ECONOMIC IMPACT AND FISCAL ANALYSIS STUDY SPECIFIC PLAN SP Prepared for: City of Del Mar. Prepared by:

ECONOMIC IMPACT AND FISCAL ANALYSIS STUDY SPECIFIC PLAN SP17-001 Prepared for: City of Del Mar Prepared by: Keyser Marston Associates, Inc. and Maurice Robinson & Associates LLC August 2018

TABLE OF CONTENTS I. Introduction... 1 II. Key Findings... 4 III. Background... 9 IV. Competitive Market Position... 11 V. Financial Feasibility Analysis... 27 VI. Economic Impact Analysis... 45 VII. Affordable Housing Needs Assessment... 62 VIII. Fiscal Impact Analysis... 67 IX. Limiting Conditions... 77

APPENDICES Appendix A Financial Feasibility Analysis Visitor-Serving Development with Resort Villas in Rental Program Appendix B Financial Feasibility Analysis Visitor-Serving Development without Resort Villas in Rental Program Appendix C Affordable Housing Financial Analysis Visitor-Serving Development Appendix D Financial Feasibility Analysis Single-Family Residential Development Appendix E Economic Impact Analysis Visitor-Serving Development with Resort Villas in Rental Program vs. Single-Family Residential Development Appendix F Economic Impact Analysis Visitor-Serving Development without Resort Villas in Rental Program vs. Single-Family Residential Development Appendix G Other Economic Impacts Appendix H Affordable Housing Needs Assessment Appendix I Fiscal Impact Analysis Visitor-Serving Development with Resort Villas in Rental Program Appendix J Fiscal Impact Analysis Visitor-Serving Development without Resort Villas in Rental Program Appendix K Fiscal Impact Analysis Single-Family Residential Development

I. INTRODUCTION A. Objective Keyser Marston Associates, Inc. (KMA) and Maurice Robinson & Associates (MR&A) were requested by the City of Del Mar (City) to undertake an economic impact and fiscal analysis study for a 16.6-acre site at the southwest corner of Camino del Mar and Border Avenue (Site). Del Mar Beach Resort LLC (Developer) has submitted an application to the City for a Specific Plan allowing for the development of a multi-building resort complex consisting of a 251-room resort hotel, 76 resort villas, an 11-room visitor s inn, approximately 2,000 square feet (SF) of retail space, approximately 6,000 SF of restaurant space, and 15 affordable rental units (collectively referred to as Visitor-Serving Development). Per the request of the City, the KMA economic impact and fiscal analysis study also takes into consideration the economic impact and fiscal analysis under the Site s existing single-family residential zoning (Zones R1-14 and R1-40), specifically developing 18 single-family homes (Single-Family Residential Development). In undertaking this study, KMA performed the following technical analyses for both the Visitor-Serving and the Single-Family Residential scenarios: Competitive Market Position an evaluation of the competitive market position of both scenarios. For the Visitor-Serving Development, KMA reviewed market supply and demand factors for visitor accommodations and meeting space in the City and region. For the Single-Family Residential Development, KMA reviewed the market supply and demand factors for single-family residential development in the City and surrounding area. Financial Feasibility Analysis an analysis of the financial feasibility of both scenarios to determine the value enhancement created by the proposed Specific Plan. KMA modeled the development costs, net operating income and sales value, and target returns for both the Visitor-Serving Development and the Single-Family Residential Development. Each model yielded a conclusion of residual land value. Residual land value is defined as the maximum land value supported by a proposed development. It is calculated by estimating the total project value upon completion and subtracting the estimated total development costs (other than land acquisition costs) required to develop the project. The comparison of the Visitor-Serving Development and Single-Family Residential Development residual land values provides an indicator of the value created by the proposed Specific Plan. Economic Impact Analysis an analysis of the economic impacts and benefits of both scenarios. The Economic Impact Analysis estimates the economic output, total employment, and employee Keyser Marston Associates, Inc. Page 1 August 2018 18073kal 11590.005.006

earnings captured within the County of San Diego at build-out for both the Visitor-Serving Development and Single-Family Residential Development. In addition, KMA performed an assessment of potential economic impacts of the Visitor-Serving Development scenario on the surrounding commercial areas within the cities of Solana Beach and San Diego. Affordable Housing Needs Assessment an assessment of the affordable housing needs generated by each scenario through the use of a nexus model. The nexus model links the addition of new commercial or residential development to increased demand for affordable housing based on the amounts and types of new direct employment created within each development scenario, as well as new indirect jobs created by the consumption of goods and services by new resident households. Fiscal Impact Analysis an estimate of the recurring annual impact on the City s General Fund for each scenario. The fiscal impact analysis estimates both recurring General Fund revenues and expenditures at build-out of the Visitor-Serving Development and the Single-Family Residential Development to determine the net fiscal impact on the City. B. Methodology In completing this economic impact and fiscal analysis study, KMA performed the following key work tasks: Reviewed background documentation and historical data relevant to the subject Site. Assessed demographic and economic trends. Evaluated current market conditions for visitor-serving and residential development. Reviewed residential market data, development cost estimates, and cash flow projections provided by the Developer. Participated in meetings with the City and the Developer to understand project parameters, anticipated market performance, and other financial factors. Prepared financial models to estimate the residual land value generated by the Site under both scenarios. Prepared estimates of the economic impact of one-time construction and ongoing operations for both scenarios. Keyser Marston Associates, Inc. Page 2 August 2018 18073kal 11590.005.006

