Rancho Santa Margarita Santa Margarita Parkway Auto Center Market Analysis. Prepared For: City of Rancho Santa Margarita December 2013

Transcription

1 THE LONDON GROUP Realty Advisors Rancho Santa Margarita Santa Margarita Parkway Auto Center Market Analysis Prepared For: December 2013 The London Group Realty Advisors 2013 Report Prepared by: Gary London, President Nathan Moeder, Principal Robert Martinez, Senior Analyst El Cortez Building 701 Ash Street, Suite 101, San Diego, CA Phone: Attachment 29

2 Tabl~ of Content~ INTRODUCTION CONCLUSIONS & RECOMMENDATIONS EXECUTIVE SUMMARY MARKET ANALYSIS... 7 National Trends Recession in Perspective Primary Market Area PMA Demographics & Expenditures Demographics Retail Expenditures PMA Motor Vehicles & Parts Sales PMA Dealership Sales Dealership Performance Dealership Clusters COMPANY PROFILE AUTO RELATED RECENT PROJECT EXPERIENCE 29 CONTACT INFORMATION Page 2 of30

3 JNTRODUCT']ON The London Group Realty Advisors has completed market research and analysis of the auto industry within and around the. The focus of our research is a 4.65-acre site located at Santa Margarita Parkway in Rancho Santa Margarita, CA ("Subject Site"). The purpose of our analysis is to offer analytical conclusions regarding the viability of the site for auto related uses to inform and assist policy makers as they consider the appropriate zoning designation. This report addresses the baseline economic conditions and statistics for the auto industry. Our assignment was to determine whether auto related uses of the type that formerly occupied the site and in which the site is zoned are viable in the marketplace. To accomplish this, we conducted a comprehensive market analysis as to the viability of auto related uses within the subject market. Research for this project was conducted in November 2013 and the report was written and finalized in November and December Conclusions and recommendations are strictly those of The London Group Realty Advisors. Users of this information should recognize that assumptions and projections contained in this report will vary from the actual experience in the marketplace. Therefore, The London Group Realty Advisors is not responsible for the actions taken or any limitations, financial or otherwise of property owners, investors, developers, lenders, public agencies, operators or tenants. Page3 of30

4 CONC'LUSEONS & RlEf~'OMMENDATEONS Based on our market research of the auto industry in South Orange County, we have determined that an auto related use for the Subject Site is economically viable. This is supported by the recovery of local dealerships and auto related taxable sales. It is widely known that the auto industry has undergone a repositioning as a result of the last economic downturn, or Great Recession. Dealership sales were impacted nationwide and new dealership locations and expansions have been limited. In some cases, the auto industry has been consolidating lower performing centers. However, our analysis demonstrates that the economic basis, and continuing recovery of the auto industry, supports an auto related use at the Subject Site. There is no analytical basis to change the zoning of the Subject Site. In fact, Rancho Santa Margarita is the second most recovered auto market (after Mission Viejo/Laguna Niguel). Rancho Santa Margarita achieved the highest number of sales per dealership in 2012 at 1,374 sales. It is also on pace to finish 2013 at a similar sales level as Irvine. Since the market bottom in 2009, Rancho Santa Margarita has experienced the largest increase in number of auto sales at 27% per year. Irvine experienced the second highest growth at 20% per year followed by Mission Viejo/Laguna Niguel at 15% per year. (See Dealership Performance) Auto dealers prefer to be located near one another to maximize sales synergy (see Dealership Clusters). By locating in clusters, dealerships can maximize the number of potential buyers by offering multiple brands and car types in a small area. This is convenient for consumers and results in maximum sales. Breaking up the synergy of dealerships and allowing non-auto uses would ultimately send a message to other auto businesses that the City is unsupportive and, in fact, facilitating the dismantling of this cluster. While beyond the scope of our assignment, it is a prudent strategy for city policy makers to accommodate the auto industry dealership cluster because this sector generates significantly more tax revenue than other commercial land uses (auto dealerships generate five to seven times the amount of revenue compared to commercial retail). In light of the probable fiscal impact, any land use or policy change should be carefully considered. Another way to translate this is that it takes five to seven years for a retail center to make up one year of an auto dealership in terms of taxable revenues. From a fiscal standpoint, it is worthwhile to allow the economic recovery to play out for the Subject Site before land use changes are made, or certainly before they become permanent. While the economy continues to recover, it would also be a viable strategy to divide the airspace of the building at the Subject Site to allow for the introduction of auto related uses. These businesses can be structured as short-term leases pending expressed interest from a dealership. Page4 of30

