[Page 1238]
BEFORE THE INTERNATIONAL CENTRE FOR SETTLEMENT OF
INVESTMENT DISPUTES
ICSID Case No. ARB/19/6
---------------------------------------x
In the Matter of Arbitration Between: :
:
ANGEL SAMUEL SEDA AND OTHERS, :
:
Claimants, :
:
and :
:
REPUBLIC OF COLOMBIA, :
:
Respondent. :
---------------------------------------x Volume 5
VIDEOCONFERENCE: HEARING ON JURISDICTION AND MERITS
Friday, May 6, 2022
The World Bank Group
1225 Connecticut Avenue, N.W.
Conference Room C 3-100
Washington, D.C.
The Hearing in the above-entitled matter
came on at 9:00 a.m. before:
PROF. DR. KLAUS SACHS
President of the TribunalPROF. HUGO PEREZCANO DÍAZ
Co-ArbitratorDR. CHARLES PONCET,
Co-Arbitrator
[Page 1239]
ALSO PRESENT:
MS. SARA MARZAL YETANO
Secretary to the Tribunal
Realtime Stenographers:
MR. DAVID A. KASDAN
Registered Merit Reporter (RMR)
Certified Realtime Reporter (CRR)
B&B Reporting/Worldwide Reporting, LLP
529 14th Street, S.E.
Washington, D.C. 20003
United States of AmericaMR. LEANDRO IEZZI
MR. RODOLFO VALERIO RINALDI
D.R. Esteno
Colombres 566
Buenos Aires 1218ABE
Argentina
Interpreters:
MR. CHARLES H. ROBERTS
MS. SILVIA COLLA
MR. DANIEL GIGLIO
[Page 1240]
APPEARANCES:
On behalf of the Claimants:
MR. RAHIM MOLOO
MS. ANNE CHAMPION
MS. MARRYUM KAHLOON
MR. BEN HARRIS
MS. NIKA MADYOON
Gibson, Dunn & Crutcher, LLP
200 Park Avenue
New York, New York 10166-0193
United States of AmericaMR. PEDRO G. SOTO
MS. ANKITA RITWIK
Gibson, Dunn & Crutcher, LLP
1050 Connecticut Ave N.W.
Washington, D.C. 20036
United States of AmericaMR. ALEJANDRO MEJÍA
MR. JUAN PABLO PANTOJA RUIZ
Cáez Muñoz Mejía Abogados
Cra. 17 ##89-31
Bogotá, ColombiaParty Representatives:
MR. ANGEL SEDA
MR. JUSTIN ENBODY
MR. STEPHEN BOBECK
MR. JUSTIN CARUSO
MR. MONTE ADCOCK
MR. PIERRE AMARILGLIO
[Page 1241]
APPEARANCES: (Continued)
Attending on behalf of the Respondent:
MR. CAMILO GÓMEZ ALZATE
MS. ANA MARÍA ORDÓÑEZ PUENTES
MR. GIOVANNY VEGA-BARBOSA
MR. CÉSAR RODRÍGUEZ
MS. ELIZABETH PRADO LÓPEZ
MS. YADIRA CASTILLO MENESES
MR. ANDRES FELIPE REINA ARANGO
MS. MARCELA MARÍA SILVA ZAMBRANO
Agencia Nacional de Defensa
Jurídica del Estado
Carrera 7 No. 75-66 - 2do y 3er piso
Bogotá
ColombiaMS. LAURA MARÍA MARÍN MORENO
Fiscalía General de la NaciónMR. CARLOS SABOYÁ
Director de Asuntos Jurídicos, Fiscalía
General de la NaciónMS. SANDRA MARTÍNEZ
Asesora de la Dirección de Asuntos
Jurídicos, Fiscalía General de la NaciónMS. SANDRA MONTEZUMA
Asesora en el Despacho del Vicefiscal,
Fiscalía General de la NaciónMS. TATIANA GARCÍA
Directora de Asuntos Internacionales,
Fiscalía General de la NaciónMS. LILIA ROSA MENDOZA
Asesora de la Directora de Asuntos
Internacionales, Fiscalía General de la
Nación
[Page 1242]
APPEARANCES: (Continued)
MR. ANDRES FELIPE TINOCO
Asesor en el Despacho del Vicefiscal,
Fiscalía General de la NaciónDR. YAS BANIFATEMI
MS. YAEL RIBCO BORMAN
MS. PILAR ALVAREZ
MS. CAROLINA BARROS
MR. YOUSSEF DAOUD
Gaillard Banifatemi Shelbaya Disputes
22 rue de Londres, 75009 Paris
FranceMS. XIMENA HERRERA BERNAL
Gaillard Banifatemi Shelbaya Disputes
165 Fleet Street
London EC4A 2AE
United Kingdom
[Page 1243]
PAGE
PRELIMINARY MATTERS...................................1244
WITNESSES:
CLAY DICKINSON and FRANCISCO RUIZ
Direct presentation...................................1246
Cross-examination by Ms. Ribco Borman.............1280
Redirect examination by Ms. Ritwik..................1337
DAVID ANDRÉS GARCÍA JOYA and CHRIS G. MAUGERI
Direct presentation...................................1341
Cross-examination by Ms. Ritwik...................1362
Redirect examination by Ms. Ribco Borman..........1394
SANTIAGO DELLEIANE and DANIELLA BAMBACHI
Direct presentation...................................1393
Cross-examination by Mr. Daoud....................1438
Redirect examination by Mr. Moloo...................1603
[Page 1244]
PRESIDENT SACHS: Good morning, ladies and
gentlemen. Are there any housekeeping matters that we
should address? Claimant?
MS. RITWIK: None from our end, thank you.
MS. BANIFATEMI: Neither, thank you very
much.
PRESIDENT SACHS: Okay. Just a matter that
the Tribunal wishes to address --it is not excluded
that we continue through tomorrow, but it is not
excluded either that we finish by tonight. It would
be good, if you could, in the course of the day,
contact each other with respect to the next steps in
the proceedings, namely Post-Hearing Briefs, the
deadlines for the Briefs, whether one round or two
rounds, possibly a limitation of pages and also how to
deal with the exception within that phase of the
proceedings.
Ideally, we would like you to come up with a
joint proposal, but we are, of course, ready to
discuss this --at the--in due course after having
heard the Expert, so it is just a message from our
[Page 1245]
side.
We will then start with the Witnesses of
today. If I'm correct, we will start with
Mr. Dickinson and Mr. Ruiz.
Mr. Ruiz, I suppose, this is you. So good
morning. Please take a seat.
And good morning, Mr. Dickinson.
CLAY DICKINSON and FRANCISCO RUIZ,
CLAIMANTS' WITNESSES, CALLED
PRESIDENT SACHS: Mr. Dickinson, can you
hear me well?
THE WITNESS: (Mr. Dickinson) Yes, I can
hear you very well. Thank you. Good morning.
PRESIDENT SACHS: Okay, we can hear you too
well, I would say. Could we lower the tone a little
bit?
THE WITNESS: (Mr. Dickinson) Okay.
PRESIDENT SACHS: So I would ask each of you
to read for the record the Declaration that you should
have in front of you.
VOICE: Go ahead, Clay.
THE WITNESS: (Mr. Dickinson) Okay. My
[Page 1246]
Expert Declaration: I solemnly declare upon my honor
and conscience that my statement will be in accordance
with my sincere beliefs.
THE WITNESS: (Mr. Ruiz)I solemnly declare
upon my honor and conscience that my statement will be
in accordance with my sincere belief.
PRESIDENT SACHS: Thank you very much.
Now, we invite you and give you the floor to
make your presentation.
THE WITNESS: (Mr. Dickinson) Okay. I'm
going to go first and I'm going to share the screen.
Hopefully, you all can see this? Can you?
VOICE: Yes.
PRESIDENT SACHS: Yes, we can.
THE WITNESS: (Mr. Dickinson) Okay. All
right. Well, good morning, Tribunal, and thank you
very much for the opportunity to give this
presentation, even if it is virtual. I have a lot of
material to cover in a short period of time, so I'm
going to get right to it.
I will be covering the hospitality aspect of
[Page 1247]
the work that Jones Lang LaSalle did in connection
with this matter.
Basically, JLL, with regard to the
hospitality piece, our instructions were pretty
specific, and that was not necessarily to compare a
market valuation, whatever, but rather to compile a
list of Market Transactions data relevant to the hotel
component of their client's portfolio of real-estate
projects in Colombia; and, as such, we had to look
from properties kind of ranging from upscale,
mixed-use, resort-type properties to luxury lifestyle,
mixed-use resort properties.
In addition, we were asked to comment on
some of Dr. Hern's Report--statements in Dr. Hern's
Reports as well as the CBRE report.
Very briefly, a little bit about myself.
I've got almost 50 years of experience now across
almost every aspect of the hospitality industry. I
got a lot of white hair, as you can probably see.
There is not a lot of benefits with that white hair,
but I think one of them is perspective, especially in
a region as dynamic and changing as the Caribbean,
[Page 1248]
Mexico, Latin American region, to be able to see the
way the region has evolved over the arc of four
decades I think provides--allows for some pretty
interesting insights.
I have spent of my 40 years more than 25
focusing on Caribbean, Mexico, and Latin America
including the last 12 as a Managing Director of Jones
Lang LaSalle's Hotels and Hospitality Group and the
Valuation Advisory Services Group for the Caribbean
Latin American Region. I've personally been involved
in projects in Colombia since about 2008, and I would
estimate somewhere between 25 or 30 projects there.
In order to sort of understand our approach
to finding the comparable Market Transactions, I just
thought it was very sort of important to give a
high-level overview of the evolution of Colombia's
lodging market. There's sort of Colombian lodging
market before 2002 and then after 2002. Before 2002,
you know, it was sort of a period of a lot of
conflict, and whatnot. You actually had a decrease of
about half a million international visitors between,
say, 1993 and 2002. But starting--it started
[Page 1249]
transitioning around 2002 up until around 2008, as we
started to get some macroeconomic stability. There
was a definite focus on trying to crack down on
security and things like that. And then really it
began to gain steam in the very latter part of the
first decade of the new millennium. And I think that,
you know, this because there was trust in the
macroeconomic stability, there was trust in the
security, the peace accord looked like it was
imminent, and there was a very targeted fiscal policy
in Colombia to try to stimulate growth of the tourism
and hospitality industry.
And if you look at this timeline sort of
there below, you'll see that, you know, really
starting again toward the latter part of the decade, a
lot of global hotel chains started coming into the
country. And by the time we got to just after the
pandemic, 2019, I mean you had 3 million international
tourist arrivals. In Colombia, it really kind of
emerged as an important regional international tourism
destination.
Having said that, you know, in
[Page 1250]
capital-intensive industries like the hospitality
industry, the maturity and liquidity in the capital
markets is very important. And in Colombia, as in a
lot of Latin American countries, there is kind of a
lack of long-term debt and there's a lot of stratified
ownership structures as a result, and that has
actually retarded the development of an active
transactions market in Colombia because institutional
investors typically don't like the prospect of having
to come in and maybe negotiate with dozens or
potentially even hundreds of individual Shareholders
that might own a hotel.
We think also it's important to really
understand, you know, The Charlee Hotel, I mean it
is--it was going to be sort of the brand for the
proposed portfolio. And look at the impact that the
hotel had when it first entered the scene in 2011. I
mean, it was emblematic of an increasing
sophistication of the industry in Colombia. There
were some other lifestyle-type boutique hotels. The
BOG Hotel in Colombia that came in around the same
time, but they did not have the same impact that The
[Page 1251]
Charlee had in terms of, you know, creating a unique
atmosphere.
And I think the performance of The Charlee,
it has consistently been the market leader when you
compare its actual average daily rates with the
aggregate of upscale and above-markets not only in
Medellín but also in Colombia, in Cartagena, which is
notoriously the highest rated market in the country.
And so, you know, the success of lifestyle
hotels elsewhere in the world would indicate that The
Charlee was a concept that could work well in other
markets throughout Colombia.
I'm not going to get deep into our overall
methodology because you have both of our Reports and I
understand it's a matter of the record, but I wanted
to state that, of course, when we were looking at the
Transactions, we started with Colombia, and we could
identify no comparable hotel transactions for this
time frame of entrance, basically 2014-15 to 2019,
further of all, you know, some of the reasons that had
been previously mentioned with regard to capital
market illiquidity, generally.
[Page 1252]
So, what did we do? Generally, it's a very
common practice in the industry, and especially if
you're dealing with emerging relatively illiquid
capital markets, you sort of cast a wider net and to
expand our search for comparable transactions to
competitive and/or comparable markets outside
Colombia.
You know, Colombia, as a country, if a
visitor is thinking about going there, they may well
think, well, maybe I'll go to Costa Rica or maybe the
Dominican Republic, Mexico, elsewhere in South
America; and so, we looked at the Caribbean, Mexico,
and sort of Caribbean rim and the Latin American
market as comparable.
We were fully cognizant that that would
probably produce a greater range, a little bit more
variability both in the nature of the markets and in
the comparator assets, but we were confident that, in
the aggregate, some meaningful results would be
produced.
We got the Comparable Transactions data from
two primary sources (a), JLL. We have a proprietary
[Page 1253]
database of the transactions, including some data that
might not otherwise be available, and then we have a
subscription to Real Capital Analytics, which is a
global commercial provider of data both for, you know,
general commercial transactions and the hospitality
industry.
And this slide here really is sort of a
summary of everything that we did find out, and we
believe, at the end the day, some reasonable,
indicative values emerged from our analysis.
Specifically, at about $205,000 per key, we
consider that to be a reasonable indication of Market
Value for upscale lifestyle mixed use or resort hotels
in the Caribbean and the Latin American Region,
including in Colombia. And that at about $519,000 per
key, we considered that to be a reasonable indication
of the Market Value of luxury lifestyle mixed use and
resort hotels in the Caribbean and the Latin American
Region, including in Colombia.
And then finally, that overall in the
aggregate, around $414,000 per key is considered to be
a reasonable indication of Market Value for a
[Page 1254]
portfolio of upscale-to-luxury lifestyle mixed use
resort hotels in the Caribbean and Latin American
Region, including in Colombia.
So, we were asked also, as I mentioned to
some of CBRE comments, I've kind of summarized them
all here together. It basically goes to the point of
whether The Charlee Hotel can really be characterized
as a luxury hotel or not. They mention that they
consider The Charlee brand does not comply with luxury
positioning as it's not a Four Seasons or
Ritz-Carlton, 50 square meter rooms, five fixture
bathrooms, high-end finishes, et cetera, and that, you
know, there is a little comment here about the Phase 1
of the Tierra Bomba in terms of the furniture,
fixtures and equipment that, you know, at about 32,000
per key is above the full service which applies to the
hotel brand as Charlee, that they had mentioned,
according to the HVS surveys around $29,000 per key.
I'll deal with that one right away.
In my opinion, that's a--it's a distinction
without a difference. Yes, HVS, it is kind of a
benchmark survey, it's in the United States, but it's
[Page 1255]
not a very, very high level, and there's really not a
material difference between 32,000, 29,000 per room;
and probably if you're looking at a luxury lifestyle
hotel in a place like Tierra Bomba, there is going to
be a lot of imported materials, so that would be a
conservative number, at any rate.
Going down a little further on Page 47, they
talk about only (drop in audio) well-known brands for
outstanding projects have a price premium. Regardless
to the alleged success of The Charlee brand, it cannot
be characterized as a luxury brand either, so both of
those comments relate to the legitimacy of the
Charlee's claim to be a luxury property. We felt it
was very necessary, very quickly, to try to go over
lifestyle hotels because it's really had a changing
impact on the industry overall.
You know, the fact that the hallmarks of
most legacy brands--think Marriott, Sheraton, Hilton,
or whatever--consistent quality of physical
facilities, cleanliness, predictable good service.
These have now become sort of minimum standards. It's
not that they're not important. They're table stakes.
[Page 1256]
And lifestyle hotels have gained prominence over the
past 20 to 25 years partially due to their ability to
evolve alongside travelers' ever-changing needs and
desires, and modern travelers, they don't really want
cookie-cutter hotels anymore. They want those table
stakes, but they're looking for an authentic
experience, an authentic ambience that reflects the
unique aspects of the location where the hotel is
located.
You know, more and more, they want the
action outside the hotel room, vibrant lounges,
innovative cocktails, notable cuisine, and even, like,
surprisingly personalized service. This is what makes
lifestyle hotels more than just a hotel experience but
rather a destination within a destination if it's done
right.
And the success of the lifestyle concept is
evidenced by the fact that today, most major hotel
brands have at least one soft brand that they use to
bring in a lot of independent lifestyle type hotels,
and as they say, that imitation is the sincerest form
of flattery.
[Page 1257]
A lot of these pioneer lifestyle brands,
Thompson, Delano, Kimpton, et cetera--Thompson's now
(drop in audio) the Hyatt, the Delano and SLS were
part of the (drop in audio) core brand, Kimpton is
owned by Intercontinental Hotels Corporation. And, of
course, AC Hotels is owned by Marriott.
So, they've either acquired these brands or
they--and/or they've developed soft brands and their
own lifestyle hard brands.
This is a trend that is not only in the
mature markets, but it's also in Latin America.
Faena, started in Buenos Aires, moved to Miami Beach,
has now been acquired and is part of a core. Selina
started in Panamá, grew exponentially, and now is
going worldwide; it's about to do a major IPO on the
New York Stock Exchange.
So, the question kind of remains: Could
this have been the future of The Charlee? So, we
believe that The Charlee Hotel, it is a luxury hotel
because, No. 1, STR, which is the global leader and,
basically, hotel data for the hospitality industry
worldwide, does not determine a hotel's class by its
[Page 1258]
physical features. Rather, a hotel's class is based
on the average daily rate in relation to the hotels in
their proximity. And the STR categorizes The Charlee
Hotel as an independent luxury hotel in their
database.
With the growth of experienced-based
lifestyle hotels, luxury is increasingly defined by
the price premium it can achieve and the experience it
can deliver rather than the nature of its facilities.
You know, even traditional luxury brands like the Four
Seasons or the Ritz-Carlton or the Mandarin Oriental
are moving toward what they call, sort of, authentic
luxury, which is based more upon curated experiences
and flexibility than it is on marble floors, and
gold-plated fixtures, white glove service and sort of
over-the-top opulence. The notion that you have to
have a certain brand awareness, virtually every single
lifestyle brand has been successful without existing
brand awareness before opening. Indeed, that's kind
of a hallmark of a good lifestyle hotel. Whisper
campaigns and then they open with a bang, public
relations is what these guys do best.
[Page 1259]
And that every single lifestyle brand
started out as a single hotel that because it was able
to establish a sense of place and drive RevPar
premiums and outsize profits by becoming, sort of, the
place to be seen both in person and online through
social media.
Moving to some of Hern's comments, this
notion that using fully operating comparators is
conceptually irrelevant. Honestly, I'm a little bit
mystified by this because what else would one use if
one were trying to come up with a value, you know,
whether a hotel is existing or whether it's proposed,
it's--it routinely--these were valued on the basis of
fully operational comparators. This is to
substantiate the assumptions behind the
discounted-cash-flow analysis or a prospective value
based upon the analysis of comparable sales.
The basic assumption is that these are going
concerns and that investors, you know, they're buying
cash flow in addition to--they're not just real
estate.
To think that the value of projects that are
[Page 1260]
not yet operational or only partially built is not
based on really, you know, how much costs had been
deployed so far. This would be a minimum value at
best, and at worst it could be a negative value. Of
course, you know, if you have a failed project and
it's half completed, a new buyer either has to go with
what they had or they're going to have to incur the
cost of getting rid of those improvements that had
been put in the ground.
So, for this reason, using fully operational
hotels as comparators is not only necessary, but it's
absolutely the correct approach.
And then, dealing a little bit with
Dr. Hern's claim that, you know, the hotels are not
comparable to BRG's in any case, and they talk about,
you know, the fact that some of these are located in
destinations, they use Mexico as an example, which is
a, you know, lower risk country and has a stronger
hospitality segment. And then he, you know, mentions
here that evidence showing that these comparator
hotels charge multiple times higher room rates than
five-star hotels, you know, including the Claimants'
[Page 1261]
luxury hotel. As I previously stated, we knew (drop
in audio) Colombia was going to produce more
variability in the markets, and the markets
themselves, and in the assets, but that's not a reason
to not follow what's a very common practice.
Moreover, we believe that reasonable results
were produced.
Hern's methodology for evidence of much
higher room rates is questionable at best because to
try to pick a specific moment in time and just (drop
in audio) you know, on June 19th the rate at the Four
Seasons Papagayo was $2,300. With today's revenue
management systems, that's almost worthless
information. You could do it a week later or two days
before and it could end up being $600. It's sort of
the same concept as sitting next to someone on an
airplane. You pay $200 for your ticket and the other
person paid 2,000. There's a lot of algorithms, and
these prices are dynamic, they're changing all of the
time.
And it does not necessarily follow that the
value per room should be correspondingly higher than
[Page 1262]
in the Claimants' hotels. Using Hern's own example of
Mexico to illustrate the point, in Mexico, it produced
comparator sales transactions for both upscale and
luxury assets that were significantly above and below
the regional averages. And as far as the notion that
risk--you know, that México's less risk, risk is not a
static concept. If you go back to México in
2009-2010, just about a decade ago, it was an
investment pariah, you know, between H1N1, and the
narco violence in México at the time, the effect of
the Great Recession on México, investing in Mexican
hospitality may well have been perceived as being
higher risk at that time than investing in hospitality
in Colombia.
And, you know, there's a lot of other
elements that come with risk. You know, other markets
are either, you know, equal or greater risk than
Colombia due to the lack of volume or the lack of
air-accessibility or very high operating costs and low
productivity, reliance on a single market source. All
of these can affect the relative risk and positioning
of a market, and especially in a region such as the
[Page 1263]
one that we used.
And, lastly, EBITDA per key is a lot more
important than revenue per key when we're trying to
determine price and value.
And I'm going to conclude with talking
about, you know, Hern talked about EBITDA margins.
I--it continues to be my opinion that to use such
general EBITDA margins as, like, you know, the average
EBITDA of a publicly traded global hotel (drop in
audio) Marriott or a Hilton, or something like that.
When you're talking about something as specific as the
EBITDA margin of a specific hotel or a specific
portfolio of hotels, is simply the wrong way to go
about doing it.
EBITDA tends to be very idiosyncratic to the
property or to the portfolio. If, for example, I
wanted to try to determine what would be a reasonable
EBITDA for, say, The Charlee in Medellín, I would be a
lot more concerned about picking properties that: Are
they using the same accounting principles; is it
essentially the same size and the same positioning; is
the food and beverage operation very, very similar; is
[Page 1264]
it staffed very similarly; are the overall costs in
line? And, you know, that would be more important
than the EBITDA margin of, say, you know, Hilton
Hotels globally.
I would not, for certain, have used, for
example, the Irotama Hotel, which is one of the ones
that Dr. Hern used in comparing the Columbian luxury
EBITDA margins. Because I know that hotel very well,
and I know for a fact that they do not use the uniform
system of accounts for the lodging industry, so I have
no idea how they're accounting for their revenues, how
they're accounting for their expenses, their capital
expenditures and whatnot: I do not know whether I'm
comparing apples-to-apples.
And equally and importantly, from an
operation standpoint, the Irotama has nothing to do
with the nature of the operations at a hotel like The
Charlee, so it's an absolutely horrible example to
use.
And so, with that--I know I had to speak
quickly. I hope I was able to make myself understood,
and I'm going to turn it over to Francisco.
[Page 1265]
THE WITNESS: (Mr. Ruiz) Hello. My name is
Francisco Ruiz. I am the Vice President for Research
Consulting and Capital Markets in JLL Colombia, and
I'll make some points that will illustrate, I guess,
where our numbers come from and why they would be
different from the Respondent's.
So, next, please, Clay.
All right. I want to start from the scope
because I think this is where everything starts to
diverge. Our scope was to do a complete evaluation of
comparable real estate projects relevant to the
Claimant's projects in Colombia. Based on those
valuations done in 2019, we have to go back and
forward to produce historical and projected data both
on those sales prices but also on construction costs.
Next.
And at this point, I want to invite the
Tribunal to have these images in mind because this is
part of the information we were provided with. This
is--these were the units we were valuating. Not any
high-end property but these very exclusive luxury
units and not just any high-end property.
[Page 1266]
Next.
The same with the other projects.
Next.
So, before we dive into the details, I just
wanted to explain how the Colombian market is not as
transparent as other markets in the U.S. or Europe
where you can get a lot more information on selling
prices. It's not completely opaque. You can--there
is definitely third-party data providers. But if you
want to produce accurate, relevant, and numbers that
make sense, you have to be very careful on how you
handle the data and not just--and go further than just
what you can get from a third-party provider.
