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/ • April 22, 2009 Mr. Thomas Paschke City Planner Planning and Zoning City of Roseville 2660 Civic Center Drive Roseville, MN 55113 RE: Applewood Pointe of Roseville at Langton Lake Dear Thomas: • Following up on our recent conversation regarding dividing the Cooperative into finro phases, I have attached floor plans reflecting this approach. I should also have a revised colored site plan and rendering of the building(s) next week. I will forward these to you as they are completed. We have been struggling with finro major issues with respect to not only this project, but also other Applewood Pointe communities that we are pursuing. First, the economic climate and corresponding poor housing market has resulted in a reduction of solid buyers willing to market their homes and commit to Applewood Pointe. The interest remains very high, but there is a concern that homes will remain on the market for a prolonged period of time and/or bring in much lower than expected proceeds. This has resulted in a significant number of reservation holders which remain interested, but are not yet willing to commit to purchasing a home at this time. The second major issue is financing. As you are aware, we have used 40-year Master Mortgages guaranteed by HUD. In the past, HUD required a 50% pre-sale level prior to approving and funding the project. As of late last year, they have increased this requirement to 70%. At 95 units, this changes the pre-sale target from 48 units to 67 units. This is a tall order in a strong economic and housing environment, but almost an impossible task in the current climate. We don't see either of these conditions changing significantly this year to the point where we would be able to meet this threshold. This would mean that the project could not get started until 2010 at the earliest, and there is certainly no guarantee unless things improve that we would meet the requirements in 2010. The two other options we looked at included reducing the size of the building and the current phased approach which we are now pursuing. Given the cost of the land and other fixed expenses, reducing the size of the building cuts too deeply into the potential profit making the project very questionable from a feasibility standpoint. Phasing the project maintains the profitability and results in a target pre-sale level for each phase that we feel is obtainable.