Assessed the potential economic impact of the Visitor-Serving Development scenario on surrounding commercial areas in the cities of Solana Beach and San Diego. Evaluated the affordable housing needs generated by each scenario by updating the nexus model created by KMA for the City s Nexus Study on Housing Mitigation Measures and Fees (September 2017). Reviewed the City s Fiscal Year 2019 General Fund budget to understand the City s existing fiscal condition and revenue/expenditure parameters. Conducted research regarding the fiscal impact of other Southern California resort hotels on police and fire services. Estimated recurring annual revenues and municipal service expenditures as a result of build-out of each respective scenario. C. Report Organization This economic impact and fiscal analysis study has been organized as follows: Following this introduction, Section II presents the KMA key findings. Section III presents an overview of the Visitor-Serving and Single-Family Residential developments. Section IV presents an assessment of the competitive market position for both scenarios. Section V presents the financial feasibility analysis of both scenarios. Section VI provides an estimate of the economic impact of both scenarios during construction and on an ongoing basis. Section VII presents an estimate of the affordable housing needs generated by each scenario. Section VIII provides an estimate of the fiscal impact of both scenarios at build-out. Section IX presents limiting conditions pertaining to this report. Keyser Marston Associates, Inc. Page 3 August 2018 18073kal 11590.005.006

II. KEY FINDINGS A. Financial Feasibility Analysis KMA prepared a financial feasibility analysis to determine the value created by the proposed Specific Plan. Specifically, KMA estimated the residual land value generated by the Visitor-Serving Development (proposed Specific Plan) and the Single-Family Residential Development (existing zoning), with the difference representing the enhanced value created by the proposed Visitor-Serving Specific Plan. The detailed KMA financial feasibility analyses are presented in Section V and Appendices A through D. The Visitor-Serving Development was analyzed under two alternatives: (1) 50% of homebuyers of the Resort Villas opting to enroll their unit into a rental program with rental revenue shared with the hotel operator; and (2) Resort Villas homebuyers not participating in the rental program and thereby no rental revenue generated by the Resort Villas. As shown in Table II-1, the value created by the proposed Specific Plan is based on the difference between the residual land value generated by the Visitor-Serving Development and the residual land value generated by the Single-Family Residential Development, under current zoning. This impact differential is estimated at $88.4 million, assuming half of the Resort Villas participating in a rental program, and $40.4 million assuming that Resort Villas do not participate in a rental program. Table II-1: Value Created by Proposed Specific Plan with Resort Villas in Rental Program (1) without Resort Villas in Rental Program Visitor-Serving Development Residual Land Value (2) $183.8 M $135.8 M (Less) Residential Development Residual Land Value (3) ($95.4) M ($95.4) M Value Created by Specific Plan $88.4 M $40.4 M (1) Assumes 50% of Resort Villas in rental program. (2) Residual land value net of affordable housing gap; affordable housing gap calculated without use of Low Income Housing Tax Credit financing. (3) Based on the KMA estimate of residual land value for the Single-Family Residential Development. B. Economic Impact Analysis KMA estimated the economic benefits captured within the County as a result of both the Visitor-Serving and Single-Family Residential development scenarios. KMA addressed both one-time construction and ongoing operations impacts. The KMA analysis includes the Direct, Indirect, and Induced impacts of both scenarios, in terms of employment, payroll, and economic output. The detailed economic impact analyses are presented in Section VI and Appendices E and F. Keyser Marston Associates, Inc. Page 4 August 2018 18073kal 11590.005.006

A summary of the KMA economic impact findings for both the construction period and ongoing operations is presented in Table II-2. Table II-2: Economic Impact Direct, Indirect, and Induced Impacts, County of San Diego (1) Economic Impact of Construction Visitor-Serving Development with Resort Villas in Rental Program (2) without Resort Villas in Rental Program Single-Family Residential Development (3) Economic Output (4) $630.0 M $630.0 M $83.2 M Personal Income $241.4 M $241.4 M $28.8 M Employment (Person-Years) 4,364 4,364 542 Economic Impact of Ongoing Operations and Resident and Visitor Spending Annual Economic Output (4) $203.4 M $189.6 M $12.7 M Annual Personal Income $80.1 M $74.7 M $5.4 M Employment (Full-Time Equivalent) 1,958 1,786 144 (1) Direct impact includes all direct effects the development has on the region due to the development s construction and operations. Indirect impacts are changes caused by business-to-business purchases as they respond to new demands of directly affected industries. Induced effects are the increased sales within the region from household spending of employees within each sector. (2) Assumes 50% of Resort Villas in rental program. (3) Based on the KMA estimate of development costs and sales values. (4) Output is a measure of the value of goods and services produced. In addition, KMA assessed the economic impact of the Visitor-Serving Development scenario on the surrounding commercial areas. The assessment on surrounding communities is presented in Section VI and Appendix G. Key findings include the following: The Project will generate demand for new retail, restaurant, and service uses, representing a significant opportunity for commercial growth and expansion in Solana Beach. The City of Solana Beach currently experiences a surplus of sales in Food Services & Drinking Places, Furniture & Home Furnishings Stores, and Miscellaneous Store Retailers relative to the spending capacity of its resident consumer population. This surplus indicates a key opportunity to further capture these retail categories within the Highway 101 Business Corridor and Cedros Avenue Design District. Keyser Marston Associates, Inc. Page 5 August 2018 18073kal 11590.005.006

KMA estimates that the City of Del Mar will capture approximately $50.6 million in annual Projectgenerated spending, while the balance of the County will capture approximately $40.2 million. KMA estimates that the City of Solana Beach will capture $12.1 million to $16.1 million in annual Project-generated spending. This capture of new spending will support an increase of $91,000 to $121,000 of annual sales tax. San Diego Nearby Communities 1 are estimated to capture between $4.0 million and $8.0 million in annual Project-generated spending, resulting in $30,000 to $60,000 of new annual sales tax. Other parts of the County are anticipated to capture between $16.1 million and $24.1 million in annual Project-generated spending. This new spending will support $121,000 to $181,000 in new annual sales tax to these jurisdictions. C. Affordable Housing Needs Assessment KMA prepared an assessment of housing needs by affordability level associated with the two development scenarios. The housing needs assessment reflects the housing needs of workers in jobs generated by the Visitor-Serving and Single-Family Residential development scenarios per the economic impact analysis presented in Section VI. The detailed KMA housing needs assessment is presented in Section VII and Appendix H. Table II-3 provides a summary of the total housing demand associated with the new employment in each scenario by affordability level. 1 Includes nearby shopping centers such as Flower Hill Promenade, Del Mar Highlands Town Center, and Beachside Del Mar Shopping Center. Keyser Marston Associates, Inc. Page 6 August 2018 18073kal 11590.005.006

