The Pilgrim Assurance Building

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 included @ $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 • 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 • Selling @ $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