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AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

Nile Leatham (NV Bar No. 002838) KOLESAR & LEATHAM Wells Fargo Financial Center 3320 W. Sahara Ave. Las Vegas, NV 89102 Telephone: 702.979.2357 Facsimile: 702.362.9472 E-Mail: nleatham@klnevada.com Philip C. Dublin (NY Bar No. 2959344) Abid Qureshi (NY Bar No. 2684637) AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, NY 10036 Telephone: 212.872.1000 Facsimile: 212.872.1002 E-Mail: pdublin@akingump.com aqureshi@akingump.com

Electronically Filed February 8, 2010

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Counsel for the First Lien Steering Committee UNITED STATES BANKRUPTCY COURT DISTRICT OF NEVADA SOUTHERN DIVISION IN RE: THE RHODES COMPANIES, LLC, aka Rhodes Homes, et al., Debtors.1 Case No. 09-14814-LBR (JointlyAdministered) Chapter 11

Hearing Date: February 11, 2010 Hearing Time: 9:30 a.m.

The Debtors in these cases, along with the last four digits of each Debtors federal tax identification number, if applicable, are: Heritage Land Company, LLC (2918); The Rhodes Companies, LLC (3060); Rhodes Ranch General Partnership (1760); Tick, LP (0707); Glynda, LP (5569); Chalkline, LP (0281); Batcave, LP (6837); Jackknife, LP (6189); Wallboard, LP (1467); Overflow, LP (9349); Rhodes Ranch Golf and Country Club (9730); Tuscany Acquisitions, LLC (0206); Tuscany Acquisitions II, LLC (8693); Tuscany Acquisitions III, LLC (9777); Tuscany Acquisitions IV, LLC (0509); Parcel 20 LLC (5534); Rhodes Design and Development Corp. (1963); C&J Holdings, Inc. (1315); Rhodes Realty, Inc. (0716); Jarupa LLC (4090); Elkhorn Investments, Inc. (6673); Rhodes Homes Arizona, LLC (7248); Rhodes Arizona Properties, LLC (8738); Tribes Holdings LLC (4347); Six Feathers Holdings, LLC (8451); Elkhorn Partners, A Nevada Limited Partnership (9654); Bravo Inc. (2642); Gung-Ho Concrete, LLC (6966); Geronimo Plumbing, LLC (6897); Apache Framing, LLC (6352); Tuscany Golf Country Club, LLC (7132); Pinnacle Grading, LLC (4838).

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Affects: All Debtors Affects the following Debtor(s)

FIRST LIEN STEERING COMMITTEES REPLY TO STANLEY CONSULTANTS, INCS OPPOSITION TO FIRST LIEN STEERING COMMITTEES SUPPLEMENTAL MEMORANDUM OF LAW IN SUPPORT OF CONFIRMATION OF THE SECOND AMENDED MODIFIED PLAN

The First Lien Steering Committee (the First Lien Steering Committee), consisting of certain unaffiliated lenders under the Credit Agreement dated as of November 21, 2005 among Heritage Land Company, LLC, The Rhodes Companies, LLC, and Rhodes Ranch General Partnership, as the Borrowers, the Lenders Listed Therein as the Lenders (collectively, the First Lien Lenders), and Credit Suisse, Cayman Islands Branch, as Administrative Agent, Collateral Agent, Syndication Agent, Sole Bookrunner and Sole Lead Arranger, by and through its undersigned counsel, hereby files this Reply (the Reply) to Stanley Consultants, Incs Opposition (the Stanley Objection) to First Lien Steering Committees Supplemental Memorandum of Law in Support of Confirmation of the Second Amended Modified Plan (the Plan). In support of this Reply, the First Lien Steering Committee respectfully represents as follows: REPLY2 1. On January 27, 2010, the First Lien Steering Committee filed its

AKIN GUMP STRAUSS HAUER & FELD LLP AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park One Bryant Park New York, New York 10036 New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

Supplemental Memorandum in support of Confirmation of the Second Amended Modified Plan of Reorganization (the Supplemental Memorandum). By the Supplemental Memorandum, the First Lien Steering Committee provided further support for the Court to confirm the Plan. Specifically, the First Lien Steering Committee provided additional facts
2

Capitalized terms not defined herein shall have the meanings ascribed to them in the Plan or Supplemental Memorandum.