Next.
So, what were our sources and methodology
and results? So, as I mentioned, we did rely on a
third-party provider, Galería Inmobiliaria, which we
believe is the best one. I'll explain why. But we
didn't stop there, we also leverage our network of
contacts across the different markets, and we also
relied on information from on-line sites, postings
both national level but also market-specific sites
[Page 1267]
that we found.
Finally, for our projections and to produce
historical data, we relied to some degree on the
national statistics department's information.
Next.
While this is in our Report, I don't want to
go into great detail, but as I mentioned we first did
a comparable--comparison method where we drag-where we
cast a wide net to really try to come up with the best
information possible. And based on that, run our
comparison, I will explain that a little later, and
then go back and forth using basically statistical and
econometric methods to produce our output matrix.
Next.
I will refer to this shortly.
Next.
So, at the end, our end results were prices,
sale price estimates, and, next, next, construction
cost estimates. For these we also went through a very
thorough process where we sat down with a specialized
construction consultancy that specializes in budgeting
for construction projects. We shared the same
[Page 1268]
information we were using with--for our valuations, so
that they could have a very clear sense of what they
were pricing. They built their numbers from the
bottom-up. They get quotes for inputs. They account
for transportation costs from the sourcing of the
materials to the construction site and so forth so
they can provide as accurate a number as possible.
Next.
So, we were asked by counsel to provide some
comments on both CBRE and Dr. Hern's reports in
terms--in what refers to the real estate data. So, as
I mentioned, our methodology differs because we used
multiple sources and tried to go at the very micro
level. CBRE remained at a very high-level database
analysis, and compared with some developers survey
they conducted.
And I guess the bottom--the biggest
difference will be the comparability. We made sure
that the prices we provided were for comparable
projects and not just a wide range of high-end
projects.
Next.
[Page 1269]
I believe the best way to understand this is
to basically understand a little more what the market
looks like when you go down into the detail, so this
is an histogram of prices and frequency, how frequent
are the datapoints for each price bracket.
So, as you can see, the Colombian market is
skewed towards low income and middle income for units
for low income and middle income families. There
is--this is normal, I guess, in Europe you would have
a more symmetrical distribution. But in Colombia it's
definitely skewed. If you are talking about luxury,
then you have to go towards the right of that
distribution.
A quick note, stratum, which is often used
in many analyses, you can see there is a lot of
overlap between price ranges, so you have to be very
careful when you bring that into your analysis.
Next.
So I tried to do a very stylized
explanation of what is the main difference so you
get a clear sense of what we are talking about--
(Pause.)
[Page 1270]
PRESIDENT SACHS: I'm sorry. I'm sorry. I
have to interrupt.
REALTIME STENOGRAPHER: We've lost
connection, the recording has stopped and the
Interpreters are not able to hear.
PRESIDENT SACHS: I'm sorry, Mr. Ruiz, we
have to solve this technical problem.
REALTIME STENOGRAPHER: It's a technical
issue.
(Pause. Technical issues are being worked
out.)
SECRETARY MARZAL: You may resume your
presentation.
THE WITNESS: (Mr. Ruiz) Okay. Thank you.
So, as I was saying, we prepared this
diagram to illustrate the point, and you get a very
clear sense of what the root difference is.
So, next.
So, taking into account this distribution,
the key here is to remember how it is distributed.
So, how did we go about our work? We first casting
[Page 1271]
this wide drag net to identify the best--the most
comparable projects.
Next.
We identified a few, and then run some
adjustment criteria to make them as close as possible
to the Claimants' projects to give you a sense, if I'm
valuating a house in a suburb in the United States and
the house next door is for sale, that is a very
valuable datapoint. But if that house has a pool,
then I have to adjust for that factor to make sure
that it's comparable and that price can be used to
assess the price of the--value of the property I'm
valuing. So, we did that with every project, and
that's how we got our results.
What CBRE did--next, Clay--was to use a
database with a section of the data, they just drew a
line and run an average on that section of the data.
That results--next--in an average that--next--will be
skewed towards the lower part. Why? Because there's
just more data the further down you go on prices, so
that is why you will see a consistent difference
towards the lower part of the values in CBRE's Report.
[Page 1272]
Next.
If you use surveys, then that is even more
acute because when you ask someone for a unit beyond a
certain threshold, the person will automatically
assume we're talking about the threshold, and then
results will be even more biased towards the bottom.
As I mentioned, we believe our data source
is better just because they rely heavily on fieldwork
and conduct a thorough quality assurance process.
That said, none of these are perfect. As I mentioned,
we have to go outside just the data to make sure we
got a very clear picture of what these markets look
like.
Next.
So, what we did to illustrate this was to
look at CBRE's sample and take one project on this
lower end to give you a sense of what this look likes.
Next.
So, what we found was--oh, previous one.
There were a lot of projects that, even
though they are high-end on the left, these are
high-rise, high-density, very small units that cannot
[Page 1273]
be compared to the Claimants' projects. Why? Because
the Claimants' projects are more to the right of my
diagram. So, this is why, when you're pricing on this
side and you include a lot of datapoints on this other
side, you will have a skewed result.
Same with the --well, these are just
examples we drew from the database.
Next, Clay.
We then went out and Googled these projects
to see what they looked like, so we realized that you
cannot compare these with nice amenities but
definitely not comparable to these high-end projects
that have these hotels with great amenities and luxury
feel to them.
Next.
No, next. Go ahead, Clay, please. Next.
Next. Next.
There you go.
The previous one.
So, some of the numbers you see in the CBRE
report caught our attention because they were just
different from our take on the market, what our take
[Page 1274]
on the market is. We went back and looked at their
data, and rerun their numbers for this, Cartagena
single-family units. Then we found the exact same
number to make sure that we were accurately rebuilding
or reconstructing their calculations. And we realized
they only--they were basing their number on only four
projects, two of them had huge issues, well major
problems.
Next.
One was a failed project basically on a fire
sale. That project was canceled in 2018, and the
other one had just erroneous data.
The same project on the same date had an
almost three times higher price in Galería
Inmobiliaria's database. So, I think this was just a
mistake in the database. This is just to say, you
have to be very careful when you run your numbers
because you will get nonsensical results if you're not
very careful.
Next.
PRESIDENT SACHS: Mr. Ruiz.
THE WITNESS: (Mr. Ruiz)I have to-
[Page 1275]
PRESIDENT SACHS: your time is over, so
please accelerate.
THE WITNESS: (Mr. Ruiz) I'll hurry up. I'll
hurry up.
This is just to show that there is a
difference between CBRE and JLL consistently lower.
Next.
Then we did a review of Dr. Hern. The first
one is we've reviewed Dr. Hern's list for construction
companies. They are indeed the biggest companies in
Colombia. What Dr. Hern fails to understand about the
real estate Colombian market is that it focused mostly
on social housing. These construction companies have
a large share of their business in the social housing
market. And that is a market of volume, not of big
profits and value-added. So, probably their profits
will be much lower than that of a smaller, high-end
luxury-oriented developer.
Next.
There is also the failure-risk data.
Dr. Hern raises a couple of reasonable points,
although he--he== the way he re-ran the numbers is
[Page 1276]
completely off, and I will explain briefly.
Next.
We basically took into account almost all of
his comments to see what that would look like, and the
failure rate from our initial estimate would go up if
we incorporate most of Dr. Hern's comments up
until--to 19.1, which is still below the average
failure rate in the U.S.
Next.
Also, the comment on Dr. Hern really
confused us because he's saying that the failure rate
of projects in Medellín and Cartagena could go up to
85 percent, and that is--that would be basically an
Armageddon in the market. If 85 percent of projects
are failing, then you would see that, and that is not
consistent with what you see when you go to these
markets.
So, we went back and looked at how he
conducted his calculations, and the problem was that
he basically threw off half--well, 31 percent of
projects in the case of Medellín and 42 percent in the
case of Cartagena. When we did this, we corrected for
[Page 1277]
Dr. Hern's point, which we believe again it was
reasonable, but we didn't overdo it in a way that
would skew the numbers and get 100 percent failure, as
you can see in Dr. Hern's numbers in the Excel.
Next.
Finally, this is--there is the speed of
sales. Dr. Hern refers to CBRE's averages, and again
these numbers may be correct in the sense that they
are--they are averages run in an Excel spreadsheet,
but they failed to account how the market works.
These databases are updated monthly, so you get a lot
of months. If you look at how successful projects
sell, you get most of the sales are happened in the
first months, the first year especially. And then
they decrease. They are successful, they are built,
but they stay in the market for many years. Why?
Because every project has a few units that are not
desirable. Think of a very nice building, luxury
building by the sea with--there is always an apartment
that looks to the dumpster that is small and no one
wants. Every project has some of those units, so
these projects will remain in the market, and will
[Page 1278]
1 mark as 0000000 for many months throughout years. So,
2 when you run an average, then you get the numbers
3 that--next--you can see in CBRE's Report that again
4 really make no sense, and they're not an accurate--or
5 cannot help you understand how a project would behave,
6 because again, we ran the numbers with CBRE's data,
7 and we noticed--we established that projects could
8 sell--would sell--would take approximately a year
9 selling every month approximately eight--5 percent of
10 their units, and then the number of sales would drop.
11 So, I don't know if this was clear, but
12 they're basically diluting sales figures by taking
13 this long run view. If you use that number, then no
14 project would have ever been built in Colombia,
15 selling 0.1 units per month, that is one a year, that
16 would take 10 years to build a ten unit
17 house--building, so we try to really understand how
18 they did these numbers to illustrate and come up with
19 better numbers that can be more useful to this
20 analysis.
21 PRESIDENT SACHS: Thank you very much,
22 Mr. Ruiz.
[Page 1279]
1 Who will be in charge of the
2 cross-examination?
3 MS. BANIFATEMI: It will be Ms. Ribco
4 Borman, who will do the cross-examination.
5 I just note that we had an additional 10
6 minutes and we assume that our experts will be also
7 given the additional 10 minutes.
8 PRESIDENT SACHS: Yes.
9 MS. BANIFATEMI: And if I may simply ask the
10 technical staff if we could have a switch of the
11 screens so that we can have the Expert right in front
12 of us because it's too far off.
13 PRESIDENT SACHS: Would that be possible,
14 operator?
15 MS. BANIFATEMI: Thank you very
16 much.
17 (Pause.)
18 MS. RITWIK: Thank you. If it's okay, I'll
19 just address one procedural thing.
20 Mr. Dickinson has an envelope, a sealed
21 envelope, with his Reports. So, if it's okay, with
22 Respondent's counsel, he can open it up and take a
[Page 1280]
1 look at it. Thank you.
2 MS. RIBCO: Thank you.
3 PRESIDENT SACHS: Ms. Ribco, please.
4 MS. RIBCO: Thank you, Mr. President.
5 CROSS-EXAMINATION
6 BY MS. RIBCO:
7 Q. Good morning, Mr. Dickinson. Good morning,
8 Mr. Ruiz. My name is Yael Ribco. I represent the
9 Republic of Colombia in this arbitration, and I will
10 be addressing some questions to you regarding your
11 Reports.
12 PRESIDENT SACHS: Could you kindly put your
13 microphone on.
14 MS. RIBCO: Sure.
15 PRESIDENT SACHS: Thank you.
16 MS. RIBCO: It's better now?
17 BY MS. RIBCO:
18 Q. Both of you have before you two reports,
19 correct?
20 A. (Mr. Dickinson) Correct.
21 A. (Mr. Ruiz) Yes.
22 Q. And the first one is your--is named Final
[Page 1281]
1 Report, Summary of Results and Methodology, and it was
2 presented to--by JLL to Gibson, Dunn on 10 June 2020,
3 is that correct?
4 A. (Mr. Ruiz) Correct.
5 A. (Mr. Dickinson) Correct.
6 Q. Have you signed this Report?
7 A. (Mr. Ruiz) I--we didn't.
8 Q. Mr. Dickinson?
9 A. (Mr. Dickinson) No.
10 Q. Did you draft it, or was it someone else?
11 A. (Mr. Ruiz) It was a team effort, but we
12 reviewed everything. I don't know Clay if you want
13 to--
14 (Overlapping speakers.)
15 A. (Mr. Dickinson) Yeah, exactly; that's right.
16 Q. So, you take responsibility for the content
17 of the statement, correct?
18 A. (Mr. Ruiz) Yes.
19 A. (Mr. Dickinson) Yes.
20
21 Q. And then on 16 September 2021, you issued a
22 Second Report which is called Replies to Comments
[Page 1282]
1 about JLL Inputs Included in Expert Report by
2 Dr. Hern, is that correct?
3 A. (Mr. Ruiz) Yes.
4 A. (Mr. Dickinson) Correct.
5 Q. And this time you did sign the report,
6 correct.
7 A. (Mr. Ruiz) Yes.
8 A. (Mr. Dickinson) Yes.
9 Q. Is there anything you would like to amend
10 about any of these Reports?
11 A. (Mr. Dickinson) No.
12 A. (Mr. Ruiz) No.
13 Q. So, you stand by your written reports,
14 correct?
15 A. (Mr. Ruiz) Yes.
16 A. (Mr. Dickinson) Correct.
17 Q. Great. Thank you.
18 Can we--I first want to check Slide 34 and
19 35 of your presentation.
20 A. (Mr. Ruiz) Can you put it up? Is it here?
21 Q. No, it's not there. It's your presentation.
22 A. (Mr. Ruiz) Oh, okay.
[Page 1283]
1 Q. You don't have it?
2 A. (Mr. Ruiz) No. Oh, do I have it?
3 Q. I think we are having a technical problem
4 because it should--
5 A. (Mr. Ruiz) No, Clay has it on his screen
6 (unclear). I'm--
7 Q. It's supposed to be on-screen?
8 A. (Mr. Ruiz) Okay, okay.
9 (Pause.)
10 A. (Mr. Ruiz) Can you--
11 (Overlapping speakers.)
12 VOICE: --(unclear) stop sharing your screen
13 or--
14 A. (Mr. Dickinson) Sorry. Do you want me to
15 stop sharing it or can you all see it now?
16 A. (Mr. Ruiz) Yes, please.
17 A. (Mr. Dickinson) Okay, that's Slide 34, I
18 believe.
19 BY MS. RIBCO:
20 Q. Before I go on with the questions, you're
21 probably aware that pursuant to Procedural Order
22 No. 10, each one of you is supposed to answer
[Page 1284]
1 questions regarding the scope of the Report that you
2 were taken care of, correct?
3 A. (Mr. Ruiz) Yes.
4 Q. So, I'll be addressing questions to each one
5 of you and, please, you need to respond one by one
6 whoever is addressed the question has to reply. You
7 cannot comment on each other's question or supplement
8 each other's questions-answers.
9 So, I will start now, and this is Slide 34,
10 and this was-the question is for you, Mr. Ruiz.
11 On the right side of this slide, we have a
12 picture or what seems to be an image of the Meritage
13 Project. This is computer-generated?
14 A. (Mr. Ruiz) Yes.
15 Q. This does not exist in reality, correct?
16 A. (Mr. Ruiz) No.
17 Q. Now, I want to go to the left side of the
18 slide where you represent that CBRE's sample, is
19 Biocity Grand.
20 A. (Mr. Ruiz) Yes.
21 Q. Did you take this from CBRE's Report?
22 A. (Mr. Ruiz) The picture or the name of the
[Page 1285]
1 project?
2 Q. Either.
3 A. (Mr. Ruiz) So, as I mentioned, we went
4 through the CBRE database, we filtered by the criteria
5 stated on the report, and we looked at the list of
6 projects, and we just took one to illustrate how these
7 projects on the lower and of the high end would look
8 like. We just wanted to--and then we did a Google
9 search and found this in the developer's website or
10 broker's website.
11 Q. I don't think this was my question. My
12 question was: Is CBRE identifying the project they
13 referred to as Biocity Grand, or was it --is it your
14 assumption that CBRE is referring to Biocity Grand??
15 A. This was based on our analysis of their
16 numbers on--
17 (Overlapping speakers.)
18 Q. So it's your assumption. CBRE never says
19 it's Biocity Grand. You are just assuming that CBRE
20 is referring to Biocity Grand.
21 A. (Mr. Ruiz) No, I don't think I am assuming.
22 Again, I filtered CBRE's database, and, given their
[Page 1286]
1 criteria, we found a list--we just found a list, so I
2 don't know if I'm assuming or just--I don't know. I
3 don't think that's an assumption.
4 (Overlapping speakers.)
5 Q. CBRE will tell us later that their project
6 they are referring to is not Biocity Grand.
7 A. (Mr. Ruiz) Oh, okay.
8 Q. But I just wanted to state for the record
9 that it is not and that these pictures are not in the
10 record.
11 A. (Mr. Ruiz) These pictures are not in the
12 record.
13 Q. Thank you.
14 A. Yes.
15 Q. I would like to go now to your Slide 24.
16 A. Yes.
17 VOICE: Oh, he's still sharing his--
18 (Overlapping speakers.)
19 MS. RIBCO: Mr. Dickinson, could you please
20 stop sharing your screen because we--
21 (Overlapping speakers.)
22 THE WITNESS: (Mr. Dickinson) Oh, sure.
[Page 1287]
1 Okay.
2 MS. RIBCO: --we need to take control.
3 VOICE: Yeah, someone else will do it, Clay.
4 THE WITNESS: (Mr. Dickinson) Very good.
5 I'm done.
6 (Pause.)
7 BY MS. RIBCO:
8 Q. Apologies. I think we may move on. This is
9 your Slide 24?
10 A. (Mr. Ruiz) Yes.
11 Q. And you provide the sales price estimates
12 for different projects for 2017, correct?
13 A. (Mr. Ruiz) Yes.
14 Q. And you refer there to your Page 44 or
15 your--of your First Report, do you? It's down there,
16 where you list these hotel--
17 (Overlapping speakers.)
18 A. (Mr. Ruiz) Yes. Yes, yes, yes, yes, yes.
19 Q. So I actually I want you to go to Page 44 of
20 your First Report. It's in Tab 5 of the Cross Bundle.
21 A. (Mr. Ruiz) Um-hmm.
22 Q. I would like to go first to Crystal Lakes.
[Page 1288]
1 A. (Mr. Ruiz) Crystal Lakes, okay.
2 Q. And, in your Slide 24 of Crystal Lakes--
3 A. (Mr. Ruiz) Yupp.
4 Q. --you state that the price of houses is
5 COL$4,056,118 per square meters. And the price of
6 apartments is COL$3,395,362 per square meters,
7 correct?
8 A. (Mr. Ruiz) Yes.
9 Q. Now, if you go to your Report and you see
10 for 2017 for the same project, Crystal Lakes, you have
11 for houses 5,174,845, and for apartments 4,524,560, is
12 that correct?
13 A. (Mr. Ruiz) Yes.
14 Q. So, this means that, in your Slide 24, you
15 have revised the price downwards by over COL$1 million
16 per square meters, right?
17 A. (Mr. Ruiz) Yeah, I apologize. A transcript
18 copy-paste error, like a clerical error. I--you're
19 right.
20 Q. Okay. Then maybe there's another clerical
21 error?
22 A. (Mr. Ruiz) Mm-hmm.
[Page 1289]
1 Q. If we go to Tierra Bomba, for the apartment,
2 you have in your Page 44, you have COL$11,154,321 per
3 square meters, correct?
4 A. (Mr. Ruiz) Yeah.
5 Q. And for houses you have 13,470,346, correct.
6 A. (Mr. Ruiz) You are correct, yes.
7 Q. Now if you go again to your Slide 24, for
8 Tierra Bomba houses you have 8,093,211, correct?
9 A. (Mr. Ruiz) Yeah.
10 Q. And for apartments you have 7,758,540,
11 correct?
12 A. (Mr. Ruiz) Yes.
13 Q. And that's a difference of over
14 COL$5 million.
15 A. (Mr. Ruiz) Yes.
16 Q. Is that also a clerical error?
17 A. (Mr. Ruiz) Yeah, yes.
18 Can I explain?
19 Q. Please.
20 A. (Mr. Ruiz) Yes, this was just a recap, copy
21 pasting results. I apologize for not reviewing this.
22 We stand by our real, original numbers in our Report.
[Page 1290]
1 I apologize.
2 Q. So, we can scrap this slide from the
3 presentation.
4 A. (Mr. Ruiz) Yes.
5 Q. And from the record.
6 A. (Mr. Ruiz) Yes.
7 Q. Thank you.
8 So, now I would like to go to your Slide 41.
9 A. (Mr. Ruiz) Yes.
10 Q. And you explained that Dr. Hern had made a
11 couple of reasonable points and that you, therefore,
12 reviewed your failure rate, correct?
13 A. (Mr. Ruiz) Yes.
14 Q. So, if you go to Tab 7--for everyone's
15 convenience, I included the relevant paragraphs of
16 Dr. Hern's Report, and he lists for example--do you
17 have it there? Tab 7.
18 So this is Appendix F of Dr. Hern's Second
19 Report. And there, as you said, he lists a number of
20 problems that he identified in your failure rate
21 calculations. So, for example, one of them was that
22 when the Galería Inmobiliaria lists a project as
[Page 1291]
1 non-applicable. In (a), that where there is no
2 information, you had put it as a successful project
3 whereas it doesn't necessarily mean that it's a
4 successful project, and you adjusted your numbers.
5 A. (Mr. Ruiz) Yes.
6 Q. Also for this stratum you adjusted the
7 numbers, and we see it in your Slide 41 but--
8 A. (Mr. Ruiz) No.
9 (Overlapping speakers.)
10 A. (Mr. Ruiz) Sorry. Go ahead. No. I didn't
11 mean to interrupt you.
12 Q. That-What I meant is that Dr. Hern had
13 criticized, in Paragraph 293 of his Report, that your
14 in your failure rate calculation you had included
15 projects classified as Stratum 4 to 6, but now you
16 revised it to include only Stratum 6?
17 A. (Mr. Ruiz) Yeah. We did not revise and we
18 do not necessarily agree with that comment. We just
19 ran the numbers to see what they would look like--
20 Q. Mm-hmm.
21 A. --because at the end, they don't make that
22 much of a difference, but that's why in my
[Page 1292]
1 presentation, if you go to my presentation, I marked
2 that in yellow. Look. Assuming that we take
3 everything into consideration, failure rate goes up
4 until 19 percent.
5 Q. Well, I would say that, when it doubles from
6 10 to 19, it's kind of a significant difference, isn't
7 it?
8 A. (Mr. Ruiz) It is a significant difference,
9 but actually it--the more reasonable comments make the
10 failure rate go up to 15 percent. But if you want to
11 narrow the analysis, because this was not what we were
12 asked to do initially, but if you want to narrow the
13 analysis like Dr. Hern is suggesting, then you go to
14 19 percent.
15 Q. Thank you.
16 And also in Paragraph 294 of his Report,
17 Second Report, Dr. Hern criticized that your rates
18 were artificially low because you had not taken into
19 account that some projects that are still in progress
20 may fail in the future, correct?
21 A. (Mr. Ruiz) Correct.
22 Q. And that you also adjusted in your Slide 41.
[Page 1293]
1 A. (Mr. Ruiz) That is correct.
2 Q. So, I understand that you consider that a
3 project may still fail even if it has started already,
4 is that correct?
5 A. (Mr. Ruiz) Yes.
6 Q. Yes. Thank you. And--
7 A. (Mr. Ruiz) Well, sorry. Started to
8 pre-sale, that doesn't mean it started construction,
9 but yes, that was a project that has been launched and
10 is on the market.
11 Q. So, when it has started pre-sale, it can
12 still fail.
13 A. (Mr. Ruiz) Yes.
14 Q. And when it has started construction, can it
15 fail?
16 A. (Mr. Ruiz) No, that is the--well, it could,
17 should something extraordinary happen, but usually
18 construction does not start until a project reaches
19 equilibrium point.
20 Q. What if after reaching equilibrium point
21 financing dries up for whatever reason? Can the
22 Project still fail?
[Page 1294]
1 A. (Mr. Ruiz) I believe the equilibrium point
2 is determined by--is the numbers of--the number of
3 sales that can pay for the--as its name states, the
4 "break-even" of the Project.
5 Q. Thank you.
6 Now, there's one more criticism that
7 Dr. Hern made, and it's on Paragraph 291, and it is
8 that you have not really considered the trends in
9 failure rates, correct?
10 A. (Mr. Ruiz) "Trends"? Allow me to read this.
11 (Witness reviews document.)
12 A. (Mr. Ruiz) Oh, yeah, right, I remember this.
13 Q. So, if you see Figure F.2 on Page 130 of the
14 Second Report of Dr. Hern, you will see that the
15 failure rate has a significantly increasing trend
16 towards 2017 and increasing even like a lot towards
17 2021, correct?