5 EXEC'UT'IVE SUMMARY The following bullet points summarize our market analysis: After each recessionary period since 1963, auto sales took several years to return to prerecession levels. Nationally, 2013 sales are on pace to increase approximately 8.1% over 2012 sales. This would result in approximately 16 million auto sales in 2013 compared to the previous peak of 17.4 million in (See National Trends) As the economy recovers, including the business and real estate sectors, it is important to understand the magnitude of what our economy had experienced through the last down cycle. The downturn, which began in 2008, resulted in a loss of 8.7 million jobs. This is significantly greater than the job loss count in recent history and more than five times the number of jobs lost during the early 1990's recession. (See 2008 Recession in Perspective) During the most recent downturn (2006 to 2009) the U.S. auto industry experienced a similar downward spiral to that of employment. The reduction of auto sales totaled approximately 6.8 million, the largest decrease in auto sales in recent history. The auto industry is again likely to fully recover. However, it is realistic to assume that it will take longer for the industry to bounce back, consistent with the slow recovery of the national economy. (See 2008 Recession in Perspective) The demographics of the three Trade Areas in our analysis (See Primary Market Area) are very similar. As it relates to targeted age groups for car sales, the immediate 5-mile radius of Rancho Santa Margarita has experienced the greatest decrease in population under the age of 18 (-13.7%) compared to Mission Viejo/Laguna Niguel, where there was positive growth in this segment (more young families). Rancho Santa Margarita also exhibited a similar increase in the age category (50%) as Mission Viejo/Laguna Niguel. In the peak income age group of 55-74, Rancho Santa Margarita experienced 89% growth compared to 77% in Mission Viejo/Laguna Niguel. (See Demographics) The average household incomes in Rancho Santa Margarita and Mission Viejo/Laguna Niguel are similar within a 5-mile radius at $123,545 and $122,056, respectively. Irvine is much lower at $104,772. At a I 0-mile radius, due to overlapping radii, the incomes are similar ranging from approximately $118,000 to $122,000. (See Demographics) ' Total retail expenditures spent by households in each of the Trade Areas are generally consistent within a 10-mile radius. Within a smaller 5-mile radius, residents surrounding Rancho Santa Margarita spend $53,870 per household followed by Mission Viejo/Laguna Niguel ($51,747) and Irvine ($48,545). In terms of expenditures for auto related motor vehicle and parts, Rancho Santa Margarita is the highest at $10,042, which is approximately 5% more than Mission Viejo/Laguna Niguel ($9,549) and 11% more than Irvine ($9,038). (See Retail Expenditures) Page 5 of30

6 Rancho Santa Margarita and Mission Viejo/Laguna Niguel have recovered to 2002 levels. Mission Viejo/Laguna Niguel is slightly higher and nearing 2003 levels. Irvine, however, is still 11.3% below 2002 levels. These numbers for Rancho Santa Margarita are impressive given the fact that the city lost a dealership (Nissan) in Yet the three existing dealerships have been able to post strong growth in sales. (See PMA Motor Vehicles & Parts Sales) In terms of recovery, Rancho Santa Margarita has experienced the greatest increase in auto related taxable sales since 2009 at 64%. This is more than double the growth rate in sales in Irvine (27%) and Mission Viejo/Laguna Niguel (29%). Rancho Santa Margarita posted the highest year-over-year increase in taxable sales of 31% in 2011 (nearly three times the other cities). In 2012, it is expected to post the highest gain at 16%, which is double the growth in Irvine (6%) and Mission Viejo/Laguna Niguel (8%). (See Recovery Since2009 in PMA Motor Vehicles & Parts Sales) Irvine is the largest market in terms of total number of sales achieved. This market reached a peak of 28,791 sales in 2004 and is estimated to achieve 20,512 sales in Mission Viejo/Laguna Niguel is the second largest market that reached a peak in 2005 with 11,906 sales and is estimated to achieve 9,505 sales in Rancho Santa Margarita's peak was later than the other markets, reaching 6,136 sales in Rancho Santa Margarita is estimated to finish 2013 with 4,243 sales. (See Dealership Performance) It is important to consider the average number of sales per dealership in each Trade Area when analyzing the strength of a market. On this basis, Rancho Santa Margarita, despite having fewer dealerships, tracks the performance of Mission Viejo/Laguna Niguel and Irvine. Since the market bottom in 2009, Rancho Santa Margarita has experienced the largest increase in number of auto sales at 27% per year. Irvine experienced the second highest growth at 20% per year followed by Mission Viejo/Laguna Niguel at 15% per year. (See Dealership Performance) Auto dealers prefer to be located near one another (e.g. as an auto mall) to maximize synergy. By clustering, dealerships can maximize the number of potential buyers by offering multiple brands and car types in a small area. This is convenient for consumers and results in maximum sales. Throughout Orange County, a total of 11 dealerships (9%) are stand-alone while 113 (91 %) are clustered. (See Dealership Clusters) Page 6 of30