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and legal analysis affirming that (i) the Mediation Settlement described in the Plan was fair and equitable and should be approved under Bankruptcy Rule 9019, and (ii) the consideration to be received by the Rhodes Entities as part of the Mediation Settlement was not received on account of any Equity Interests held by one or more of the Rhodes Entities. On February 2, 2010, Stanley Consulting, Inc. (Stanley) filed the Stanley Objection, alleging that (i) the First Lien Steering Committee failed to consider water rights associated with the Arizona Assets when valuing such assets, (ii) the First Lien Steering Committee failed to include 19 parcels of land in its valuation of the Arizona Assets, and (iii) because the First Lien Steering Committee undervalued the Arizona Assets, the absolute priority rule has not been satisfied with respect to the consideration to be received by the Rhodes Entities under the Plan. Each of these arguments is addressed below. A. 2. Value of Water Rights Associated with Arizona Assets Stanley alleges that the First Lien Steering Committee and its professionals

AKIN GUMP STRAUSS HAUER & FELD LLP AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park One Bryant Park New York, New York 10036 New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

failed to incorporate the incalculable value attributable to certain water rights into its valuation of the Arizona Assets. Stanleys assertion is predicated on the following: (i) the water rights themselves are extremely valuable, and that value will be transferred to the Rhodes Entities upon consummation of the Plan, and (ii) certain unidentified Debtor and/or non-Debtor entities have spent millions of dollars to obtain the water rights currently held by the Arizona Assets. 3. As set forth in the Declaration of Gregory Wallace in Support of

Confirmation of Second Amended Modified Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code for The Rhodes Companies, LLC, et al. (the Wallace Declaration), attached hereto as Exhibit A, the Debtors have completed only the most preliminary steps towards obtaining water rights for the parcels of land included in the

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Arizona Assets. More specifically, the Debtors hold only an Analysis of Water Adequacy for the parcels included in the Arizona Assets and do not hold water rights as that term has been used by Stanley. An Analysis of Water Adequacy is simply a ten-year authorization with two five-year renewals to put water to beneficial use based on a proposed development plan. Wallace Declaration at 5-6. Before the Debtors (or a third party) can actually supply a housing development with water, a substantial number of additional steps must be completed as required by Arizona state law. Wallace Declaration at 9. Even assuming the continued development of the Arizona Assets (which appears unlikely given the current state of the Arizona housing market), the Debtors are at least several years away from obtaining the water rights necessary to supply a master community with water. Wallace Declaration at 9. Completion of the steps required will cost the Debtors millions of dollars. Wallace Declaration at 9. In addition, there is a material risk that the Debtors will not be able to complete each required step successfully. Wallace Declaration at 9. In light of the foregoing (and notwithstanding Stanleys observation that water rights in the middle of a desert have incalculable value), the water rights associated with the Arizona Assets as they exist today have minimal value. Wallace Declaration at 9. 4. The First Lien Steering Committee acknowledges that certain of the Debtor

AKIN GUMP STRAUSS HAUER & FELD LLP AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park One Bryant Park New York, New York 10036 New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

entities and Mr. Rhodes himself have invested substantial sums of money into the Arizona Assets in the hopes of developing one or more master plan communities. Unfortunately, the current state of the housing market has prevented the Debtors from realizing any benefit on account of their investment in the Arizona Assets. The simple fact that the Debtors spent millions of dollars to obtain the Arizona Assets and begin the process of developing associated water rights does not correlate to an increased valuation for the Arizona Assets.