Table II-3: Total Housing Need by Income throughout San Diego County (1) Number of New Households (4) Visitor-Serving Development with Resort Villas in Rental Program (2) without Resort Villas in Rental Program Single-Family Residential Development (3) Extremely Low Income 11 10 1 Very Low Income 214 189 16 Low Income 385 346 28 Subtotal through 80% AMI 610 544 45 Above 80% AMI 473 444 35 Total Employee Households 1,083 988 80 Percent of New Households (4) Extremely Low Income 1.0% 1.0% 1.2% Very Low Income 19.8% 19.1% 20.1% Low Income 35.6% 35.0% 34.9% Subtotal through 80% AMI 56.3% 55.1% 56.2% Above 80% AMI 43.7% 44.9% 43.8% Total Employee Households 100.0% 100.0% 100.0% (1) See Appendix H for income definitions and 2018 Housing and Community Development (HCD) income limits. (2) Assumes 50% of Resort Villas in rental program. (3) Based on the KMA estimates of development costs and sales values. (4) Results represent housing needs for the total direct, indirect, and induced workers in each scenario. The estimated number of workers that are likely to seek and find housing in the City based on the existing share of the City s work force that lives locally, and the number of affordable units proposed to be constructed, are presented in Table II-4. Table II-4: Estimated Share of Housing Needs Met in City of Del Mar Visitor-Serving Development with without Resort Villas in Resort Villas in Rental Program (1) Rental Program Estimated Share of Housing Needs Met in Del Mar (2) (1) Assumes 50% of Resort Villas in rental program. (2) Reflects proposed number of affordable units developed on-site. Single-Family Residential Development 15 Units 15 Units --- Keyser Marston Associates, Inc. Page 7 August 2018 18073kal 11590.005.006

D. Fiscal Impact Analysis KMA analyzed the fiscal impacts on the City s General Fund resulting from the build-out of both the Visitor-Serving Development and the Single-Family Residential Development. The KMA models address the recurring General Fund revenues and operating expenditures to the City in 2018 dollars at stabilization of each scenario. Stabilization is defined as the timepoint when all for-sale homes are sold and rental operations have reached industry standard occupancy, which is assumed to be Year 3 of hotel operations. The detailed KMA fiscal impact analyses are presented in Section V and Appendices I through K. A summary of the KMA fiscal impact findings is presented in Table II-5. Table II-5: Recurring Annual Fiscal Impact at Build-out by Scenario (1) Visitor-Serving Development Single-Family with without Residential Resort Villas in Resort Villas in Development (3) Rental Program (2) Rental Program General Fund Revenues $10.4 M $8.6 M $0.5 M General Fund Expenditures ($1.0) M ($0.9) M ($0.1) M Annual Net Fiscal Impact to City $9.4 M $7.5 M $0.4 M Revenue to Expense Ratio (4) 10.7 8.6 4.5 Surplus per Room/Unit per Year (5) $27,000 (6) $21,000 (6) $20,000 (7) (1) Figures are expressed in FY 2018 dollars. (2) Assumes 50% of Resort Villas in rental program. (3) Based on the KMA estimates of development costs and sales values. (4) Reflects the amount of revenues received for every $1.00 expended, i.e., under Visitor-Serving Development, with Resort Villas in Rental Program scenario, for every $1.00 expended for City services provided to employees, visitors, and residents, the City will receive $10.69 in revenue. (5) Reflects the annual surplus fiscal impact to the City on a per-room or per-unit basis. (6) Assumes a total of 353 rooms/units (251-room Resort Hotel, 76 Resort Villas, 11-room Visitor s Inn, and 15 affordable units = 353 rooms/units). (7) Assumes a total of 18 units. Keyser Marston Associates, Inc. Page 8 August 2018 18073kal 11590.005.006

III. BACKGROUND Exhibit III-1: Subject Site A. Description of Site and Environs As shown in Exhibit III-1, the Site is situated along the coast of Del Mar, California at the southwest corner of Camino del Mar and Border Avenue. The Site is bounded on the north by the City of Solana Beach/City of Del Mar city limit boundary and singlefamily and multi-family residential (Solana Beach) to the north; the Del Mar Fairgrounds & Race Track to the east; the North Bluff Preserve and North Beach to the south; and Del Mar Beach and the Pacific Ocean to the west. The Site is located adjacent to publicly owned properties including: the James G. Scripps Bluff (North Bluff Preserve); North Beach; Camino del Mar, Border Avenue, and Via de la Valle rights-of-way; and the Coastal Access Walk from Border Avenue. The Site is generally triangular in shape and contains gradual slopes with steeper coastal bluffs at the far west portion of the Site. The Site consists of eight legal lots, seven of which are currently vacant. The one lot that is developed is occupied by a one-story, 5,800-SF single-family home. The parcels making up the Site are currently zoned Low-Density Residential (R1-40) and Modified Low- Density Residential (R1-14) allowing for residential uses. A portion of the property located at 929 Border Avenue west of Camino del Mar is currently approved through a Tentative Tract Map to subdivide 6.2 acres into five (5) new single-family lots. B. Visitor-Serving Development The Visitor-Serving Development is envisioned as an ultra-luxury, multi-building resort complex offering the following amenities and features. Keyser Marston Associates, Inc. Page 9 August 2018 18073kal 11590.005.006