7 MARKET ANALYSES The purpose of this section is to detail the market analysis we have conducted that analyzes the economic viability of automobile related uses at the Subject Site. This section outlines our supply and demand observations first from the national perspective, then in the Primary Market Area ("PMA"). The automobile business is directly tied to the economy and business cycles. As such, it is critical to understand the underlying economic factors in a given market. We have divided this report into the following sections that analyze the economic factors: ~ National Trends: in which we detail the national auto sales data as well as the employment trends that signal the historical strength of the economy. ~ Primary Market Area: in which we identify the three trade areas anchored by auto malls. Combined, the three trade areas represent the Primary Market Area, or PMA. ~ PMA Demographics & Expenditures: in which we detail the demographics that comprise the primary market area for local dealerships. This includes an analysis of retail expenditures and expenditures by residents on automotive categories. ~ PMA Motor Vehicles and Parts Sales: in which we analyze the current and historical taxable sales for cities in the PMA that include an auto mall. ~ PMA Dealership Sales: in which we detail the historical and current performance of dealerships in the market. We also detail the dealership representation present in the market. The U.S is still recovering from the Great Recession of The downturn affected most every type of business throughout the nation, and the recovery has been sluggish. As a result, the recovery will be long as the nation adapts to a higher level of unemployment while identifying new industries that are job-generating. Automobile sales in the United States have followed the nation's historical recessions rather closely. From the recession ofthe early 1970's through to the most recent decline (a span of five recessions), automobile sales have declined virtually in tandem. Since the mid-1980s, car sales have declined as the popularity of light trucks has increased, specifically mini-vans and SUV's. The following chart depicts automobile sales in the United States since After each recessionary period auto sales took several years to return to pre-recession levels. In all but the 2001 recession (which was a short-lived minor recession), new auto sales achieved a new higher level of sales than prior to that downturn. Page 7of30

8 U.S. Automobile Sales Annua/ Light Trucks Cars Indicates Recession 20,000,000, ,000,000 8,000,000 6,000,000 4,000,000 2,000, NNNNNNNNNNNNN ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~oo~oooooooooooooooo~~~~~~~~~~oooooooooo-- w~~~~oo~o-nw~~~~oo~o-nw~~~~oo~o-nw~~~~oo~o-nw~~~~oo~o-n Source: Wards Auto Group, NBER Given the lack luster strength of the economy, it is not surprising that current U.S. auto sales are slow to recover. A total of 11.7 million autos were sold in 2012 compared to 17.4 in 2005 (previous high). However, the auto industry continues to improve. The adjacent table demonstrates that 2013 sales are on pace to increase approximately 8.1% over last 2012 sales. This would result in approximately 16 million auto sales in U.S. Light Vehicle Sales YTD 2012 & 2013 Jan-Sep Jan-Sep Car 5,531,041 5,826,813 Light Truck 5,331,447 5,913,513 Total 10,862,488 11,740,326!2013 Forecasted Auto Sales Source: Wards Auto Group %Chg. 5.3% 10.9% 8.1% 15,980,842 Page 8of30

9 2008 Re essitm in Perspe tive As the economy recovers, including the business and real estate sectors, it is important to understand the magnitude of what our economy just experienced in the last down cycle. The following chart depicts the change in U.S. Total Non-Farm Employment back to The most recent downturn that began in 2008 resulted in a total job loss of 8.7 million jobs (6.3% decrease from peak employment). This is by far the most jobs lost in recent history and more than five times the number of jobs lost during the early 1990s recession. The blue lines in the chart from 2011 to 2013 demonstrate a slower recovery of jobs compared to the prior losses. This is indicative of an economy that will take time to recover. U.S. Total Non-Farm Employment (Jul) 700, ,000!.2M lost.3%) 2.8M 1.6M lost (1.5%) 2.7M lost (2.0%) 8.7M lost (6.3%) 300, , , , , , ,000 Source: BLS The U.S. auto industry experiences a similar path to that of employment. The following chart depicts the annual change in auto sales since The most recent downturn (2006 to 2009) resulted in a reduction of auto sales of approximately 6.8 million. This is the largest decrease in auto sales in recent history as well. Page 9of30

10 Annual Change in U.S. Automobile Sales ,000, M decrease 2,000, M decrease 844,000 decrease 6.8M decrease 1,000, IV N 1-.J o ;;:; -1,000,000-2,000,000-3,ooo;ooo ,000, Source: Wards Auto Group, NBER The purpose of these two exhibits (historical employment and historical auto sales) is to demonstrate that the economic recovery, which includes the auto industry, has not bounced back quickly given the structural changes in our economy, as well as the loss of 8.7 million jobs. However, the economy is on the path of recovery with year-over-year increases in job growth in the past three years. Page 10of30

11 There are several auto malls in South Orange County. For purposes of this analysis we have identified a Primary Market Area ("PMA") that consists of three overlapping trade areas. The auto markets in the designated PMA include Irvine, Mission Viejo/Laguna Niguel and Rancho Santa Margarita. Collectively, these three markets are referred to as the "Trade Areas" in our report. The following maps depict the general trade areas based on a 5-mile radius (more immediate area surrounding the auto dealerships) and a 10-mile radius (based on a typical distance between same brand dealerships). The subsequent map lists the specific dealerships in each of the three Trade Areas. Page 11 of30

12 ... Mo~je ska Peak :Santiago Peak.. S A N,D P a c i c Camp Pendleton Marine Corps Page 12of30

13 Irvine Irvine BMW /Mini Fladeboe Buick!GMC Chevrolet oflrvine Tuttle-Click Chrysler/Jeep/Dodge Fladeboe EcoCentre Tuttle-Click Ford Fladeboe Honda Tuttle-Click Hyundai OC Nissan Irvine Kia oflrvine Tuttle-Click Lincoln Tuttle-Click Mazda Car Max AutoNation Toyota Fladeboe Volkswagen AutoNation Volvo Irvine Irvine Subaru Mission Viejo/Laguna Niguel Allen Cadillac Allen GMC Allen Hyundai Mercedes Benz of Laguna Niguel Smart Center Laguna Niguel Norm Reeves Acura of Mission Viejo Audi Mission Viejo Infinity of Mission Viejo Jaguar Land Rover Mission Viejo South County Lexus Aliso&Wood Canyons Park Page 13 of30