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More specifically, the book value of the Arizona Assets does not equate to such assets market value, which is the appropriate metric for determining how the Arizona Assets should be valued for Plan purposes. Supplemental Hewlett Declaration at 3-4. 5. As set forth in the Supplemental Declaration of Charles Hewlett in Support

of Confirmation of the Second Amended Modified Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code for The Rhodes Companies, LLC, et al. (the Supplemental Hewlett Declaration), attached hereto as Exhibit B, book value is typically the lesser of (i) what has been paid to acquire an asset plus any improvements purchased, or (ii) market value. Market value is an estimate of what a willing buyer would pay to a willing seller, both in a free market, for an asset. Supplemental Hewlett Declaration at 3-4. The market value of an asset often bears no relation to the book value of such asset, regardless of whether the book value of an asset reflects millions of dollars of sunk costs. Supplemental Hewlett Declaration at 4. In performing its valuation of the parcels included in the Arizona Assets, RCLCO conducted both a Comparable Sales analysis and a DCF analysis in order to determine the market value of the parcels. Supplemental Hewlett Declaration at 5. Mr. Hewlett did not attribute any value to the water rights associated with the Arizona Assets because, in his opinion, the water rights do not have any intrinsic value to a potential purchaser. Supplemental Hewlett Declaration at 4. Accordingly, Stanleys contention that the First Lien Steering Committees failure to attribute value to the water rights held by the Arizona Assets renders the Plan discriminatory and unconfirmable is unsubstantiated and inaccurate. B. 6. Assets not Fully Accounted for or Valued in the Plan Stanley also argues that the Plan unfairly discriminates in favor of junior

AKIN GUMP STRAUSS HAUER & FELD LLP AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park One Bryant Park New York, New York 10036 New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

creditors because the Plan and Mediation Statement fail to value all of the Arizona Assets.

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Specifically, Stanley contends that the 19 parcels listed on Exhibit 2 to the Stanley Objection were not included in the valuation performed by the First Lien Steering Committee. While the First Lien Steering Committee concedes that certain of the parcels identified by Stanley were erroneously omitted from the valuation performed by the First Lien Steering Committees professionals, such additional parcels do not have significant value. Below is a chart listing each of the 19 parcels identified by Stanley, and describing whether each parcel was previously valued, erroneously omitted, sold, or of indeterminate ownership. In addition, for those parcels erroneously omitted from the valuation, the chart ascribes a value to such parcel consistent with the valuation methodology previously employed by the First Lien Steering Committees professionals. Parcel No. 215-01-093 (well site) 215-01-094 (well site) 215-01-095 (well site) 215-01-096 (well site) 215-01-097 (well site) 215-01-098 (well site) 217-11-147 217-11-148 217-11-156 217-11-182 217-11-222 306-24-091 306-30-011 306-63-009
3

AKIN GUMP STRAUSS HAUER & FELD LLP AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park One Bryant Park New York, New York 10036 New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

Treatment in Initial Valuation Not Included/Erroneously Excluded Not Included/Erroneously Excluded Not Included/Erroneously Excluded Not Included/Erroneously Excluded Not Included/Erroneously Excluded Not Included/Erroneously Excluded Included Not Included/Erroneously Excluded Included Not Included/Property Sold Included Not Included/Ownership in Question Not Included/Erroneously Excluded Not Included/Ownership in Question

Addl Value Attributed3 $300 $300 $300 $300 $300 $300 N/A $700 N/A N/A N/A $6,000 $11,900 $2,400

Values are approximate. For additional detail on how values for the additional parcels were derived, please see the Supplemental Declaration of Justin Bono in Support of Confirmation of the Second Amended Modified Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code for The Rhodes Companies, LLC, et al. (the Supplemental Bono Declaration). The Supplemental Bono Declaration is attached hereto as Exhibit C.

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306-63-010 306-63-011 306-63-012 306-63-013 354-34-045A TOTAL:

Not Included/Ownership in Question Not Included/Ownership in Question Not Included/Ownership in Question Not Included/Ownership in Question Not Included/Ownership in Question

$2,400 $2,400 $2,400 $2,400 $8,900 $41,300

7.