251 guest rooms and suites (Resort Hotel) 76 residential villas individually owned with an option for owners to enroll their unit into a hotel rental program (Resort Villas) 11-room visitor s inn (Visitor s Inn) Retail space (approximately 2,000 SF) Conference and banquet space (approximately 33,000 SF) Four restaurants/cafes (approximately 6,000 SF) 15 units of affordable housing (Affordable Housing) 728 parking spaces Outdoor pool and spa Spa and fitness space Public access trails and other amenities Potential trail connections from resort to public properties Public parking for trail use near the northeast corner of the Site C. Single-Family Residential Development The Single-Family Residential Development reflects the maximum subdivision allowed under the current zoning and results in the creation of 18 parcels zoned for single-family residential development, including: Six (6) parcels zoned R1-14 Twelve (12) parcels zoned R1-40 Under this scenario, the homes will be situated within a private community on lots ranging in size between 14,000 SF and 41,000 SF. The homes are estimated to range in size between 4,000 SF and 7,500 SF, with an average home size of 5,500 SF. Analysis of the Visitor-Serving Development in comparison to the Single-Family Residential Development allows for a measured comparison of the baseline condition (existing zoning) against the proposed Visitor-Serving Specific Plan. The difference in conclusions yielded by each scenario reflects the value enhancement created by the Specific Plan. Keyser Marston Associates, Inc. Page 10 August 2018 18073kal 11590.005.006

IV. COMPETITIVE MARKET POSITION A. Socio-Economic Data KMA evaluated the socio-economic characteristics of the City of Del Mar in addition to the areas located within a 15-minute, 30-minute, and 60-minute drive from the City, as shown in Exhibit IV-1. 2 The results of this analysis are displayed in Tables IV-1 through IV-5 and summarized below. Exhibit IV-1: Drive Time Rings The City of Del Mar is characterized by a relatively modest population density (2,436 people/square mile) and small household sizes (2.0 persons/household) when compared to the surrounding area i.e., 2.4-2.8 persons/household (Tables IV-1 and IV-2). The City s population is projected to increase at an average annual rate of 0.7% over the next five years, as compared to an expected increase of 0.9% population per year for the County of San Diego as a whole (Table IV-1). The City s per capita and household income levels are very high when compared to the surrounding areas and the County. Over 40% of Citywide households generate income levels higher than $150,000; comparatively, less than 20% of households in the County exceed this threshold (Tables IV-3 through IV-5, and Exhibit IV-2). 2 ESRI (2018). American Community Survey (ACS) Population Summary and Community Profile. Keyser Marston Associates, Inc. Page 11 August 2018 18073kal 11590.005.006

Table IV-1: Population and Households, 2017-2022 Actual 2017 Projected 2022 Average Annual % Change 2017-2022 Del Mar Population 4,327 4,476 0.7% Household Population 2,138 2,204 15-Minute Ring 144,025 151,172 1.0% Household Population 55,931 58,558 30-Minute Ring 1,328,282 1,392,640 1.0% Household Population 525,421 549,923 60-Minute Ring 3,354,653 3,514,225 0.9% Household Population 1,176,027 1,229,429 San Diego County 3,328,647 3,487,367 0.9% Household Population 1,161,473 1,214,753 Table IV-2: Average Person Per Household, 2017 Table IV-3: Per Capita Income, 2017 Table IV-4: Median Household Income, 2017 Del Mar 2.02 Del Mar $87,398 Del Mar $125,168 15-Minute Ring 2.41 15-Minute Ring $57,869 15-Minute Ring $106,391 30-Minute Ring 2.46 30-Minute Ring $44,745 30-Minute Ring $78,025 60-Minute Ring 2.77 60-Minute Ring $34,902 60-Minute Ring $68,314 San Diego County 2.77 San Diego County $34,472 San Diego County $67,600 Table IV-5: Household Income Distribution, 2017 $25,000- $50,000- $100,000- <$25,000 $49,999 $99,999 $149,999 $150,000+ Del Mar 8% 10% 22% 18% 43% 15-Minute Ring 18% 20% 30% 16% 17% 30-Minute Ring 12% 12% 22% 19% 35% 60-Minute Ring 16% 17% 28% 17% 22% San Diego County 17% 20% 29% 16% 18% Keyser Marston Associates, Inc. Page 12 August 2018 18073kal 11590.005.006

Exhibit IV-2: Household Income Distribution, 2017 San Diego County Del Mar $150,000+ $100,000-$149,999 $50,000-$99,999 $25,000-$49,999 < $25,000 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Modestly populated, the market area has a residential base that is very well educated with high income levels. These characteristics will be consistent with the likely Resort patrons and indicates many retail establishment types preferred by hotel guests are likely to be available in the City and nearby jurisdictions. B. Visitor-Serving Development County and State Travel Data County and State data on travel-related spending and employment are displayed in Tables IV-6 IV-9 and summarized below. 3 Table IV-6 and Exhibit IV-3 illustrate San Diego County s travel industry growth following the end of the economic recession, with direct travel spending and travel-generated employment having increased every year since 2010. o o Direct Travel Spending is defined as the sum of visitor and other spending related to travel. Travel-Generated Employment is defined as employment which is generated by travel activity and spending. This includes primarily the industries of leisure and hospitality (such as 3 Dean Runyon Travel Report (May 2017). Keyser Marston Associates, Inc. Page 13 August 2018 18073kal 11590.005.006

accommodations, food services, entertainment, and recreation), ground and air transportation, and retail. In 2016, the total direct travel spending in San Diego County was $15.8 billion, representing a 3.7% increase over 2015 travel spending. Direct travel-generated employment in San Diego County has also steadily increased year-over-year following the end of the recession. In 2016, the travel-generated employment totaled 140,300 jobs, representing a 4.0% increase over 2015. Since 1994, travel-generated employment in San Diego County has grown faster than travel-generated employment in the rest of California (at 2.6% and 1.7%, respectively). Table IV-6: San Diego County Direct Travel Spending and Employment, 1994-2016 Keyser Marston Associates, Inc. Page 14 August 2018 18073kal 11590.005.006