14 PMA Demographics, & Expenditures, Demagraphit s The demographic variables that are most important to dealership sales include household population, income distribution and age of the population. In the tables on the following pages, we have included the demographic composition of the Trade Areas as well as the historical growth in each market. The data is shown within a 5-mile radius (more immediate area relative to each auto center) and a 1 0-mile radius (which is the typical trade area for an auto dealership). 5-Mile Radius Irvine comprises the highest concentration of households estimated at 103,276 and a population of 268,137. Over the next five years, an estimated 6,194 households will be added to this market, adding 15,960 persons. Mission Viejo/Laguna Niguel has the second highest concentration of households estimated at 101,130. However, it has a higher persons-per-household ratio (2.75) which results in a higher population at 280,313 compared to Irvine. Over the next five years, an estimated 6,063 households will be added to this market adding 17,716 persons. Rancho Santa Margarita features the third highest concentration of households estimated at 70,299 with a population of 202,344. Over the next five years, an estimated 2,938 households will be added to this market, or 8,254 persons. The Trade Area populations continue to enter into their peak earning years (55-74 years) while experiencing growth in the young adult segment (18-24 years). These are two key age groups for auto sales- compared to a population that used to be starter families with children under age 18. Mission Viejo/Laguna Niguel and Rancho Santa Margarita have experienced approximately 50% growth since 2000 in the age category, whereas Irvine experienced 87%. There was lower growth in the age category as this segment became older. The age category experienced significant growth of approximately 169% in Irvine, 89% in Rancho Santa Margarita and 77% in Mission Viejo/Laguna Niguel. The income distribution of the Trade Areas further depicts the peak earning years of the population. Approximately 24% of households in Mission Viejo/Laguna Niguel and Rancho Santa Margarita have incomes greater than $150,000 (19% in Irvine). The average household income is also similar between Mission Viejo/Laguna Niguel and Rancho Santa Margarita at $122,056 and $123,545, respectively. Irvine has a lower average household income at $104,772. Page 14 of30

15 I 0-Mile Radius Irvine comprises the highest concentration of households estimated at 325,287 with a population of 877,970. Over the next five years, an estimated 22,011 households will be added to this market adding 59,907 persons. Mission Viejo/Laguna Niguel has the second highest concentration of households estimated at 228,867 with a population of 614,124. Over the next five years, an estimated 13,239 households will be added to this market adding 36,637 persons. Rancho Santa Margarita features the third highest concentration of households estimated at 175,057 with a population of 480,175. Over the next five years, an estimated 11,075 households will be added to this market adding 30,898 persons. The Trade Area populations continue to enter into their peak earning years (55-74 years) while experiencing growth in the young adult segment (18-24 years). These are two key age groups for auto sales- compared to a population that used to be starter families with children under age 18. Rancho Santa Margarita and Mission Viejo/Laguna Niguel have experienced approximately 52% growth since 2000 in the age category with Irvine experiencing approximately 114%. There was lower growth in the age category as this segment became older. The age category experienced growth of approximately 150% in Irvine, 87% in Rancho Santa Margarita and 78% in Mission Viejo/Laguna Niguel. The income distribution of the Trade Areas further depicts the peak earning years of the population. Approximately 23% of households in the Three Trade areas have incomes greater than $150,000, which is primarily due to the overlap of the 1 0-mile radii. The average household income is also similar ranging from approximately $118,000 to $122,000. Conclusion The demographics of the three Trade Areas are very similar. Irvine encompasses a larger population and has experienced growth in all age categories. This is due to the significant influx of persons since As it relates to targeted age groups for car sales, the immediate S-mile radius of Rancho Santa Margarita has experienced the greatest decrease in population under the age of 18 ( -13.7%) compared to Mission Viejo/Laguna Niguel that had positive growth in this segment (more young families). Rancho Santa Margarita also had a similar increase in the age category (50%) as Mission Viejo/Laguna Niguel. In the peak income age group of 55-74, Rancho Santa Margarita experienced 89% growth compared to 77% in Mission Viejo/Laguna Niguel. The average household incomes in Rancho Santa Margarita and Mission Viejo/Laguna Niguel are similar within a S-mile radius at $123,545 and $122,056, respectively. Irvine is much lower at $104,772. At a 10-mile radius, due to overlapping radii, the income are similar ranging from approximately $118,000 to $122,000. Page 15 of30