Of the 19 parcels identified by Stanley, (i) three parcels were included in the

AKIN GUMP STRAUSS HAUER & FELD LLP AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park One Bryant Park New York, New York 10036 New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

First Lien Steering Committees initial valuation, (ii) one parcel was sold to a third party, (iii) eight parcels were not included in the First Lien Steering Committees initial valuation, and (iv) seven of the parcels are believed to be already titled in the name of one or more Rhodes Entities. The eight parcels not included in the initial valuation have an aggregate value of approximately $49,000 in 2015, or $14,000 today when discounted back to present value using the methodologies outlined in the Supplemental Bono Declaration and the Supplemental Hewlett Declaration. Supplemental Bono Declaration at 5. The seven parcels believed to be already titled in the name of one or more Rhodes Entities (which were similarly not included in the initial valuation) have an aggregate value of approximately $91,000 in 2015, or $27,000 today when discounted back to present value using the methodologies outlined in the Supplemental Bono Declaration and the Supplemental Hewlett Declaration. Supplemental Bono Declaration at 5. Accordingly, the value of the Arizona Assets should be upwardly adjusted by an amount between approximately $14,000 and $41,000. Supplemental Bono Declaration at 5. Even assuming all seven parcels the First Lien Steering Committee believes are currently held by the Rhodes Entities are found to be in the possession of the Debtors (and thus are being transferred to the Rhodes Entities pursuant to the Mediation Settlement), the value of the Arizona Assets would increase by

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only $41,000. C. 8. The Plan Satisfies the Absolute Priority Rule Stanley argues that, as a result of the First Lien Steering Committees failure

to attribute substantial value to the Arizona Assets water rights and incorporate certain parcels of land into its valuation, the Plan is not fair and equitable for purposes of cram down under Bankruptcy Code section 1129(b). Stanley further argues that, because the Arizona Assets are significantly more valuable than disclosed by the First Lien Steering Committee, the Rhodes Entities are not providing sufficient consideration to the Debtors Estates. However, when taken as a whole, the Mediation Settlement continues to be in the Debtors best interests and should be approved. 9. As set forth in detail in the First Lien Steering Committees Supplemental

AKIN GUMP STRAUSS HAUER & FELD LLP AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park One Bryant Park New York, New York 10036 New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

Memorandum, the Rhodes Entities are to receive approximately $2.63 million of value pursuant to the Plan. Based on the First Lien Steering Committees supplemental analysis outlined herein, the additional parcels identified by Stanley could add, at most, an additional $41,000 of value to the consideration being received by the Rhodes Entities. Such amount is still substantially less than the $11.6 million to $20.2 million ($5.7 to $14.3 million net of current debt on Rhodes Ranch Golf Course) to be received by the Estates in connection with the Mediation Settlement. Stanley does not refute the value of the consideration pledged by the Rhodes Entities to the Estates, and has not substantiated its allegations that the Arizona Assets have been vastly undervalued. The First Lien Steering Committee, on the other hand, has submitted five declarations in support of its valuation of the Arizona Assets, a valuation supported by conventional and uncontroverted valuation methodologies. In light of the foregoing and as set forth in the Initial Memorandum and Supplemental Memorandum, the First Lien Steering Committee believes that the Plan represents the best alternative for all

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creditor constituencies, and that all requirements for confirmation have been satisfied. CONCLUSION WHEREFORE, for the reasons set forth above, the First Lien Steering Committee respectfully requests that the Court (i) overrule the Stanley Objection, (ii) confirm the Plan and (iii) grant the First Lien Steering Committee such other and further relief as is just, proper and equitable. Dated this 8th day of February, 2010. By: Philip C. Dublin Nile Leatham (NV Bar No. 002838) KOLESAR & LEATHAM Wells Fargo Financial Center 3320 W. Sahara Ave. Las Vegas, NV 89102 (702) 979-2357 (Telephone) (702) 362-9472 (Facsimile) Nleatham@klnevada.com AKIN GUMP STRAUSS HAUER & FELD LLP Philip C. Dublin (NY Bar No. 2959344) Abid Qureshi (NY Bar No. 2684637) One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) pdublin@akingump.com aqureshi@akingump.com Counsel for the First Lien Steering Committee

AKIN GUMP STRAUSS HAUER & FELD LLP AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park One Bryant Park New York, New York 10036 New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

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EXHIBIT A

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AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

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EXHIBIT B

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AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