18 A. (Mr. Ruiz) Yes, these were the numbers, and
19 I'm sorry because I have to--flew through my
20 presentation, but this is--these are the numbers that
21 we say we believe are nonsensical.
22 If you think that every project in 2021 in
[Page 1295]
1 all cities of Colombia have failed, that just shows an
2 utter lack of understanding about the real-estate
3 market. You cannot--this would be worse than 2008
4 here in the U.S. This would be--this is absolute
5 collapse, every project failing. So, this is why we
6 meant that you have to be very careful when you--how
7 you treat the data. Dr. Hern had some reasonable
8 points, but the way he sold those points were, as I
9 would like to explain, there was a cut-in-the-finger
10 but instead of stitches or a Band-Aid, he amputated
11 the hand, and that's why he got these numbers that
12 have no sense.
13 Q. But he took them from the database that you
14 have used.
15 A. (Mr. Ruiz) Yeah, and he could have done
16 other calculations.
17 And actually, we took into account his
18 observation, and that's how--that was the biggest
19 change; it went from 10 to 15 percent. It's
20 reasonable to be careful with ongoing projects. But
21 if you take them all out, then your denominator drops
22 dramatically, and that's how you get this exponential
[Page 1296]
1 growth in failure rates. That again, this graph makes
2 no sense.
3 Q. My last question for you would be we noticed
4 that you--or you confirmed that you had revised the
5 failure rates in your Slide 41. Is this a revision
6 you would like to introduce into your written
7 statements, or you stand by your written statements?
8 A. (Mr. Ruiz) I--well, if--if I--I--I am to do
9 so I would--I would do so, including the first two.
10 We eliminated--well, we determined the actual status
11 of the few projects that had N/A on them, and that
12 generated a .1 percent increase from zero--from
13 10.1 percent to two--10.2 percent.
14 The adjustment for ongoing projects, the way
15 we saw that and--I excuse--I apologize for --if I'm
16 going too much into the detail--we use 2021, the
17 database for 2021 on the record. We eliminated all
18 the ongoing projects that were launched from 2018 on
19 because we don't have enough information. But all
20 those ongoing previous to that, since we're looking at
21 it from a vantage point of 2021, we have four years to
22 determine whether these projects in the market have
[Page 1297]
1 been successful or not. Remember, most projects sell
2 most of their units in the first year.
3 So, by 2021, we had a very clear sense of
4 which projects launched prior to 2017 had been
5 successful and which ones were not. That's how we--we
6 ran the numbers and that's how failure rate goes up to
7 15 percent, 15.3 percent.
8 Q. So, your Second Report is dated--your Second
9 Report is dated--
10 A. (Mr. Ruiz) September 16th.
11 Q. September 2021, right? So, you already had
12 the data by then?
13 A. (Mr. Ruiz) Yes, yes.
14 Q. Okay.
15 A. (Mr. Ruiz) Yes.
16 And may I clarify something regarding
17 failure risk?
18 Q. Yes.
19 A. (Mr. Ruiz) This is not a usual metric we use
20 in our projects or in the market because we work on
21 projects at the developer's level. We don't do this
22 analysis, so we--we did our best. We read Dr. Hern's
[Page 1298]
1 comments. Again, some of them are reasonable, and we
2 ran the numbers incorporating them, so that's why in
3 this new type of analysis you will get this--oh,
4 that's right, you can improve it a little here or
5 improve it a little there.
6 Q. Okay. So, you did your best but it can
7 still be a bit improved here and there?
8 A. (Mr. Ruiz) I think after Dr. Hern's thorough
9 review, we feel much better.
10 Q. Thank you.
11 I will turn now to Mr. Dickinson. It's
12 Slide 7, please.
13 Does Mr. Dickinson have a copy of the record
14 or he's just--
15 MS. RITWIK: He has copies of both of his
16 Reports and that's it.
17 MS. RIBCO: Okay. Thank you.
18 BY MS. RIBCO:
19 Q. So, in your Slide 7, Mr. Dickinson, you
20 discuss a lot about these 30 transactions, totaling
21 3 billion, that encompass 9,000 rooms supposedly with
22 comparable hotels, correct?
[Page 1299]
1 A. (Mr. Dickinson) Yes. That was in the
2 initial Report, yeah.
3 Q. And you said that your instructions from
4 counsel were to compile a list of luxury upscale
5 hotels, correct?
6 A. (Mr. Dickinson) No--upscale to luxury
7 hotels, yeah.
8 Q. So, that list is in your First Report on
9 Page 106, which is on Tab 5 of the Cross Bundle. Is
10 this the table that you came up with in your First
11 Report?
12 A. (Mr. Dickinson) It looks like it. If there
13 are 30 transactions there.
14 What page did you say it is? Because I'm
15 going--
16 Q. I will not count them now but I can
17 represent that this is your First Report, and it is
18 your Slide 100, your Page 106.
19 A. (Mr. Dickinson) Page 106.
20 Okay. I see it.
21 Q. So, you said there's no comparable hotels in
22 Colombia, and that's why you had to look into other
[Page 1300]
1 countries: Mexico, Aruba, Puerto Rico, Uruguay,
2 Bermuda, Argentina, et cetera, correct?
3 A. (Mr. Dickinson) Correct.
4 Q. Is this list of transactions handpicked?
5 A. (Mr. Dickinson) This is basically picked
6 based upon certain criteria, for example, that they be
7 between upscale and luxury, that they be full-service
8 hotels, that they be resort hotels or a part of mixed
9 use projects, that they be within the date frame of
10 2015-2019, and that they be within this Caribbean,
11 Mexico, Central/South American region.
12 Q. But these are not the full transactions that
13 took place between 2015 and 2019 for upscale to luxury
14 hotels in the Latin America/Caribbean region, is it?
15 A. (Mr. Dickinson) Well, this is the full
16 listing of the ones that met those criteria.
17 Q. Okay. The criteria that you came up with,
18 and it's not listed in your report, correct?
19 A. (Mr. Dickinson) I'm not a hundred percent
20 sure if that criteria is listed, but what I just cited
21 is the criteria that--
22 Q. It is not. I can represent that.
[Page 1301]
1 A. (Mr. Dickinson) Okay.
2 Q. So, now going back to your Slide 7, you
3 referred to the 30 transactions that total 30 billion,
4 and I've already said this.
5 Are all these 30 hotels fully built hotels?
6 A. (Mr. Dickinson) Yes.
7 Q. And they were operational at the time of the
8 Transaction, correct?
9 A. (Mr. Dickinson) Yes.
10 Q. So, you have a very similar table in your
11 Second Report on Page 33, and it's in Tab 1 of the
12 Cross Bundle. Do you have it there?
13 Sorry, the table is not on Page 33, but
14 there is the explanation of the table. The table is
15 on Page 43 of your Second Report.
16 A. (Mr. Dickinson) Okay. Give me just a
17 second.
18 Okay. I found it.
19 Q. And this list on Page 43 includes only 26
20 transactions, correct?
21 A. (Mr. Dickinson) Yes.
22 Q. And your explanation--and now it is on
[Page 1302]
1 Page 33 that I was referring to before--is that,
2 because Dr. Hern had identified that, four of those 30
3 original handpicked transactions referred to casino
4 hotels and, therefore, the Market Value was not
5 representative of normal hotels. So, you decided for
6 your Second Report to remove those four hotels,
7 correct?
8 A. (Mr. Dickinson) Yeah, we felt that was a
9 reasonable assertion, and so we removed those for the
10 Second Report.
11 Q. But still, in your Slide 7, you referred to
12 the 30, and you haven't updated the numbers in
13 accordance with your Second Report?
14 A. (Mr. Dickinson) No. In Slide 7, I basically
15 say that 30 transactions totaling was reduced to 26 by
16 removing the four large casino hotels.
17 Q. So, you do acknowledge that removing only
18 four hotels has a difference of $1 billion in terms
19 of--
20 A. (Mr. Dickinson) Yes.
21 Q. --market value.
22 A. (Mr. Dickinson) Yeah.
[Page 1303]
1 Q. And this is one-third of the value.
2 Now, the average per key price has also been
3 reduced from 274,000 to 204,000, correct?
4 A. (Mr. Dickinson) Yes.
5 Q. That is a difference of $70,000; correct?
6 A. (Mr. Dickinson) Correct.
7 Q. So, is there any other factor, in addition
8 to whether the hotel having a casino or not, that
9 should be considered when comparing these
10 Transactions? For example, would a fully built hotel
11 be comparable or considered as equally as a
12 yet-to-be-built hotel?
13 A. (Mr. Dickinson) Yeah, I mean, if you were
14 trying to value a yet-to-be-built hotel, the
15 assumption would be that it is built and operational
16 and, therefore, it's comparable. So, yes, that's how
17 you would do it.
18 Q. So, you mean that if someone would--were to
19 buy today an idea of a Hilton Hotel here next door, he
20 would pay the same as he would have paid for a Hilton
21 that is fully built--
22 A. (Mr. Dickinson) No.
[Page 1304]
1 Q. --because that's the Market Value?
2 A. (Mr. Dickinson) No, that's a
3 different--that's a different--that's a different
4 assumption. Someone would not pay just for the plans
5 to build a hotel. They would not pay the same amount
6 because you have to go through all the development
7 risk and all of that.
8 Q. Thank you.
9 And do you know what was the status of the
10 Claimants' projects in Colombia?
11 A. (Mr. Dickinson) Yeah. I mean, I do
12 generally know that the Meritage was in the--was kind
13 of in the process of being built and that all the
14 others were proposed projects.
15 Q. Was the Meritage Hotel in the process of
16 being built?
17 A. (Mr. Dickinson) I believe it was under
18 construction at the time that it was stopped, but
19 again, I'm not a 100 percent. I know that the Project
20 itself was under construction. Whether the hotel
21 component of it was part of it, I'm not a 100 percent
22 sure.
[Page 1305]
1 Q. So, as you mean it was not--would it still
2 be comparable to this fully built and operational
3 hotels?
4 A. (Mr. Dickinson) Well, the assumption, when
5 you go to try to value a prospective--a proposed hotel
6 is that it is fully built and operational. That's how
7 you do the comparison.
8 Q. That's a big assumption because you just
9 said that when valuing one that is not fully built,
10 you need to consider all the risks, including, for
11 example, that there was no financing?
12 A. (Mr. Dickinson) But the fundamental
13 assumption is that when you go to do the value of a
14 proposed hotel, the fundamental assumption is that it
15 is--it is basically an as-complete or as-developed
16 valuation.
17 Q. I see.
18 So, there's one more factor to be considered
19 and this you have already acknowledged as well in your
20 Page 34 of your Second Report, it's also on
21 Tab 5--Tab 1, sorry, and basically what you said is
22 that how developed the tourism sector in the country
[Page 1306]
1 where the hotel is located is a relevant factor when
2 doing the valuation, correct? It's Page 34 of the
3 Second Report, it's this kind of pink-red--yeah.
4 A. (Mr. Dickinson) Okay. Go ahead. So, I'm on
5 that page now, please repeat it.
6 Q. So, there you say: "Although this country's
7 tourism sectors are larger and more matured, this
8 transactions data can provide a sense of what similar
9 transactions would carry in the Colombian market."
10 Correct?
11 A. (Mr. Dickinson) Yes.
12 Q. So, from there, I understand that you
13 consider that the tourism sector is a relevant factor
14 when considering whether transactions are comparable
15 or not, correct?
16 A. (Mr. Dickinson) It is one of many factors.
17 And some of these are more developed, and some of them
18 are less developed. I could have been a little bit
19 more artful in the wording of that.
20 Q. Is any of them as developed as Colombia?
21 A. (Mr. Dickinson) Are any of these markets as
22 developed as Colombia?
[Page 1307]
1 Q. Yes.
2 A. (Mr. Dickinson) Yeah, I would think some of
3 them are as developed, and perhaps even a little bit
4 more developed.
5 Q. Less developed?
6 A. (Mr. Dickinson) But I --Well, some are as or
7 more developed, and some are less developed.
8 Q. Which one, for example, would be less
9 developed? México?
10 A. (Mr. Dickinson) No, I think México,
11 generally speaking, is probably more developed than
12 Colombia, as far as its tourism sector.
13 Q. Yeah. And going through your table, which
14 one would be less developed?
15 A. (Mr. Dickinson) I think, generally
16 speaking--like--even Barbados or Nevis, Cayman to a
17 certain extent. Less hotel rooms, less visitation
18 numbers, things like that. So, generally speaking,
19 those could be considered less developed.
20 Q. And when you are within a country, you would
21 agree with me that not every area of a country is
22 equally developed, so you probably have in Mexico more
[Page 1308]
1 developed areas and less developed areas, correct?
2 A. (Mr. Dickinson) That's true.
3 Q. Would that change the comparability of the
4 hotels, or do you compare a country as a whole?
5 A. (Mr. Dickinson) Well, I think, you know, you
6 look at the country as a whole but you're looking at
7 individual tourist markets within the country. For
8 example, in México, we did look at Cancun, Riviera de
9 Maya, Puerto Vallarta, Peñasco, and Los Cabos, and
10 each of those have their own particular
11 characteristics, but they are all part of México's
12 tourism industry, just as Colombia, too. I think, you
13 know, Cartagena could be considered a little bit more
14 developed, say, than Santa Marta. But it is still all
15 part of the Colombia tourism as a destination.
16 Q. If you were to consider, for example,
17 Zacatecas in México. Is that--
18 A. (Mr. Dickinson) I'm sorry?
19 Q. If you were --Zacatecas. It is a place in
20 México.
21 A. (Mr. Dickinson) Zacatecas.
22 Q. Exactly.
[Page 1309]
1 It's just a non-touristic place in México.
2 Let's assume you need to value their hotel. Would you
3 value it the same as a hotel in the Caribbean, in
4 Cancun, for example?
5 A. (Mr. Dickinson) If I were--well, it would
6 depend very much on the nature of this specific hotel
7 to be valued.
8 Q. So, let's go Tab 6, this Transcript of Day 2
9 of this Hearing when we were cross-examining Mr. Seda,
10 the Claimant in this Arbitration and we know because
11 Seda told us. It's on Page 440 of the Transcript,
12 Line 9 to 18, where Mr. Seda explained that his
13 business strategy was to check for areas that were not
14 attractive, but where he saw promise, where he would
15 be the first arriver, and then trying to create
16 something attractive, and that usually people would
17 follow. Then he, for example, he referred in
18 particular to Guatapé, where the Luxé hotel was being
19 built.
20 Have you considered this factor when
21 representing, for example, that the Luxé hotel in
22 Guatapé, which is a region, in case you don't know,
[Page 1310]
1 that has, until very recently, suffered from severe
2 violence issues without any track record of touristic
3 destination, be comparable to, for example, and I take
4 just one, the Four Seasons in Costa Rica, that is a
5 full service luxury hotel?
6 A. (Mr. Dickinson) You know I, again, as I
7 mentioned sort of with the white hair or whatever, I
8 actually remember what the region looked like where
9 the Four Seasons is now before it was built. It was
10 very isolated, very--very much on its own. There was
11 absolutely nothing there in Papagayo at the particular
12 time, and it was sort of the first property to be
13 built there. Over the course of 25 years, it has
14 evolved to become quite the destination--
15 Q. What about--
16 A. (Mr. Dickinson) --on account of a lot of
17 other developments.
18 So, I almost think it's a great example of
19 what happens if you pick a fundamentally good spot and
20 invest in the infrastructure, that it can turn into a
21 viable (drop in audio) location. I mean, actually,
22 this same thing happened with Puerto Vallarta, the
[Page 1311]
1 same thing happened with Cancun, and a lot of tourist
2 destinations. They started out with nothing.
3 Q. But that is a big assumption because I'm not
4 a hotel expert, but I'm sure there's many others that
5 have failed, that they have gone to Zacatecas thinking
6 it was a great location and build a hotel and it
7 turned out not being a great location, correct?
8 A. (Mr. Dickinson) I don't know.
9 Q. Is there a beach in Medellín?
10 A. (Mr. Dickinson) In Medellín, there is not a
11 beach, no.
12 Q. In Guatapé? Is there--
13 (Overlapping speakers.)
14 A. (Mr. Dickinson) Well, in Guatapé, there is a
15 beach actually because it's on a lake. So, I have
16 been to the site there in Guatapé, so I know the area,
17 and it's phenomenally beautiful. The vistas are
18 incredible, the water is nice, and the beach itself is
19 very nice.
20 Q. Thank you.
21 A. (Mr. Dickinson) Um-hmm.
22 Q. How is the--you have been there. Do you
[Page 1312]
1 know what the region looks like now? Is it--has it
2 become the new Cancun of the Medellín Region?
3 A. (Mr. Dickinson) To be frank, ever since the
4 COVID pandemic, I have not been to Colombia now since
5 2019.
6 Q. And before the--before 2019? What was
7 Guatapé?
8 (Overlapping speakers.)
9 A. (Mr. Dickinson) Well, at the time, Guatapé,
10 it would characterize--it had a number of small kind
11 of--there was one fairly large resort hotel there, but
12 then there was a number of sort of small mom-and-pop
13 type of boutique hotels there. There you could see
14 that it was a weekend destination for people who live
15 in the area.
16 Guatapé--excuse me, the Luxé would have been
17 a quite--it would have been a unique project within
18 the Guatapé area.
19 So, I personally believe that the--what's
20 the word I'm--yeah, the base requirements in terms of
21 proximity to a major airport, proximity to a major
22 city, waterfront location with beach, incredible
[Page 1313]
1 vistas and the facilities themselves were actually
2 proposed, I think could have made for a very, very
3 interesting destination type resort there in
4 Antioquia.
5 Q. Thank you. We will see with time what turns
6 out of being out of Guatapé.
7 A. (Mr. Dickinson) Yeah, I mean if you,
8 well--okay.
9 Q. Well, we cannot predict the future, so--
10 A. (Mr. Dickinson) No, we can't. We can only
11 sort of--you know, if past is prologue, I remember
12 going to Cartagena in 2008, it was not necessarily a
13 walk-in-the-park compared to what it looked like in
14 2019.
15 Q. I would like to go to Slide 5 of your
16 presentation.
17 A. (Mr. Dickinson) Okay.
18 Q. And this is where you compare the ADR of The
19 Charlee Hotel versus the top-tier markets in Colombia,
20 correct?
21 A. (Mr. Dickinson) The aggregate upscale and
22 above markets in Medellín, Bogotá and Cartagena, yes.
[Page 1314]
1 Q. So, you have a similar--you have a similar
2 kind of information or you provided this information
3 on Page 46 of your First Report. Is this where your
4 slide--sorry, Page 46 of the Second Report?
5 A. (Mr. Dickinson) Of the Second Report?
6 Q. Yeah, I'm sorry. Apologies.
7 A. (Mr. Dickinson) Okay. Yeah, I see it now,
8 yeah.
9 Q. So, Slide 4--your Slide 5, sorry, is based
10 on your Page 46 of the Second Report, isn't it?
11 A. (Mr. Dickinson) Let me look back at--
12 Q. It's on the screen, if it's easier.
13 A. (Mr. Dickinson) Okay. Just let me
14 double-check something really quick.
15 Yeah, it looks like the same information,
16 yeah.
17 Q. But in your Slide 5, you haven't included
18 all these sources or the comparators that you include
19 on Page 46 of your Second Report, correct?
20 A. (Mr. Dickinson) Yeah, because I know that
21 it's in the record, and so it's basically just to save
22 space.
[Page 1315]
1 Q. Okay. I see.
2 So, Page 46, and I read: "Based on an
3 evaluation of the rate structure, market orientation,
4 location, facilities, amenities, reputation, quality,
5 and performance--"
6 REALTIME STENOGRAPHER: Could you slow down
7 a little and start that again.
8 MS. RIBCO: Sure.
9 BY MS. RIBCO
10 Q. "Based on an evaluation of the rate
11 structure, market orientation, location, facilities,
12 amenities, reputation, quality, and performance of The
13 Charlee Hotel, JLL positioned and categorized it as a
14 luxury hotel."
15 A. (Mr. Dickinson) Yes.
16 Q. And then you continue saying: "JLL
17 estimates show that The Charlee Hotel outperformed its
18 competition by almost double in terms of ADR before
19 COVID-19." Correct, that's what you say there?
20 A. (Mr. Dickinson) Yeah, that's right.
21 Q. So, further down in your Second Report, you
22 say that: "The ADR information for The Charlee Hotel
[Page 1316]
1 was provided by the hotel while the information for
2 Cartagena and Bogotá were sourced from STR."
3 A. (Mr. Dickinson) Yes.
4 Q. Okay. Did you verify the ADR data for The
5 Charlee?
6 A. (Mr. Dickinson) Uhh, no. Took it--
7 Q. Okay. So, so--
8 A. I took it as actual data.
9 (Overlapping speakers.)
10 REALTIME STENOGRAPHER: I didn't catch that.
11 BY MS. RIBCO
12 Q. Could you please repeat?
13 A. (Mr. Dickinson) Yes, yes, I just took it as,
14 in that it was historical, just took it as actual
15 historical performance data.
16 Q. Okay. So, you took the data you got from
17 The Charlee, and then you compared it with data you
18 obtained from these other hotels as processed by STR
19 that you list here on the right side of Page 46 of
20 your Second Report.
21 A. (Mr. Dickinson) Yes.
22 Q. And I assume that you consider these hotels
[Page 1317]
1 listed here to be The Charlee Hotel's
2 competition--correct?--and that's why you're comparing
3 this?
4 A. (Mr. Dickinson) Well, in the aggregate, it
5 represents kind of the upscale, the upper end of those
6 particular markets. If I were to be doing an analysis
7 specifically of The Charlee Hotel, then I might end up
8 picking, as best as I could, specific competitors, but
9 I'm really trying to compare it to the overall market
10 as opposed to any particular hotel.
11 Q. I see.
12 Now, if you go to your Slide 4 of your
13 presentation, I assume these are also top-tier market
14 hotels in Colombia, aren't they?
15 A. (Mr. Dickinson) They are now, yes.
16 Q. And you seem to have considered these as
17 competitors of The Charlee Hotel, correct?
18 A. (Mr. Dickinson) No, not at all. That wasn't
19 the purpose of this here. This was really to show the
20 entrance of a lot of global hotel chains. None of
21 these would necessarily be direct competition with The
22 Charlee Hotel.
[Page 1318]
Q. Why not? Because these are luxury hotels?
A. (Mr. Dickinson) No, because The Charlee
Hotel, 42 rooms and an independent luxury lifestyle
hotel would really not compete at all with, say, the
Hilton Corferias, which is like a 430-room
group-oriented hotel positioned at the upper upscale
end of the market. And I think you could say the same
thing about the Grand Hyatt Hotel that's over 300
rooms or the Hyatt Regency in Cartagena that's 200 and
something rooms. So, these would not necessarily
compete with each other.
If there was one there that maybe would
compete, it'd be something like The BOG Hotel.
Q. You seem to be a bit selective on what
competes because we were just saying that a hotel in,
like for example, you have here--and I'm going back to
Slide 46, the table that we were just discussing in
Slide 46 of your Second Report, where you compare, for
example, the Charlee with the Hilton in Los Cabos, and
with many hotels in Cancun, but now apparently some of
the hotels in Colombia that you have on page 4 are not
competing directly, so it seems a bit selective to me.
[Page 1319]
A. (Mr. Dickinson) Well, you know, everyone is
entitled to their own opinion. I think there is a
difference when you're trying to look at a hotel that
is directly competitive with a particular hotel versus
a transaction that is generally comparable because it
sorts of fits within the same overall classification,
whether it be upscale or a luxury property.
Q. And still, some of the hotels that are
listed in your Slide 4 are included in your--in your
Page 46 of your second presentation, for example, the
Marriott Medellín.
A. (Mr. Dickinson) Yeah. The Marriott Medellín
is--again, it is one of the aggregate in order to sort
of show the upper end of the Medellín market. And it
is probably competitive indirectly for certain market
segments with The Charlee Hotel. It's located only
about a block or two away. And to a certain extent it
probably goes for some of the same transient business
traveler or whatever at certain times of the week.
Q. Did you consider the ADR of any of the
hotels that are listed in Slide 4 of your
presentation?
[Page 1320]
A. (Mr. Dickinson) Did I consider the--for what
purpose?
Q. For comparing them with The Charlee.
A. (Mr. Dickinson) Again, I'm not necessarily
comparing any of these here with The Charlee.
You could look at the Marriott. I guess
that's the only one, because it was both an example of
a globally branded hotel that came in to Colombia in
2018, and it happens to be in Medellín and located
very close to The Charlee Hotel.