16 Demographic Profile: S-Mile Radius e 2018f Rancho Santa Margarita 193, , , ,598 Change(#) 4,119 4,622 8,254 Change(%) 2.1% 2.4% 4.1% Irvine 230, , , ,097 Change(#) 27,245 10,338 15,960 Change(%) 11.8% 4.5% 6.0% Mission Viejo/Laguna Niguel 237, , , ,029 Change(#) 30,828 11,551 17,716 Change(%) 13.0% 4.9% 6.3% Household Growth e 2018f Rancho Santa Margarita 66,832 68,692 70,299 73,237 Change(#) 1,860 1,607 2,938 Chan~e (%) 2.8% 2.4% 4.2% Irvine 89,375 99, , ,470 Change(#) 10,002 3,899 6,194 Change(%) 11.2% 4.4% 6.0% Mission Viejo/Laguna Niguel 87,232 97, , , 193 Change(#) 10,232 3,666 6,063 Change(%) 11.7% 4.2% 6.0% Rancho Santa Margarita!Age Category e Growth 2000 < 18 58, , % 48, ,999 17, % 11, ,897 86, % 85, ,736 39, % 20, ,828 8, % 7,112 Total 193, , % 173,743 Mission Viejo I Irvine Laguna Niguel 2013e Growth e Gromh 57, % 62,600 67, % 21, % 15, , % 114, % 113, , % 54, % 32,320 57, % 20, % 14,322 17, % 268, % 237, , % 201,31'1H Estimated Income Rancho Santa Margarita < $34, % $35,000 - $49, % $50,000 - $74, % $75,000- $99, % $100,000-$149, % $150, % 2013 Est Average Household Income $123, Est Median Household Income $95,687 Source: Nielson Claritas Mission Viejo I Irvine Laguna Niguel 20.2% 17.8% 10.0% 9.4% 17.5% 14.7% 13.9% 13.1% 19.6% 20.6% 18.8% 24.4% $104,772 $122,056 $79,101 $90,464 Page 16of30

17 Demographic Profile: 10-Mile Radius e 2018f Rancho Santa Margarita 404, , , ,073 Change(#) 55,471 20,323 30,898 Chan}?e (%) 13.7% 5.0% 6.4% Irvine 721, , , ,877 Change(#) 11 7,061 39,392 59,907 Chan}?e (%) 16.2% 5.5% 6.8% Mission Viejo/Laguna Niguel 531, , , ,761 Change (#) 59,497 23,439 36,637 Chan}?e (%) 11.2% 4.4% 6.0% Household Growth e 2018f Rancho Santa Margarita 147, , , ,132 Change(#) 20,142 6,959 11,075 Change(%) 13.6% 4.7% 6.3% Irvine 268, , , ,298 Change(#) 43,131 13,708 22,01l Change(%) 16.1 % 5.1% 6.8% Mission Viejo/Laguna Niguel 199, , , , 106 Change(#) 21,178 7,970 13, 239 Change(%) 10.6% 4.0% 5.8% Rancho Santa Margarita Age Category e Growth 2000 < , , % 144, ,922 39, % 39, , , % 265, ,160 91, % 68, ,602 28, % 29,297 Total 404, , % 546,472 Mission Viejo I Irvine La~una Ni~uel 2013e Growth e Growth 199, % 137, , % 84, % 33,425 49, % 374, % 254, , % 170, % 72, , % 48, % 32,806 39, % 877, % 531, , % 20,1t3 >~HH Estimatedllncome Rancho Santa Margarita < $34, % $35,000 - $49, % $50,000 - $74, % $75,000 - $99, % $100,000-$149, % $150, % 2013 Est. Average Household Income $117, Est. Median Household Income $88,673 Source: Nielson C laritas Mission Viejo I Irvine Laguna Niguel 18.5% 17.8% 9.2% 9.5% 15.7% 15.5% 13.6% 13.3% 19.7% 20.1% 23.4% 23.8% $120,597 $122,235 $87,277 $88,458 Page 17of30

18 The following table details the estimated total retail expenditures spent by households in each of the Trade Areas. Total retail sales are generally consistent within a 1 0-mile radius with residents surrounding Irvine spending $51,397 per household followed by Rancho Santa Margarita ($51, 1 03) and Mission Viejo/Laguna Niguel ($50,873). Within the smaller 5-mile radius, residents surrounding Rancho Santa Margarita spend $53,870 per household followed by Mission Viejo/Laguna Niguel ($51,747) and Irvine ($48,545). The table also highlights the retail expenditures for motor vehicle and parts dealers. Rancho Santa Margarita is the highest at $10,042, which is approximately 5% more than Mission Viejo/Laguna Niguel ($9,549) and 11% more than Irvine ($9,038). Retail Expenditure Profile: S-Mile and 10-Mile Radii Rancho Santa Margarita Total Retail Sales loci Eating and Drinking Places Motor Vehicle and Parts Dealers-441 Automotive Dealers-4411 Other Motor Vehicle Dealers-4412 Automotive Parts/ Accsrs, Tire Stores-4413 S-Mile Radius $S3,870 $3,786,974,260 $10,042 $70S,972,990 $8,632 $606,819,065 $591 $41,512,742 $820 $57,641, Mile 'Radius $51,103 $8,946,024,212 $9,407 $1,646,779,684 $8,059 $1,410,866,280 $563 $98,499,266 $785 $137,414,138 Irvine Total Retail Sales loci Eating and Drinking Places Motor Vehicle and Parts Dealers-441 Automotive Dealers-4411 Other Motor Vehicle Dealers-4412 Automotive Parts/ Accsrs, Tire Stores-4413 S-Mile Radius $48,S4S $5,013,500,918 $9,038 $933,426,149 $7,808 $806,370,907 $488 $50,350,467 $743 $76,704,775 10'-Mile Radius $51,397 $16,718,657,068 $9,791 $3,184,894,S6S $8,440 $2,745,384,356 $563 $183,099,944 $788 $256,410,265 Mission Viejo/Laguna Niguel Total Retail Sales loci Eating and Drinking Places MotorVehicle and Parts Dealers-441 Automotive Dealers-4411 Other Motor Vehicle Dealers-4412 Automotive Parts/ Accsrs, Tire Stores-4413 S-Mile Radius $51,747 $5,233,128,207 $9,549 $965,698,761 $8,197 $828,972,441 $558 $56,385,772 $794 $80,340, Mile Radius $50,873 $11,643,112,3S2 $9,300 $2,128,458,687 $7,961 $1,822,119,773 $554 $126,735,558 $785 $179,603,355 Source: Nielson Claritas Page 18 of30

