40
Plan 4 17 3,474 59,058 1,572,353 26,730,000 452.61
Subtotal Cliffs non-view 69 3,210 221,500 $1,433,710 $98,926,000 $446.62
Cliffs view
Plan 1 5 2,836 14,180 $2,092,000 $10,460,000 $737.66
Plan 2 4 3,260 13,040 2,211,250 8,845,000 678.30
Plan 3 5 3,410 17,050 2,254,000 11,270,000 661.00
Plan 4 8 3,474 27,792 2,370,625 18,965,000 682.39
Subtotal Cliffs view 22 3,276 72,062 $2,251,818 $49,540,000 $687.46
Total Cliffs 91 3,226 293,562 $1,631,495 $148,466,000 $505.74
Breakers
Plan 1 15 3,504 52,565 $1,646,667 $24,700,000 $469.89
Plan 2 16 3,548 56,768 1,732,063 27,713,010 488.18
Plan 3 13 3,939 51,207 1,879,431 24,432,600 477.13
Plan 4 20 4,207 84,140 1,938,428 38,768,564 460.76
Subtotal Breakers non view 64 3,823 244,680 $1,806,471 $115,614,174 $472.51
Breakers view
Plan 1 4 3,557 14,228 2,727,500 10,910,000 $766.80
Plan 2 5 3,548 17,740 2,827,000 14,135,000 796.79
Plan 3 6 3,939 23,634 2,926,917 17,561,500 743.06
Plan 4 11 4,207 46,277 3,126,818 34,395,000 743.24
Subtotal Breakers view 26 3,918 101,879 $2,961,596 $77,001,500 $755.81
Total Breakers 90 3,851 346,559 $2,140,174 $192,615,674 $555.79
Total Brightwater unsold units 265 3,039 805,337 $1,594,919 $422,653,524 $524.82
DISTEFANO COMPANY
On the basis of the comparable data and the Brightwater closed sales, the
contract price is accepted as the market value of the units in escrow, as follows:
Value of Units in Escrow

Retail
Average Total Value Total
Trails Escrows Area (Sq Ft) Area (Sq Ft) /Unit Retail Value /Sq Ft
Plan 1 2 1,710 3,420 $836,475 $1,672,950 $489.17
Plan 2 1 1,755 1,755 850,450 850,450 484.59
Plan 3
Subtotal Trails 3 1,725 5,175 $841,133 $2,523,400 $487.61
Sands
Plan 1
Plan 2 1 1,927 1,927 915,000 915,000 474.83
Plan 3
Subtotal Sands 1 1,927 1,927 $915,000 $915,000 $474.83
Cliffs
Plan 1
Plan 2 2 3,260 6,520 1,535,000 3,070,000 470.86
Plan 3
Plan 4
Subtotal Cliffs non-view 2 3,260 6,520 $1,535,000 $3,070,000 $470.86
Cliffs view
Plan 1
Plan 2 1 3,310 3,310 2,200,000 2,200,000 664.65
Plan 3 1 3,416 3,416 2,324,320 2,324,320 680.42
Plan 4 1 3,477 3,477 2,200,000 2,200,000 632.73
Subtotal Cliffs view 3 3,401 10,203 $2,241,440 $6,724,320 $659.05
Total Cliffs 5 3,345 16,723 $1,958,864 $9,794,320 $585.68
Breakers
Plan 1 1 3,546 3,546 $1,650,000 $1,650,000 $465.31
Plan 2
Plan 3
Plan 4 1 4,100 4,100 1,950,000 1,950,000 475.61
Subtotal Breakers non view 2 3,823 7,646 $1,800,000 $3,600,000 $470.83
Breakers view
Plan 1
Plan 2
Plan 3
Plan 4
Subtotal Breakers view 0
Total Breakers 2 3,823 7,646 $1,800,000 $3,600,000 $470.83
Total Brightwater escrows 11 2,861 31,471 $1,530,247 $16,832,720 $534.86
Total Brightwater unsold 265 3,039 805,337 $1,594,919 422,653,524 $524.82
Aggregate retail value, unsold and
escrows 276 $439,486,244
Note that the preceding value estimates assume no future trending in prices
for the unsold units.
DISTEFANO COMPANY
Bulk Value Estimate – Discounted Cash Flow
The discounted cash flow analysis considers only the revenue and expense that
a bulk buyer would anticipate after a bulk purchase of the subject property on
the effective date of the appraisal.
Forecast Revenue
Forecast unit sales revenue is based on the current retail values as estimated in
the preceding section of this report under three absorption and appreciation
scenarios (see page 82). Additional revenue consists of deferred payments and
profit sharing under the model sale agreement (see page 9).
Forecast Development Costs