If I were to-if, you know, if I were to be
doing a market study to try to look at The Charlee
Hotel, I would interview and determine whether or not
the Marriott was or was not either directly or
indirectly competitive with it. If it were, then I
would consider the average daily rate of the Marriott.
Q. Okay. So, just because I'm a bit confused
now.
Which one of the hotels on Page 4 would you
consider to be competitor with The Charlee?
A. (Mr. Dickinson) Again, I'm not sure that any
of the ones on Page 4 would be direct competitors to
[Page 1321]
the Charlee Hotel. That's not the purpose of--that's
not the purpose of that--
Q. Because the Marriott Medellín, the Sebastian
Luxury Hotel and the Sofitel Santa Clara Cartagena are
included in your-- on Page 46 in your ADR analysis,
whereas all the others are not?
A. (Mr. Dickinson) Right. Because it's really
for a different reason. It's included there in order
to get a sense of how the ADR of The Charlee Hotel
compares sort of with the given the data in SCR, the
aggregate, of sort of the upscale market of Medellín,
Bogotá and Cartagena, not that it's directly
competitive with any individual hotel per se.
Q. Okay, so basically it's handpicked. You
just handpicked some hotels that you consider to be
more or less comparable, and you compare their ADR,
and you concluded that The Charlee's is double --
almost double--
(Overlapping speakers.)
A. (Mr. Dickinson) Yeah, we basically tried to
pick the upscale--the upscale and above hotels in
those markets that were part of the SCR database in
[Page 1322]
order to give an idea of what is the aggregate ADR of
generally upscale and above hotels in those three
major market areas.
Q. But it's not an exhaustive analysis, then?
A. (Mr. Dickinson) No. It's just really meant
to be representative.
Q. Okay.
A. (Mr. Dickinson) But again, I think
the--okay. Go ahead.
Q. Thank you. I--again, staying on this slide,
you say that one of the factors why you consider The
Charlee to be a luxury hotel is because of its
location; correct?
(Overlapping speakers.)
A. (Mr. Dickinson) Not nec--
Q. It's listed there. So you say based on an
evaluation of the rate structure, market orientation,
location, et cetera, JLL positioned and categorized it
as a luxury hotel. This is what you say in your
Report?
A. (Mr. Dickinson) Okay, so yeah, I will give
you that. That it's location, they're right at
[Page 1323]
Parqueo Lleras, and Poblado, it's one of the nicer
areas in Medellín. So it's among many different
factors as listed here that we use to consider The
Charlee a luxury hotel, but its primarily its ability
to drive ADR and rev par premium.
Q. Okay, so, you just referred to the Parque
Lleras as a very nice section of Medellín. Can we
please go to Exhibit R-45 of the record. And this is
in Tab 4.
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Do you know, by the way, what Charlee, the
name, stands for?
A. (Mr. Dickinson) No, I don't.
Q. Okay.
I would like to turn to Exhibit C-68, which
is Tab 3.
PRESIDENT SACHS: I'm sorry, could you
enlighten us?
MS. RIBCO: I don't know either. Maybe we
can ask Mr. Seda later.
PRESIDENT SACHS: Mr. Seda?
[Page 1328]
MR. SEDA: I'm fine answering. At this
moment, are we asking where--
MS. BANIFATEMI: No, I will have to stop
this. I will not ask Mr. Seda to--
PRESIDENT SACHS: I'm sorry, I asked
Mr. Seda.
MS. BANIFATEMI: Oh, I'm sorry.
PRESIDENT SACHS: Could you please tell us
how you come up with this name--did you come up with
this name?
MR. SEDA: Yeah, it's a little quirky.
PRESIDENT SACHS: Very shortly.
MR. SEDA: When I was younger, I used to
watch a lot of television with my mother, and there
was this commercial about Charlee Perfume and the
essence of it was, it was like during the woman's
empowerment movement, and there was this powerful
woman who was both like an executive and at the same
time sexy in her ability to be able to manage both
sides of that world, and so that stuck with me in my
head. And when we were looking for a name, I was
looking for a name with two syllables, and that was
[Page 1329]
something rememberable for me, and that was from my
childhood with my mother. It was very important for
me. That's where the name comes from.
PRESIDENT SACHS: Thank you.
MS. RIBCO: Thank you, Mr. Seda. [Redacted]
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BY MS. RIBCO:
Q. Going now to Exhibit C-68--and I want to go
to Page 50, and this is a brochure for the 450 Heights
investment project, so you can show first maybe the
cover page. And then we go to Page 50 where we see
that the 450 Heights Hotel was associated with the
"Charlee" brand, and that's not surprising because
that's the brand that Mr. Seda claims to have
established in Colombia.
And if we go now--so, just to pose a
question for Mr. Dickinson, you see then--or are you
aware that the 450 Heights project was somehow related
to the "Charlee" lifestyle hotel brand?
[Page 1330]
A. (Mr. Dickinson) Yeah. It was my
understanding that all of these properties would be
somehow related to The Charlee, either Luxé by Charlee
or somehow associated with the "Charlee" brand.
Q. So, now, if we go to Page 55 of the same
document--and you will need to look at the Spanish
version because an English version was not provided by
the Claimants. It's the same brochure, and we see at
the top it says the Prensa de la Marca Charlee, which
means in English Media About The Charlee Brand, is
that correct?
A. (Mr. Dickinson) Oh, yeah. Okay, yeah, I see
Prensa de la Marca Charlee, okay.
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PRESIDENT SACHS: Please move on.
MS. RIBCO: We may move on.
PRESIDENT SACHS: Please move on. And we
should soon have a break.
MS. RIBCO: I'm about to finish, a few more
questions.
PRESIDENT SACHS: Okay, fine, please finish.
BY MS. RIBCO:
Q. I wanted just to go back to the cover page
to establish, to show that this is, in fact, the cover
[Page 1334]
page where the Royal Property Group is advertising a
community--right?--do you see that in the cover page?
So, "UNA COMUNIDAD PLANEADA POR ROYAL PROPERTY GROUP."
Is that what you see there? I think we lost you--
A. (Mr. Dickinson) I'm sorry, I had it on mute.
Yeah, I mean, what I read there is that a
community was planned by the Royal Property Group
Medellín Colombia, 450 Heights, Medellín. And it
looks like an architectural rendering.
Q. Then if we go to Page 4 of the same
brochure, and it's important data, datos importantes,
of the Project, we see that there was supposed to be a
"guardería," which means "daycare" in Spanish,
correct?
A. (Mr. Dickinson) A guardería, which means--
where is that, where do you see that?
Q. So, you see a daycare, like the proposed
product, we include a daycare.
A. (Mr. Dickinson) Okay.
Q. And then if we go to Page 47 of this same
brochure, you see that the Project was supposed to
include as well an area for kids and pets, correct?
[Page 1335]
Is that what you see?
A. (Mr. Dickinson) Yeah, I see that there.
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Q. Thank you. Thank you, Mr. President. No
further questions.
PRESIDENT SACHS: Very good. Thank you.
[Page 1337]
Will there be redirect?
(Pause.)
MS. RITWIK: Just two questions. One for
Mr. Dickinson, please.
REDIRECT EXAMINATION
BY MS. RITWIK:
Q. Mr. Dickinson, are you aware that The
Charlee was also advertised in publications such as
The New York Times, Condé Nast, Vogue Travel? Are you
aware of publicity--of that sort of publicity of The
Charlee Hotel?
A. (Mr. Dickinson) Yeah, I have been made aware
of that in connection with this particular case.
Q. And this is a question for Mr. Ruiz. Are
you aware of the sales velocity of the Meritage
Project?
A. (Mr. Ruiz) I believe I saw some numbers in
one of the reports, but I haven't.
Q. How would you characterize it? Was it high,
low?
A. (Mr. Ruiz) What I saw was consistent with
all the comparable projects we found near it. One
[Page 1338]
comes to mind, we did our valuation in 2019, and by
then another high-end luxury project had been launched
just a mile south of the Meritage, and it was selling
at a very fast pace. I can't remember the number, but
it was--all of them had a pace of above 10 units per
month.
Q. And was the historical sales of the Meritage
Project the ones that were already sold in Phases 1
and 6, would you characterize that as high, low--
A. (Mr. Ruiz) If you give me--
(Overlapping speakers.)
MS. RIBCO: Sorry, Mr. President, I don't
think I asked any question about speed of sale of the
Meritage.
MS. RITWIK: I'm just trying to
understand--I can be a little bit clearer in my
question, I think.
BY MS. RITWIK:
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PRESIDENT SACHS: We have no further
questions. Thank you, Mr. Ruiz. Thank you,
Mr. Dickinson. We will now have our morning break of
15 minutes, meaning that we would resume at 11:15,
please.
THE WITNESS: (Mr. Dickinson) Thank you, and
bye-bye.
(Witnesses step down.)
(Recess.)
DAVID ANDRÉS GARCÍA JOYA and CHRIS G. MAUGERI,
RESPONDENT'S WITNESSES WITNESS, CALLED
PRESIDENT SACHS: Alright, we're going to
resume.
Good morning, gentlemen.
THE WITNESS: (Mr. Maugeri) Good morning.
THE WITNESS: (Mr. García) Good morning.
PRESIDENT SACHS: To my left is Mr.
García Joya, is that correct?
[Page 1341]
THE WITNESS: (Mr. García) Yes.
PRESIDENT SACHS: And you are Mr. Maugeri?
THE WITNESS: (Mr. Maugeri) Yes.
PRESIDENT SACHS: Thank you very much.
Please read for the record the Declaration that is
before you.
THE WITNESS: (Mr. Maugeri) I solemnly
declare upon my honor and conscience that my statement
will be in accordance with my sincere belief.
THE WITNESS: (Mr. García) I solemnly
declare upon my honor and conscience that my statement
will be in accordance with my sincere belief.
PRESIDENT SACHS: Thank you very much.
We now invite you to give us your
presentation.
DIRECT PRESENTATION
THE WITNESS: (Mr. Maugeri) Thank you. Good
morning, Mr. President and Members of the Tribunal.
It is -We thank you for the opportunity to present
today.
Just a quick introduction. My name is Chris
Maugeri. I am the Senior Managing Director of
[Page 1342]
Valuation and Advisory Services for CBRE in Latin
America. I have a Master's in valuation from Canada.
I am also a certified member of the Royal Institute of
Chartered Surveyors.
Our group value is approximately $40 billion
in real estate in Latin America per year with a number
of--several different property types, including those
subject to this Hearing.
We've actually valued quite a few of the
hotels that were presented in the JLL report and that
are clearly not comparable to the projects proposed in
this, but I will pass on to my partner and colleague,
David García, to present himself.
THE WITNESS: (Mr. García) (Interpreted from
Spanish) I speak English, but I feel more comfortable
doing this presentation in Spanish. So, we will have
two languages. We are going to be passing the floor
between us.
And now referring to my experience, I am an
economist. I have a Master's degree in finance. I am
a specialist in risk economics. I am also a certified
appraiser certified by the Colombian Authorities. I
[Page 1343]
have experience in appraisals. I have worked almost
14 years in various roles in the real-estate market,
including on market research in--with various
institutions. Over the last six years, I have been
working with CBRE as part of the team of valuation and
advisory, and now I am leading the division, the
valuation and advisory division. I have experience in
the valuation of various real estate properties
including some of the ones mentioned in this case as
well as others that are not mentioned here.
So, now I am going to give the floor to my
colleague.
THE WITNESS: (Mr. Maugeri) Thank you,
David. Just before we get into the methodology, and as
a reminder, and I think you understand what our
instruction was, but we were instructed by GBS
Disputes to analyze various of the assumptions of
BRG's that were used in the report to come up with a
calculation on damages. These include prices, costs,
profitability or developer's profitability,
construction costs, and discount rates as well, as
well as speed of sales.
[Page 1344]
So, in terms of methodology, as we
mentioned, we really focused on different areas, and
I'll describe those below, but we did use the highly
recognized residential real estate database by
Coordenada Urbana by CAMACOL. We'll describe briefly
those differences between what was used by JLL.
And we relied on surveys with very active
developers that related to relevant projects and
similar projects comparable to that, those being
discussed in this Hearing.
Just as a note, surveys are--that monitor
specifically investor developer expectations related
to Discount Rates are heavily relied upon by valuation
experts and analysts when coming up with a DCF
Valuation Model.
In the table below, you can see our
assumptions, the ones analyzed, and I will describe
who focused on those. The first assumption relating
to pricing and speeds of sales. My colleague, David
García, focused on this area within our Report, and
the data that was used principally was Coordenada
Urbana by CAMACOL, as was mentioned previously.
[Page 1345]
I did focus on the section of construction
costs, which is related again, data sources we used,
active surveys with developers, very, very--with a lot
of presence in the market. We reviewed actual
construction budgets. We did use DANE, which was
mentioned in JLL as well, for the construction costs
in Cartagena in particular. We used a construction
cost magazine known as Construdata, and we did for
some benchmarks related to the hotel, FF&E.
Specifically we used HVS.
Related to Discount Rates, we used surveys,
again, with active developers, which is very relevant,
and we did rely on an investor survey by a very
reputable local valuation firm, Logan Valuation.
With that, I will pass it on to my
colleague, David, to describe our conclusions related
to sales pricing.
THE WITNESS: (Mr. García) From this point,
we are going to move on to the assumptions that we
have been analyzing the prices, construction costs,
and profitability, potential profitability of the
projects.
[Page 1346]
Here, you have a table that is not
completely referenced in our report. We just wanted
to summarize it so you can see what we saw, and, from
there, what we included in our initial report.
We referred directly to the models that were
being referenced with all of the information. We
carried out a review of what was included in the BRG
report, and we also compared that against what we
could see in the market.
I should introduce a caveat here. We saw
some possible reference to what could possibly be in
those locations, but since we couldn't compare that to
the actual situation, we just went to the broad
market. When we were looking at those prices, we
analyzed first which could be a comparison parameter.
One is the price, of course. We had to segment the
sample based on available price to be able to conduct
the analysis, and something very specific in Colombia
that you have heard before: in Colombia, we also break
down housing based on stratum classification; and
Stratum 5 to 6, that is the highest you can have, is
ranked or defined as "luxury housing."
[Page 1347]
So, what we could see in our sample, in
general terms and also looking at the markets where we
had these projects that we were asked to appraise, we
saw what we had there, and what we found is that there
were some segments in which there was no market; for
example, in the case of Guatapé, there was no active
market, and it doesn't mean that that type of real
property did not exist; rather, the tradition in the
market is just more self-construction. Usually, the
person has its own lot, and it develops it based on
its own taste or needs, and normally there is no
active market with this type of asset, or a first
market that has this type of asset which is very
active.
So, what we saw from the sample is that what
we saw based on square meter, and here this is to have
the clarity that we used the square meter measurement,
which was significantly lower to what we could find in
the market that we are analyzing. We did this for
all. In the case of 450 Heights, the difference was
there was no such a big difference between the market
and the sample, but we did find a difference for the
[Page 1348]
other projects. This is just a reference and also,
based on the information, it is not common in the
market to have hotels or aparthotels for sale. There
are some initiatives and projects, but it is not quite
usual. Let's say, it is not the typical product that
you would find in Antioquia.
The few we have there, are in Medellín.
They are in the metropolitan area of Medellín, and the
price reference we were able to find at that point in
time, we saw the information between 2015 and 2017
because that was the instruction we had; and so, we
had a price range of 6.2 million pesos. To the left
you see the information I am sharing with you so that
it is on the record.
Now, when we are referring to other
determinants, as my colleague just explained, we
verified the databases and also because of the type of
information being requested, because of the type of
request, a lot of this information is not publicly
available, there is no reliable database that is open
to all or at least that can be opened to all of the
players that would include all of the indicators. So
[Page 1349]
we asked these individuals directly and subject to
confidentiality, taking advantage of the trust
relationship that we have with them and without
telling that we were working on a case so that we
wouldn't taint their answers and that they wouldn't be
biased or had some sort of feelings against it.
So, what we found is that all of those who
answered recognized the Charlee hotel as a successful
one; they do recognize it as such, as it is in an area
with high flow of people, with a good presence of
persons. It is not recognized as a luxury brand, and
this is what we found, this in the sample.
And seeing that connotation and what we were
able to see from the numbers we looked at is that many
of the prices seen in those models and the sales
projections were very optimistic. It was an
optimistic perspective in which a normal investor
might normally take a position at the high-end, not in
the middle end as in any normal analysis.
Also, talking about the connotation of
Parque Lleras, as we saw in the previous presentation,
as it's a very active area in terms of the nightlife.
[Page 1350]
It has bars, restaurants. The rooftop is recognized
among the youth.
So, what we see in terms of the project,
what we saw from the interviews, is that it's more
targeted more to adult leisure rather than family-
oriented.
And one of the components in our reading of
a luxury brand is that it also includes this family
component, so that families would find a natural niche
in visiting such hotels. We don't see the link
between the recognition of the brand, which is
recognized as successful, but it has more to do with
adult entertainment, without small children at least,
not really a family orientation.
And I now give the floor to Chris.
THE WITNESS: (Mr. Maugeri) Construction
costs, I won't spend too much on this slide. We,
based on our conclusions, again we provided the data
sources, and the segments that -of the--that we
focused on which were stratified and above. Our
costs--or our evidence really discloses that we're
generally in line with the direct costs on the
[Page 1351]
residential components, so I will pass the word back
on to David.
THE WITNESS: (Mr. García) Now, this part of
our study, came mainly from the survey that we
conducted. This is that kind of information that we
were mentioning initially that is not typically public
information. You have to have some market expertise
in order to be able to find this information.
Here, we did not rely on Coordenada Urbana,
which was our source of information. Now I should say
something about Coordenada Urbana, to establish its
significance and why we used surveys at some point in
time and why we used Coordenada Urbana at other times.
Coordenada Urbana, the owner behind it is
the Colombian Chamber of Construction. That is the
association of construction companies in Colombia. It
has a 65-year history. It is very well-recognized in
the market. All of the members of the Board of
Directors of this Chamber of Commerce for construction
are well-recognized in the market, they have
wide-ranging experience. Part of the relevance of the
source as such is that CAMACOL, as it is also known,
[Page 1352]
is part of the national statistics system.
This means that the National Government of
Colombia uses the information from CAMACOL to make
housing policy decisions.
When we were analyzing what type of
information we might get, well, we know about the
importance of La Galería Inmobiliaria. It is not that
we didn't have access to the database or that we did
not know about it. Simply, CAMACOL which is the owner
of Coordenada Urbana, has a very important
institutional presence. It's used by many banks, and
insurance and financial companies in Colombia for
their own decision-making. And in our view, these
institutions carry out very realistic analyses of
projects because when you're undertaking an analysis
of financing for a given project, you have to be very
careful with your projections because you really need
to consider the risk. I'm not saying that this
invalidates any other source of information, but I am
explaining why we went with Coordenada Urbana.
And in the case of the return for the
developers--what we asked was looking at things with a
[Page 1353]
2017 perspective, pre-pandemic, well, let's take away
the effect of COVID, in areas around Medellín, looking
at a second home in Cartagena and also in Medellín,
and please look as well at the sub-market in Bogotá's
Savanah, which is the most natural market for this
type of housing, given the socioeconomic level that
prevails in Bogotá.
So, what would be a reasonable return that
they could expect for their project? What we found
was a sample ranging between 10 and 18 percent, based
on the answers and performing a normal statistical
study of the sample, and also the opinions of those
who answered. They were saying: most likely, we would
expect between 12 and 15 percent. That's what we
found for the expected rate of return for a developer
of a project such as this.
And I give the floor to Chris.
THE WITNESS: (Mr. Maugeri) Thank you,
David. Discount Rates are an extremely important part
of any DCF Model, of course. The highest risk segment
in real estate is speculative developments for sale,
so we would expect obviously discount rates
[Page 1354]
significantly higher than your standard real-estate
projects.
Our findings based on our interviews, and
again we focused on the higher-end segment, we mention
here over COP800 million, which is broadly speaking
about $265,000 and above per unit. Our respondents,
we do have 11 indications on this chart, but the
actual number of respondents is larger, given that we
incorporated the Logan Investment Report as well into
our findings. So, we generally have a range between
13.2 and 31.3 from our findings, from our respondents,
eliminating the higher end and the lower end of the
spectrum, we're generally in a range between 18 and
25 percent.
It's important to know BRG used a post-tax
Discount Rate of 7.7 percent. We did adjust that,
given that our Discount Rates are unlevered and
pre-tax, so we did adjust--make that adjustment, and
that brings up the BRG equivalent Discount Rate to
13 percent.
So, this is clearly low, on the low end,
given the range between 18 and 25 percent. It is
[Page 1355]
generally more realistic based on our findings.
I will pass on the word back to David.
THE WITNESS: (Mr. García) Here, we'd like
to mention our estimate of--well, what we found in the
market, and based on our conversations with the most
active participants, about the speed of sales and what
could be defined as a typical project in the high-end
segment in those markets that we analyzed.
So, we wanted to say something about that.
We relied on two sources: Coordenada Urbana as the
source that is most complete in terms of the history,
because we undertook an analysis over the months using
that database; but we also in the survey, we included
some questions related to this indicator to get a more
clear idea of what an investor might be expecting from
a project such as these.
Now, in those questions, when, first of all,
we acknowledge that projects have their moments, there
is a pre-sales phase which is based on the blueprints;
and another phase, once the equilibrium point is
reached and until the project is finalized. It is
recognized that during the initial stages, there is a
[Page 1356]
much higher level of sales, and why is that? There is
something in the market which is known as "List Zero."
This List Zero, which is used by many developers, is
to invite the most recurrent clients, friends, family
members or other investors who are very close to them
to come forward and buy units. And at that point in
time, certainly there will be a greater level of
sales, normally, than in subsequent months.
But once we look at the historical,
long-term historical data--and here recognizing that
projects or really any asset in the economy have ups
and downs, so we wanted to remove that effect that you
get when you only look at the sales and instead we
noticed that one month there may be sales and another
month there may not be any sales, and that is how you
cover the full spectrum.
What we were able to observe is that
Guatapé, for the reasons mentioned earlier, has a low
inventory. There may be times when the sales are above
the long-term averages, and this is because of the
very--of the characteristics of the market.
Now, let's see if one makes an adjustment
[Page 1357]
for that. It makes much more sense to talk about 0.5
to 1.5 units per months, and this could yield two
units per months, which is a scenario resulting if we
go a little bit beyond the average.
Now, analyzing the assumptions in the data
that we obtained, we know that the Meritage at Phase 1
had record sales; we were able to verify this, at
least, in the data we were given. It was close to 4
units per month over 39 months. It's a good
indicator, but when one goes to see the history, in
general, and here what we're replicating is the
analysis of a typical and normal investor, not one who
would be, say, an adventurer--well, that's not the
word, but one who might be a little bit more daring,
say, than the average in the industry would have to be
a little more conservative thinking about how there
will be some moments when there will not be a good
level of sales but rather sales will be lower.
And what we can do in comparing with the
projections of the other models is, first, they were
much more optimistic in almost every scenario in
relation to the Meritage, a project which did have
[Page 1358]
1 confirmed sales at a certain level. In the case of
2 450 Heights, in Phase 1, they had an average of 14
3 units per month, which is more than three times what
4 was observed at the Meritage. It then became more
5 conservative downwards as the phases went forward, but
6 it's much higher than what's seen at the Meritage.
7 And when you trace the market, we're talking
8 about the high-end of the market in a country where
9 one must represent there is major income inequality,
10 there are some families with money, but it's a very
11 small percentage of the population. And so, as a
12 result, the size of potential demand is much less.
13 What one might expect as a response to demand is that
14 it would have to be a bit lower because of the
15 availability and the -profile of the project that's
16 being offered.
17 This happens systematically for all the
18 cities. In the case of Guatapé, the difference is a
19 bit less, but in the other projects what we're seeing
20 is that they were beyond what the long-term average
21 for the segment in that city was suggesting.
22 And here, I want to say one more thing,
[Page 1359]
1 sorry. Part of the request that was put to us by our
2 clients was, well, they said, please go to the market
3 and try to trace those assumptions that we made.
4 One method we used, as I already mentioned,
5 were the surveys, and here we went to the market, we
6 asked the question to one of the developers who is
7 very active in the area and who has a highly
8 successful project. I should mention that he was so
9 open to tell us his real figures because we ensured we
10 would keep his identity confidential. This is not
11 something that you would necessarily see in a market
12 report because it's strategic business information.
13 What we were able to get was that pricing at
14 the time that the project was launched to the market
15 did go up, but around 2017, it was about 4.4 million
16 pesos which is a much lower price than what was
17 defined in BRG's model.
