CASE STUDY

Pelican Grand Beach Resort 2000 N Ocean Blvd, Fort Lauderdale, FL 33305

(954) 568-9431

www.urbanavarro.com

Investment Summary

Although complicated both legally and financially, Urbana acquired the beachfront luxury condo hotel known as the Pelican Grand Beach Resort in August 2008 directly from the lender who had affected a deed in lieu of foreclosure with the developer at the height of the credit crisis and global meltdown of the financial markets.

Economically untenable as a for sale condo hotel as a result of the financial crisis, Urbana took over ownership and implemented a feasible operational plan to convert the hotel to an income producing asset from a “For Sale” asset. The remaining unsold inventory was acquired which included guest room units (99 of 156 total keys) and all commercial units including the restaurant, lounge, sundry, meeting, event and front and back-office space. The process of returning business functions back to a hotel through a comprehensive workout plan resulted in increasing the NOI from virtually $0 to approximately $2,800,000 in three years. The hotel is currently ranked 15th out of 137 hotels in the Ft. Lauderdale market. When acquired the property was a three diamond hotel and now has been awarded AAA four diamond award for 2011 and 2012.

Critical Investment Attributes

Failed Hotel Condo Conversion - With no end-user financing available in the marketplace due to the emerging credit crunch, employing a sales and marketing plan for the remaining condominium units at their pro forma pricing levels was not achievable thereby resulting in the default of the senior and mezzanine loans by the prior ownership group that in turn afforded Urbana with an excellent investment opportunity.

Conversion from a “For Sale” Operation to a “For Rent” Operation – At the time of acquisition, operations had been targeted toward selling units versus maximizing the operational cash flow as a hotel. Urbana’s astute knowledge of the lodging industry and operating history of higher-end hotels provided the conversion basis to a traditional operating hotel and management structure thereby adding considerable value to the revenue producing potential of the underlying assets. Staff was evaluated, reduced, hired and trained with an eye towards operational efficiencies and effectiveness versus lack of bottom line cash flow results (as a for sale product).

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Closing and Lender Requirements - Urbana acquired the property from the lender concurrent with lender affecting a deed in lieu of foreclosure with the prior condo hotel developer. The lender required a hard closing date within 21 days of executing a LOI although the previous owner provided additional challenges by withholding 2008 operating and financial data from the lender and removing all original records and electronic media from hard drives and the premises. Urbana was able to overcome this data deficiency through operating experience, financial and market analysis and zero-based budgeting to determine a pricing sensitivity matrix.

Florida Condominium Law, SNDA, Successor Developer, and Lender Liability Issues - Urbana faced several challenges that had to be worked through before closing would occur to assure that it’s investor interests were protected including legal challenges from third party owners, condominium owners/developers who had ownership interests in nine individual units, and a special entity of the condominium owners the developers established for the purpose of managing the Pelican Grand Beach Resort.

Issues that had to be resolved included previous ownership’s failure to deliver written contractual obligations in the form of FF&E improvements at the time of closing to units purchased by third party owners further complicating the legal structure of the transaction. Urbana structured the transaction in a manner not to inherit the original developer’s obligations (to the condominium association) for capital items under the conversion portion of the Florida Condominium Act, or consent to any lender liability issues that could arise including claims from mezzanine debt holders and equity investors.

Implementation of Business Plan

Cancellation of Rental & Sale-leaseback Agreements - The previous owner sold 57 condominium units to third-party owners and executed rental agreements either through a sale-leaseback or rental program. All previous (below market) sale-leaseback and rental program obligations with third-party owners were cancelled through the foreclosure providing, a step Urbana recognized as being integral in turning around this under performing asset. And under Urbana’s stewardship, much more favorable rental program agreements have been entered with 30 condominium unit owners since August 2008.

Navigating the Operational and Legal Nuances of a Distressed Asset - After the failure and transfer of the Pelican to the lender, many unit owners became angered that the former owner lost the Property and defaulted on agreements. Urbana carefully insulated new ownership from legal claims and has successfully defended current ownership. Collection of delinquent use fees has been virtually 100% for all units sold on a short sale basis. No shared use fees have been written off and all outstanding balances are in various stages of collection.

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Interim Management Team - Upon the deed-in-lieu foreclosure action by the lender and prior to acquiring ownership of the Pelican Grand Beach Resort, Urbana worked closely with the lender in replacing the developer’s on-site management team providing another step in turning the asset around by improving cash flow through termination of the management agreement without recourse.