Development costs are based on the owner’s budget. Construction costs are
modeled to occur before sales revenue is received (one quarter lag for the
Trails and Sands units, and two quarters lag for the Cliffs and Breakers units)
under each absorption scenario (the larger houses take longer to build).
commissions and closing costs. This item covers commissions to sales

agents and seller’s closing costs and are based on a percentage of sales revenue
as shown in the spreadsheet. At present the subject property cooperates with
outside brokers. As the economy recovers, the owner expects that all sales will
be handled in-house, which is the usual situation for new subdivisions under
normal market conditions.
off-site improvement. This item covers the remaining costs for salaries,
temporary utilities, fencing, security, and engineering within the project.
on-site improvement. This item covers the remaining costs for street
improvements and related items.
common areas. This item covers the remaining costs for walls and
landscaping.
direct construction. This item covers the costs for building the individual
houses.
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options. This item covers buyer’s upgrades to the base units.

indirect construction. This item covers superintendents, trailers, and site
maintenance.
model upgrade. This item covers the cost to convert the models to
residences.
property tax. This item covers the owner’s property taxes before units are
sold to individual buyers.
fees-building permits. This item covers the remaining fees and permits
payable as construction is started on the individual units.
fees-final map. This item covers the remaining fees payable as construction
is started on the individual units.
city annexation fees. This item covers the fees payable as construction is
started on each individual unit.
customer service. This item covers the punch list and first-year warranty costs.
entitlement costs. This item covers the remaining costs for archeological
studies required by the coastal development permit.
accounts payable float. This item covers an adjustment for invoiced items
that have not been paid.
insurance. This item covers property and liability insurance for the project.
marketing, advertising. This item covers general project marketing,

brochures, web site, and related items.
warranty expense. This item covers a reserve for future costs primarily after
project sellout for claims against the 10-year construction defects warranty.
management. This item covers developer’s overhead for salaries and benefits,
general and administrative and related costs.
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model rent. This item covers the rent payable to the owner of the models per
the model lease agreement (page 9).
Forecast Future Appreciation and Sales-Rate Scenarios

appreciation. Future price appreciation is difficult to forecast because of the
uncertain course of the economy in general.
The firm Real Estate Economics (Irvine) forecasts the following average
appreciation rates for new homes in Southern California:
Increase in
Median
Year Price
2010 0.1%
2011 1.8%
2012 4.0%
2013 6.5%
2014 8.0%
2015 9.8%
2016 13.0%
2017 17.3%
In a study for the subject property, real estate economist Walter Hahn, PhD
forecasts the following appreciation for the subject property:
Increase in
Median
Year Price
2010 3.0%
2011 6.0%
2012 10.0%
2013 12.0%
2014 14.0%
The preceding rates consider the number of high-income potential buyers in

Orange County and the lack of competitive product in coastal Orange County,
which, when combined with improved economy and sentiment will support
above-average price increases.
effect of bankruptcy filing. The bankruptcy filing (October 2009) at

subject property has reduced buyer demand, particularly for the larger units
(Cliffs and Breakers), although the exact effect is difficult to quantify. Base
prices for the Cliffs and Breakers units were reduced by about 7% to 15% in
DISTEFANO COMPANY
January 2010. The bankruptcy is expected to be exited in May or June 2010.