18 When one looks at sales in the first year of
19 the launch after the hype of the--List Zero and sales
20 go back to normal level, the real average was two
21 units sold per month. And once that was analyzed with
22 a two-year perspective, the average of sales that they
[Page 1360]
1 might expect to see was actually 1.4 units per month.
2 The expected Rate of Return of that project,
3 well, effective, because in this case ze refer to
4 figures that were shared with us, was about
5 14 percent.
6 [Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Redacted]
[Page 1361]
[Redacted]
[Redacted]
[Redacted]
4 (Overlapping interpretation with speaker.)
5 THE WITNESS: (Mr. Maugeri) Great, thank
6 you, David. So, just based on all of that analysis and
7 based on our independent expert opinion, we concluded
8 pretty much three major items here.
9 BRG really assumes the developer's profit,
10 specifically for the Meritage and Tierra Bomba
11 projects, that are materially higher than what would
12 be expected in the market, and we also conclude that
13 what's driving the high profit margins are really
14 related to optimistic assumptions on prices.
15 The second conclusion is that BRG assumes a
16 Discount Rate for the Claimants' real estate
17 activities, which is materially lower than the
18 Discount Rates used by developers of high-end real
19 estate projects in Colombia.
20 And, thirdly, BRG does assume that the
21 Claimants' real estate could sell at a materially
22 faster rate than what is expected within the Colombian
[Page 1362]
1 market.
2 Thank you. That is our presentation, and we
3 are opening it up for questions.
4 PRESIDENT SACHS: Thank you, gentlemen.
5 Who would be in charge of cross-examination?
6 Ms. Ritwik?
7 MS. RITWIK: Yes, that'll be me.
8 PRESIDENT SACHS: Okay.
9 MS. RITWIK: Thank you.
10 CROSS-EXAMINATION
11 BY MS. RITWIK:
12 Q. Good morning. I think it's still the
13 morning, yes. Good morning, Mr. García--it's
14 Mr. García or Mr. Joya?
15 A. (Mr. García) García Joya.
16 Q. Okay, Mr. García Joya and Mr. Maugeri.
17 A. (Mr. Maugeri) Good morning.
18 Q. Thank you for being here. I'll just be
19 asking you a few questions about your Report today.
20 Before we begin, it was not quite clear to
21 me which of you were in charge of which sections of
22 the Report. So, I was hoping that we could start with
[Page 1363]
1 clarifying that. Maybe we could start with you,
2 Mr. Maugeri?
3 A. (Mr. Maugeri) Sure. As I did mention at the
4 beginning of the presentation, we did--David focused
5 on the pricing and speed-of-sales assumptions. I
6 focused on the construction costs as well as Discount
7 Rates, and finally, David did focus more on the
8 developer's profitability.
9 Q. Okay. Fantastic. Thank you for that.
10 I think you probably already know that
11 since you were sitting in during JLL's testimony, but
12 the Tribunal has asked that when I do ask the
13 question, since there are two of you, only one of you
14 answer and the other one refrain from supplementing at
15 that time.
16 So, let's proceed.
17 I'd like to go to Page 4 of your Report.
18 So, here, you have listed the instructions
19 that you were provided by GBS. Are these the entirety
20 of the instructions that you were provided with?
21 A. (Mr. Maugeri) Yes, this is correct.
22 Q. Okay. So, here it says you were asked to
[Page 1364]
1 provide certain estimates related to the real estate
2 elements of Claimants' projects, is that right?
3 A. (Mr. Maugeri) This is correct.
4 Q. So, you were asked to provide prices, cost,
5 profitability, Discount rates, speed-of-sales all for
6 real estate units and real estate elements?
7 A. (Mr. Maugeri) This is correct.
8 Q. You were not asked to provide any data on
9 the hospitality or the hotel aspects of Claimants'
10 businesses?
11 A. (Mr. Maugeri) This is correct.
12 Q. Okay.
13 REALTIME STENOGRAPHER: Keep your voice up,
14 please. Talk louder.
15 THE WITNESS: (Mr. Maugeri) Okay.
16 BY MS. RITWIK:
17 Q. Now, let's move on to Pages 52 to 53 of your
18 Report. These are all the materials that you relied
19 on, yes?
20 A. (Mr. García) Yes.
21 Q. And so, there are four case documents that
22 you relied on up there, Number 1 to 4?
[Page 1365]
1 A. (Mr. García) Yes.
2 Q. Yes. And you submitted 18 exhibits
3 consisting of analysis, files and articles that you
4 also relied on. These are the 18 over here?
5 A. (Mr. García) Yes.
6 Q. Okay. I don't see the JLL Reports here.
7 Were you asked not to review them?
8 A. (Mr. García) We did review them. But we
9 focused more on the BRG models that mentioned data
10 used by JLL.
11 Q. So, you reviewed them, but you didn't list
12 them in the materials relied upon because, presumably,
13 you did not rely upon them or you did not assess them
14 in any great detail?
15 A. (Mr. García) No. Quite simply because we
16 focused more on the models that we indicate there in
17 our Report.
18 Q. I understand.
19 A. (Mr. García) Which had JLL information. But
20 our focus was the BRG model.
21 Q. Understood. Understood, Mr. García. Thank
22 you for that clarification.
[Page 1366]
1 Now, I think you discussed both in your
2 presentation as well as in your Report, that you
3 conducted a survey on which you relied for a number of
4 the estimates that you have provided. Do you recall
5 talking about that?
6 A. (Mr. García) And what do you want to know
7 about that survey?
8 Q. I just wanted to--my question was just do
9 you remember talking about that? Yes?
10 A. (Mr. García) Okay, okay.
11 Q. Now, let's move to Page 10 of your First
12 Report.
13 So, I'm trying to look quite a bit in your
14 Report and in the sources that you provided, and this
15 was about the best description of the survey that I
16 could find.
17 Is this--are these the Respondents that you
18 surveyed? These are all of the Respondents that you
19 asked the questions off of?
20 A. (Mr. García) Yes.
21 Q. Now, not on this page nor in the rest of the
22 document did I see a methodology provided of the
[Page 1367]
1 survey. Did I miss that, perhaps?
2 A. (Mr. García) When I mentioned each of the
3 datum extracted from the survey, there was the
4 question asked and the answers obtained. And that can
5 be shown there, and if someone is familiar with the
6 Colombian market, well, several of these developers
7 are important, they're important in the markets being
8 analyzed for this case.
9 (Pause.)
10 A. (Mr. García) And they have a major
11 institutional presence.
12 This survey, or the samples that we were
13 able to collect, the only thing it shows is that there
14 are market actors who are relevant, and whose views
15 are important when it comes to answering the questions
16 that we're asking.
17 Q. Understood.
18 So--sorry, my echo is bothering me when I
19 have the headphones on--but I think what I surmised
20 from your response was that it's important to get the
21 participants right, correct? To have a good survey.
22 (Pause.)
[Page 1368]
1 A. (Mr. García) Yes.
2 Q. Okay. And so, apart from the participants,
3 do you think it's also important to have a consistent
4 methodology when you're performing a survey for, say,
5 things like the exact question asked, the person who's
6 asking those questions, how those questions are
7 responded to either by writing or by phone, where
8 those questions are written down, how they're
9 collated. Are those kinds of aspects of a survey
10 methodology also important, in your opinion?
11 A. (Mr. García) They are descriptive.
12 Q. I haven't seen anywhere in your Report,
13 though, you describing these aspects of the
14 methodology. You don't list them in your Report
15 anywhere, do you?
16 A. (Mr. García) Not explicitly, but that does
17 not invalidate the results or those who provided the
18 answers.
19 Q. Understood. Understood, Mr. García.
20 So, my understanding is that you recorded
21 all of the responses that you got in this survey in
22 one of the spreadsheets that you submitted with your
[Page 1369]
1 Report, is that correct?
2 A. (Mr. García) In those in which it was
3 possible to actually get an answer, yes. Were that was
4 not possible, it simply was not included.
5 Q. And did you attempt to verify the data that
6 you received from the survey response?
7 A. (Mr. García) That depended on the type of
8 question. Not all of the Respondents answered all of
9 the questions. This is because we are dealing with
10 very confidential information, so some of them decided
11 that they didn't want to respond, and that's what they
12 did.
13 So, what answers we got, we included.
14 Q. My question was: Did you try to verify
15 them? Did you ask for the underlying data to verify
16 them?
17 A. (Mr. García) I didn't really understand your
18 question.
19 Q. So, say that you asked a survey Respondent
20 for their profit margins. Did you then ask for the
21 underlying data, their accounting, their records, to
22 verify that that was, in fact, their profit margin?
[Page 1370]
1 A. (Mr. García) Sometimes we did. Sometimes it
2 wasn't necessary because this is something that the
3 market normally knows. This is direct information, so
4 they simply answered on the basis of the question that
5 was posed to them.
6 So, it wasn't really necessary to look at
7 their financial statements, because all of these
8 individuals were leaders, and they knew about the
9 market, and they had that information at hand and top
10 of mind. They simply answered.
11 And what we were trying to do here is to
12 find the reasonableness for the profitability that an
13 investor of those characteristics could have in this
14 market. This is what we asked.
15 And the responses we obtained.
16 Q. Okay. So, I think you said "no," so the
17 answer to my question is "no", is that right? You did
18 not ask for the underlying data. You took their word
19 for it?
20 A. (Mr. García) Yes.
21 Q. Okay. So, let's go to the spreadsheet where
22 you did note down all of the information that was
[Page 1371]
1 provided to you. Is that CBRE-09? It's not in the
2 binder. It was not printable, so we'll have to see it
3 on the screen. I apologize for that.
4 So, is this the raw data that you used to
5 draft the Report?
6 A. (Mr. García) Yes.
7 Q. Okay. Let's go to the tab that says
8 "Interviews Database Respondent." This is the list of
9 Respondents, yes?
10 A. (Mr. García) Yes.
11 Q. Now, if Mr. Schimper can perhaps highlight
12 Rows 3 from 23. All the way down. That's okay.
13 There are about 21 Respondents here, isn't
14 that right?
15 A. (Mr. García) Yes.
16 Q. A couple of them appear to be double
17 counted. So, for example, I see [Redacted]
18 over here.
19 A. (Mr. García) Yes, I think that's a typo. We
20 said there were 18. I think that's a typo.
21 Apologies.
22 Q. So, there were only 18 Respondents, not 21?
[Page 1372]
1 A. (Mr. García) That's right.
2 Q. Okay. Let's go to Page 10 of your First
3 Report. The first Respondent here is [Redacted].
4 Let's go back to the spreadsheet. I've
5 tried hard, but I don't see [Redacted] here.
6 A. (Mr. García) That's true. It's not there.
7 Q. Let's go back to your Report, Page 10. I
8 see [Redacted]. Do you see that?
9 It's the right most column at the top. Um-hmm.
10 A. (Mr. García) I do.
11 Q. Thank you. You'll have to answer "yes" or
12 "no" for the record. Thank you for that.
13 Let's go back to the spreadsheet, thank you.
14 I don't see [Redacted] here either.
15 A. (Mr. García) We didn't really cross the
16 information of [Redacted] with the information from the
17 residential side because they only have experience in
18 hotels. We were asked not to include hotel sectors,
19 so that is why we only stated that we spoke to them,
20 but did not include them in the sample. None of those
21 answers have that component.
22 Q. Okay. So, which was your list of
[Page 1373]
1 Respondents, Mr. García? The one in the spreadsheet?
2 The one in the Report? Something else entirely?
3 A. (Mr. García) The one in the Report.
4 Q. But you just told me that you didn't reach
5 out to [Redacted], and [Redacted] is not listed in this
6 spreadsheet, but did you talk to [Redacted]. I'm just a
7 little confused about exactly what happened.
8 A. (Mr. García) What happened there is that
9 there was an error in the description. We wrote the
10 interview twice and we did not include [Redacted]. We
11 did talk to [Redacted], but that was a transcription error.
12 My apologies.
13 Q. Okay. Understood.
14 Let's move to the next tab, which is
15 "Interviews Database Questions."
16 So, here, Mr. Schimper, if I could ask you
17 to go to the left. Yeah. Thanks.
18 So, here you've listed the answers that were
19 provided to you from the survey questions; yes?
20 A. (Mr. García) Yes.
21 Q. There are a lot of blanks here, so it looks
22 like a lot of the Respondents just didn't answer a
[Page 1374]
1 bunch of questions, is that right?
2 A. (Mr. García) Yes. Some of these Respondents
3 did not provide an answer because our surveys were --
4 mostly focused on profitability. We took advantage of
5 this survey to ask other questions because we had the
6 basis of Coordenada Urbana to cover those aspects, but
7 the focus of the surveys, as we mentioned in our
8 presentation, was specifically the profitability.
9 Q. I understand.
10 A. (Mr. García) And I'd like to add that we are
11 transparent in connection with all of the information
12 that we obtained, and we included all of that
13 information in the document so that you and the
14 Members of the Tribunal could have access to whatever
15 it was that we saw, and that is why we included
16 everything.
17 Now, if this made the reading more
18 complicated, I apologize. But, as we stated in our
19 presentation, the interviews were more focused on
20 profitability, as it is a variable that you cannot
21 find freely in the market.
22 Q. The interviews were focused on
[Page 1375]
1 profitability?
2 A. (Mr. García) Yes, and on Discount Rates.
3 Q. Okay. Let's move to the right of the
4 spreadsheet.
5 Column L is "IR high-end hotel." If we
6 scroll down, I see only two responses. You can keep
7 scrolling down just to make sure that everyone sees
8 it.
9 Do you think that was a sufficient number of
10 responses?
11 A. (Mr. García) In the Discount Rates that we
12 were referencing in our written report, no mention was
13 made of hotels. That is why the reference there has
14 to do with a competitor's survey that had that
15 information, and we included it there only as a
16 reference. But as you can see on "K", we have a
17 larger amount of data. We know that the more data,
18 the greater the representivity, and so what we did in
19 our report is we focused on the relevant information.
20 As I said before, we want to be completely transparent
21 with the information that we had access to, and,
22 therefore, we submitted everything but our expert
[Page 1376]
1 analysis is focused on the information included in the
2 Report.
3 Q. Okay, Mr. García. Let me take you to the
4 14th row of the spreadsheet. This is an unnamed
5 Respondent, like all of your Respondents are, and
6 there is absolutely no data presented for this
7 Respondent at all, not a single piece.
8 Is this another error?
9 A. (Mr. García) No, what happened is that we
10 held a conversation, and this Respondent asked us not
11 to include the data he had provided; so, therefore, we
12 could not include that information.
13 And we haven't even taken into account in
14 our analysis because, for this project, we were asked
15 by the respondent not to include that information. We
16 respected the instructions and simply did not include
17 it.
18 Q. Is that something you would have put in your
19 "Notes" column? You have a notes column on this
20 spreadsheet, right?
21 Can you scroll all the way up.
22 A. (Mr. García) Possibly, it was necessary to
[Page 1377]
1 include that information in the "Notes" column. I
2 agree with you.
3 Q. Okay. So, there were a few oversights while
4 you were preparing the spreadsheet that served as the
5 main source for a number of your estimates, correct?
6 A. (Mr. García) Could you please repeat the
7 question?
8 Q. I was just commenting on the fact it looked
9 like there were a couple of errors and oversights,
10 maybe minor typos and things like that in this
11 spreadsheet that served as the source for your Report.
12 A. (Mr. García) Possibly. However, they were
13 involuntary. If there was an error, it was not
14 voluntary.
15 Q. Absolutely, that makes sense. How long did
16 you have to prepare your Report?
17 A. (Mr. García) About a month-and-a-half. Just
18 about a month, a month-and-a-half.
19 Q. Okay. Let's go to your Report Page 37.
20 Now, this is a bar graph where you provide
21 the sales absorption by city, correct?
22 A. (Mr. García) Correct.
[Page 1378]
1 Q. And the only source you cite here is
2 CBRE-09?
3 A. (Mr. García) Correct.
4 Q. That was the spreadsheet we were just
5 looking at, right?
6 A. (Mr. García) Correct.
7 Q. Let's go back to that spreadsheet. Could
8 you please scroll all the way and then up. Thank you.
9 Now, there are two columns here that set out
10 the sales absorption which is the Units sold per
11 month. There is a minimum in Column E and a maximum
12 in Column F.
13 Do you see that?
14 A. (Mr. García) I do.
15 Q. Let's go to the third row down, which is a
16 merged cell, and it's for Medellín.
17 Do you see the sales absorption figures that
18 you have listed there? There is 4 and 15 and 5 and 15
19 and the minimum and maximum columns respectively?
20 A. (Mr. García) I do see that.
21 Q. Okay. And if we scroll down further, we see
22 that Medellín has 2 and 3 in Row 10 and 3 and 5 in
[Page 1379]
1 Row 12, is that correct?
2 A. (Mr. García) Agreed.
3 Q. And then we go all the way down to Row 24,
4 and we see 1.4 and 2 for the minimum and maximum,
5 respectively.
6 Do you see that?
7 A. (Mr. García) I do see that.
8 Q. Let's go back to your Report Page 37.
9 The sales absorption figure here is 1.4
10 reported.
11 A. (Mr. García) Agreed.
12 Q. That was the minimum sales absorption figure
13 that was provided to you in the surveys?
14 A. (Mr. García) I would like to mention
15 something here. As the title here indicates, this was
16 done on a personal basis and on the basis of what we
17 got from the survey as to the most relevant projects.
18 The most relevant project--and I understand the point
19 raised about the minimum, the smallest number, because
20 that is the definition of something that is the
21 minimum of something else, but in this case, we need
22 to mention that we were looking at the average of
[Page 1380]
1 long-term sales.
2 So, the heading here perhaps may lead you to
3 think that the minimum was chosen in an ad hoc manner,
4 but here we were choosing the most relevant projects
5 among those for which we obtained answers from the
6 respondents.
7 So, from the answers from the respondents,
8 we looked at the expected sales level per month, and
9 then we also looked at the same sample on the basis of
10 the segmentation, and then we looked at the most
11 comparable piece of information, and then we chose the
12 ones that were the most representative. That is why
13 the data is there.
14 Q. Let me see if I can understand. Are you
15 saying that the source here is incorrectly listed? Is
16 it not CBRE-09 from where you selected this data?
17 A. (Mr. García) That's not what I said.
18 Q. So, it is CBRE-09, from where you got this
19 data?
20 A. (Mr. García) Yes.
21 Q. So, you're just saying that the most
22 relevant response provided to you just also happened
[Page 1381]
1 to be the lowest?
2 A. (Mr. García) No. That's not what I said.
3 What I'm saying here is that the sales
4 absorption is being shown of the most relevant
5 projects for that segment by city in accordance with
6 our sample. That is what I said.
7 Q. Okay, Mr. García, maybe others will
8 understand that better than I did.
9 Let's go back to the spreadsheet. Let's
10 look at Cartagena next.
11 So, if we go to Row 8, here the sales
12 absorption is 15 and 20 respectively.
13 Do you see that?
14 A. (Mr. García) I do. And I also see the
15 average price, and that is not the most relevant
16 project for that segment. So, this is not
17 representative.
18 We have to clarify that the highest
19 specifications segment is less liquid, fewer sales are
20 made, and on the basis of the data that we looked for,
21 we found this project, and here we're only looking at
22 the profitability that is more or less stable. This
[Page 1382]
1 is not the most relevant project to define that
2 sample. That is why we didn't include this in the
3 other table that we showed before.
4 Q. Understood, Mr. García. So, you're saying
5 this was not relevant. It just happened to have the
6 highest figures, but it's also not relevant, is that
7 what you're saying?
8 A. (Mr. García) Well, no. I'm saying that this
9 is not the most representative one. That's what I'm
10 saying. Regardless of the data, it is not the most
11 representative one. That's what I'm saying.
12 Q. Okay. So, the most representative one,
13 according to you, happens to be I believe the data
14 provided at Row 34 of 2?
15 A. (Mr. García) Yes.
16 Q. I don't see any other metrics that you were
17 talking about. I don't see the profitability or the
18 prices or anything else. How did you determine this
19 was the most relevant? I don't even see notes here.
20 A. It was the most relevant because of the
21 sales level. As I said, this was challenging in
22 connection with the sample we were able to collect.
[Page 1383]
1 Not all of the survey Respondents were able to provide
2 this information, but we included the information we
3 were able to obtain. This is not a census, it's just
4 a sample. And each one of the Respondents were free
5 to provide information. The only information that
6 they were able to give to us freely with respect to
7 that project was the sale data. This didn't happen in
8 all cases, just for this project. But this was not
9 the only source of data that we used.
10 Q. I guess I'm just a little bit confused as to
11 how you determined that this was the most relevant
12 when you don't list any other piece of data about this
13 survey example.
14 A. (Mr. García) The only thing we were showing
15 here was the speed of sales, and this is consistent
16 with that.
17 Q. The speed-of-sales data that you think is
18 most relevant, also the lowest, yes?
19 A. (Mr. García) Please repeat the question.
20 Q. That's okay. I don't think we need to keep
21 going on this.
22 Let's discuss some of your price estimates.
[Page 1384]
1 Now, you said you relied on CAMACOL as a
2 database, yes?
3 A. (Mr. García) Yes.
4 Q. And you extracted average prices from that
5 database, yes?
6 A. (Mr. García) Yes.
7 Q. For certain strata for each of the Projects.
8 A. (Mr. García) Yes.
9 Q. And there are 6 Strata?
10 A. (Mr. García) Yes.
11 Q. The higher the strata, the more luxurious,
12 the more exclusive the Project?
13 A. (Mr. García) Typically.
14 Q. And so, you chose Strata 5 and above for the
15 Claimants' projects? In general.
16 A. (Mr. García) Yes.
17 Q. Let's go to the Report at Page 17.
18 Have you seen any pictures of the Luxé
19 Project?
20 A. (Mr. García) Yes.
21 Q. Have you been there?
22 A. (Mr. García) I have passed by it, but I have
[Page 1385]
1 never stayed there.
2 Q. Would you describe it as a luxury project,
3 or at least a high-end project?
4 A. (Mr. García) At what point in time? Now?
5 Q. Let's say 2017, as it was supposed to be
6 developed, do you consider that it was going to be a
7 high-end project or a middle-tier project?
8 A. (Mr. García) High end.
9 Q. Now, here I see that for Luxé, you have
10 taken prices from CAMACOL for Strata 3 and above. For
11 the other projects you took prices from Strata 5 and
12 above. I'm just confused as to why that is.
13 A. (Mr. García) I can explain that to you.
14 In the case of Guatapé, there is no
15 consolidated market for Strata 5 and 6. That was not
16 the only filter that we used. We also used price as a
17 filter because there is a direct relationship between
18 the price of the housing and the place they occupy in
19 the strata. In the case of Guatapé, the information
20 that we could find on the database at that point in
21 time, could be filtered according to those criteria,
22 and the average that we found is the one shown on the
[Page 1386]
1 screen.
2 So, to define the analysis of the data, we
3 didn't only take into account the strata, but we also
4 used a segmentation criteria based on price. Here, we
5 used both to be able to truly define the amount of
6 data that we could analyze for this market at that
7 point in time.
8 Q. So, are you telling me that there was no
9 data for Strata 5 and 6 projects in the CAMACOL
10 database? In Guatapé?
11 A. Yes. The information was limited.
12 Q. Okay. Let's move on to the next page.
13 Here, too, you just used prices for Strata 3
14 and above, correct?
15 A. (Mr. García) Agreed.
16 Q. Oh, sorry, this is still the Luxé. Let's
17 move on to the next page.
18 Okay. Actually, let's go to CBRE-08. This
19 is the CAMACOL database? So, if we go to Column H, we
20 filter, this is the regions, right?
21 A. (Mr. García) True.
22 Q. And Guatapé is in Antioquia?
[Page 1387]
1 A. (Mr. García) That is correct.
2 Q. And the city is Guatapé? That's in Column
3 H, by the way. I'm sorry, J.
4 And then if we go to the right, I believe
5 it's estrato, estrata?
6 A. (Mr. García) That's correct. (overlapping
7 speakers)
8 Q. I see some Strata 5 projects there. Oh, I
9 was just saying that, I think it's Column U is strata,
10 and I think I see some Strata 5 projects here. Do you
11 see those two?
12 A. (Mr. García) I see them.
13 Q. So, there are some Strata 5 projects in the
14 CAMACOL database?
15 A. (Mr. García) Yes, but it could be that they
16 were not active in the time horizon that we studied.
17 That includes all of the information from Coordenada
18 Urbana for 2021 and before. We were asked to analyze
19 data for 2017, a very specific point in time.
20 Q. So, if you didn't find any comparable
21 projects in CAMACOL at that time, would it have been
22 reasonable to look at another database?