Exhibit IV-3: San Diego County Direct Travel Spending and Travel-Generated Employment 18000 160 16000 140 Travel Spending 14000 12000 10000 8000 6000 4000 120 100 80 60 40 Travel Generated Employment 2000 20 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015 2016 0 Region Direct Travel Spending ($ Million) Region Direct Travel-Generated Employment ($ Thousand) Table IV-7 details direct impact travel spending in San Diego County, which is defined as travel expenditures made directly by travelers at businesses. This is different from indirect impacts, which refers to earnings associated with industries that supply goods and services to those businesses. As shown, hotel and motel spending, which accounts for 60% of all direct impact accommodation spending in San Diego County, has increased 77% since 2000, on pace with a 75% spending increase Statewide. Visitors to San Diego County in 2016 spent $8.58 billion on hotel and motel accommodations, compared to $1.55 billion for private homes and $467 million for campgrounds. Accommodation spending accounts for approximately 20% of all travel-related visitor spending. Transient Occupancy Taxes (TOT) in the City of Del Mar have grown by 5.3% each year on average since 2006, compared to 4.4% in the County, indicating that travel activity is increasing on the local level at a faster rate than Countywide travel activity. Keyser Marston Associates, Inc. Page 15 August 2018 18073kal 11590.005.006

Table IV-7: San Diego County Direct Impacts Travel Spending, 2006-2016 2000 2005 2010 2012 2014 2015 2016 Visitor Spending by Type of Traveler Accommodation ($ Billion) Hotel, Motel 4,860 5,678 6,252 6,987 7,833 8,315 8,584 Private Home 1,040 1,192 1,400 1,467 1,521 1,543 1,554 Campground* 290 421 407 437 463 465 467 Vacation Home * 213 254 279 293 302 309 316 Day Travel 2,514 2,804 3,134 3,365 3,503 3,553 3,588 Destination Spending 8,917 10,349 11,472 12,549 13,622 14,185 14,509 Visitor Spending by Commodity Purchased Accommodations 1,504 1,826 1,875 2,170 2,557 2,793 2,910 Food Service 2,142 2,615 3,130 3,353 3,666 3,884 4,071 Food Stores* 258 322 353 374 409 427 429 Local Trans. & Gas 894* 1,236 1,470 1,717 1,693 1,603 1,517 Arts, Entertainment & Rec. 1,811 1,985 2,079 2,233 2,396 2,480 2,548 Retail Sales 1,838 1,844 1,942 2,037 2,154 2,210 2,233 Visitor Air Transportation* 470 522 622 664 747 789 801 Destination Spending 8,917 10,350 11,471 12,548 13,622 14,186 14,509 * Figure represented is in $ Million Tables IV-8 and IV-9 display visitor industry trends collected by the San Diego County Regional Airport Authority. The data highlights a steady year-over-year growth in total airport passenger arrivals starting in 2011. 4 This growth was most pronounced in 2017, when total airport arrivals were at a 7.0% increase over the previous year. Table IV-8: San Diego Airport Annual Passengers, 2006-2017 Table IV-9: San Diego Airport Annual Passengers Year Annual % Change 2006 17,673,000-2007 18,673,000 5.7% 2008 18,420,000-1.4% 2009 17,317,000-6.0% 2010 17,205,000-0.6% 2011 17,308,000 0.6% 2012 17,682,000 2.2% 2013 18,100,000 2.4% 2014 19,020,000 5.1% 2015 20,322,000 6.8% 2016 20,729,000 2.0% 2017 22,173,000 7.0% Avg. Annual Growth (2006-2017) Avg. Annual Growth (2012-2017) 2.1% 4.6% 4 Includes both day and overnight visitors. Keyser Marston Associates, Inc. Page 16 August 2018 18073kal 11590.005.006

Local and Regional Hotel Market KMA analyzed several key hotel performance metrics including occupancy rates, ADR (Average Daily Rate) 5, and RevPAR (Revenue Per Available Room) 6 and compared these across the local market (including Del Mar and surrounding communities) and San Diego County. The resulting data are displayed in Tables IV-10 through IV-13 and summarized below. 7 Although occupancy rates within the North Coastal Market 8 have steadily increased since 2012, they continue to trend behind San Diego County (Table IV-10). A 2018 spike in local hotel room supply caused by the arrival of several new hotel developments in Carlsbad 9 is projected to cause occupancy levels to decrease slightly in the North Coastal Market. Table IV-10: Hotel Occupancy Rates, North Coastal Market and San Diego County, 2012-2018 North Coastal San Diego Market County 2012 69.4% 73.7% 2013 70.8% 74.4% 2014 75.7% 76.6% 2015 74.9% 77.9% 2016 75.6% 78.6% 2017 77.5% 79.6% 2018(f) 76.3% 79.3% % Increase 2012-2017 11.7% 8.0% % Annual Growth 2012-2017 2.2% 1.6% % Forecast Change 2017-2018(f) -1.5% -0.4% (f) forecast Table IV-11 and Exhibit IV-4 illustrate that ADR in the North Coastal Market is expected to grow 3.0% from 2017 to 2018, compared to 3.5% in greater San Diego County. Between 2012 and 2017, ADR in the North Coastal Market increased at an annual growth rate of 3.3%, slower than the County, which grew at 4.0% annually during the same period. 5 Average Daily Rate represents the average cost paid by an occupant for a hotel room, not including transient occupancy tax (TOT). 6 RevPAR is calculated by multiplying the Average Daily Rate (ADR) by the Occupancy Rate. 7 CBRE, 2018 Southern California Hotel Forecast (October 20, 2017). 8 As defined by CBRE, the North Coastal Market includes the cities of Del Mar, Carlsbad, Oceanside, and Rancho Santa Fe. 9 New supply additions include a 104-room SpringHill Suites Carlsbad, a 250-room Legoland Hotel, and the expansion of the Sheraton Carlsbad. Keyser Marston Associates, Inc. Page 17 August 2018 18073kal 11590.005.006