The appreciation rate for the subject property should exceed overall market
appreciation as prices snap back to pre-bankruptcy levels.
For the discounted cash flow analysis, three sale price appreciation
scenarios are modeled as shown in the discounted cash flow table. The
appreciation scenarios are as follows:
Appreciation per Year

Appreciation 1 2 3 4 5 6
Scenario 2010 2011 2012 2013 2014 2015
1 All units 2% 2% 3% 4% 4% 4%
2 All units 2% 4% 7% 8% 9% 9%
3 All units 2% 6% 10% 12% 14% 10%
sales rate. The future sales rate is also difficult to forecast. The actual sales
rate at the subject property is as follows:
B RIGHTWATER S ALES R ATES

Oct Jan- Apr Jul- Oct Jan- Apr Jul- Oct Jan- Apr Jul-
Quarter beginning -07 08 -08 08 -08 09 -09 09 -09 10 -10 10 Total
Trails 5 1 4 1 0 0 4 7 7 0 3 0 0
Sands 4 1 3 1 1 1 3 0 2 0 0 1 0
Cliffs 0 0 0 4 2 1 1 0 1 1 0 1 0
Cliffs view 0 0 0 0 0 0 0 0 0 1 0 2 0
Breakers 0 0 0 1 2 0 1 0 0 2 0 0 0
Breakers view 0 0 0 0 2 3 0 0 0 0 0 0 0
Total sales per quarter 9 2 7 7 7 5 9 7 10 3 4 4 74
Cumulative sales 9 11 18 25 32 37 46 53 63 66 70 74
Months elapsed 3 6 9 12 15 18 21 24 27 30 33 36
Cumulative sales rate per
month 3.0 1.8 2.0 2.1 2.1 2.1 2.2 2.2 2.3 2.2 2.1 2.1
The sales rates reflect the recessionary market and the bankruptcy filing in
October 2009. Brightwater sales rates are on par with other active projects in
Orange County.
A report prepared by MarketPointe (Appendix C) lists all the new home
subdivisions currently offering single-family detached units for sale at prices
above $600,000 in Orange County (36 total projects). The cumulative average
sales rates over the life of the projects ranges from 0.35 to 2.86 units per
month, with an average per project of 1.34 units per month. The sales rate at
the subject property (2.1 units per month) indicates that it is capturing more
than its fair share of sales.
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The MarketPointe report indicates that 105 units were sold in the fourth
quarter 2009. Standing unsold inventory was 141 units, less than four months
supply.
Usual subdivision sales rates under more normal market conditions range
from about 3 to 5 units per month (sometimes higher) depending on the
appeal and market acceptance of the product. The subject project is really at
least four separate subdivisions. Thus in a more normal market, the overall
Brightwater sales rate might be expected to approach 12 to 20 units per month
at 3 to 5 units per month per subdivision.
As the market recovers, sales rates should increase from the historical 2.1
units per month. For the discounted cash flow analysis, three absorption rate
scenarios are modeled over 4, 5, and 6 years as shown in the model (average
sales rates of 3.7, 4.4, and 5.5 units per month), which appears very reasonable
in view of the historical sales rates and the improving market. In each scenario
the more expensive homes are assumed to absorb at a slower rate than the less
expensive homes. The sales rate scenarios are as follows:
Sales per Year Sales

Sales Rate 1 2 3 4 5 6 Rate/
Scenario 2010 2011 2012 2013 2014 2015 Total Month
1 Trails 12 14 0 0 0 0 26
2 Trails 15 11 0 0 0 0 26
3 Trails 18 8 0 0 0 0 26
1 Sands 9 12 18 19 0 0 58
2 Sands 9 15 18 16 0 0 58
3 Sands 12 24 22 0 0 0 58
1 Cliffs 7 10 21 21 20 12 91
2 Cliffs 7 15 25 25 19 0 91
3 Cliffs 9 21 31 30 0 0 91
1 Breakers 7 10 21 21 18 13 90
2 Breakers 7 15 25 25 18 0 90
3 Breakers 9 21 31 29 0 0 90
1 Total 35 46 60 61 38 25 265 3.7
2 Total 38 56 68 66 37 0 265 4.4
3 Total 48 74 84 59 0 0 265 5.5
Discount Rate
The discount rate (also called the internal rate of return) is a yield rate
expressed as the annualized compound rate of return on an investment.
Discount rates range from near zero for short-term U.S. Treasury obligations
(considered nearly risk-free) to upwards of 30%-40% for highly speculative
DISTEFANO COMPANY
investments depending on the perceived risk and term of the investment, with
longer term investments typically having higher yields.
The development of the discount rate for this appraisal relies on three
sources: (1) the PriceWaterhouseCoopers Korpacz Real Estate Investor Survey,
(2) the discount rate for the Brightwater model purchase and sale agreement,
(3) my analysis of the risk for the subject property.
pricewaterhousecoopers korpacz real estate investor survey. The

quarterly Korpacz Survey is among the most widely recognized sources of
investor discount rates. The survey covers commercial and residential income
properties and proposed commercial and residential land developments.
The following table and chart show discount rates for leased commercial
properties.
I NVESTOR Y IELD R EQUIREMENTS – F OURTH Q UARTER 2009