[Page 1388]
1 A. (Mr. García) Such as an example?
2 Q. For example, La Galería Inmobiliaria, which
3 is what JLL used?
4 A. (Mr. García) Yes. And we saw it.
5 Q. But you didn't report those figures here,
6 instead you went on to Strata 3.
7 A. Yes, and for a reason, a specific reason. A
8 strength that we saw in the CAMACOL database was its
9 coverage. The number of municipalities that we found
10 in Antioquia was much higher than the one we usually
11 found in La Galería Inmobiliaria. Since we wanted to
12 identify the Antioquia market in a more fulsome way
13 based on the information available, we chose
14 Coordenada Urbana as our main source of information.
15 Q. You chose it as your main source of
16 information because coverage was high, and yet you
17 were telling me that there were no comparable projects
18 for Strata 5 and above in Guatapé. That doesn't seem
19 consistent.
20 A. (Mr. García) No, I may not have expressed
21 myself properly. What I said is that there was not
22 much information for that stratum in Guatapé at that
[Page 1389]
1 point in time.
2 Q. At the point of time you were asked to
3 analyze.
4 A. (Mr. García) On the effective valuation date
5 or the effective analysis date, if you may.
6 Q. Okay. Let's move on. Your price estimates
7 for the Projects that you provided were for multi-
8 family, single-family, and the land, yes? That's what
9 you provided in your Report.
10 A. Correct.
11 Q. Now, I'm not a real estate expert, but I
12 have bought a house, and so just correct my
13 understanding if I'm wrong, but single-family
14 generally means houses, right? A single-family is
15 living in a unit by itself, yes?
16 A. (Mr. García) Correct.
17 Q. And multi-family is usually apartment
18 blocks, right?
19 A. (Mr. García) Yes.
20 Q. Let's go to Page 15.
21 Now, these are prices from CAMACOL for
22 Cartagena, right?
[Page 1390]
1 And we see here that the single-family
2 houses, which is that line in black, have prices that
3 are about half as much as the prices for multi-family
4 units, so your data was telling you that houses in
5 Cartagena cost on average less than apartments, almost
6 half as much. Did that seem odd to you when you saw
7 that?
8 A. (Mr. García) The reference is per square
9 meter.
10 Q. Understood, but houses are generally more
11 expensive on a per meter basis, per-meter squared
12 basis. Wouldn't you agree?
13 A. (Mr. García) Not necessarily.
14 Q. Okay. Let's go to Page 13. This is the
15 same data for Envigado, yes? And which is higher:
16 Single family or multi-family?
17 A. At this point in time in that market,
18 single-family homes, but I do not see the relationship
19 to the rest of the market.
20 Q. Okay. Let's go to Page 19.
21 This is the Crystal Lakes project. Yeah,
22 single-family homes are more expensive than
[Page 1391]
1 multi-family.
2 Do you see that?
3 A. (Mr. García) I see it.
4 Q. So, you're getting these results and also I
5 think on a common sense basis, we would assume that
6 houses would be more expensive than apartments. But,
7 when you saw these figures on Page 15 for Cartagena,
8 that didn't raise an eyebrow?
9 A. (Mr. García) I do not understand the
10 relationship. Could you please repeat your question?
11 Q. I'm just asking you that, when you saw the
12 data that you got on Cartagena, which is, I think,
13 Page 15. When you saw here that houses were almost
14 half as expensive as apartments, that didn't raise an
15 eyebrow, you didn't think that was odd, even though
16 you were getting contrary results for other parts of
17 the country for other projects?
18 A. (Mr. García) What I'm trying to say is that
19 this regularity you're asking me is not always the
20 case. There are some markets in which the multi-family
21 projects need to be more expensive because they have
22 more demand in the market, and the higher the demand,
[Page 1392]
1 the higher the price, and that is what we were able to
2 see in the database. It is highly related to the type
3 of market and the type of asset that is being offered.
4 Q. Did you look at the underlying data?
5 A. Sorry, I did not follow.
6 Q. Did you look at the underlying data? Did
7 you go and check out what each of the Units for each
8 of the Projects were to try to understand this
9 discrepancy? Or this odd result?
10 A. (Mr. García) Well, we reviewed that the
11 filtering of the information was consistent. It is
12 difficult to define what could have been the reality
13 of the Project visually, going back to 2017. At that
14 point in time, we had to rely on the data that we were
15 analyzing because it was a purely numerical analysis
16 in this case.
17 So what we did was to make sure that we
18 segmented based on the criteria which are correctly
19 defined therein, and based on that we estimated.
20 And I would like to offer some context, and
21 this is also important with the presentation that we
22 saw before. To be able to carry out an appraisal, you
[Page 1393]
1 have to conduct an inspection. We rely on what we can
2 actually see on-site, and that is the main source of
3 information and analysis that we may have since it is
4 the most objective fact.
5 In the case of the projects that we had to
6 review, and also looking objectively at what we could
7 see on-site, and since many of those are not
8 constructed, we need to look at the reference as the
9 most normal reference we can have in the market, and
10 that is the way we did it.
11 Q. Okay. Thank you, Mr. García.
12 Have you ever done a DCF for an undeveloped
13 project, Mr. Maugeri? Undeveloped, not in
14 development.
15 A. (Mr. Maugeri) Yes.
16 Q. Thank you. That will be all from us.
17 PRESIDENT SACHS: Thank you.
18 Will there be redirect?
19 REDIRECT EXAMINATION
20 BY MS. RIBCO:
21 Q. I had just a question I had anticipated
22 when--in connection with JLL's presentation that they
[Page 1394]
1 had incorporated into the record pictures of a project
2 and allocating it to a project, the case study that
3 was mentioned by CBRE. I would just like CBRE to
4 confirm whether the Project to which you refer in your
5 case study is the one that to which JLL referred in
6 their presentation.
7 A. (Mr. Maugeri) No, it isn't.
8 Q. Thank you.
9 MS. RIBCO: That's all.
10 MS. RITWIK: I just want to clarify that the
11 picture in JLL's presentation is not a picture of a
12 project in the case study. It is a picture of a
13 project that's in the CAMACOL database that was used
14 to arrive at a price which CBRE provided.
15 MS. RIBCO: Sorry, is that picture, it's on
16 Page 34 of JLL's presentation, and they say that
17 CBRE's sample is Biocity Grand, Strata 5.
18 BY MS. RIBCO:
19 Q. Is that your case study, have you referred
20 to the Biocity Grand? in your presentation?
21 A. (Mr. Maugeri) No.
22 Q. Thank you.
[Page 1395]
1 PRESIDENT SACHS: Okay, so that related to
2 Biocity Grand?, so it is the picture does not show
3 Biocity Grand?, or is it this one here, that one?
4 MS. RIBCO: Yes.
5 So, JLL assigned a project and says this is
6 CBRE's sample. And we assumed they referred to the
7 case study that is shown on Page 46 of CBRE's Report.
8 PRESIDENT SACHS: If there is agreement,
9 then it's fine.
10 MS. RIBCO: I just asked them to confirm
11 that these pictures here are not their case study.
12 THE WITNESS: (Mr. Maugeri) Correct.
13 MS. RIBCO: Thank you.
14 PRESIDENT SACHS: Thank you.
15 Questions?
16 Thank you very much, gentlemen. We have no
17 further questions. Thank you for your expert
18 testimony.
19 THE WITNESS: (Mr. Maugeri) Thank you.
20 THE WITNESS: (Mr. García) Thank you.
(Witnesses step down.)
22 PRESIDENT SACHS: We best should now have
[Page 1396]
1 our lunch break, maybe again 45 minutes. Is that all
2 right?
3 MR. MOLOO: That should be okay. The BRG is
4 ready, they are here, right? So that should be fine.
5 So, 1:30?
6 SECRETARY MARZAL: I just wanted to confirm
7 with everybody because I've spoken with some of you,
8 that tomorrow the Hearing cannot go any longer than
9 lunchtime. I've canceled lunches, as I'm sure you all
10 want to eat off-site, even though our food is
11 wonderful, but just to be careful about that. Thank
12 you.
(Whereupon, at 12:47 p.m., the Hearing was
adjourned until 1:30 p.m., the same day.)
16 SANTIAGO DELLEPIANE and DANIELLA BAMBACHI,
18 PRESIDENT SACHS: Okay. Good afternoon.
19 SECRETARY MARZAL: Mr. President, if I may?
20 PRESIDENT SACHS: Yes.
21 SECRETARY MARZAL: It's just a request from
22 the Interpreters to please speak very slowly. Thank
[Page 1397]
1 you.
2 MS. BANIFATEMI: May I--I just would like to
3 have time counts, if it's possible, just so I know
4 where we are.
5 PRESIDENT SACHS: Sure.
6 MS. BANIFATEMI: Thank you.
7 SECRETARY MARZAL: So, Claimants have 2
8 hours and 15 minutes left and Respondent, 3 hours and
9 44 minutes.
10 MS. BANIFATEMI: Thank you.
11 PRESIDENT SACHS: Okay. So good afternoon.
12 I see Ms. Bambachi and Mr. Dellepiane, is that
13 correct? Would you kindly read for the record the
14 Declaration of Expert Witnesses that is before you.
15 THE WITNESS: (Ms. Bambachi) Sure.
16 I solemnly declare upon my honor and
17 conscience that my statement will be in accordance
18 with my sincere belief.
19 THE WITNESS: (Mr. Dellepiane) And I
20 solemnly declare upon my honor and conscience that my
21 statement will be in accordance with my sincere
22 belief.
[Page 1398]
PRESIDENT SACHS: Thank you very much.
We now give you the floor and invite you to
give your presentation.
DIRECT PRESENTATION
THE WITNESS: (Mr. Dellepiane) Thank you,
Mr. President, esteemed Members of the Tribunal. I
will now proceed with our presentation summarizing our
damages assessment, instructed by Claimants' counsel.
Presentation contains four sections. I'll
cover the first. My colleague will address the second
part, which is fairly long, and then I'll come back to
discuss Sections 3 and 4.
Start for a moment with a reminder of what
it is that we are valuing. In Slide 4--sorry, I'm
just getting used to being the one who clicks and
speaks at the same time.
We are looking at determining the Fair
Market Value of a pipeline of real estate and
hospitality projects, a series of developments; and,
for that, we look at them individually because there
are characteristics in these such as the timing, their
own features, whether they have hotel rooms, lots,
[Page 1399]
houses, apartments, long-stay hotels, et cetera, which
are different from project to project.
I mentioned timing and features.
And they also do have some commonalities.
They're all premised and anchored around the creation
of a previously established lifestyle brand of
hospitality projects and real estate.
So, the question in determining Fair Market
Value of a project of these characteristics arises as
to how to do that; and, for that, I present to you
here with a simplified framework of some of the
options so we can discuss what would be the features
that one would take into consideration in selecting
the appropriate valuation method.
Let's take an example, first, of a fully
undeveloped land, with no vision or clarity on
development prospect, somebody who just owns an empty
parcel of land. The applicable valuation method, most
analysts would agree, would be to look at comparable
land across the road. The inapplicable valuation
method, and most analysts would agree, would be to
observe the years the amount paid for that piece of
[Page 1400]
land in prior years because it simply may not reflect,
and likely doesn't reflect, the value of that land in
the market today.
At the other end of the spectrum, we have an
example here which is a fully developed residential
home track or development, and there, I think we would
all agree, we would be looking at observable market
prices for comparable properties. Likewise, if we had
fully developed mixed-use set of properties, we would
have to consider both the value in the marketplace as
well as the income that these mixed-use properties,
via rental of commercial space, rental of office
space, or long-term hotels will generate into the
future, and, therefore, we will be comparing--not
comparing, we would be combining the Market Approach
with the Income Approach and doing a Discounted Cash
Flow analysis in order to take into consideration that
stream of future revenue.
Finally, is examples in the middle, consider
hybrid situations in which there is land with a Master
Plan backed by branding and with a certain track
record. In that case, we say one would use the
[Page 1401]
Present Value of Future Profits in order to take into
consideration the market information as well as to
risk adequately the projects that are still in
development.
In relation to this framework--we'll go to
the next slide, 6--what we see is here is a depiction
of where in this spectrum of range of development each
of these projects that we're valuing stood, from left
to right, from less developed to more developed.
We're obviously not computing damages in our model in
relation to The Charlee, as that has not been directly
affected. We're calculating damages in relation to
the pipeline of projects in development and in
construction.
One thing worth highlighting perhaps here,
is that even though these projects are between
development and construction, the fideicomiso, or
Trust Fund feature in them, makes the risking of these
projects very different in a way from the way in which
one would think of a project that has still not broken
ground, and my colleague will explain what I mean by
this feature with a fideicomiso structure from a
[Page 1402]
financial standpoint.
So, effectively, what we see here is the
Claimants' investments consists of a development
pipeline with properties in various stages of
development, all anchored around the developer's track
record, lifestyle brand, and the price point that it
commands.
Now, for this case--sorry, I skipped a
slide. No, it disappeared. In this case, we know the
key characteristics of the portfolio in terms of
details of number of units to be sold, the already
sold, units remaining to be sold, the prices observed
for these units, the prices expected for the units
based on market surveys. We know the specific
locations, we know the Master Plans and Development
Plans. We have--I mentioned observable Market Prices
for comparable developments and in the sector for
luxury hospitality.
I pause here for a moment because I believe
there was reference made to the Rusoro test, the six
conditions to adopt the DCF, of which a Tribunal
didn't really say you needed all six. It said that it
[Page 1403]
would be good to have most of them, if not all of
them. We strongly believe these projects, in terms of
the overall pipeline, satisfy five very clear of those
conditions and a sixth in an important way, and I can
expand on that, if the Tribunal would like.
Our colleague expert for Respondent presents
a Cost Approach based on the observed amounts paid
according to the financial accounts or certain
expenses incurred by Royal Property Group, RPG.
The problem with this is several issues.
First of all, as we know that it's not
forward-looking, it doesn't capture any of the market
information. It doesn't capture the value of the
developments, themself--the location, the design, the
architecture, the aesthetic--and therefore it doesn't
reflect fair market value.
But let me pause here because Dr. Hern says
that because there's a line in the balance sheet in
the assets that says "intangibles"--it's a very small
amount--then, therefore, it must be that the entire
value of the intangible, the entire value of the Seda
creation, et cetera must be accounted for. That is
[Page 1404]
simply incorrect from a simple accounting standpoint.
If one were to look at the accounts of
Norman Foster or Zaha Hadid or one of the great design
and architectural studios and developers in the world,
unless those studios just happen to have purchased,
themselves, and therefore had to reflect the entire
value of their goodwill on their books, you would not
find the value of their intangible in their books.
The value of the intangible will be in the form of
software licenses, and some investments that firms are
allowed to capitalize by accounting rules because
they're being made towards development of projects
such as architect fees, renderings and so on.
But they will never capture and except in
the unique circumstance of an acquisition being made
at that time, the intangible in the books will never
capture the full value of that intellectual property
or that intangible, and much less the one that has
been lost for the years past.
One final note on the issue of the cost
approach. It doesn't even matter, frankly, if this is
a Tribunal that is looking at this from a point of
[Page 1405]
view of reliance versus expectation damages. Even in
the world of reliance damages, the amount spent here
don't actually account for the investment made because
the investment made is years of sweat equity and
development time and effort that have gone into these
projects and not others.
So, the way in which we value this is by
combining the Income Approach in a pure form first, in
a pure form, basically underwriting models, and the
information we find on the record, and then combining
it with market evidence via comparables. This is
depicted in Slide 8.
We then take all that information, which my
colleague will explain how we use it, and then we
apply discounting at a Risk-Adjusted Rate, and we also
apply a probability of survival or probability of
failure adjustment for properties that are yet in
development.
We calculate loss in equity as well as loss
in fees. This is important because the projects as a
whole have a total value that they create, but the
structure of these deals is such that Mr. Seda
[Page 1406]
established himself as a management company, and
therefore appropriated a large percentage of that
project value via management fees. It's a very
important part of, as you can see here, about 40-45
percent of the total damages are losses and fees. And
to the extent that there is delays in project or one
has to risk them in an additional manner or anything
of that sort, that affects the loss in equity. It
doesn't directly affect the loss in fees.
In summary, we reach a conclusion, via the
Discounted Cash Flow method of $203 million as of
January 2017, our Date of Valuation. This chart here
on Slide 10 reconciles or explains the differences
between our assessment and Dr. Hern's. We have
differences in real estate parameters, in hospitality
parameters, and in Discount Rates and Failure Rates.
That takes us to the his $27 million via DCF.
He then goes further and says that due to
causation issues, he says that Mr. Seda can still
develop Luxé and no one is stopping him from doing
that, and that he could be providing all kinds of
services in Colombia and, therefore, removes the
[Page 1407]
additional to reach a negative value
conclusion--sorry, negative damages conclusion.
In summary, in Slide 11, you see our Income
Approach. We have two methods which my colleague will
explain, and I mentioned before, which are--consist of
using market inputs just for real estate or for both
real estate and hospitality, and that's where we
present these two sensitivities.
THE WITNESS: (Ms. Bambachi) So I will now
explain how we come about with how we build.
PRESIDENT SACHS: Microphone, please, and
come closer to the microphone.
THE WITNESS: (Ms. Bambachi) Yes, excuse me.
So I will now go to Section 2 where I will
explain the components of our --the cash flows that we
use in the DCF. In the slide, you can see the cash
flows. This is an example based on Meritage, but you
will find that all the different projects have a
similar pattern in which you have an initial period
where you have the real-estate business, you have
real-estate side of the business which is followed by
the hospitality operations, which is a longer-term
[Page 1408]
aspect of this business.
For the purposes of this presentation, I
will first refer to the real estate cash flows and
then to hotel operations cash flows.
Moving on to real estate cash flows, these
are the one--ones highlighted in the slides. They are
composed--they have two main components: One is the
revenues that are the sales of units; and the other
one is the cost, which is basically the construction
costs and the sales costs.
Within the construction costs, we are
including the construction of the hotel, too. The
separation includes all the constructions.
You will notice that the sales coincide with
the construction period, and this is slightly
different what you would expect in the typical
real-estate project, and this is related to the way
it's financed. So, you heard before about the
Fiduciary Trust, and that's why there is this
coincidence between the sales and the construction
costs.
In this slide we show on the upper graph the
[Page 1409]
fiduciary fund cash flows. That is the fiduciary fund
that will receive the cash flow from the pre-sales of
units. They will accumulate in the fiduciary fund
until they reach a certain critical mass, which is
called the "equilibrium point." Once the funds reach
this amount, which is determined in the contract and
it's a percentage of expected sales, the funds will be
transferred to the actual project, and that's when the
construction begins; and that's why when you look at
the annuals--this is on a monthly basis--when we
looked before at the annual cash flows we find that
the sales and the construction are simultaneous rather
than phased.
So, as my colleague explained, we based our
forecast--I explained also in the prior slides, we
based our forecasts on the business planning documents
of a project which we validate with market
information. And by "market information," it's
information that JLL provided to us. In the case of
real estate, it refers to prices and costs that are
specific to the project. So they are specifics in
that JLL looked at the area of the project and the
[Page 1410]
specification of a project, whether it's luxury,
upscale or what kind of project it is, multi-use, and
also the type of units involved in the project.
Combined with relevant city-specific
inflation indices, JLL provides us the stream of--or
the line of annual prices and costs for each project
and each kind of unit, which is what I list in the
right.
So, I'll go back to the--our forecast. Here
I explain how we compute the revenues of the
real-estate business, and this just as a reminder,
this is the sale of units, and sale of units, the
revenues for the sales of units are calculated based
on a sales price per square meter of each unit times
the saleable area, which is based on the design of the
projects, and this is calculated just as the number of
units times the square meter per unit, and these are
the components of the revenues.
The benchmark we apply is on the sales
price, which is what we can benchmark with respect to
market information. In the graph, we have the bars
showing the sales price per square meter for each
[Page 1411]
project. You will see they differ, and they differ
between projects due to the timing and the design of
the project specifics in the area.
When we compare them to the Market Prices,
which are the orange bars in the graph--I just added
the orange bars to the graph that I showed in the
previous slide--what we find is that the prices
included in the business-planning documents of the
projects on which we base our forecasts are very much
in line and not slightly lower than the Market Prices
that were benchmarked against, showing that our
revenue forecast is conservative.
We conducted a similar exercise with costs.
The project costs are based on direct construction
costs, indirect costs, sales and marketing and
pre-development expenses. With respect to direct
construction costs, CBRE agrees that they are very
much aligned with their professional opinion.
The way we benchmark costs is similar to
sales, only that we calculate the total cost per
square meter by dividing the total costs times the--or
divided by the total square meters of each project,
[Page 1412]
and that is what I show in the right.
In green, the costs forecasted per square
meter forecasted in our model and in orange, the ones
that are observable in the market are that JLL
provided to us as market costs.
Again we find that the business-planning
project--the business-planning documents of the
project forecasts costs that are slightly higher than
what the market indicates. Thereby we have a
conservative forecast of costs.
Summarizing these two points, in the graph
to the left, we compute--we compare the total revenues
of our model in light blue with the total revenues
that would result from applying the sales prices.
These graphs are for all projects combined. So, had
we applied the Market Sales Prices, what we find is
that revenues would have been higher than the ones
that we are using in our assessment.
Similarly in costs, to the right of the
slide, what we find is that our cost estimate is very
much in line when we aggregate all projects, very much
in line with the ones that will result from using the
[Page 1413]
market data rather than relying on the
business-planning documents of the projects.
Dr. Hern has four criticisms or main
criticisms for real estate cash flows that I will deal
in, in the next slides I will respond to them.
The first one is related to the sales
price--sales prices. Dr. Hern alleges that our
sales--the forecasted sales prices are higher,
exaggerated when compared to historical sales prices.
And for this he bases--or he gets information for his
conclusion from the Fiduciaria Corficolombiana
document, which is the one I show on the upper left.
This is actual information on past sales.
Dr. Hern when doing the analysis, he didn't
have the information, the correct allocation of the
historical sales to the right phase of the project.
Therefore, he assumed that the first 152 units belongs
to Phase 1; that part is correct, but the second 21
units, he allocates them to Phase 4 and 6, whereas
these belonged to Phase 4 in part; so two Phase 4
houses, and the remaining 19 units belong to Phase
6--used to belong to Phase 1 but we reallocated to
[Page 1414]
Phase 6. So, using the correct allocation of units, I
do a comparison between the historical prices, the
forecasted prices in the business-planning documents,
and the market information in the graph to the right.
What we see is for Phase 1, historical
prices have been slightly lower than what was
initially forecasted in the business-planning
documents, and this has an explanation. The
explanation is that in the historical sales that
were--there were two very higher-priced units that
hadn't been sold yet; thereby the average price is
lower than what was forecasted because these were
included in the forecasted sales, and also the
historical sales do not include the typical upgrades
that would be done to the houses once they were
delivered--or to the units--these were apartments,
excuse me.
Moving on to the second column, these are
the units that were reallocated from Phase 1 to Phase
6. In this case--and these are sales that came after
the Phase 1 sales. For these sales we find that the
historical price is consistent or actually it
[Page 1415]
outperformed what was the expected price for these
units, which was COP 5 million per square meter, and
is very much in line with the Market Prices at 5.8, so
it's closer to the Market Prices than what was
forecasted.
Finally, in Phase 4, we find the same
conclusion, that historical prices were lower than the
forecasted and even lower than the Market Prices.
For Phases 5 and 6, we don't have actual
information on sales, but for the phases that we have,
we find that the forecasted prices are in line with
the historical and the market.
An important thing to point out is that for
Phase 1, we used the historical information in our
DCF. We don't use the forecasts, so we use the 4.2.
Dr. Hern's second criticism relates to the
speed of sales. Looking at the Phase 1 Meritage speed
of sales which is the blue bar that I've circled, he
concludes that the speed of sales forecasted, that is
the amount of units sold per month for Cartagena, 450
Heights and Sante Fé, is too high. We want to point
out that Dr. Hern is ignoring information on Phase 1
[Page 1416]
of the Luxé Project in which 20 units were sold in the
first month, thereby showing that the speed of sales
is in fact--or has been attained in the past.
Here, we're going to refer to the costs.
Dr. Hern again compares historical information with
the forecasted, claiming that the historical
costs--for a tower, actually, for Phase 1 is lower
than what is--excuse me, is higher than what is being
forecasted, therefore, that the forecasts are too
aggressive on costs.
In the graph to our left, we show the total
costs for Phase 1. These are historical costs
incurred, and we compare them to Phase 2 and 3.
Dr. Hern, based on this information, divides them by
the number of towers and arrives to his conclusion.