Nile Leatham (NV Bar No. 002838) KOLESAR & LEATHAM Wells Fargo Financial Center 3320 W. Sahara Ave. Las Vegas, NV 89102 Telephone: 702.979.2357 Facsimile: 702.362.9472 E-Mail: nleatham@klnevada.com Philip C. Dublin (NY Bar No. 2959344) Abid Qureshi (NY Bar No. 2684637) AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, NY 10036 Telephone: 212.872.1000 Facsimile: 212.872.1002 E-Mail: pdublin@akingump.com aqureshi@akingump.com

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Counsel for the First Lien Steering Committee UNITED STATES BANKRUPTCY COURT DISTRICT OF NEVADA SOUTHERN DIVISION IN RE: THE RHODES COMPANIES, LLC, aka Rhodes Homes, et al., Debtors.1 Case No. 09-14814-LBR (JointlyAdministered) Chapter 11

The Debtors in these cases, along with the last four digits of each Debtors federal tax identification number, if applicable, are: Heritage Land Company, LLC (2918); The Rhodes Companies, LLC (3060); Rhodes Ranch General Partnership (1760); Tick, LP (0707); Glynda, LP (5569); Chalkline, LP (0281); Batcave, LP (6837); Jackknife, LP (6189); Wallboard, LP (1467); Overflow, LP (9349); Rhodes Ranch Golf and Country Club (9730); Tuscany Acquisitions, LLC (0206); Tuscany Acquisitions II, LLC (8693); Tuscany Acquisitions III, LLC (9777); Tuscany Acquisitions IV, LLC (0509); Parcel 20 LLC (5534); Rhodes Design and Development Corp. (1963); C&J Holdings, Inc. (1315); Rhodes Realty, Inc. (0716); Jarupa LLC (4090); Elkhorn Investments, Inc. (6673); Rhodes Homes Arizona, LLC (7248); Rhodes Arizona Properties, LLC (8738); Tribes Holdings LLC (4347); Six Feathers Holdings, LLC (8451); Elkhorn Partners, A Nevada Limited Partnership (9654); Bravo Inc. (2642); Gung-Ho Concrete, LLC (6966); Geronimo Plumbing, LLC (6897); Apache Framing, LLC (6352); Tuscany Golf Country Club, LLC (7132); Pinnacle Grading, LLC (4838).

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Affects: All Debtors Affects the following Debtor(s)

SUPPLEMENTAL DECLARATION OF CHARLES HEWLETT IN SUPPORT OF CONFIRMATION OF THE SECOND AMENDED MODIFIED PLAN OF REORGANIZATION PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE FOR THE RHODES COMPANIES, LLC, ET AL.

I, Charles Hewlett, hereby declare: 7 8

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1.

I am a Managing Director based in the Washington, D.C., area office of

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Robert Charles Lesser & Co., LLC (RCLCO). I have over 25 years of experience in real estate and have consulted on a broad spectrum of residential and commercial properties, including large-scale master-planned communities and resorts, single-family subdivisions, rental apartments, condominiums, hotels, urban redevelopment and mixed-use complexes,

13 14 15 16 17 18 guest speaker, moderator, and panelist at numerous real estate industry events, including the 19 20 21 22 23 24 2. 25 26 27 28 Second Amended Modified Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code for The Rhodes Companies, LLC, et al. (as may be amended, the Plan). Unless otherwise stated, I have personal knowledge of the facts stated in this declaration. I submit this supplemental declaration in support of confirmation of the Urban Land Institute (ULI), National Multi Housing Council, the International Council of Shopping Centers, the National Association of Homebuilders, and the Mortgage Bankers Association. I am the co-author of Strategy for Real Estate Companies, a ULI book released in March 2008. I am also a Full Member of ULI. and retail and office buildings and business/industrial parks. My consulting activities include a full range of market and financial feasibility analysis, demographic and economic forecasting, business and investment valuation, product planning, and market opportunity analysis. I graduated from Brown University in Providence, Rhode Island. I am a frequent

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Book Value Versus Market Value2 In its Opposition to the First Lien Steering Committees Supplemental

Memorandum of Law in Support of Confirmation of the Second Amended Modified Plan 4 5 6 7 8

AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

(the Stanley Opposition), Stanley Consultants, Inc. (Stanley) states that Rhodes and his Arizona entities have spent millions of dollars developing the water rights associated with the Arizona Assets. Stanley Opposition at 3. Stanley concludes, therefore, that the First Lien Steering Committee has undervalued the Arizona Assets and that the Rhodes Entities are therefore receiving favorable treatment under the Plan to Stanleys detriment. Stanleys argument presupposes, however, that the book value of certain of the Arizona Assets equals the market value. As set forth below, market value is the appropriate metric for valuing the Arizona Assets. 4. Book value in accounting parlance is typically the lesser of what has been

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paid to acquire an asset (in this case 1,447 acres of land) plus any improvements (in this case, grading, soft costs to secure entitlements, water rights, etc.), or market value. When the market value of an asset on a companys books is less than the book value, accounting principles dictate that that asset be impaired or reduced to the market value of that asset. Simply because a company has paid a certain amount to acquire an asset, and then sunk additional monies into improving that asset, does not mean that the asset is worth that amount in the marketplace. 5. A common definition of fair market value is as follows3:

Terms not otherwise defined herein shall have the meaning ascribed to such terms in the Plan or the Second Amended Modified Disclosure Statement for the Plan (the Disclosure Statement), as applicable. Alfred M. King. Determining Fair Value. Strategic Finance. January 2009. <http://www.imanet.org/pdf/01_2009_king.pdf>
3

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The price for which property would exchange between a willing buyer and a willing

compulsion to buy or sell, and with equity to both. The market value often does not have any relationship to the book value on a companys balance sheet, and it is not uncommon for a company, particularly in the homebuilding and land development industry during the most recent economic downturn and housing market collapse, to take massive impairments to write down the book value of their assets to reflect

9 10 11 12 13 14 15 monetized, either by sale to another entity, or put into production for consumption by end 16 17 18 19 20 21 22 23 24 25 26 27 28 is absolutely possible that both such analogous parcels, one with water rights and one without, could result in a negative net present value (NPV) using a discounted cash flow (DCF) analysis. The parcel without water rights would require higher costs to be put into production, and therefore would return an even more negative NPV than the parcel with users, either homebuilders who purchase lots, or homebuyers who purchase/contract for homes. 7. This is not to say that a parcel of land with water rights is not more valuable market value. 6. This concept applies equally to the water rights, Area Plan approvals, and

Letters of Water Adequacy cited in the Stanley Opposition. Land and associated rights and entitlements do not have any intrinsic value. They only have value when they can be

than a comparable parcel that does not have such rights it is potentially more valuable, in that it would require less cost and time to be put into production and monetized. However, it

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water rights. And yet, in both instances, the conclusion would be that both of these parcels would have a zero fair market value. 8. In determining the market value of residential assets, most real estate

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professionals and investors rely on cash flow pro formas that project future revenues and expenses for an individual asset or community over the life of the projecta so-called LOP analysis, or DCF analysis. The future net cash flows are then discounted back into current dollars, expressed as a NPV. Builders, land developers and real estate investors are typically aware of what land transacts for at various staged of entitlement/development, but rarely

9 10 11 12 13 14 15 9. 16 17 18 19 20 21 22 23 24 25 26 27 28 its field of investigation to include similarly situated large ranch and agricultural parcels elsewhere in the desert southwest. These admittedly flawed comparables (they were not analogous in terms of either location or market timing, making an adjustment of these comparables unreliable) indicated that the Arizona Assets had a value of $1,000 per acre. both a DCF and a Comparable Sales analysis to determine the fair market value of the Arizona Assets. The DCF returned a negative NPV, indicating that the Arizona Assets have a zero value as of the date of the valuation. The Comparable Sales analysis revealed that there were no relevant analogous transactions in the marketplace to make this a particularly reliable method for valuation. However, in an effort to be conservative, RCLCO expanded As set forth in greater detail in my initial declaration, RCLCO conducted will they rely upon a comparable sale analysis to determine value, given the fact that each development, particularly a large-scale community such as the one contemplated for the Arizona Assets, is unique in terms of cost, market positioning and timing all of which need to be accounted for in a project-specific DCF.

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Despite the fact that the DCF analysis indicated a zero value, to be conservative, I relied on the higher value indicated by the Comparable Sales analysis. Assets Not Fully Accounted For or Valued in the Plan

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10.