Table IV-11: Hotel Average Daily Rates (ADR), North Coastal Market and San Diego County, 2012-2018 (f) forecast North Coastal Market San Diego County 2012 $158.25 $155.86 2013 $163.73 $160.72 2014 $175.72 $169.77 2015 $181.17 $178.53 2016 $182.43 $181.84 2017 $186.41 $189.29 2018(f) $192.00 $195.94 % Increase 2012-2017 17.8% 21.4% % Annual Growth 2012-2017 3.3% 4.0% % Forecast Change 2017-2018(f) 3.0% 3.5% Exhibit IV-4: Occupancy and ADR, North Coastal Market and San Diego County 82.0% $250.00 80.0% 78.0% 76.0% 74.0% 72.0% 70.0% 68.0% $200.00 $150.00 $100.00 $50.00 66.0% 64.0% 2012 2013 2014 2015 2016 2017 2018(f) $0.00 North Coastal ADR North Coastal Occupancy San Diego County ADR San Diego County Occupancy Between 2012 and 2017, REVPAR in all of San Diego County and the North Coastal Market increased at roughly the same rate, approximately 31.0% (Table IV-12 and Exhibit IV-5). However, between 2017 and 2018, REVPAR in San Diego County is projected to increase at more than twice the rate of REVPAR in the North Coastal Market (3.1% and 1.4%, respectively). Keyser Marston Associates, Inc. Page 18 August 2018 18073kal 11590.005.006

Table IV-12: Hotel Revenue per Available Room (REVPAR), North Coastal Market and San Diego County, 2012-2018 North Coastal Market San Diego County 2012 $109.83 $114.87 2013 $115.92 $119.58 2014 $133.02 $130.04 2015 $135.70 $139.07 2016 $137.92 $142.93 2017 $144.47 $150.67 2018(f) $146.50 $155.38 % Increase 2012-2017 31.5% 31.2% % Annual Growth 2012-2017 5.6% 5.6% % Forecast Change 2017-2018(f) 1.4% 3.1% Exhibit IV-5: Annual REVPAR, North Coastal Market and San Diego County $160.00 $150.00 $140.00 REVPAR $130.00 $120.00 $110.00 $100.00 2012 2013 2014 2015 2016 2017 2018 (f) North Coastal Market San Diego County Southern California Select Hotel Performance KMA evaluated the operating performance at the following select number of higher quality hotels in Southern California, including occupancy levels, ADR, and RevPAR: 10 10 Smith Travel Research (STR) Trend Report 2018. Keyser Marston Associates, Inc. Page 19 August 2018 18073kal 11590.005.006

o Casa Del Mar, Santa Monica, CA (129 rooms) o Shutters on the Beach, Santa Monica, CA (198 rooms) o Rancho Valencia Resort, Rancho Santa Fe, CA (53 rooms) o Curio Collection Hotel del Coronado, Coronado, CA (757 rooms) o Fairmont Grand del Mar, San Diego, CA (249 rooms) o Ritz-Carlton Laguna Niguel, Dana Point, CA (396 rooms) o Montage Laguna Beach, Laguna Beach, CA (248 rooms) ADR and REVPAR for these select hotels have shown consistent growth over the past five years; between 2012 and 2017, both performance metrics increased by approximately 30% to $534 per night and $383 per night, respectively (Table IV-13 and Exhibit IV-6). Since 2015, occupancy levels have remained relatively stable. By comparison, the Developer s submittal to the City has projected that the Resort Hotel will generate $707 ADR and the occupancy level will stabilize (Year 3) at 74%. As such, the Developer is anticipating the hotel will perform exceedingly well. Table IV-13: Southern California Select Hotel Performance Year Occupancy ADR Revenue per Available Room (REVPAR) % Increase in Demand 2012 69.0% $ 421.74 $ 290.90-2013 69.2% $ 448.07 $ 310.10 2.0% 2014 70.2% $ 485.76 $ 341.05 1.5% 2015 72.1% $ 504.46 $ 363.67 2.8% 2016 71.3% $ 525.35 $ 374.78-1.0% 2017 71.8% $ 534.14 $ 383.47 0.6% Keyser Marston Associates, Inc. Page 20 August 2018 18073kal 11590.005.006

Exhibit IV-6: Southern California Select Hotel Performance, ADR, REVPAR, and Occupancy Due to tourism accounting for a large share of demand in these select hotels, all performance metrics (ADR, REVPAR, and occupancy) tend to peak on Friday and Saturday, and are at their lowest point from Sunday to Tuesday (Table IV-14 and Exhibit IV-7). Table IV-14: Southern California Select Hotels, Weekly Averages Sun Mon Tues Weds Thurs Fri Sat Occupancy 64.1% 68.0% 71.7% 71.3% 73.5% 76.4% 81.1% ADR $ 538.86 $ 492.78 $ 486.41 $ 500.43 $ 536.15 $ 588.53 $ 599.81 REVPAR $ 345.16 $ 334.86 $ 348.71 $ 357.04 $ 394.01 $ 449.40 $ 486.67 Keyser Marston Associates, Inc. Page 21 August 2018 18073kal 11590.005.006

Exhibit IV-7: Southern California Select Hotels Performance by Day of the Week $700 85% $600 $500 $539 $493 $486 $500 $536 $589 $449 $600 $487 80% 75% ADR & REVPAR $400 $300 $345 $335 $349 $357 $394 70% 65% Occupancy $200 60% $100 55% $- Sun Mon Tues Weds Thurs Fri Sat ADR REVPAR Occupancy 50% Competitive Market Position Visitor-Serving Development Conclusion Increasing ADRs and higher occupancy levels indicate the North County region and San Diego County hotel markets performed well over the past several years as demand increased at a very healthy rate. During this time period, the luxury, resort market throughout Southern California also experienced strong rate growth. These factors would indicate the current market conditions are favorable for new, luxury hotel development in Del Mar. C. Single-Family Residential Development National Market Conditions - Luxury Homes According to Coldwell Banker Global Luxury 11, the national market for luxury homes are seeing prices stagnate or decline after years of overbuilding as availability of land on which to construct new luxury homes has become limited. Meanwhile, neighborhoods that until recently were not considered the most prestigious have gained interest. As demand for million-dollar homes rises and availability of these homes in their traditional neighborhoods declines, million-dollar-plus homes are being built in new locations and in adjacent neighborhoods. The following present key market factors for the national luxury home residential market: 11 Coldwell Banker Global Luxury Report 2018. Keyser Marston Associates, Inc. Page 22 August 2018 18073kal 11590.005.006