What Dr. Hern didn't take into account is that the
towers have different square meters of built area and
different proportion of urbanism affecting, of course,
the price per unit. Therefore, the correct comparison
would be excluding urbanism and using the square
meters as the indicator, dividing by built square
meters, and that's what we show to the right, where we
[Page 1417]
find that the historical costs are slightly higher,
very similar to the Phase 2 and 3 costs, and again I
compared to the market information.
And this is the last point on real estate
criticisms. Dr. Hern proposes to compare the EBITDA
margin for the real-estate business with two sets of
comparables. The first--none of these comparables is
applicable or provides any information of what the
expected EBITDA should be for these developments.
The sample to the left is composed of
construction companies, risks and expected profits and
return of a construction company is not the same as
for a development company; and also, the key business
of the companies in the sample is social housing,
which is not related, again, to the business of the
Claimants or even comparable to the projects.
Sample to the right is an emerging markets
real estate developers sample. This is produced by
Damodaran, but it includes companies that have
diversified portfolio of businesses and only nine of
these companies are in Latin America. Therefore, they
don't provide any relevant information on what the
[Page 1418]
expected EBITDA should be.
This is a summary of the best cites for your
benefit.
I will now move on to the hotel operations
cash flows and how we constructed them and how we
validated them. This is the same graph I showed
before where I highlight the hotel long-term cash
flows. These cash flows are composed of the operating
revenues to which we subtract Operating Costs, the
Profit-Sharing Agreements in cases in which the Units
were not owned by the hotel itself, and the management
and ground fees.
We saw this information as in the
real-estate business from the projects'
business-planning documents, and we validate it with
market information. The validation we do for hotels
is slightly different than what we did for the real
estate. We actually do two validations.
The first one is a full market approach on
the hotel value per key. So, we compute the hotel
value per key with the parts--excuse me. We compute
the value of the hotel--
[Page 1419]
(Realtime stenographer intervention.)
So, what we do is we compute the value of
the hotel and validate in our DCF assessment and we
compare it to the value that results from a sample of
transactions, of actual transactions, that took place
for hotels that are comparable to the portfolio of
hotels held by the Claimant. That is what we call the
"Market Approach." I will look at it in detail in the
next few slides.
We also compare, where possible, some of the
operating parameters of the hotel, particularly the
RevPar.
So, in this slide, I will show you the
Market Approach Validation we do of the value of the
hotel. Our starting point is the value of Claimants'
hotel's operations portfolio embedded in our DCF. We
divide it by the number of keys, and this provides us
the value of the hotel per key, so we're able to
compare it to these transactions, and this is what I
graph in the right. That's the blue bar in the graph,
and the orange bars are the comparable hotels values
per key.
[Page 1420]
What's important here, and it refers to the
value embedded in our DCF, we're comparing the value
of the hotel, and it's--once it's operational. When
it fits into our damages assessment, it goes through
all the risks, the discounting and the risk
adjustments that our values go through, and my
colleague will explain in the next section. So this
is just a comparison of the value of the hotel to
validate the parameters and cash flows embedded.
Here, what we do is we compare the Income
Approach, so the value--the levels and value of hotel
operations embedded in our DCF using the Income
Approach, and the value that will result from using
the Market Approach, and what we find is that
the--they are not significantly different; they're
almost the same. We still use the Income Approach,
but both approaches will have provided similar
results.
So this is a comparison of RevPars. Now
we're moving on to the operating parameters of the
hotels. We explain this in our report. We compare
the RevPar of the Claimants' hotels with The Charlee
[Page 1421]
to find that's in line, and then we verified that the
Cartagena hotels have a premium over the rest of
Colombia. You'll see in the SDR information I will
explain this in our Reports.
Dr. Hern has two criticisms to our hotel
cash-flow forecasts and Market Approach. One is
related to the comparability of the sample and the
second one to the EBITDA margin.
With respect to comparability of the sample,
Dr. Hern claims there's a correlation between the room
values and the values per key of hotels, and that
thereby the sample is not comparable since the room
rates-- So, based on one observation of the room rates
collected during COVID, he concludes that the samples
are not comparable because the room rates for the
sample are higher than for Medellín.
What I show in the graph is that there is no
such clear correlation between the hotel value per key
and Dr. Hern's sample of room rates. Therefore,
you'll find, for example, that at the same hotel value
per key, you have different room rates, so there is no
statistical reason to do any kind of adjustments.
[Page 1422]
Similar arguments apply to Dr. Hern's
allegation that an adjustment is warranted for Country
Risk Premium. There is no correlation between the
hotel value per key and the Country Risk Premium that
would warrant any adjustment, and the same we conclude
for his proposal to adjust the sample for the tourism
contribution to GDP of each country from which the
sample is collected.
With respect to the hotel EBITDA margin,
once again Dr. Hern proposes to use samples that are
not comparable, and in the case of the hospitality
business, it's even trickier because the calculation
of the EBITDA cannot be--it is very likely that
different companies report EBITDA in different ways.
It depends on where they report the FF&E, where they
report the fees; therefore, even as an observation,
it's not really comparable. Comparisons are usually
made at the RevPar level or value per key level as we
do.
Besides that, the samples provided by
Dr. Hern are not comparable to the Claimants' hotels.
The first sample is based on hotel chains and include
[Page 1423]
portfolios exceeding, in some cases, a hundred hotels,
which is not comparable to operations of a single
hotel, which is the value we're looking for.
With respect to the sample, he names
Colombian luxury hotels. These are based on parent
companies' data. Again, not individual hotels that
would be relevant to assess EBITDA margins.
And with respect to Professor Damodaran's
emerging markets hotel sample, once again it's a very
broad and unspecific to the projects and it includes
also gaming companies.
So, this is the summary of the hotel
criticisms, and I will conclude this section comparing
the value of damages under our Income Approach and the
value that will result from using in the middle column
the real estate parameters, that is prices and costs,
so we--validation of revenues and costs.
And the third one is we replace all
information for market information; that is prices and
costs for real estate and the full value of the hotel
per key using market information from transactions.
And with this, I conclude this section.
[Page 1424]
THE WITNESS: (Mr. Dellepiane) Thank you.
Let me turn now to the issue of risk and how
we've accounted for risk in this--in our assessment.
The main thing as analysts we seek out to do
in this type of situation is to make sure that we
account for risks in the correct place because if we
don't we risk over-risking or under-risking the
projects, therefore, underestimating value or
overestimating value.
In this case, I can provide you with a
framework that is summarizing risk in terms of four
key categories, demand risk--let me address each of
them and how we've addressed it. In the case of
Meritage and Luxé, the proof of concept had been
established and the presales took place. In fact, at
Luxé, there were deliveries made.
In Cartagena, 450 Heights, Sante Fé and the
expansion of the Claimants' pipeline, we have projects
in development with expectations with a long lead time
for those projects to come to fruition. But skeptical
as we should be, we've risked them with an additional
probability of failure based on empirical data, which
[Page 1425]
I will explain.
In terms of operational risk, this means
sales prices, costs, timing, delivery, construction,
overruns, et cetera. We're using underwriting model
assumptions to provide an expected value. And granted
that these models, to be perfectly honest, they're
pretty messy. They're big models, lots of
spreadsheets, lots of Tabs, lots of numbers. They
actually depict a simple business. This is not an
innovated business that we have to worry about, is the
market going to absorb this, is the market going to
adopt it, are we going to come to market at the right
time, or is a competitor going to launch the app first
therefore making us irrelevant. This is an
established business model.
In terms of industry, country risk, time
value of money, et cetera, we've accounted for all of
that using an industry-wide market variables in a
standard international CAPM model to calculate the
WACC, the Weighted Average Cost of Capital, for the
Projects, considering with and without different tax
situations that each of the projects faced.
[Page 1426]
And finally, in terms of financing--by this
I mean funding short-falls because, as my colleague
explained, large part of the real estate development
that in itself also pays for much of and some of the
overall development and shared facilities. In terms
of funding short-falls, if any, we know that when
construction loans were needed, they were procured and
secured in Luxé and Meritage.
And in terms of the other projects, we know
that those projects are solvent. They have positive
Net Present Values. I think even according to
Dr. Hern, in his model, they would have positive net
present values.
Therefore, one needs to consider that this
project being solvent and being NPV-positive, a
solution will arise and has to be considered to be
reasonably obtainable, as it was with the projects
that exist.
And in the worst case, one can model delays
and sensitivities to additional financing costs but
cannot--and can go even further and say that one could
face dilution of equity, this was a very creative new
[Page 1427]
launch of a business when it started back in the odds,
and what you see in The Charlee Hotel was they ended
up not really owning, except for the management of the
hotel, which I think basically allowed him or maybe
part of the hotel he did, but the funding mechanism
allowed for the building of a hotel via a third-party
private equity.
Slide 42 I show you that once the cash flows
that we've calculated, as my colleague explained, are
laid out in nominal terms, we've applied these
Discount Rates and failure rates and adjustments for
risk, and the reduction is extremely substantial as it
should be.
Turning onto the issue of Failure Rates,
what we looked at is a database that is kept by the
Bureau of Labor Statistics since 1994. It's got
hundreds of datapoints and for hospitality and for
real estate, we can see the, based on this empirical
data, of closure of businesses in a particular sector.
They do a survey, and we can tell what percentage of
businesses that were active in a particular year, were
still active four years later, four years being
[Page 1428]
approximately when these projects reached their
equilibrium point. That's why it's so important to
risk the projects previous to their equilibrium point,
and that's why we risk Cartagena, 450 Heights, and
Sante Fé de Antioquia.
We risk further the, what we would refer to
as the Terminal Value or the additional expansion of
the pipeline, with an additional risk factor of
40 percent reduction or 61 percent success rate. The
success rates, or failure rights or one minus the
other, are calculated based on the data I explained
plus in addition because the Bureau of Labor
Statistics data says all these businesses closed.
What it doesn't tell you is that some of these
businesses closed because they were acquired, so they
were successful closures and there's other literature
that provides us with indicator of how many of the
business that are closed are estimated to be closed
due to successful closure or acquisition.
In reference to our numbers, we have JLL
coming up with their own estimate, ranging from
81 percent at the lower end, if you accept some of
[Page 1429]
Dr. Hern's points, to 90 percent, which was their
original starting point I think we heard today,
15 percent is what they considered adequate, given
some of the criticisms that they received.
Dr. Hern cites to Professor Damodaran, that
48 percent, before adjustments for a successful
closure, once applied, that would be a 66 percent
success rate.
So, in reality, regarding this issue of risk
of failure, we're all converging if you apply the risk
of--the adjustment for a successful closure, to
somewhere between 66 and 80 percent. We are at
77 percent for Year 4 projects and 61 percent for
Year 9 projects.
Turning on to the Discount Rate, this is how
we've estimated our Discount Rate based on the
standard. CAPM, for the cost of equity plus a cost of
debt, each weighted according to the respective weight
on the capital structure of a typical firm in hotel
and then we have one for real estate. Here we just
showed hotel to make this slide less crowded.
We reached a conclusion of about 8 percent
[Page 1430]
in our Discount Rate.
Dr. Hern reaches a conclusion of a
19 percent Discount Rate for a hotel business in
Colombia. He, himself, acknowledges that he's
reaching that conclusion because he adds a premium for
start-up. We disagree fundamentally with the
characterization of this ongoing business as a
start-up, and we disagree methodologically with the
notion of putting start-up risk in the Discount Rate,
and we've provided quite a bit of literature on why
one should not do that, and how risky is it to start
plugging the Discount Rate with risk adders that one
doesn't exactly know or could explain why or how they
reflect or what they're meaning to reflect. I'll come
back to that in a minute.
We have four main disagreements depicted in
this slide. Let me turn to each of them.
I'll leave you with that slide just as a
summary.
On Slide 45, we have a main disagreement on
Cost of Debt and on Country-Risk Premium. Both of
these suffer from similar problems in Dr. Hern's
[Page 1431]
estimation, and that is that we both are seeking to
discount U.S. dollar cash-flows, and therefore, we
both agree we need a U.S. dollar based Interest Rate.
Dr. Hern, despite the fact that it is
standard and proven to use the more liquid, the more
transparent market, that is the U.S. equities and debt
markets, to obtain that information and then add a
Country-Risk Premium, instead of doing that standard
approach, he goes on to the Colombian market and says,
well, let's look at the Cost of Debt of Colombian
companies, let's look at Cost of Debt of Colombia as a
sovereign State to fund itself. Let's look at this
information in Colombian pesos. Then, converts it to
dollars, which requires some permutation using
inflation expectations, devaluation expectations, and
so on, to reach a U.S. dollar rate. So, in other
words, he has to go through several paths and
permutations to come back the same thing that the
screens on Bloomberg can already tell us.
Regarding the Market Risk Premium, this is
an important part of the WACC. It says how much more
does--do equities demand above the Risk-Free Rate?
[Page 1432]
And between 1928 and then 2016, that was 4.62 percent,
calculated as all financial analysts do, which is the
geometric average between those periods. And there are
statistical reasons why this is done via geometric
average.
In contrast--in comparison to that, we have
a survey that is done every year published by Graham
and Harvey, two academics, as a survey of CFOs. These
are people who are managing portfolios in their
businesses. They conclude, depending on the year
between 2010 and 2017, a range between 3 and
4 percent. We're above that.
Also, another survey by Berk and DeMarzo
says 3 to 5 percent. We're still within the upper end
of that range. Dr. Hern provides a calculation only
one datapoint, not other sources, no support other
than I think a paper in which he submits that the
arithmetic average should be used at 6.2 percent for
the historical and for projected Market-Risk Premium.
I think we've provided plenty of evidence to debunk
that. On the issue of the beta, which is the
volatility of a particular sector or industry relative
[Page 1433]
to that equity's market. We calculated that using the
Bloomberg or the U.S. market for hospitality and the
U.S. market of equities for real estate.
And why is that so important? Because we're
adding a Country-Risk Premium for Colombia. We cannot
do things twice, overcount them, overlap them. We do
a U.S. dollar WACC, and then we apply a Country-Risk
Premium. That is the clean way of knowing where each
of the risks are. Dr. Hern does a blended Risk-Free
Rate for Colombia that includes that Country-Risk
Premium, and then computes a beta for non-U.S.
hospitality and real estate equities.
Therefore, those equities, companies that
trade in foreign markets and operate in foreign
markets will necessarily double-count the Country-Risk
of those emerging markets because that's the sample he
used, one for emerging markets.
I know I have two minutes left and I'll
hurry up.
Those countries include Pakistan, Sri Lanka,
Egypt, Zambia. He excludes a reversion to one
adjustment which is a simple processes that is
[Page 1434]
accepted. And he said that within that sample that he
found for Emerging Markets, which, by the way,
includes casinos that he had JLL remove from their
sample, he includes casinos and gaming.
He then takes a sub-sample of these emerging
markets companies and says let's take the ones that
are undiversified. Why? Because I want to price
start-up risk additionally to the risk of failure,
additionally to all the risks he puts in the cash
flows. He wants to put a start-up risk in the beta.
Again, we have a quote from Damodaran here saying why
you should not do that.
In fact, I didn't put the other part of the
quote. Damodaran, BRG-60. He calls that
"sloppiness," his words.
On Slide 48, to finish with issues of risk,
I just want to touch on the issue of the internal rate
of return. The IRR, as you gentlemen know, is the
rate that a set of cash flows needs to--that
reconciles a set of cash flows, first negative and
then positive with a Net Present Value of zero. It
says what is the Internal Rate of Return. That's why
[Page 1435]
it's called Internal Rate of Return. It's not
something that we plug as analysts; it's something
that we observe in a set of cash flows. It says, if
we have to reconcile these negative investments with
these positive revenues, what rate makes them whole?
Well, that Internal Rate of Return by definition is
the rate that makes NPV equal zero. So, if we are
going to discount at an Internal Rate of Return, you
already know the answer. It's going to be zero, or
very close to zero if the IRR is for the business and
not necessary for that very specific investment.
Dr. Hern suggests that these projects, his
words, "these project IRRs can be interpreted as the
Claimants' own estimates of the appropriate Discount
Rate for the Project." That is obviously incorrect.
Interest Rate--IRR, as you might wonder, why are they
even mentioned? Why do investors look at them? For
two reasons. They want to know and compare projects
across. Investors might want to say, this project's
offering me a 30 percent IRR, this project's offering
me a 20 percent IRR, this project's in Colombia and
the other project is in Brazil. I might have to
[Page 1436]
ponder what risk tolerance and which one seems better
given those conditions. But they're not used to
discount, and certainly not the Project's own IRRs to
discount. The other way in which investors use IRRs
is as hurdle rates-I'm sure you've heard the term
"hurdle rates"--and that means, are these projects
attractive enough to overcome a certain hurdle? Okay.
And if you ever see any documents in which an investor
or an analyst discounts the IRR is to actually test
and compare projects across or because they're looking
at very, very long-term IRRs, which for industries at
large, as a whole in very long periods, may converge
to their industries Cost of Capital. What you would
never do is look a project's own IRR and the prospects
and so on and say, let's discount at that number.
That number is inherent in that valuation in
discounting at the number will necessarily produce a
value close to zero.
We have a slide on Pre-Award Interest here.
We use the Cost of Debt for a real estate and
hospitality business in Colombia, the average of the
two at 5 percent in order to bring 2017 damages to
[Page 1437]
present time--well, to the date in our Second Report
so far. That compares to Colombia's own cost of
borrowing, sovereign cost of borrowing, relatively
similar, and they're between three-and-a-half and
4.7 percent. That's an important coincidence because
it means that an IOU following an award from Colombia
has a rate similar but not lower than Colombia's own
cost of borrowing, and you understand the risk of it
being lower being that the priority of payment becomes
I would say non-pari passu. It becomes--
disincentivized to pay.
In comparison with this, Dr. Hern proposed
that the cost of the debt for these Projects should be
10 percent. So, according to our logic but his rates,
Pre-Award Interest would more than double.
With this and this summary on Slide 51, we
conclude our presentation, and including the numbers
my colleague showed you before plus Interest Rates and
Pre-Award Interest--pardon me.
Thank you for your time and attention.
PRESIDENT SACHS: Thank you very much.
Who will be in charge of cross-examination?
[Page 1438]
1 MS. BANIFATEMI: Mr. Daoud. Thank you very
2 much.
3 MR. DAOUD: Thank you, Mr. Chairman. Can
4 you hear me well? Is that better?
5 PRESIDENT SACHS: Yeah, thank you.
6
7
BY MR. DAOUD:
8 Q. Good afternoon, Mr.--Ms. Bambachi.
9 A. (Ms. Bambachi) Yes.
10 Q. Good afternoon, Mr. Dellepiane.
11 A. (Mr. Dellepiane) Hi.
12 Q. Thank you--sorry. Thank you for being here
13 today.
14 So, you've got the Cross Bundle. This is
15 the Cross Bundle, I'm sure you're familiar with Cross
16 Bundles, has documents in it. You have your
17 presentation and your two reports.
18 Before we get into your Reports, I want
19 to--can you please go to Slide 34 of your
20 presentation.
21 A. (Ms. Bambachi) Yes.
22 Q. Yes, I'm just waiting for...
B&B Reporters
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[Page 1439]
1 Can you please confirm that this slide
2 responds to the comment Dr. Hern made in his First
3 Report and his Second Report? Where you have--I can
4 see it in the source. Look at the source, you have a
5 reference to his First Report Paragraphs 218 to 221,
6 and Second Report Paragraphs 91(b) and 94?
7 A. (Ms. Bambachi) Yes, that's correct, yes.
8 Q. That's correct. Okay. Okay. Was there
9 any--on the point on which the slide responds, was
10 there any difference between what Dr. Hern said in his
11 First Report and his Second Report?
12 A. (Ms. Bambachi) I cannot recall exactly if he
13 expanded on this point in his Second Report or not.
14 Q. Okay. Well, can you please turn to Tab 1 of
15 your bundle? That's Dr. Hern's Second Report.
16 A. (Ms. Bambachi) Um-hmm.
17 Q. If you go to Paragraph 94, for example, the
18 one you quote. Paragraph 94 is at page 45.
19 (Overlapping speakers.)
20 A. (Ms. Bambachi) Yeah.
21 Q. You see that it says, "the crucial question
22 for BRG's market crosscheck is whether the BRG/JLL
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[Page 1440]
1 comparator hotels are comparable to the Claimants'
2 hotels. If they are not, we cannot use them as
3 comparators in the market-based crosscheck. As
4 explained above in my First Report, I presented
5 evidence that BRG's alleged comparator hotels are
6 located in countries with lower risks." So, that's
7 all things he said in the First Report.
8 And then, if you keep going down in
9 Paragraph 94, and the next page, Page 46, the last
10 sentence, second line: "Neither BRG nor JLL have
11 responded to this evidence or presented any evidence
12 that the alleged comparator hotels are comparable to
13 the Claimants' hotels in terms of value per room."
14 Do you see all of that?
15 A. I read that, yes.
16 Q. Yes, okay. So, I don't see anything new
17 here compared to the First Report.
18 A. (Ms. Bambachi) So, if you go to
19 Paragraph 92, it starts with--I don't remember exactly
20 the paragraph but it starts with --in the Second
21 Report, BRG argues the differences in Country Risk or
22 stronger hospitality sectors, and it continues. It is
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[Page 1441]
1 unclear why BRG refers to what--so it seems he's
2 responding to our response from our Second Report.
3 Q. Yes, but --This Slide 34, does it relate to
4 what he says on--at Paragraph 92 or 94?
5 A. (Ms. Bambachi) I think it refers also to
6 comparability of the samples to our response we gave
7 in our Second Report with respect to comparability of
8 sample, it's yes.
9 Q. You're not mentioning 92 here in your--in
10 your sources, for example. I'm not going to--I'm not
11 going to dwell on that but--
12 A. (Ms. Bambachi) I cannot confirm either, I'm
13 just reading this and it seems as if it's responding
14 to something we responded. I don't remember exactly,
15 like I studied both Reports and see what they may be--
16 (Overlapping speakers.)
17 Q. You can later on look at Paragraphs 91 to
18 94. The point is, is that you could have provided
19 that answer in your Second Report. You did not and
20 you provided it today.
21 A. (Ms. Bambachi) So this is--yeah, I mean, we
22 provided this graph. This is just organizing
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[Page 1442]
1 information that's on the record. It's not something
2 new that we introduced or anything.
3 Q. So, there is no new point being made today?
4 You've made that point in your Second Report?
5 A. (Ms. Bambachi) No. We haven't made exactly
6 this point.
7 (Overlapping speakers.)
8 Q. Okay, exactly, that's my point, is that the
9 point you're making--
10 REALTIME STENOGRAPHER: Could you go one at
11 a time?
12 MR. DAOUD: Yes, sorry.
13 MS. BAMBACHI: Sorry.
14
BY MR. DAOUD
15
16 Q. My point is, the point you're making at
17 Slide 34 could have been made in your Second Report.
18 That was not, it was made today. That's fine. I'm
19 not going to--I'm not going to--I'm not going to go
20 look further in your presentation on points like that.
21 We can, I think, start with your--by looking at your
22 Reports, if you may.
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[Page 1443]
1 So--sorry, before I start asking questions,
2 so I assume you're familiar with Tribunal's Procedural
3 Order 10 that each of you would answer, like, for each
4 question, one expert would answer?
5 A. (Ms. Bambachi) Yes.
6 Q. Yes. That kind of question, you can either
7 answer. So, you--I assume that's fine.
8 Is there a clear delimitation between the
9 questions each of you address? If there isn't, that's
10 not a problem.
11 A. (Mr. Dellepiane) There isn't. We will make
12 sure not to duplicate any answers or supplement. We
13 are both responsible for the entire contents, and we
14 focus on a few topics in preparation for today, but as
15 per the slides.
16 Q. Okay. So, if you please go to your Second
17 Report Page 28, Table 2. So, this is a table that has
18 the summary of the damages to Mr. Seda. And in this
19 table, we see a loss to or in Mr. Seda's equity and
20 the loss in fees.
21 Do you see that?
22 A. (Ms. Bambachi) Yes.
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[Page 1444]
1 Q. So--and then the next page, Page 29,
2 Table 3, you have--you have a table for the loss in
3 equity of the other Claimants, meaning the Claimants
4 other than Mr. Seda, is that correct?
5 A. (Ms. Bambachi) That's correct, yes.
6 Q. Now, if we take the Meritage Project as an
7 example, I assume you're familiar that--with the
8 structure, the Meritage Project is owned by a company
9 called Newport S.A.S., is that correct?
10 A. (Ms. Bambachi) Yes.
11 Q. And then, the Newport S.A.S., in turn, some
12 of its Shares are owned by Royal Realty?