Downsized Human Resources - The cancellation of third-party rental agreements effectively reduced the inventory from 155 keys to 99 keys on the first day of ownership, which introduced a new set of challenges including accommodating the needs of “overbooked” guests, improving and adjusting operational efficiencies to a 99 key hotel by re-staffing all departments, renegotiating service and vendor agreements and optimizing utility use. Original staffing included 178 employees for the 156 - key, full service resort hotel. After a careful evaluation of each department and performing several cost-benefit analyses to assure quality control, management effectively reduced staff to 131 effectively saving $500,000 annually while improving the quality of guest services through cross-training, yield management matrices and new policies that management instituted regarding the “guest experience”, as well as putting in place an employee handbook.

Staffing and Training - Urbana aggressively and directly markets to all demand generators in an “order maker” versus “order taker” approach, unlike many management companies that largely rely on a reservation system to fill rooms.

Under-Managed - The prior owner was not utilizing modern revenue management or marketing techniques and thus not maximizing the full revenue potential of the asset as a result.

Fixed Costs Adjustments - Urbana successfully reduced the cost of Property insurance from $905,000 to $459,000 upon acquisition of Pelican Grand Beach Resort while increasing coverage for wind and water damage and business interruption by utilizing its extensive network of real estate insurance professionals.

Documentation and Recording of the Sale in the Public Records - The purchase price of the Pelican was allocated to four separate asset classes to assist with the real estate tax appeal which taxes only real and personal property. The asset classes included the real property of $22,411,802, personal property of $2,080,000, the management rights of $4,100,000 and goodwill of $908,198.

Real Estate Tax Appeal - At the time of acquisition, Broward County’s assessed value of real and personal property was approximately $76 million, significantly more than the purchase price. Although Broward County effectively reduced the assessment to approximately $57 million, or $570,000 per unit on average, for the 2008 Tax Year, the Pelican as a result of successful tax appeals to-date by Urbana has had additional reductions in its assessed value by Broward County. To that end, the Pelican’s assessed 2011 value is approximately $22 million resulting in property taxes of approximately $440,000, a material reduction from the $1.5 million in property taxes paid by the Pelican in the fiscal year prior to Urbana’s ownership.

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Acquisition of Two Penthouse Units – Shortly after the purchase of the unsold inventory from the lender, Urbana realized it needed from a strategic perspective the two end-cap penthouse units in order to accommodate / augment the Property’s group and wedding business (the Penthouse units are adjacent to large terrace areas that overlook the ocean and are now frequently utilized for private functions, wedding services and entertaining suites). Urbana therefore immediately commenced with the process of identifying the owners, confirmed that the existing debt exceeded the units’ market value and proceeded with affecting a short sale with the unit owners’ lenders in December of 2008.

Institute Yield Management Systems - Immediately after Urbana acquired the Property, regular weekly meetings to review and comment on the future rates in the market were initiated. During such meetings, a review of future dates is undertaken to determine which periods show strong demand as well as identify those dates in which demand is weak, that in turn allows management to possibly implement strategies to maximize revenue.

Computerize and Revamp the Marketing Department – Prior to acquisition, the sales department did not record or tabulate any market segments or the production of its corporate accounts. These basic marketing procedures were changed upon Urbana taking ownership. A sales team oriented towards marketing to a white-collar clientele was hired with an emphasis on both room sales and event sales.

Replace Point of Sale System for Food & Beverage Operations – The POS used by the Pelican was outdated and did not interface with the PMS due to an antiquated operating system. Urbana completed the conversion to a more suitable POS affording it the ability to interface with the PMS and record statistical data to enable management to maximize profitability.

Improved Profitability of the Food & Beverage Operations – Resulting in improved menus and cost control, and a significant increase in F&B revenue. During the first year calendar year of Urbana’s Ownership, F&B revenue was approximately $3.3 million. In 2011, it is expected to be closer to $4.1 million, or nearly $120 per occupied room, and a 24% increase over the revenue during the first calendar year of operations under Urbana’s ownership/management. With respect to profitability, the department’s profit margin was 19.4% in 2009 and is expected to be 23.7% in 2011.

Create a Frequent Traveler Awards Program - The Pelican has joined the Stash Hotel Rewards Program, which is designed to appeal to the frequent traveler that heavily weighs room bookings based on rewards programs. Independent hotels, without an affiliation to a franchise, were strategically disadvantaged as some frequent travelers select hotels based upon the points awarded for their personal use. Stash has a superior quality of membership base and thus has high appeal to the sophisticated traveler that the Pelican now targets for its guest base of business www.stashrewards.com.

