Riga Project Feasibility Study

RIGA SHOPPING MALL RIGA, LATVIA FEASIBILITY STUDY Preparation and Analysis: Bank Financing of Construction Project

The Project ► Two

stories of a commercial Western standard "mall" area       

retail commercial establishments a bank service establishments (laundry, dry-cleaning etc) up-scale restaurants fast-food facilities a night-club and disco office and residential

► This

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

The Project ► The

project site is situated on the main highway between Riga and Riga International Airport.  3 - 4 minutes to reach the Mall site from the center of Riga by way of the bridge over the Daugava River  3 minutes' drive to the southwest is an oldSoviet-style multiple high-rise housing complexes in which close to a quarter of a million persons presently reside.

The Project ► The

project site is situated on the main highway between Riga and Riga International Airport.  Most of these people work in Riga and must reach their jobs by using the highway, thus ensuring that they will pass the Mall twice a day  There are virtually no shopping facilities of any size or substance in the vicinity of this housing area.

Term Sheet ► DESCRIPTION:

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

 (1) Mortgage of land and improvement to be executed by MESA (land - or such other entity as to which the land may be conveyed at the start of construction) and MOS-MALL (improvement);  (2) Full guarantee of initial draw- down;  (3) Performance and payment (subcontractors and suppliers) bond.

Term Sheet ► EQUITY:

Flexible in terms of debt – equity mix but can be structured to include:  (1) straight equity injections  (2) land; worth after clearing which has been completed - $1.5 million presently owned by MESA and investors;  (3) preparation of design and engineering drawings by MESA ($1 million +/-)  (4) condo sales $3 - $5 million held in escrow. (4) LOC enhancements and/or structures.

Term Sheet ► PURPOSE:

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

Term Sheet ► PROJECT

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

Term Sheet ► EQUITY

YIELDS: Final deal structure will determine project equity yields.  While preliminary analysis point to average equity ROE 31.9%, returns appear understated.  If rents increase beyond projection assumptions relative to supply/demand factors, increase in GDP, continuing control of inflation, and expected increase in disposable income, average ROE should increase beyond 45%.

Term Sheet ► LENDERS

PRIMARY SOURCE OF PAYMENT CASH FLOW: Conservative projections geared to test viability of the project to protect construction (and/or take out lender) in terms of  (1) ability of the project to generate operating cash flows over debt service  (2) probabilities that the project requires additional equity over $7 million and  (3) whether, after debt service, returns are available to service equity participants. Given conservative projections, it appears the project is solid and sound in terms of full lender payout.

Term Sheet ► CONSTRUCTION:

MESA HOUSING

GROUP, INC.: (Architect / designer-builder).  Principal participant for design and construction, MESA is highly experienced in working in Russia and the surrounding republics, as well as in North Africa and, of course, Turkey. ►The

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

Term Sheet ► The

MESA GROUP of Companies (MESA), based in Ankara, Turkey, is a fifteen (15) corporation conglomerate which has operated for over 25 years in real estate development, construction, engineering and architectural, resort and tourism, and marketing fields.  The firm developed, designed and delivered more than twenty-five major housing complexes with all related facilities, in Turkey and abroad.

Term Sheet ► SURVEY

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

shortage of Western standard office space continues to dog the Riga market. Much of the trading and office spaces in Riga do not correspond to Western standards.  As a result, rental agreements with upwards of 30% of future tenants are generally reached while construction is still in progress;

Term Sheet ► b)

Current rental/purchase rates:

 As of April 1998, rents for offices and shops in downtown Riga is 40-60 US$ per square meter per month. (Lower rates pertain for so called "Russian standard" offices)  Higher rates are generally available for fully equipped "Western standard" offices. Purchase of office and residential space is over $US 1,000 per M2 and climbing

Term Sheet ► ECONOMIC

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

The Budget and Construction Costs Shopping Center

HVAC Works Sanitary System Passenger Lift and Escalator Electric and Electromechanic Works Fixed Furniture and Decoration Civil Works Finishing Civil Works Course Foundation and Structural System Excavation 0

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1500

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2500

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4500

The Budget and Construction Costs ► STARTING

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WORKS

Land Fee Design and Permits Advance Payment Subtotal

The Budget and Construction Costs ► RESIDENCES

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Excavation Foundation and Structural System Civil Works Garage Foundation and Structural System Garage Civil Works

The Budget and Construction Costs ► RESIDENCES

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Civil Works Finishing Fixed Furniture and Decoration Electric and Electro-mechanic Works Passenger Lifts Sanitary System Heating System ►Subtotal

The Budget and Construction Costs ► SHOPPING

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CENTER

Excavation Foundation and Structural System Civil Works Course Civil Works Finishing Fixed Furniture and Decoration Electric and Electro-mechanic Works Passenger Lift and Escalator Sanitary System ► Subtotal

The Budget and Construction Costs ► FINISHING

WORKS

 Infrastructure and Landscaping  Approvals and Permissions ►Subtotal

 Project Total

Development of a Project Budget: Details The Riga Project Excel Workbook Analysis