1. The Pilgrim Assurance Building
September 2005

2. Intro 795 Atlantic Avenue 10-Story Office Building Downtown Boston
175,000 Net Rentable SF
100,000 occupied by Pilgrim
Half of remaining 75,000 short-term rentals

3. Opportunity Minimum acceptable bid - $15MM
Huge, prominent building blocks from Boston’s Financial District
Considerable interest from national investors
24 hours to decide

4. The Property 1920’s steel frame building, masonry curtain wall system
Grand entrance with four-story, 5,000 square foot atrium

5. The Property Upgrades High-speed elevators
Heavily insulated rubber membrane & built-up gravel roof
Anodized, bronzed, aluminum window system
Energy-efficient heating, ventilating, and air-conditioning system
Fire, life, and safety systems

6. Proposed Sale of Property
Sealed bid auction
$1MM deposit (refunded in 3 days to unsuccessful bidders)
Final Payment Due December 10th

7. Proposed Sale of Property
Pilgrim lease back 100,000 SF – top 6 floors at $26/SF per year
Opex paid by building owner (grows w/ inflation)
Real Estate Taxes - $4.00
Maintenance & Repairs - $4.00
Common Area Utilities - $2.00
Building Management - $.50
Miscellaneous - $.75

8. Proposed Sale of Property
Pilgrim – buyer option to lease back or 6 month short term lease
Lease back – 100,000 SF for 10 yrs
One-time CPI bump or inflation after 5 yrs
Renewal after 10 years (prevailing rents)

9. Proposed Sale of Property
Gross Lease
Tenant pays increase in Opex
Cap Reserve
$.50/SF, about $87,500/year (+inflation)
Depreciated SLN over 39 ½
Tenant Improvements (TI)
$5/SF for entire building (+inflation)
Depreciated SLN over 39 1/2

10. Proposed Sale of Property
Value of building
Depreciated for tax purposes
Less $5MM assessed value of Land
Marginal Tax – 35%
Cap Gains Tax – 15%

11. Bailey’s Evaluation
Largest private property owners in greater Boston area
Over 20 years, accumulated 5,000 apts, and over 1.2 million SF of office space
Specialize in updating apartment houses and office buildings
Converting in condominiums

12. Bailey’s Evaluation Local expertise – Boston based firm
2 New York-based investment banks with property management subsidiaries
National run REIT’s – Real Estate Investment Trusts

13. Bailey’s Evaluation 75,000 net rentable SF
Office market soft after high-tech meltdown
$20/SF over the next 5 yrs (fixed rent rates)
14,000 SF rent per year
5,000 SF vacant after five years

14. Bailey’s Evaluation Potential to use 2 of the 4 Atrium floors
10,000 additional SF ($200,000 rental income/yr)
Additional Opex $11.25/SF
Cost $100,000
Depreciated SLN over 39 ½ years
Space lease over 5 yrs (2,000 SF/year)

15. Bailey’s Evaluation Bathroom Upgrades Atrium Lobby Upgrades
20 units at $35,000/each
Atrium Lobby Upgrades
$150,000

16. The Market Office market soft Boston’s unemployment rate
Vacancies decreased over last 2 yrs
25% to 12%
Flat Rental Rates
South Station competition - $11/SF lower rental rates

17. The Market Cap Rates – down 2% to 7%
Increased competition between investors
Low interest rates

18. Other Options Condominium market red hot
Urban Living
$600/SF (5% commission)
Commercial space $200-$250/SF
150 apartment units with 1060 SF
Cost $200/SF (up to 18 months convert)
Rezone for residential use (6 months)

19. Other Options Late to the Party?
14,000 residential units in construction pipeline
Market through the roof
Possible collapse up to 30%
Fire Sale concerns

20. Financial Analysis Scenario 1- Pilgrim and New Office Tenants
100,000 SF at $26/SF for 10YRS one time CPI (Pilgrim)
Remaining Space $20/SF (new tenants)
Assuming a $19,000,000 winning bid
IRR -8.40% Leveraged, 6.14% Unleveraged
NPV $1,187,246 Leveraged, $13,048,402 Unleveraged
NPV Diff ($3,951,597.54)
Key point: Flat rental rates and owner responsible for increasing OPEX (taxes, insurance and maintenance)

21. Financial Analysis cont’
Scenario 2- Pilgrim and Short Term Office Tenants
100,000 SF at $26/SF for 10YRS one time CPI (Pilgrim)
Remaining Space leased at prevailing rate/SF (short term tenants)
Assuming a $19,000,000 winning bid
IRR 19.99% Leveraged, 12.21% Unleveraged
NPV $5,356,169 Leveraged, $17,217,325 Unleveraged
NPV Diff $217,325.43
Key point: Flat rental rates and increasing OPEX (taxes, insurance and maintenance) passed on to short term tenants

22. Financial Analysis cont’
Scenario 3- Redevelop into Residential Condos
150 units sold at $600/SF with 5% commission
Conversion cost $200/SF (gradual conversion)
Construction/Zoning 24 total months
100,000 SF leased to Pilgrim at $26/SF during this process
Assuming a $19,000,000 winning bid
IRR 31.56% Leveraged, 27.46% Unleveraged
NPV $10,234,758 Leveraged, $31,525,303 Unleveraged
NPV Diff $6,834,757.79
Key point: Fifty condos sold per year, holding period five years, all condos sold in three years.

23. Update on Project Limited information available
Case address 795 Atlantic Ave does not exist
Similar Property exist at 695 Atlantic Ave
Class A Office Building
Occupied by primarily by Plymouth Rock Assurance
(own 40,000 SF, Rent 6,601 SF)
Historical Lease Rates $28.00/SF/YR

24. What would we do differently?
We would covert the entire building to condos as discussed in scenario 3. As a comparison similar condos in the Boston Financial district sale today for $400/SF. A comparable 1394SF Condo in the same Boston neighborhood sold for $525,000 $376/SF on June 1, 2007.

25. Thank You!

26. Back-up Spreadsheet