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ST1002-CS100517ProvidentCompany,Inc. RES EALSTATEERVICES POB1790 OSTFFICEOX C,T75019 OPPELLEXAS T(214)215-9400 EL F(214)276-1709 AX E gregyancey@verizon.net MAIL May17,2010 Mr.ClayPhillips CityManager CityofCoppell 255ParkwayBoulevard Coppell,Texas75019 RE:OldTownCoppellDevelopment DearClay: Thankyouforyourtimeandeffortstobringourproposedplansforoldtowntofruition.Charles andIareexcitedaboutgettingtheagreementssignedsoonandbeginningourmarketingefforts again. WewantCitystaffandtheCounciltounderstandthemarketdynamicswe’refacingcurrently, whichvarygreatlyfromthetimewhentheLOIwasnegotiatedthreeyearsago.Whenthemarket wasfarbetterthantoday,wemodeledasingletake-downoftheresidentiallotsandsubstantially completingtheentireprojectoverfiveyears.Weexpectedthefuturecommercialsiteandsomeof theretail/servicesitestotakesevenyearsormoretobesold. Whilewearenotactivelymarketingtheproject,weremainincontactwithseveralresidential prospectsandtheyareunabletopurchasethirty-eightfinishedlotsatonceinthisproject.Unless financingormarketconditionsvastlyimprove,weareanticipatingathree-parttake-downofthe residentialsitesoveratwo-yearperiod.Giventhetimeneededforthemtofinishallofthehomes, wewouldhavetodramaticallyreducethelotpricestoenticethemtopurchaseallofthelotsin oneclosing.Thatwouldonlyfurthererodeournumbers. Welistenedtowhatthebuildersareseeinginthemarketandshiftedtodetachedresidentialto speedthesalesperiodsinceattachedtownhomesaleshaveslowedsomuchthroughoutDallas.As aresultofthischangeinthemarket,welostsixlotswhileourfixedcostsforinfrastructureare essentiallyunchanged.Otherthanrealizingsmallsavingsduetofewerwaterandsewertaps,the sixlotreductioniseffectivelyalllostincome. Giventheextendedlotpurchasetimeandlostprofitasunitcountreduced,theonlyviable businessmodeltodayistogobacktoouroriginalprogram,purchasinglandfromtheCity incrementallythroughoutthedevelopmentagreement.Buyersandsellersalikearefacingfar differentcircumstancesthanthoseofthreeyearsagobecauseoftheshiftintheeconomy. Regardingthebalanceoftheproject,weareforecastingafarmoreconservativesalesschedule, particularlyfortheretail/servicessegment.Financingforthebuyersisnotwhatitwas previouslyandthiswillslowthebuild-outtocompletion.Thecottagesarelesslikelytosuffer muchfromhigherequityrequirementsfromthelendingcommunity,butappraisalsfor comparablesalesmaycreatesomedifficultiesforbuyers.Overall,westillexpectthecottagesto dowellandarenotconcernedwithsellingthemprofitably,justataslowerpace. Wearemostconcernedwiththeretailportionofthedevelopmentasretailershavestruggledto surviveinthiseconomicclimate.Salestaxrevenueappearstohavebottomedoutandisclimbing oncemorebutfinancingforretaildealsisstillproblematicforthetenants.Manycannotborrow tenantimprovementdollarsandsomelenderssimplywillnotdoanyretaildeals.Asdevelopers, themarketdictatesthatwebudgetmoreequityparticipationtobuildthebuildingshells,extend theleasingholdperiodforspeculativebuildingandanticipateaprojectbuild-outtimeto completionofsevenyearsinsteadoffive. Affectingbothcottageandretail/servicessegmentsofthedevelopmentistheanticipatedincrease ininterestrates.Ifratesincreaseasexpectedlaterthisyear,ourowncarryingcostswillriseas ourbuyersfaceahighercostofownership. Compoundingtheproblemisthepresentfinancingmarketforus,whichoncewasavailablewith twentypercentequityinvestedbutnowrequiresfortytofiftypercentequitytofinancethe development.Thereducedleveragefurtherlowersourreturns. Regardingthelevelofinvestmentwewillhaveuponthecompletionofthepublicandprivate infrastructure,thereisquiteadisparitybetweentheabbreviatedestimateprovidedbyFreese& Nicholsandwhatwehaveforecasted.TheestimatedidnotincludereimbursementtotheCityfor gradingorstabilizationatourparkingareas;therewerenostormwaterimprovementsshown;and thewaterandsewertapsestimateiswellbelowthebudgetwedevelopedwithourengineer.We havenotseentheworkbyFreese&Nicholsandhavenothadaprogrammingmeetingwiththem, sothatprobablyresolvesthedifferences.Atourownrequest,wehavenotparticipatedinthe designbecausewefeelthatthecontractsshouldbethefirstpriority. TheFreese&Nicholsestimateexcludesthefranchiseutilitiescostswhichexceed$500,000for AtmosandOncor.Wehavetostartinstallingthemnolaterthanuponthefirstclosing.With franchiseutilities,stormwaterallowancesandallwaterandsewertapsinplace,ouractual infrastructurebudgetvariesfromtheFreese&Nicholsestimateinexcessof$1,000,000.These arecostsweincurbeforesellinganyfinishedlots. OurotherinvestmentuponthefirstclosinginadditiontothelandpaymenttotheCityisthe constructionofthemodelcottageat$300,000andaretailbuildingat$660,000.Ourtotal forecastedoutlayonoraboutthetimeofthefirstclosingexceeds$3,000,000,comprisedofthe optionfee,infrastructurecostsandfinishedproductontheground. Westillbelieveverystronglyintheprojectandwishtoexecutetheagreementsassoonas possible.Perhapsbothpartieswillbepleasantlysurprisedbyarobusteconomyandarapidbuild- outschedule,butCharlesandIareforecastingconservativelytoassurethesuccessofthe development. Sincerelyyours, GregoryK.YanceyCharlesE.Cotten