Best estimates are that the company and preferred equity investors had spent $7,000,000 or more for the Dayton predevelopment project when Stapleton Group walked away from it, which occurred only weeks after Diepenbrock and Auxier spent in a day in Denver updating and preparing for institutional investor’s potential questions on it - including one firm in Denver that had underwritten Storybuilt’s entire business for both Holding Company / Storybuilt Global investments and Joint Venture / Storybuilt Development partner investments.

Our Dayton estimates fall out of our broader consolidated accounting estimates in which we believe roughly $21,000,000 was likely spent on pipeline developments and therefore Dayton’s economics at the time were approximately one-third of this category. Dayton’s total pre-development budget was around $22,000,000 and the acquisition comprised of multiple sites and roughly half of the budget, however during the ~twenty-four months of time spent working on the acquisitions and pre-development of the project we estimate just over $2,000,000 was spent on land acquisition and $5,000,000 on predevelopment. Because so much of the predevelopment work is done by the company’s vertically integrated development teams the process of allocating the costs among each and every consolidated project Storybuilt works on is done later in the life cycle when a cost of sale or cost of goods sold transaction occurs (so that the most information is known about all costs and all projects*). For example, in 2021 and 2022 Partners Group and CalSTRS transactions completed this process for those particular projects. But a majority of the consolidated projects in play at the time of the receivership had not completed allocations and some such as Dayton may not have even started yet. There is also a GAAP to Managerial (or Forensic) accounting exercise that is not done routinely and factors in here materially.

(Side note, Stapleton Group has not provided the Stakeholders with insight into this, which seems inexcusable given the large amounts of fees paid to them and their promises of producing forensic accounting. There are consultants available that can do so and could be used as expert witnesses if necessary.)

The most substantial hurdles Dayton faced was a lack of land loan availability to close on multiple parcels after SVB’s failure and then a lack of additional equity to complete the capital raise and fill the pre-development budget. The downturn in these capital markets started in the second half of 2022, after the company decided to go forward and began to capitalize it a year into working on it.

The Officers discussed the challenges with the preferred equity investors that had invested capital into the ~$7,000,000 spent to date and considered these two things to be important:

• The company’s developments needed additional capital primarily due to inflation and the company itself could not provide it at the time. This would be concerning for the company’s largest preferred equity investor, a ‘family-office’ that was invested in Dayton and most all of the other consolidated development projects.

• Due to Dayton’s acquisition costs still to come, and the expectation that the new capital investors for the company itself would not be willing to allocate a large amount of new funds to Dayton alone, continuing on with Dayton in the near term was concerning in those extremely poor capital markets, unless the largest preferred equity investors already invested in it wanted to add more capital.

Dayton was the largest and further along pipeline project, however another ~$14MM had been spent on other upcoming development projects, primarily company capital and so those future acquisitions and developments were available as alternate assets for the preferred equity investors (until Stapleton walked away from them as well). That and similar solutions were discussed in order to preserve preferred equity partner capital, and allow the company to take the risk on continuing on with Dayton because it was such a valuable long-term project within the pipeline.

Storybuilt had a track record back to 2010 of producing excellent results from more than thirty previous pipeline developments prior to recapitalizing them for construction development with the likes of Partners Group, CalSTRS, Forestar, and other types of investors before them. It is a travesty that Stapleton walked away from Dayton and the other pipeline projects, as well as other early stage 'In Development' projects that were teed up for a JV transaction.

The overarching challenge the company faced was lack of liquidity after spending too much on costs across the board. Construction costs being the largest line item but admittedly not the only portion of the development business that had seen dramatic cost increases. Professional costs were certainly higher than pre-pandemic by quite a bit as well. Interest had nearly doubled on average. And like Dayton, and because of its track record and outside investor demand prior to the drastic drop-off, the company spent a lot on acquisitions as well. In fact, from 2021 forward the company increased its emphasis and investment in bringing forward as much of the development work on a new project as possible. That equals more spending early in each project’s lifecycle because it was a strategy the company believed would pay dividends (especially when reaching efficiencies gained from volume and scale). In hindsight, the company’s timing was poor for that particular part of the business plan and it needed to counteract it with longer-term capital and other moves.

*such as pipeline developments that are transacted into Joint Ventures including the fourteen into Partners Group; and construction developments when selling homes or finished communities; as well as completing other transactions that require the recognition of cost of goods sold or another form of asset transfer recognition.