Power Markets as defined by Coldwell Banker Global Luxury are where the wealthiest and powerful tend to own property. Typically, these areas are destinations themselves; offer lifestyle, cultural, and educational opportunities; provide airport accessibility; and offer housing stock that provides privacy, views, and exclusivity. Buyers of luxury homes typically seek to incorporate the following amenities into their residential properties: o Outdoor living spaces o Resort-style pool o Private gym o Enclosed spaces for sports o Home theatres o Eco-friendly and smart home features o Grand kitchens o Smaller on-site living structures o Collection garages o Custom design elements and features According to the data firm Wealth-X, technological advances and expansion of supersonic air travel has allowed increased diversification of property ownership among ultra-high-net-worth individuals (individuals with assets greater than $30 million). These individuals are found to own multiple properties, with at least 50% owning two homes and approximately 10% owning five or more homes in multiple cities. The ultra-wealthy population on a global level is projected to increase gradually to over 318,000 by 2020 with a cumulative net worth or $46.2 trillion. Local Market Conditions According to Windemere Real Estate 12, between 2017 and 2018 San Diego County outpaced all other Southern California counties in terms of annual change in home price and average days on the market. However, as shown in Table IV-15, during the same period, San Diego County experienced an 8.1% decline in home sales, the highest decline compared to other counties in Southern California. Table IV-15: Overview of Southern California Housing Markets (1) County San Diego Los Angeles Orange Riverside San Bernardino Annual Change in Home Sales Price 9.7% 6.5% 7.9% 8.9% 8.7% Annual Change in Home Sales -8.1% -5.9% -5.2% -5.1% -2.9% Average Days on Market 28 Days 46 Days 41 Days 55 Days 46 Days (1) Reflects annual changes from 1 st Quarter 2017 to 1 st Quarter 2018. (2) Source: Windemere Real Estate 12 The Gardner Report, Southern California, First Quarter 2018, Windermere Real Estate Keyser Marston Associates, Inc. Page 23 August 2018 18073kal 11590.005.006

Nonetheless, San Diego County s median home prices have experienced all-time highs. In May 2018, the median sales price of a single-family home in San Diego County was $640,000, representing a year-overyear increase of 5.8%. However, the number of home sales in the County declined by 10.0% since May 2017. As shown in Table IV-16, according to Coldwell Banker 13, San Diego County s North County Coastal communities 14 yield the highest sales prices among all areas of the County. In particular, in May 2018, the median sales price for a single-family home in the City of Del Mar was $2,095,000, representing the highest median home price among other North County Coastal communities. By comparison, the communities with the next highest median single-family home prices include the City of Solana Beach ($1,910,000) and Cardiff by the Sea ($1,825,000). The City of Del Mar also experienced a positive increase in the number of home sales since May 2017, while the North County Coastal communities collectively experienced a decline of 17.5%. Table IV-16: Overview of Residential Home Pricing and Sales, May 2018 Percent Median Single-Family Home Price Change from 2017 Number of Sales Percent Change from 2017 City of Del Mar $2,095,000 1.0% 15 7.1% North County Coastal (1) $735,000 8.9% 569-17.5% San Diego County $640,000 5.8% 2,167-10.0% (1) Reflects the following areas: Cardiff by the Sea, Carlsbad, Carmel Valley, Del Mar, Encinitas, La Jolla, Oceanside, Rancho Santa Fe, San Marcos, Solana Beach, and Vista. Source: Coldwell Banker Notably, in March 2018, a home at 100 Stratford Court in Del Mar sold for $21.5 million, representing the highest-priced home sale in San Diego County since 2007. KMA prepared a survey of home sales by price point category from 2015 to the present for the area west of Interstate 5 (I-5), north of Carmel Valley Road, and south of Lomas Santa Fe Drive (Study Area) and for the County as a whole. The KMA survey reviewed home sales in the Study Area and County with prices greater than $2.5 million, in three different pricing categories. The results of the survey are presented in Table IV-17 and summarized below. 13 The Real Estate Report, North Coastal San Diego County, Coldwell Banker, July 2018. 14 As defined by Coldwell Banker, includes the areas of Cardiff by the Sea, Carlsbad, Carmel Valley, Del Mar, Encinitas, La Jolla, Oceanside, Rancho Santa Fe, San Marcos, Solana Beach, and Vista. Keyser Marston Associates, Inc. Page 24 August 2018 18073kal 11590.005.006

Since 2015, sales of homes within the Study Area with prices of $2.5 M and higher represent 23% of Countywide home sales in this price bracket. These sales were distributed as follows: o o o Between $2.5 M and $5.0 M 6% of the County Between $5.0 M and $7.5 M 10% of the County Above $7.5 M 8% of the County For homes ranging between $2.5 million and $5.0 million, the median sales prices for the Study Area did not vary significantly from the County median home price. However, on a per-sf basis, the Study Area median home price was nearly 60% higher than the County s median price per SF. This significant difference is also seen in homes ranging between $5.0 million and $7.5 million range (69% higher than the County) and homes above $7.5 million (98% higher than the County). Homes priced $2.5 million and above within the Study Area are also significantly smaller in both livable SF and lot size than homes in the County as a whole. Table IV-17: Residential Home Sales by Price Point, 2015 to Present Study Area (1) County of San Diego Sales Price SF $/SF Lot Size (SF) Sales Price SF $/SF Lot Size (SF) Sales Prices Ranging Between $2.5 Million and $5.0 Million Minimum $2.5 M 1,181 $469 4,700 $2.5 M 446 $252 3,300 Maximum $5.0 M 5,492 $3,049 37,026 $4.9 M 11,671 $8,038 217,800 Median $3.0 M 3,113 $1,109 10,000 $3.1 M 4,542 $701 43,560 # of Sales 71 Sales, or 6% of County Sales 1,244 Sales Sales Prices Ranging Between $5.0 Million and $7.5 Million Minimum $5.1 M 1,552 $912 4,791 $5.0 M 732 $485 6,700 Maximum $7.2 M 5,811 $4,639 36,155 $7.2 M 11,995 $8,798 212,137 Median $5.7 M 3,245 $1,672 12,200 $5.7 M 5,639 $989 52,272 # of Sales 17 Sales, or 10% of County Sales 176 Sales Sales Prices Above $7.5 Million Minimum $8.0 M 1,881 $1,690 3,920 $7.5 M 1,762 $752 3,800 Maximum $18.0 M 5,459 $4,639 22,651 $21.5 M 11,297 $6,303 214,751 Median $9.9 M 4,620 $3,571 14,500 $9.7 M 5,459 $1,809 43,996 # of Sales 5 Sales, or 8% of County Sales 64 Sales (1) Reflects home sales west of Interstate 5 (I-5), north of Carmel Valley Road, and south of Lomas Santa Fe Drive. Source: CoreLogic Keyser Marston Associates, Inc. Page 25 August 2018 18073kal 11590.005.006