Free and Clear
Yield Requirements
Market and Product Type Range Average
National Net-Lease Market 8.00%–10.00% 9.00%
National CBD Office Market 6.75%–14.00% 9.39%
National Strip Shopping Center Market 7.50%–12.00% 9.44%
National Warehouse Market 7.50%–12.50% 9.74%
National Suburban Office Market 7.25%–14.00% 10.02%
National Power Center Market 7.50%–15.00% 10.08%
National Apartment Market 6.50%–14.00% 10.17%
National Regional Mall Market 7.00%–17.00% 10.63%
National Full-Service Hotel Market 10.00%–14.00% 11.69%
Source: Source: PriceWaterhouseCoopers Korpacz Real Estate Investor Survey, Florham Park, NJ.
The following chart shows the trend in investor yield requirements for various
product types.
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National Full Service Hotel

Los Angeles Office
Average yield requirement (discount rate), free and clear
National Suburban Office
National Regional Mall
15.5% National Strip Shopping Center
National Apartment Market
14.5%
National Industrial
13.5%
12.5%
11.5%
10.5%
9.5%
8.5%
7.5%
Q1 90
Q4
Q3
Q2
Q1 93
Q4
Q3
Q2
Q1 96
Q4
Q3
Q2
Q1 99
Q4
Q3
Q2
Q1 02
Q4
Q3
Q2
Q1 05
Q4
Q3
Q2
Q1 08
Q4
Q3
Source: PriceWaterhouseCoopers Korpacz Real Estate Investor Survey, Florham Park, NJ.
FREE AND CLEAR EQUITY YIELD REQUIREMENTS
As indicated in the preceding chart, office, retail, industrial, and apartment

properties, where revenue is typically backed up by a lease or rental agreement,
have lower discount rates compared with hotels, where revenue is more
variable and not backed up by leases.
All yield rates have picked up recently in response to expectations for
increases in long-term interest rates and inflation once the economy begins to
recover. Also, because of the credit crunch, fewer buyers have been able to
demand higher yields.
The Korpacz survey reports the following discount rates for the national
development land market.
Q4 2009 Q2 2009 Q4 2008

Free and clear discount rates, all cash
transactions, including developer’s profit
Range 12.00%-30.00% 12.00%-30.00% 12.00%-25.00%
Average 19.67% 20.08% 18.58%
Change -41 b.p. +150 b.p.
The preceding rates are for proposed developments (commercial and

residential) of vacant land for properties nationwide, assuming entitlements
are in place.
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In considering the Korpacz data, I observe that the revenue to the subject
property is not backed up by a lease, thus the discount rate would be higher
than the 9% to 10% range for leased office, retail, industrial, and apartment
properties. However the subject property is not proposed. Most of the
infrastructure is built, and 63 units are built and sold so that prices and
construction costs are known. The property has a desirable coastal location in
a densely populated metropolitan area. Thus the discount rate would be lower
compared with the 20% average for proposed land developments in varying
locations throughout the country.
discount rate from brightwater model purchase and sale. The buyer
of the Brightwater models is a third-party investor (see page 9). The owner of
the subject property (the seller of the models) indicates that when negotiations
commenced in fourth quarter 2008, the buyer initially sought a 12% internal
rate of return. However as the credit meltdown after the Lehman bankruptcy
became more obvious, the buyer insisted on a higher discount rate to cover
market uncertainty. The buyer’s investment is backed up by a lease.
In considering the model discount rate of 16%, I note that the marketing
risk for the models is essentially the same as for the subject unsold units,
although the model investment is backed up by a lease of the models. I also
note that the investor was willing to accept a 12% discount rate were it not for
the credit freeze in fourth quarter 2008, now largely abated. Thus if the deal
were done in the current recovering market, the discount rate would
presumably be lower than 16%.
discount rate from my analysis of subject property risk. In arriving at

a discount rate for the subject property, I also rely on a methodology
developed by Walter Hahn PhD. The methodology develops an overall
discount rate by considering the risk premium associated with various real
estate risk factors. The risk premium is added to the risk-free rate in arriving at
an overall discount rate.
The following table summarizes the analysis.
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Typical Risk Subject