19 PMA Mot([)r Vehides. & Parts. Sales. While the previous section detailed retail expenditures by households, we have also analyzed the taxable sales for Motor Vehicles and Parts Sales. The purpose of this analysis is to detail the current and historical level of sales in the cities in the PMA that have an auto mall. 1 The table in this section depicts the historical taxable sales for Motor Vehicles and Parts Sales. It is important to note that the preponderance of these taxable sales is attributable to the sales of automobiles. The most recent downturn in the auto industry is observed in the red shading when all car dealerships experienced a significant decrease in car sales in In 201 0, sales recovered and increased in the 8% to 9% range. Rancho Santa Margarita experienced the largest growth in 2011 at 31%. This increase is nearly three times the year-over-year growth of the other markets that ranged from 10% to 12%. In addition, Rancho Santa Margarita is on pace to achieve 16% growth in 2012, which is double the rate of the Irvine and Mission Viejo/Laguna Niguel at 6% and 8%, respectively. This higher growth rate is further evidenced in our dealership analysis (see Dealership Performance). Within each city there are different types and number of dealerships. Therefore, we have indexed the sales to analyze how each respective city has recovered to date from the downturn of The following summarizes the indexes: o Indexed to 2005: no market has recovered to 2005 level of sales. o Indexed to 2004: no market has recovered to 2004 level of sales. o Indexed to 2003: no market, except for Mission Viejo/Laguna Niguel, is achieving the same level of sales as in o Indexed to 2002: Rancho Santa Margarita (1 08.3) is achieving the same level of 2002 sales. In fact, Rancho Santa Margarita is 8.3% higher and Mission Viejo/Laguna Niguel is 17.7% higher than 2002 sales. Irvine is still 11.3% lower than 2002 sales. 1 Data is from the CA State Board of Equalization and is reported at the city-level. It is not possible to identify taxable sales within a given radius. Therefore, we have included the total of each city that is included (in full or in part) in the PMA. Page 19 of30

20 PMA Taxable Retail Sales by Motor Vehicles and Parts Sales (in Thousands of Dollars) Rancho Santa Margarita 101, , , , , ,415 Mission Viejo/Laguna Niguel 3 17, , , , , ,316 Irvine 66 1, , , , , , , , , (estimated) 67,054 72,829 95, , , , , , , , , ,220 % Change Rancho Santa Margarita 10% Mission Viejo/Laguna Niguel Irvine 9% 16% 10% 8% 6% Indexed to Rancho Santa Margarita Mission Viejo/Laguna Niguel Irvine (estimated) Indexed to Rancho Santa Margarita Mission Viejo/Laguna Niguel Irvine (estimated) Indexed to Rancho Santa Margarita Mission Viejo/Laguna Niguel Irvine (estimated) [ 99\ Indexed to Rancho Santa Margarita Mission Viejo/Laguna Niguel Irvine Source: The London Group Realty Advisors, CA State Board ofequali2ation (estimated) ~ l ~ Page20of30

21 Recovery Since 2009 As the adjacent chart depicts, Rancho Santa Margarita has experienced the greatest increase in auto related Motor Vehicle and Parts Sales since the bottom in Rancho Santa Margarita 1 achieved a 64% increase compared to 27% in Irvine and 29% in Mission Viejo/Laguna Niguel. 64% Recovery Since 2009 in Motor Vehicle and Parts Sales (Est.) The three pie charts on the following page further demonstrate the increase in auto related Motor Vehicle and Parts Sales for each market. The increase in sales since 2009 represents 39% of total 2012 sales (an increase of 64%) in Rancho Santa Margarita. The increase in sales since 2009 only represents 21% in Irvine and 22% in Mission Viejo/Laguna Niguel. 22% Source: CA Stale Board ofequalitzation Source: CA State Board of Equ.alitza tion Page21 of30