By comparison, the 76 Resort Villas in the Visitor Serving Development are projected to have a much lower average size of 2,245 SF. The Resort Villas also have a much higher average sales price of $3,318 per SF, or $7.4 million, when compared to homes in the Study Area and the County with sales prices ranging between $5.0 and $7.5 million. The 18 single-family homes in the Single-Family Residential Development are planned to have large lot sizes averaging 32,800 SF and large home sizes averaging 5,500 SF. The Developer projects average prices of $2,300 per SF, or $12.9 million per unit. The KMA projections of average price are approximately 8.7% higher, specifically $2,500 per SF, or $13.8 million per unit. (This difference in market price projection is addressed more fully in the context of the financial feasibility analyses Section V.B of this report.) By comparison, homes in the Study Area with sales prices above $7.5 million tend to have much smaller lot sizes, small homes sizes, resulting in a higher sales price on a per-sf basis. Competitive Market Position Single-Family Residential Development Conclusion San Diego County s North County Coastal communities yield the highest sales prices among all areas of the County. In particular, the City of Del Mar experiences the highest median home price among other North County Coastal communities. These factors would indicate the current market conditions are strongly favorable for new high-end single-family residential development in the City of Del Mar. Keyser Marston Associates, Inc. Page 26 August 2018 18073kal 11590.005.006

V. FINANCIAL FEASIBILITY ANALYSIS This section analyzes the financial feasibility of the Visitor-Serving Development and the Single-Family Residential Development. KMA prepared the financial feasibility analysis to determine the value created by the proposed Specific Plan for a resort when compared to the current entitlements of large lot singlefamily residential. Specifically, KMA estimated the residual land values generated by the Visitor-Serving and the Single-Family Residential scenarios, with the difference representing the enhanced value created by the proposed Specific Plan. The KMA financial feasibility analysis was based on review and analysis of the financial pro formas submitted by the Developer. Where appropriate, KMA provided alternative inputs and assumptions based on recent experience with comparable developments as well as prevailing industry standards. KMA modifications are highlighted in each pro forma and discussed in the corresponding sub-sections below. The financial pro forma model yields an estimate of the residual land value for each respective development scenario. The residual land value represents the maximum land value supported by the proposed development. This land value must be allocated to the total development site area, including the Developer-owned parcels as well as any public right-of-way that would be acquired to enable the proposed development. A. Visitor-Serving Development The Visitor-Serving Development will include 76 Resort Villas available for sale to individual homebuyers in addition to its hotel rooms. Homebuyers of the Resort Villas will have the option of enrolling their unit into a rental program with rental revenue shared with the hotel operator. Appendix A estimates the financial feasibility of the Visitor-Serving Development assuming 50% of homebuyers of the Resort Villas opting to enroll their unit into a rental program with rental revenue shared with the hotel operator and Appendix B estimates the financial feasibility of the Visitor-Serving Development assuming homebuyers not participating in the rental program and thereby no rental revenue generated by the Resort Villas. Salient aspects of the Visitor-Serving Development financial feasibility analysis are summarized below. Development Costs Resort Hotel and Resort Villas Within Appendices A and B, Table 1 provides an estimate of total development costs for the Resort Hotel and Resort Villas. The construction costs are based on the Developer s submittal to the City, and have been evaluated for reasonableness based on other developments in the region. Keyser Marston Associates, Inc. Page 27 August 2018 18073kal 11590.005.006

As a land residual analysis, which solves for supported land value, development costs for the Resort Hotel and Resort Villas costs do not include land acquisition costs. Based on estimated provided by the Developer, site improvement costs are estimated at $32.5 million, which includes landscaping, site improvements, 13 acres of grading, and exporting 140,000 cubic yards of material for the parking structure. The construction costs for the 11 rooms in the Visitor s Inn are estimated at $200,000 per unit, $2.2 million. The Developer s plan assumes 728 subterranean parking spaces serving all uses on the Site are estimated to cost $56,000 per space. The shell costs for the Resort Hotel rooms and Resort Villas were not disaggregated in the Developer s pro forma. For the 327 Resort Hotel rooms and Resort Villas, the average construction cost is $947,000 per unit, which reflects an extremely high-quality level of construction. The FF&E allowance for the 76 Resort Villas is $8.1 million, or $107,000 per unit. This would reflect an extremely high level of quality for the unit finishes. The FF&E allowance for the 251-room Resort Hotel portion of the project is $26.9 million, or $107,000 per room. Similar to the Resort Villas, these costs would reflect an extremely high-quality level to the improvements, which would be superior to virtually all of the competitive waterfront resorts. Given the preliminary nature of the design, a 5.9% construction contingency is assumed. As the Project proceeds through the process, this figure may decrease. Permits and Fees/Impact Fees were estimated by the Developer at $10.9 million, or $33,000 per unit. The City should review the estimated this estimate to ensure its reasonableness. The analysis assumes all the sales and marketing costs for the Resort Villas are $4.1 million, or $54,000 per unit. Other indirect costs estimated by the Developer are modest. For instance, the architecture and engineering costs are less than 2% of direct costs, when these are typically 3% to 8% of direct costs. Financing costs are estimated at $41.0 million based on the Developer s estimate. Keyser Marston Associates, Inc. Page 28 August 2018 18073kal 11590.005.006