Premium Risk
Risk Factor Range Premium
Land and location characteristics 2%-10% 2.0%
Entitlement 0%-10% 0.0%
Project planning 2%-10% 0.0%
Development and construction 2%-6% 2.0%
Financing 1%-6% 3.0%
Market 1%-10% 6.0%
Total estimated risk premium 6%-57% 13.0%
Base discount rate (risk-free rate) at 02-02-10 7-yr T-note 3.1%
Estimated discount rate, subject property 16.1%
My observations regarding the risk factors are as follows:

• Land and location risks. The subject location is close to the coast in an
urbanized area with high incomes.
• Entitlement risks. The subject property is fully entitled.
• Project planning risks. The subject property is fully planned; all soils
and environmental analyses are complete.
• Development and construction risks. The subject infrastructure is
substantially complete. Production unit costs are known based on
construction of existing units. There is some risk related to future
materials costs.
• Financing risks. Jumbo financing is available, however underwriting
standards are more restrictive. Residential finance markets are not
completely recovered from credit freeze.
• Market risks. The market is in transition from down-cycle to stability
to growth. Future appreciation rates are difficult to forecast.
Estimated Discount Rate, Subject Property

On the basis of the preceding analysis, I estimate that 16% is a reasonably
supportable discount rate for the subject discounted cash flow analysis. The
rate includes developer’s profit.
Net Present Value

As shown in the table in Appendix E, the present value of forecast revenue and
expense is as follows:
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Present value at 16% discount rate

Sellout Scenario
0 1 2 3
Appreciation 1 195,305,692 203,633,177 214,460,355
Scenario 2 214,861,235 219,679,697 226,273,196
3 233,734,991 235,209,335 237,290,492
The preceding table shows the sensitivity of the present value to the three
appreciation and absorption scenarios. I conclude that the highlighted value
(Appreciation Scenario 2 and Sellout Scenario 2) is the most reasonably
supportable.
Sensitivity Comment
A forecast represents a best estimate, although the actual outcome will vary to
some extent from the forecast since it’s impossible to predict the future. The
sensitivity analysis is intended to provide an indication of the accuracy of the
value estimate and to answer the question “what if?” For this analysis, the
assumed absorption rate and price appreciation rate have the greatest
influence on the present value calculation. Thus these two variables are
modeled under three scenarios each, which results in nine possible
combinations and nine present values as shown in the preceding table. The
scenarios are intended to provide an order of magnitude of the range of
possible present value outcomes. The level of accuracy falls within a range of
about 10% on either side of the value estimate, based on any reasonable
forecast of sales rates and appreciation.
Value Estimate – Bulk Value “As Is”
On the basis of the preceding analysis, I estimate the market value (bulk value)
“as is” of the fee simple estate in the subject property, as of the effective date of
the appraisal, February 1, 2010, as follows:
MARKET VALUE (BULK VALUE) “AS IS” $219,700,000
DISTEFANO COMPANY
CERTIFICATION Exhibit B - Part 4 Page 33 of 43 90
Exposure Time
The definition of market value incorporates the assumption that the property
receives a reasonable exposure time in the open market. The market value
estimate contemplates an exposure time of 9 months.
The exposure time estimate takes into consideration the time required to
complete the marketing process, including the following sequential activities:
the owner lists the property for sale with a broker; the broker exposes the
property in the market; one or more potential buyers complete a due diligence
analysis; the actual buyer assembles equity and debt capital for the purchase;
and the sale closes.
CERTIFICATION
I certify that, to the best of my knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal,
impartial, and unbiased professional analyses, opinions, and conclusions.
3. I have no present or prospective interest in the property that is the
subject of this report and no personal interest with respect to the parties
involved.
4. I have no bias with respect to the property that is the subject of this
report or to the parties involved with this assignment.
5. My engagement in this assignment was not contingent upon developing
or reporting predetermined results.
6. My compensation for completing this assignment is not contingent on
the development or reporting of a predetermined value or direction in
value that favors the cause of the client, the amount of the value
estimate, the attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this appraisal.
7. My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation and the Code
of Professional Ethics and Standards of Professional Appraisal Practice of
the Appraisal Institute.
DISTEFANO COMPANY
CERTIFICATION Exhibit B - Part 4 Page 34 of 43 91
8. I have made a personal inspection of the property that is the subject of