22 Conclusion Based on this analysis, Rancho Santa Margarita and Mission Viejo/Laguna Niguel have recovered to 2002 levels. Mission Viejo/Laguna Niguel is slightly higher and nearing 2003 levels. Irvine, however, is still 11.3% below 2002 levels. These numbers for Rancho Santa Margarita are impressive given the fact that the city lost a dealership (Nissan) in Yet the three existing dealerships have been able to post strong growth in sales. In terms of recovery, Rancho Santa Margarita has experienced the greatest increase in auto related sales since 2009 at 64%. This is more than double the growth rate in sales in Irvine (27%) and Mission Viejo/Laguna Niguel (29%). Rancho Santa Margarita posted the highest year-overyear increase in auto related taxable sales of 31% in 2011 (nearly three times the other cities). In 2012, it is expected to post the highest gain at 16%, which is double the growth in Irvine (6%) and Mission Viejo/Laguna Niguel (8%). Page22 of30

23 PMA D~a]ership Sa]e-s The purpose of this section is to analyze the performance of dealerships in each Trade Area. This section includes data on overall dealership sales as well as an analysis of dealership brand representation in the market. Dealers. hip Performance The following chart details the historical annual auto sales generated by dealerships in the Trade Areas. Irvine is the largest market in terms of total number of sales achieved, but it also has a higher number of dealerships. This market reached a peak of 28,791 sales in 2004 and is estimated to achieve 20,512 sales in Mission Viejo/Laguna Niguel is the second largest market that reached a peak in 2005 with 11,906 sales and is estimated to achieve 9,505 sales in Rancho Santa Margarita's peak was later than the other markets, reaching 6,136 sales in Rancho Santa Margarita is estimated to finish 2013 with 4,243 sales. 35,000 I Total Annual Auto Sales by Trade Area I (estimated) 30,000 25,000 20,000 15,000 10,000 5,000 0 ~ Jill' o---cr-- \ A ' ~ ~..., ' - -o-rancho Santa Margarita -:-Mission Viejo/Laguna Niguel -a-irvine "'~ Tr' ~ ~ / _...[]--{].._r ~""""' (e) Rancho Santa Margarita 3,883 4,108 5,602 5,920 6,136 5,781 4,517 2,021 2,384 3,125 4,123 4,243 Mission Viejo/Laguna Niguel 8,799 8,803 10,774 11,906 11,534 Irvine 26,624 25,542 28,791 24,745 24,353 9,645 17,633 8,538 5,964 6,856 8,374 9,265 9,505 14,950 11,279 12,323 14,327 17,273 20,512 Source: Dominion Page 23 of30

24 The data in the previous chart demonstrates the magnitude of each Trade Area. However, this information does not indicate the viability or strength of each market. Ultimately, the total number of sales achieved in each market is predicated on the number of dealerships. The adjacent graph depicts the average number of dealerships that were in each Trade Area during the 2002 to 2013 period. 1 Average Number of Dealerships in Trade Areas (estimated) 8 IS It is important to consider the average number of sales per dealership in each Trade Area when analyzing the strength of a market. The following chart depicts the total number of auto sales per dealership in each Trade Area. Rancho Santa Margarita Mission Viejo!Laguna Niguel Irvine I Sol.U'Ce: Dominion Total Number of Auto Sales Per Dealership i (estimated) 2, ~ -o-rancho Santa Margarita ->-Mission Viejo/Laguna Niguel -a-irvine ~ (e) Rancho Santa Margarita 1,942 1,369 1,401 1,480 1,534 1,445 1, ,042 1,374 1,4 14 Mission Viejo/Laguna Niguel 1,467 1,467 1,539 1,70 1 1,648 Irvine 2,048 1,824 2,057 1,650 1,624 1,378 1, ,047 1,158 1,188 1,356 1, ,194 1,234 1,465 Source: Dominion Page 24 of30

25 On this basis, Rancho Santa Margarita, despite having fewer dealerships, tracks the performance of Mission Viejo/Laguna Niguel and Irvine. Most importantly, the dealerships in Rancho Santa Margarita, on average, have followed the same path of recovery since the industry bottom in In addition, Rancho Santa Margarita achieved the highest number of sales per dealership in at 1,3 7 4 sales. It is also on pace to finish at a similar sales level as Irvine. The following chart further details the recovery of the dealerships since the bottom in Rancho Santa Margarita has experienced the largest increase in number of auto sales at 27% per year. Irvine experienced the second highest growth at 20% per year followed by Mission Viejo/Laguna Niguel at 15% per year. Average Number of Sales Per Dealership 2009 vs (estimated) 1,414 1, sales 27% increase per year 443 sales 15% increase per year 1, sales 20% increase per year Rancho Santa Margarita Mission Viejo/Laguna Niguel Irvine Source: Dominion In terms of evaluating the viability of an auto dealership, the sales per dealership statistic is arguably more important than demographics because it demonstrates actual sales achieved and actual performance of nearby dealerships. Potential auto dealers will be attracted to a site if sales are strong among other existing dealers. Page25 of30