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Improve the Web Presence – At the time of acquisition, the Hotel’s web site was uninspiring and had limited connectivity to the World Wide Web. The web site was completely redesigned to accommodate group business planning requirements and international traveler. New photographs of the rooms, common areas and meeting spaces were commissioned that better communicated the capabilities and quality of the hotel and orientation to the beach and fit with the “Where Nothing Comes Between You and the Beach” marketing theme. Steps were taken immediately to improve the appearance and effectiveness of the Property’s website through various Search Engine Optimization techniques.

Introduced a Resort Service Culture – The Pelican was operated like a hotel that happened to be on the beach versus a water front resort. To offset this, Urbana created training programs, guest quality standards to create a sense of arrival, relaxation and service for families, groups and guests.

Introduced Policies to Create a Legacy Property – While the Pelican had charm and location, it lacked the extra touch that creates long lasting and positive memories for guests. Urbana instituted measures to distinguish the Pelican as a “Legacy” resort, whereby guest simply decide which week this year they will visit the Pelican versus if they will return back to the Pelican again. As an example of the success of such an orientation, The Pelican through these efforts has been designated as the official NFL alumni hotel.

Institute the Hotel’s Viral Campaign – Believing in the importance of a hotel needing to have a presence on all forms of social media including Facebook and Twitter, Urbana’s management team has taken the steps necessary to have multiple links to enhance the crawl rate for search engines like Google. The hotel web site’s visibility is improved and thus generates more direct bookings as apposed to booking through more costly web channels.

Macroeconomics facing the Lodging Industry - Urbana acquired the Pelican Grand Beach Resort at a time when the U.S. economy was facing its worst economic recession since the Great Depression. The financial markets were crippled resulting in a credit crunch, unemployment had almost doubled since the 3rd quarter of 2007, gross domestic product had declined the previous three quarters, and airlines had reduced available seats by over 25% since December of 2007. Yet, Urbana was able to overcome those challenges through an effective sales / marketing program and implementation of new yield management systems that together resulted in a RevPAR decline of only 5.4% for the twelve months ending August 2009, which is significantly lower than the 17.4% RevPAR decline experienced by the Pelican’s competitive set through the same time frame and by the domestic Luxury chain scale on average throughout 2009.

www.urbanavarro.com

Conclusion

Urbana’s detailed in-depth financial analysis and its ability to identify the underlying risks associated with acquiring the Pelican Grand Beach Resort was accomplished through an exhaustive due diligence, underwriting, investment review and operational turn around assessment. The results of these efforts speaks for themselves –

1. Financially, Urbana has improved the NOI almost ten-fold, from $0 at the time of acquisition to almost $2,800,000 in three years during one of the most challenging times in the lodging and hospitality business.

2. And with respect to guest satisfaction, improvement(s) can be seen in the increase in Trip Advisor scores and the movement of the hotel from three diamonds to four.

Both of the above have been accomplished with no major capital expenditures and therefore demonstrative of what effective and experienced management can achieve.

Sale

Urbana sold its interest in the Pelican Grand to its partner, Jefast Hotels, in January of 2012 for an imputed sales price of $43,500,000 yielding an approximately 15% Internal Rate of Return for its investors.

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Front View Looking Northeast

Oceanside View Looking Southwest

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Hotel Lobby

View of Swimming Amenities

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View of Verandah

Pelican Lounge

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Ocean View King

Evening Rooftop Event

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About Urbana Varro

Urbana Varro acquires, renovates and develops Class

“A” commercial real estate projects throughout the United

States. Our mission is to acquire, develop and operate

investment caliber real estate projects and redevelop and

renovate projects with the potential to become investment

caliber. Targeted investments include office, multi-family,

hotel and mixed-use projects. Urbana emphasizes the

renovation and redevelopment of real estate properties

that are not typically the focus of institutional or local

entrepreneurial buyers. Once Urbana Varro has

completed the development or redevelopment process,

the projects are better suited for a more passive investor

such as a pension fund, REIT or insurance company.

We actively pursue acquisition opportunities in gateway

cities and other select markets throughout the United

States. The development and acquisition philosophy is

intensely focused on quality, timing, cost and innovative

value enhancement. Providing outstanding quality and

value to the end user is essential. A key Urbana Varro

strategy is to apply programmatic development solutions

to real estate assets not operating at their highest and

best use and investing in geography’s that are

fundamentally attractive long-term but perhaps out-of-

favor today.

Leadership, experience and vision continue to guide us to

a superior paradigm of service. Adhering to our tradition

of excellence, We provide development and financial

solutions to real estate investment through a gifted

management team and sound financial backing.

To learn more about Urbana Varro services and investing in non exchange-traded alternative assets, please visit

www.UrbanaVarro.com or call 1.855.516.0700.