this report.
9. No one provided significant professional assistance to the person signing
this report.
10. I have acted in an independent capacity, and the appraisal assignment
was not based on a requested minimum valuation, a specific valuation,
or the approval of a loan.
11. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its authorized representatives.
12. As of the date of this report, I have completed the requirements of the
continuing education program of the Appraisal Institute.
February 19, 2010
Carl DiStefano, MAI

Certified General Real Estate Appraiser
(California Certificate AG001517)
DISTEFANO COMPANY
Exhibit B - Part 4 Page 35 of 43
Appendix A

3.26.10 Appraisal Filing Exhibit B Part 4 Comps and Valuation Discussion

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Case 8:09-bk-21712-TA Doc 217-5 Filed 03/26/10 Entered 03/26/10 18:41:32 Desc

VALUATION – BULK VALUE “AS IS” Exhibit B - Part 4 Page 1 of 43 58

C OMPARABLE I MPROVED D ATA S UMMARY

C OMPARABLE I MPROVED D ATA

Comparable Improved Data 1 – Subdivision

property Salt Pond

Comparable Improved Data 2 - Subdivision

property 330, 332, and 334 East 15th Street

Comparable Improved Data 3 - Subdivision

property Sycamore Stream

Comparable Improved Data 4 - Subdivision

property SeaPoint at Crystal Cove

Comparable Improved Data 5 - Subdivision

property The Tides at Crystal Cove

Comparable Improved Data 6 – Spot Sale

property 710 Marguerite Ave, Corona del Mar

Comparable Improved Data 7 – Spot Sale

property 605 14th St, Huntington Beach

Comparable Improved Data 8 – Spot Sale

property 1802 Park St, Huntington Beach

Comparable Improved Data 9 – Spot Sale

property 224 7th Pl, Manhattan Beach

Comparable Improved Data 10 – Subdivision

property Carmel, Montecito, Sonoma, and Santa Cruz

Comparable Improved Data 11 – Spot Sale

property 206 5th St, Seal Beach

Comparable Improved Data 12 – Spot Sale

property 278 Morning Canyon, Corona del Mar

Comparable Improved Data Analysis

Data 6 is a new single infill house in an established upscale residential district.

Data 10 is new single-family residential construction in the master-planned

Data 11 is a new in-fill house in an established residential district. The data is

Subject Trails and Sands - Price-per-Sq-Ft Analysis

A DJUSTMENT G RID – T RAILS AND S ANDS

property rights conveyed, financing, conditions. All transactions

mello-roos assessments. Data 10 has special assessments collected with the

Subject Cliffs and Breakers - Price-per-Sq-Ft Analysis

The following grid shows a summary of the adjustments, along with a

A DJUSTMENT G RID – C LIFFS AND B REAKERS

Brightwater Actual Sales and Escrows

Price/Sq Ft (before commissions)

Trails actual /sq ft

$850.00 Sands actual /sq ft

Cliffs no view actual /sq ft

$750.00 Cliffs view actual /sq ft

Breakers no view actual /sq ft

Breakers view actual /sq ft

Appraisal avg value/sf Sands

Appraisal avg value/sf Cliffs view

$450.00 Appraisal avg value/sf Breakers no view

Appraisal avg value/sf Breakers view

B RIGHTWATER A CTUAL S ALES AND E SCROWS AND A PPRAISAL E STIMATED P RICES

B RIGHTWATER B ASE P RICE H ISTORY

Recent Sales and Escrows

unsold units. A detailed list of closed sales and escrows is attached in

Conclusion of Retail Value for Unsold Units

Comparable Data off

Value Estimate - Sales Comparison Approach - Retail Values

Value of Unsold Units

Value of Units in Escrow

Bulk Value Estimate – Discounted Cash Flow

Forecast Development Costs

commissions and closing costs. This item covers commissions to sales