Grand Venetian, Hotel Zone, Puerto Vallarta,

The Grand Venetian - Bayview Grand is a 3 tower, 408 unit deeded condominium project with about 68 additional ground level houses.

This project is ambitious and has been selling for over 2 years. Initial delivery of Tower 1 promised in May, 2007 has been pushed out. We are of the opinion Towers 2 and 3 will be delayed well into 2008 or 2009. Some additional delivery delays for Tower 1 and the homes is expected.

Financing risk is considerable for this project. A 30% down payment is required upon purchase, with a further 40% in 2-5 months. A $480,000 condominium may require about $350,000 in funds to be tied up for 2 years or longer. The developer is not providing purchase financing for the balance.

The project is being built on partially reclaimed land at the foot of the Rio Pitall. This geographic area has been known to flood during the rainy season. New drainage patterns are untested. Environmental risk is high.

Operational costs will be slightly below average. Maintenance fees are expected to be about $2 per square meter. The size of the project provides considerable economies of scale.

A rental pool of units is expected, but at the time of posting has not been formalized. Rental opportunities are reduced in the absence of a formal program.

Recommendation: Pass

Villa LaEstancia, Flamingos, Nuevo Vallarta

Villa LaEstancia is structured as deeded full ownership or deeded fractional ownership (mostly quarters) condominium building, north of Puerto Vallarta and Nuevo Vallarta in the Flamingos community. The business structure is similar to the developer's successful Cabo San Lucas project. Nuevo Vallarta is being delivered in three phases, the first at any time, the second in 2008, the third does not have a delivery date.

Construction quality appears high, however a full assessment requires a review of a construction audit upon full completion of Phase 1.

The developers have a strong track record in Mexico, specifically with the Villa del Mar, Villa del Palmar and Villa del Palmar Flamingos projects. Delivery is expected very shortly for Phase 1 and Phase 2 will likely be delivered in mid 2008, only slightly behind schedule. Closings will test the business model for deeded fractional ownership which is somewhat new to Mexico. Phase 3 delivery dates cannot be assured. In addition Phase 3 borders property that has not yet been developed.

Financing risk is below average for Mexico for Phases 1 and 2. A downpayment of 25% is required upon purchase, with the balance at delivery. A 5% price reduction is available for early payment. The developer will finance the balance at 10% for 10 years, with no restrictions on prepayment. This option provides an insurance floor on potential loss of everything except for the downpayment.

There project features above-average purchase prices. Fortunately theses prices can be managed down in certain cases. The three buildings/phases have significant price premiums between the 3rd floor and the 8/9th floors, and for ocean front villas and for penthouses. We do not believe the price premiums are justified. For example, the third and fourth floors offer basically the same views as the 9th floor. The higher floors will not generate any premium rental income or longer term price appreciation.

There are opportunities for rental income. However, this is a premium-priced project, with a specific target market, in a location with limited local infrastructure such as roads and bus service. The condo units feature a very flexible, physical lock off system, which will likely be helpful in covering costs for two bedroom units. There is a promise of a guaranteed rental program within two years. The promise cannot be referenced in any condominium documents. We strongly suggest that management include rental guarantees within the condominium regime documents now.

Operational costs will likely be above average. Condominium budgets have not yet been prepared. Approximately 60% of the project includes common areas and it is expected that the number of staff to in-residence occupants will be 3:1 resulting in high personnel expenses.

Operational risk is low. There are back up systems for virtually everything and it appears the buildings could remain in operation for as long as one week in the event of an emergency.

Environmental risk is normal for the Pacific coast of Mexico.

Personal security is not an issue.

*Recommendations: Phase 1 - hold, buy recommendations except for penthouses and ocean facing villas
Phase 2 - hold, buy recommendations for lower floors
Phase 3 - pass until delivery dates are firm and more information is known about adjoining property.

*Recommendations are general in nature only and will be impacted by investors specific circumstances.