26 Auto dealers prefer to be located near one another (e.g. as an auto mall) to maximize synergy. By clustering, dealerships can maximize the number of potential buyers by offering multiple brands and car types in a small area. This is convenient for consumers and results in maximum sales. The following table details the number of dealerships that locate in clusters throughout Orange County. A total of 11 dealerships (9%) are stand-alone while 113 (91%) are clustered. New Auto Dealerships Orange County, CA Type # Dealership Clusters 111 Stand-Alone Dealerships 11 o;o 91% 9%!Total New Auto Dealerships % I Source: The London Group Realty Advisors, Dominion The map on the following page depicts the clustered dealerships in purple with the stand-alone dealerships in red. Page26 of30

27 .Silverado _,, _,.-..,.....," Tral:lueo / ' Canyon/ 0,' / 0 ' llancho Santa ; Margarita e Stand-Alone e Dealership Clusters 0 f s a n t a e a t a I n il Page27 of30

28 COMPANY PROFILE REPRESENTATIVE SERVICES Market and Feasibility Studies Financial Structuring Asset Disposition Government Processing Development Services Fiscal Impact Strategic Planning Capital Access Litigation Consulting Workout Projects Valuation Economic Analysis The London Group is a full service real estate investment and development consulting, capital access and publishing firm. We determine the answers to the questions: Should I purchase the property? If so, how much should I pay and what is my potential rate of return? What type of project should I invest in or develop? What type of deal should I structure? To answer these questions we conduct market analysis, feasibility studies, provide financial structuring advice and general economic consulting. Often we 'package' the deal and provide access to capital sources. We also have capabilities in pre-development consulting including asset management and disposition and in providing team coordination, processing and disposition services (packaging and promotion). We cyber publish The Real Estate & Economic Monitor a newsletter providing market trend analysis and commentary for the serious real estate investor. It is available and regularly updated on the World Wide Web at the following address: As the former West Region Director of the Price Waterhouse Real Estate Consulting Group, Gary H. London, President, brings acknowledged credentials and experience as an advisor and analyst to many successful projects and assignments throughout North America. The London Group also draws upon the experience of professional relationships in the development, legal services, financial placement fields as well as its own staff. Clients who are actively investigating and investing in apartment projects, retail centers and commercial projects have regularly sought our advice and financial analysis capabilities. We have analyzed, packaged and achieved capital for a wide variety of real estate projects including hotels, office buildings, retail shopping centers and residential housing communities. We are generalists with experiences ranging from large scale, master planned communities to urban redevelopment projects, spanning all land uses and most development issues. These engagements have been undertaken throughout North America for a number of different clients including developers, investors, financial institutions, insurance companies, major landholders and public agencies. 702 Ash Street, Suite 101, San Diego, CA I Page28 of30

29 AUTO RELAT'ED RECENT PROJECT EXPERJENC'E. We have conducted a number of studies involving auto related uses. We have conducted fiscal impact studies to compare other viable commercial uses. We have also analyzed the due diligence and underwriting of transactions associated with auto dealerships as well as helped reposition auto dealership property for more intensive development. The following are a partial list of the more recent studies. Guy Hill Cadillac, Pacific Beach San Diego- evaluated highest and best use for the dealership. Auto industry related uses we evaluated. Property was determined to be best suited for mediumdensity residential. We prepared market analysis and financial proforma analysis to determine the achievable sale price for the property. Auto Dealership Site in Chula Vista (23.6 acres) - conducted a fiscal impact analysis comparing the revenues associated with an auto dealership to an alternative retail development. The analysis included an evaluation of achievable sales volumes, overall market performance and resulting property tax and sales tax revenue generated. Sale-Leaseback Transaction in Southern California - provided expert witness services related to a transaction concerning a Nissan dealership. Our assignment was to analyze the level of due diligence that was performed by the sponsor on behalf of investors who purchased the property in a sale-leaseback with the dealership. Our work analyzed the historical and current market performance of the dealership as well as the financial strength of the ownership, which owned several other dealerships. Lincoln Cadillac site, Mission Valley San Diego - Conducted market analysis of the site to determine its suitability as a continuation of auto dealership or any alternative land uses. Prepared an analysis and report detailing our findings, including prospective revenues, timing, market capture, etc. Auto Dealership site in Poway, CA - undertook an analysis on behalf of the City of Poway to determine the best use for a subject site that was zoned for auto dealership. The purpose of the study was to guide the zoning designations as part of the overall General Plan update. Page 29of30

30 CONTACT INFORMATION This market analysis was prepared by The London Group Realty Advisors and commissioned by the. Research for this project was conducted in November 2013 and the report was written and finalized in November and December Conclusions and recommendations are strictly those of The London Group Realty Advisors. Users of this information should recognize that assumptions and projections contained in this report will vary from the actual experience in the marketplace. Therefore, The London Group Realty Advisors is not responsible for the actions taken or any limitations, financial or otherwise, of property owners, investors, developers, lenders, public agencies, operators or tenants. This assignment was completed by the staff of The London Group Realty Advisors. Nathan Moeder, Principal, served as project director. Robert Martinez, Investment Analyst, conducted analysis and prepared the exhibits in this report. Gary London, President, provided strategic consultation and recommendations. For further information or questions contact us at: The London Group Realty Advisors El Cortez Building 702 West Ash, Suite 10 1 San Diego, CA Phone: Page30of30