Stanley also contends that the Plan fails to identify all of the property owned

in Arizona by the Debtors that will be transferred to the Rhodes Entities. Specifically, Stanley asserts that it has identified 19 plots (including 6 water wells) that allegedly were not included in the valuation of the Arizona Assets performed by the First Lien Steering Committees professionals.

9 10 11 12 13 14 15 12. 16 17 18 19 20 21 22 23 24 25 26 27 28 in the vicinity of the main 1,307-acre parcel that should have been included in my initial valuation. My understanding as to why these parcels of land were not included in the original valuation is that it was either (i) unknown that Debtor entities owned such parcels of land or (ii) controlling interests in such parcels of land had not been clearly established. Accordingly, RCLCO valued only the 1,307-acre parcel. understanding that Arizona Assets consisted entirely of an approximately 1,307-acre parcel of land located in Arizona and owned by Debtor Rhodes Homes Arizona, LLC (Rhodes Homes Arizona), and that such 1,307-acre parcel of land was the only real estate asset in the Rhodes Homes Arizona portfolio subject to the valuation exercise. Subsequent to my initial valuation, I have been made aware that there are other scattered site parcels of land At the time of my initial valuation of the Arizona Assets, it was my 11. In August 2009, RCLCO was retained to assist the First Lien Steering

Committee in performing a going concern and liquidation analysis of the Debtors Estates in connection with the Plan. The going concern and liquidation analysis performed by RCLCO included valuing the Arizona Assets.

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13.

Based on information provided to RCLCO subsequent to my initial valuation,

I understand that the Arizona Assets include an additional 8 to 15 scattered site parcels of land (the Scattered Site Parcels), totaling approximately 48.9 to 139.5 acres of land.

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These additional parcels include (i) eight parcels mistakenly omitted from the original 1,307 acres, and (ii) seven parcels shown by the applicable Arizona tax assessor to be owned by the Debtors, but which the First Lien Steering Committee believes are in fact owned by the Rhodes Entities.4 Further, it is my understanding that the Scattered Site Parcels are all vacant desert plots with no utilities or improvements. While scattered, the location of the

9 10 11 12 13 14 15 result in a valuation of $1,000 per acre, or approximately $49,000 to $140,000, in 2015. 16 17 18 19 20 21 22 23 24 25 26 27 28

Based upon the information received by RCLCO, I believe that the remaining four parcels of land identified in the Stanley Opposition consist of (i) three parcels of land which were included in the initial valuation of the Arizona Assets and (ii) one parcel of land which was sold to a third party on July 31, 2009 and is no longer owned by the Debtors. It is my understanding that the parcel of land that was sold to a third party will not be transferred to the Rhodes Entities.
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Scattered Site Parcels is generally consistent with that of the main 1,307-acre parcel of land. Accordingly, it is reasonable to apply the valuation and timing of sale attributed to the main 1,307-acre parcel of land to the Scattered Site Parcels for the purpose of valuing the Scattered Site Parcels. Under the Comparable Sales analysis outlined above, this would

Discounted at an appropriate rate consistent with the main parcel (22.5%), the present value of the Scattered Site Parcels under the Comparable Sales analysis would be an additional $14,000 to $41,000. 14. Given the size and location of the Scattered Site Parcels, incorporating the

Scattered Site Parcels into the DCF analysis would result in higher development costs and lower revenues, as these sites are not contiguous to the main 1,307-acre parcel. This would

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result in a lower and, therefore, still negative overall NPV for the combined assets. Accordingly, under the DCF analysis, the Scattered Site Parcels have no value. 15. Based on the two commonly accepted methods for determining value, for

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AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 Tel: 212.872.1000 Facsimile: 212.872.1002 / akingump.com

purposes of valuing property similar to the Scattered Site Parcels that comprise the Arizona Assets, and in order to be conservative, I have relied on the Comparable Sales analysis for valuation. This analysis indicates a present value of approximately $14,000 to $41,000 for the Scattered Site Parcels.

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I declare under penalty of perjury that the foregoing is true and correct. Executed this _8th_ day of February, 2010. By: Charles A. Hewlett

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EXHIBIT C

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