13 A. (Ms. Bambachi) Can I look at--we have
14 a--excuse me. We have a footnote where we explain the
15 ownership. I don't have it off the top of my head
16 who's exactly--
17 (Overlapping speakers.)
18 Q. It probably is in your First Report, Page 7.
19 A. (Ms. Bambachi) Page 7, you said?
20 Q. Yeah. I mean, you tell me--
21 (Overlapping speakers.)
22 A. (Ms. Bambachi) I'm sorry, I don't remember
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1 exactly the ownership of Royal Realty or Meritage--.
2 Q. To simplify matters, let's simplify matters
3 and say that Mr. Seda owns Shares in Royal Realty, and
4 Royal Realty in turn owns Shares in Newport, and
5 Newport owns the Meritage Project, the land and
6 everything on it.
7 A. (Ms. Bambachi) (in Spanish?)
8 Q. Sorry?
9 A. (Ms. Bambachi) That I can take Do you want
10 me to take--I cannot confirm that--
11 (Overlapping speakers.)
12 REALTIME STENOGRAPHER: You're overlapping.
13 PRESIDENT SACHS: That's much too fast and
14 overlapping.
15 MS. BAMBACHI: Sorry.
16 MR. DAOUD: Sorry.
17
BY MR. DAOUD
18
19 Q. Yeah, you can take it as--you can assume
20 that's true. I represent that.
21 Okay. Now, my question is when you talk
22 about loss in equity to Mr. Seda, what you calculate
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1 here is the loss to the Fair Market Value of the
2 Shares owned by Mr. Seda in Royal Realty, is that
3 correct?
4 A. (Ms. Bambachi) I don't think we made the
5 distinction. It's the loss in Mr. Seda's ownership of
6 the Meritage Project.
7 Q. Okay. But I'm going to ask you to try to be
8 a bit more precise about this question, so Mr. Seda,
9 and that also has implications, legal implications.
10 Mr. Seda doesn't own, himself, the Meritage Project?
11 A. (Ms. Bambachi) That's what I--
12 (Overlapping speakers.)
13 Q. If you look at the title to the assets of
14 the Project, they're not held by Mr. Seda. They're
15 held by a company called Newport.
16 A. (Ms. Bambachi) I don't think we did the
17 analysis at that level of detail on the ownership or
18 the legal implications.
19 Q. So, you just assumed that because Mr. Seda
20 owns shares in the Company, that owns shares in the
21 Company that owns the Project, that necessarily any
22 loss to the Project is a loss to Mr. Seda pro-rata to
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1 his indirect share?
2 A. (Ms. Bambachi) Unless instructed
3 differently, we would, but I cannot confirm whether we
4 did it this way.
5 Q. Okay. But--is that the purely legal matter?
6 Because it seems to me that you would have to
7 determine what asset was damaged in order to value the
8 damage.
9 A. (Ms. Bambachi) We usually don't--
10 (Overlapping speakers.)
11 A. (Ms. Bambachi) Sorry, I overlapped again.
12 I'm sorry.
13 Q. That's okay.
14 A. (Ms. Bambachi) We usually don't make a
15 distinction. I cannot confirm whether in this case we
16 received an instruction to do a distinction--to make a
17 distinction or not.
18 Q. Okay.
19 A. (Ms. Bambachi) I really cannot remember
20 that.
21 Q. Okay. I represent to you that the
22 Claimants--and Claimants can object if they see a
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1 reason to--that the Claimants consider that their
2 investment in this, for the purposes of this
3 arbitration, is their shares in the Company, in the
4 Company, and let's say in Royal Realty for Meritage.
5 Okay? Not the asset itself in Meritage.
6 But I'm not asking--
7 A. (Ms. Bambachi) As equity.
8 (Overlapping speakers.)
9
10 Q. Yeah, exactly. So, we're talking about the
11 equity. Again, I'm--maybe let's look at it from a
12 sep--from a different angle. You're talking about
13 loss to equity, you're not talking about loss to the
14 Project, so there has to be a loss to an equity here?
15 A. (Ms. Bambachi) We compute loss to equity,
16 which is--my colleague had a slide on that, which is
17 that we started by computing the value of the Project,
18 and then we subtract the debt, we make all the risk
19 adjustments, we subtract the actual, and then we
20 allocate back Claimants' Shareholdings.
21 Q. Yes, but the equity here that is --that lost
22 something, it has to be an equity of Mr. Seda, held by
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1 Mr. Seda in a company, right?
2 A. (Ms. Bambachi) So, we have loss to Mr. Seda
3 as an equity-holder, and we have losses to other
4 Claimants as equity-holders.
5 Q. Okay. But Mr. Seda has--the loss here is a
6 loss to the value of shares held by
7 Mr. equity--Mr. Seda?
8 A. (Ms. Bambachi) Loss in value of equity held
9 by Mr. Seda. We don't--I don't think or I cannot
10 recall we made any distinction on how we measure the
11 equity and the number of shares of the Company or not.
12 Q. I'm asking a simple question. The loss to
13 an equity here, it's a term you've used in your
14 Reports.
15 A. (Ms. Bambachi) Loss and the value of equity,
16 yes.
17 Q. Loss to value of equity, equity means
18 shares, right?
19 A. (Ms. Bambachi) Usually, but it can be held
20 directly or indirectly. I--we didn't--I don't
21 remember having analyzed the whole.
22 Q. Let's simplify things. Let's forget about
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1 whether it's direct or indirect. Let's say Mr. Seda
2 owns equity and owns shares in a company, and the
3 Company owns the Project, okay? You're with me?
4 A. (Ms. Bambachi) Yes.
5 Q. And, when you say we're valuing the loss to
6 an equity, that's a loss to the Shares owned by
7 Mr. Seda?
8 A. (Ms. Bambachi) We look at it as a percentage
9 stake on equity. So, usually what we do is we compute
10 the value of equity before, the value of equity or
11 loss in equity, which is the difference between but-
12 for and actual, and we allocate by a percentage-of
13 equity held--
14 (Overlapping speakers.)
15 Q. Yes, that's mechanically what you have done.
16 I'm asking now just conceptually, first thing--I look
17 at your Report, the first thing I ask is this is a
18 loss to what, so I look--I see loss to equity, so I
19 assume that means loss to shares held by Mr. Seda.
20 Loss to the value of shares.
21 Now I understand that because there is a
22 loss in the Project, that could result in a loss to
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1 the value of shares.
2 A. (Ms. Bambachi) I really don't fully
3 understand the question. We make a more general
4 analysis maybe where we calculate what's the
5 percentage stake of Mr. Seda in the equity of the
6 projects and we then compute the reduction in the
7 equity times the percentage that is held by Mr. Seda.
8 We don't make an analysis and we haven't made an
9 analysis exactly on the Shares and how the Shares are
10 held.
11 Q. Okay.
12 A. (Ms. Bambachi) We have a percentage stake in
13 equity.
14 Q. Okay. Let's--I'm going to proceed on the
15 basis that if you're not comfortable with this in
16 term--from an economic point of view. Although, I
17 mean, I don't see why but that's not the point. Let's
18 proceed on the basis that here we are valuing--we're
19 determining the loss in value to number of shares
20 owned by Mr. Seda. Can you assume that?
21 A. (Ms. Bambachi) I'm not trying to be
22 difficult. You're making a distinction that is not
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1 relevant in the economics. We calculate the
2 percentage stake. I feel that shares might have a
3 legal implication I'm not aware of, so I have it that
4 you're asking me did I analyze the Shares, I haven't,
5 I analyzed the percentage stake, how that percentage
6 stake was held, I only look at the implications in the
7 economics, but I cannot--I don't want to really speak
8 about something that exceeds what's the economics and
9 the percentage stake.
10 (Overlapping speakers.)
11 Q. Okay, the percentage stake is a percentage
12 in the Shares of a Company, right?
13 A. (Ms. Bambachi) It can be direct, it can be
14 indirect, via a company, it can be in many ways--
15 (Overlapping speakers.)
16 Q. Direct or indirect, it's a percentage in the
17 Shares of a company. Maybe directly, maybe
18 indirectly. But we're talking about shares here.
19 A. (Ms. Bambachi) I think it might, but I think
20 it's a simplification, so I'm not sure. I cannot
21 answer that question.
22 Q. Okay. I will default that the
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1 simplification is not to consider the point to follow,
2 but that's fine.
3 Now, we determined a loss in Fair Market
4 Value, okay? And for--and to determine that loss in
5 Fair Market Value you use a DCF methodology, is that
6 correct?
7 A. (Ms. Bambachi) That's correct, yes.
8 Q. And generally when you look at--throughout
9 your Report you make a distinction between hotel
10 businesses and real-estate businesses?
11 A. (Ms. Bambachi) We do so for purposes of the
12 forecast because the drivers are different, yes.
13 Q. Okay. Perfect. I'm going to generally
14 focus on the hotel business in my questions.
15 A. (Ms. Bambachi) Okay.
16 Q. But some questions will--may be general in
17 nature and therefore potentially can apply to both.
18 A. (Ms. Bambachi) Okay.
19 Q. Now, if you--if we look--try to see how you
20 valued the--determined the loss in the Fair Market
21 Value, if you can please go to your First Report,
22 Paragraph 83.
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1 A. (Ms. Bambachi) Yes.
2 Q. Now, it says the price resulting from a
3 valuation in accordance with FMV will always be
4 greater than or equal to the value perceived to the
5 hypothetical voluntary seller and less than or equal
6 to the value perceived by the hypothetical voluntary
7 buyer. Therefore, FMV represents an equilibrium price
8 between the value placed upon the business by the
9 buyer and that by the seller.
10 And then if we go down to Paragraph 84, you
11 say: "Considering this equilibrium, an FMV valuation
12 excludes forced sales or other sales that occur under
13 situations of pressure, time constraints or lack of
14 liquidity."
15 Do you see that?
16 A. (Ms. Bambachi) Yes.
17 Q. So, if we're looking at forced sales to try
18 to understand, is it the point that if you have a
19 transaction where the buyer is under pressure, he
20 could potentially pay a higher price than he would
21 otherwise and therefore, it would be inflated, for
22 example?
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1 A. (Ms. Bambachi) Could be, yes.
2 (Overlapping speakers.)
3 A. (Ms. Bambachi) That's one example, well it's
4 many examples now, but that could be one example of
5 for sale where the buyer is forced to purchase at a
6 high price.
7 Q. So, the idea is that the FMV should be based
8 on transactions that where you don't have a forced
9 sale because in that example and the example I gave,
10 the asset that was forced--that was sold in the
11 forceful manner or bought in a forceful manner would
12 have a value different from the FMV?
13 A. (Ms. Bambachi) Yes. The FMV assumes a
14 transaction that is voluntary and unplanned with no
15 force or pressure to the Parties.
16 Q. And, okay, so you talk also about pressure
17 which I assume is similar to forced sales, time
18 constraints, lack of liquidity.
19 Lack of liquidity, what do you mean, a
20 transaction where you have lack of liquidity?
21 A. Where a seller is forced to sell because
22 they have a lack of liquidity. So they sell at the
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1 price that is lower than the Fair Market Value.
2 Q. Because they need money, and whatever
3 they're selling is, well it's not money, so it's less
4 liquid. Is that the point?
5 A. (Ms. Bambachi) Yes.
6 Q. Okay, so, if you're selling an asset, for
7 example, that is not liquid, then the seller can sell
8 it at a lower price than the FMV?
9 A. (Ms. Bambachi) It's not necessarily the
10 asset. It can be the owner of an asset who has a need
11 for liquidity for some business or personal reasons, a
12 person that sells their car because they need cash.
13 It applies to many circumstances. This is a general
14 definition, so it can apply to many circumstances.
15 Q. So, do you mean that it's either the seller
16 needs liquidity or the asset being sold is not liquid
17 enough? Among other things.
18 A. (Ms. Bambachi) The examples I can think of
19 are usually about the seller, not really about the
20 asset. It could be both, but...
21 Q. So, if you have--if you have an asset that
22 is not liquid in the sense that you don't have a big
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1 market to sell it for, sell it at, would that have an
2 impact on the price at which you sell, or not?
3 A. (Ms. Bambachi) No, that's not what lack of
4 liquidity means here. It means that the asset is
5 lacking the liquidity to continue operating, but there
6 is a contradic-yeah, exactly. It's not the liquidity
7 of the price. It's not the market for the asset. It
8 refers to the liquidity in the operations of the asset
9 of the Company. Or the person who is selling or the
10 buyer.
11 Q. So, if you have a--if you have an asset that
12 doesn't have enough liquidity, that will--you will
13 sell it--in that case, that FMV will take into account
14 the fact that the asset lacks liquidity? Or--
15 A. (Ms. Bambachi) No, we should exclude the
16 trans--sorry, I spoke over you. We should exclude the
17 transaction because if it has a-- if it's a
18 transaction that was driven by lack of liquidity, it
19 does not reflect the Fair Market Value. That's what
20 it's saying. That it's not an indicator of Fair
21 Market Value.
22 Q. Okay. Now, can you please turn to your
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1 Second Report at Page 4--sorry, at Paragraph 14.
2 That's page 9, so that's a point that concerns hotels.
3 As I told you, I'm mostly going to focus on hotels.
4 Do you have it? It says: "In our analysis we
5 validate the assessment of the fees and equity
6 holdings that Mr. Seda and the other Claimants would
7 have received from their hospitality projects. In the
8 absence of the measures, using a Market Transaction
9 analysis based on the value per key metric. Then
10 based on a sample of majority stake acquisitions in
11 the hospitality industry in Latin America provided by
12 JLL."
13 Do you see that?
14 A. (Ms. Bambachi) Yes.
15 Q. Now, when you say "majority stake
16 acquisitions," what do you mean? Do you mean an
17 acquisition of more than 50 percent of the Shares of a
18 Company?
19 A. (Ms. Bambachi) I don't remember exactly if
20 it's 50 percent or if it was a higher threshold for
21 the majority, but it means that it's a relevant stake
22 in the company, we excluded any minority transfer of
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1 shares, like if it's a 5 percent transfer, we excluded
2 it. I don't remember exactly, the threshold was
3 50 percent, sometimes it's 80, or it could be higher.
4 Q. So at least 50, and sometimes higher?
5 A. Um-hmm.
6 Q. So, the JLL acquisitions--sample of
7 acquisitions, that's why it's limited to majority
8 stake acquisitions?
9 A. (Ms. Bambachi) Yes.
10 Q. Yes.
11 And is that because if you take a minority
12 stake acquisition, it will--that will change something
13 in the value? If you had included--sorry. If JLL had
14 included minority stake acquisitions, would this have
15 driven their value per key metric down?
16 A. (Ms. Bambachi) It would have required for
17 those transactions in the minority to make some
18 adjustment for ownership for majority ownership.
19 Q. And what does that mean concretely? They
20 would have--
21 A. (Ms. Bambachi) You have to make an
22 adjustment upwards, a majority stake has a higher
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1 value than a minority stake per unit, you know, when
2 you divide it--
3 Q. Okay, so a majority stake has a higher value
4 than a minority stake.
5 A. Per unit.
6 Q. Right.
7 A. (Ms. Bambachi) Not in the aggregate.
8 Q. Okay, in that case. And, well, here you're
9 talking about value per key metric provided by JLL.
10 A. (Ms. Bambachi) Yes.
11 Q. And in general, that's a general principle,
12 like if you if we look at anything else in your
13 model, is anything where, if for any assumption you
14 should also always exclude minority stakes?
15 (Overlapping speakers.)
16 Q. Let me simplify the question. Is--Can you
17 generally say a majority stake is worth more than a
18 minority stake?
19 A. (Ms. Bambachi) With all the caveats, right?
20 so we have two comparable samples, if you have one
21 that is majority and one that is minority and they
22 satisfy all the comparability, yes.
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1 Q. Okay. And for FMV, you look at majority or
2 minority?
3 A. (Ms. Bambachi) So, we are looking at the
4 full value of the hotel, so it's a majority.
5 Q. Yes, but if you want to look at market
6 transactions, would you--would you look at--would you
7 compare with one--you want to determine the FMV, will
8 you compare with the Market Transaction only if it's
9 majority--a majority stake, or you can also look at
10 minority stake?
11 A. (Ms. Bambachi) So, in general, the
12 methodology also allows to look at minority stake.
13 Classic example is when you look at the prices for
14 public companies, which is traded prices for
15 individual shares, and in equity in that case you
16 apply a premium. You can still apply the methodology,
17 you just have to make some adjustments.
18 Q. Okay. So, in that case, the majority stake
19 also has value--more value-than a minority stake.
20 (Overlapping speakers.)
21 A. (Ms. Bambachi) Sorry, I spoke over you. So,
22 if the object of your valuation is a majority stake,
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1 you can use either--like you have to look at all the
2 criterias for comparability, assuming that you have
3 satisfied all the criterias of comparability, you can
4 use a majority stake, no additional adjustment is
5 required, you use a minority stake which is the
6 example of public traded companies when you use price
7 of-traded prices, and you make an adjustment. It
8 doesn't discard the methodology. It just requires an
9 adjustment.
10 Q. Okay. And if we're talking-if we're looking
11 at the Company and you have two Shareholders, one has
12 a majority and one has a minority, is the value per
13 share higher for the one that has a majority than the
14 one that has a minority?
15 A. (Ms. Bambachi) It depends. It depends.
16 Because if they are selling jointly, it has the same
17 value. The difference is when you're selling a
18 majority stake or when you're selling a minority
19 stake. When you're selling the whole equity of a
20 Company, the proportion of value, except for some
21 special shareholding agreement, would be uniformly
22 distributed.
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1 Q. Okay. And if you're--- if they're--if the
2 Minority Shareholder is selling alone, he would have a
3 lower--the value of his shares would be lower than if
4 he was a majority shareholder?
5 A. (Ms. Bambachi) Yes, if a majority
6 shareholder sells one share, he would have a lower
7 value than if he sells the full packet of shares.
8 Q. Okay. In that case, if you look at Page 7
9 of your First Report, the footnote we were looking at,
10 we see--so, that's Footnote 12, First Report, Page 7,
11 we see, for example, that in 450 Heights, Mr. Seda has
12 100 percent, so that's clearly a majority stake. In
13 Sante Fé he has 82 percent, so that's--I assume it's
14 probably a majority stake? Would you agree?
15 A. (Ms. Bambachi) Depends on the case, but
16 yeah, you can assume.
17 Q. Cartagena, 70 percent.
18 A. (Ms. Bambachi) Yes.
19 Q. However, Meritage, 48 percent, that's a
20 minority, not by much, but it's a minority, not by
21 much if we assume it's 50 percent.
22 A. (Ms. Bambachi) It's not as linear or simple
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1 as you put it but okay, yeah.
2 Q. You told me the majority is at the very
3 least 50 percent.
4 A. Um-hmm.
5 Q. And Luxé at 33 percent, that's a minority.
6 A. (Ms. Bambachi) Yes.
7 Q. Okay. And then if we go down to the other
8 Shareholders, that's Footnote 13, I'm not going to
9 take the percentages one by one, but you have--they're
10 between 0.5 and I think 6 percent, so these are all
11 clearly minority stakes.
12 A. (Ms. Bambachi) Yeah, but this is the
13 situation in which we are valuing the change in value
14 in equity as a whole. We're not--we're not building a
15 scenario in which each individual Shareholder goes to
16 America and says they're shareholding. We're valuing
17 the equity, and then we distribute uniformly between
18 the equity-holders; which is a different exercise to
19 the one we were discussing before where I have the
20 subject of my valuation which is a majority
21 shareholder, and I go look to the market for
22 comparable information on prices and I only find
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1 minority shareholders. That is a situation in which a
2 majority shareholder is going to a market and minority
3 shares are going to a market. In that case, you need
4 an adjustment. In this case, we're valuing the equity
5 as a whole, so there's no--it's different situations.
6 Q. I know--
7 A. In this case, it's not relevant for value
8 the shareholding. It's just a percentage times the
9 change in value in equity.
10 Q. Well, it's not relevant to the exercise
11 you've done because you haven't even looked at what
12 you're valuing. You haven't asked yourself the
13 question what is this loss in equity I'm valuing?
14 A. (Ms. Bambachi) The loss in equity is the
15 loss in the value of the Project minus the value of
16 the debt. I have looked at that and I have valued it.
17 Q. Okay, well, I mean, if there is a person in
18 the world that understands loss in equity as loss to
19 the value of a share, would you agree that if we're
20 valuing in that case, in the present case, if we're
21 valuing the loss to shares held by different
22 Claimants, would you agree that the Shares held by
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1 Minority Shareholders would have less value than those
2 held by a majority shareholder?
3 A. (Ms. Bambachi) Sorry, I'm reading the
4 question.
5 Q. If, assuming that what you are asked to do,
6 if I'm asking you to value a loss--a value, a but-for
7 value, of shares held by the different Claimants in
8 that case, if that is an exercise you were asked to
9 do, would the value held in the same company held by a
10 Minority Shareholder be lower than that held by a
11 majority shareholder, not if they're selling together.
12 They're selling separately.
13 A. (Ms. Bambachi) But, it doesn't have to be
14 sim--, like it has to be separate transactions, yes.
15 Q. Okay. Thank you.
16 Okay, I will continue my focus on hotels.
17 So, if we're looking at the different
18 projects you've looked into in your Reports and the
19 Valuation Date, which is January 2017, in your Report?
20 A. (Ms. Bambachi) Oh, sorry. Yeah.
21 Q. The Valuation Date that you've used is
22 January 2017, correct?
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1 A. (Ms. Bambachi) Yes.
2 Q. Now, as of that Valuation Date, was any of
3 the hotels in the different projects operational?
4 A. The Charlee Medellín was operational. You
5 mean the hotels developed by Claimant or the hotels
6 that are subject to my valuation?
7 Q. Subject to your valuation. The ones we're
8 valuing.
9 (Overlapping speakers.)
10 A. (Ms. Bambachi) Okay, so the Charlee was not
11 subject to my valuation but the Charlee was
12 operational. And from the ones that are subject to my
13 valuation, I understand that the Luxé was close to
14 completing construction.
15 Q. But was it operational?
16 A. (Ms. Bambachi) No.
17 Q. So, it wasn't making any money?
18 A. (Ms. Bambachi) The hotel itself as of the
19 Date of Valuation, wasn't no. It didn't start
20 the--you remember my graph with the cash flows by the
21 Date of Valuation, the hotel hadn't started operating.
22 It wasn't finished. They didn't finish building it.
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1 Q. So, we can't use the Luxé hotel to look and
2 say, to use as an example for how a hotel in that
3 project would do in terms of attracting clients who
4 would come and stay for different periods. We can't
5 look at actual data and see in them, for example, the
6 occupancy rate of the hotel because we have no idea
7 because the hotel never started operating in the first
8 place, is that correct?
9 A. (Ms. Bambachi) We have forecasts. We have
10 market information, and we have, that I relied also
11 on, evidence from The Charlee in Medellín.
12 Q. I'm not talking about forecasts now.
13 A. (Ms. Bambachi) If you're asking--
14 Q. I'm talking about actual--actual
15 performance?
16 A. (Ms. Bambachi) No, I cannot source
17 information on occupancy from the Luxé because it was
18 not finished yet by the time of Date of Valuation.
19 Q. Meritage wasn't finished either?
20 A. (Ms. Bambachi) It wasn't finished either.
21 Q. Meritage wasn't even-
22 A. (Ms. Bambachi) It was under construction.
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1 Q. Yeah, Meritage wasn't even in construction.
2 A. (Ms. Bambachi) I understand that part of the
3 construction expenses of Phase 1 include common areas
4 and parts of the hotel, too, so it wasn't formally in
5 construction--like the Phase 2 was--Phases 2 and 3 are
6 the hotel, but some of the construction that took
7 place in Phase 1 was related to the hotel.
8 Q. Okay. If we go to Page 32 of your Second
9 Report, for example, that's a very helpful table,
10 Table 4, that shows what each phase contains. And--
11 A. (Ms. Bambachi) Page 32 you said?
12 Q. 32, yes, Table 4 of your Second Report.
13 So, if I'm looking at the Meritage Phases 2
14 and 3, they have apartasuites, so that's extensive
15 stay hotel, yeah. And then Phase 3 says combined with
16 Phase 2, which I understand meaning like they're both
17 together.
18 A. (Ms. Bambachi) Phases 2 and 3 are the
19 construction of the Meritage hotel, yes.
20 Q. Okay. And Phase 1, yeah, I'm seeing retail
21 units and apartments. I'm not seeing hotel. Now,
22 maybe there is a detail you haven't put it that--
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1 A. (Ms. Bambachi) I can explain that to you.
2 So, when we did our model, and we allocated
3 all the historical costs to Phase 1, which was the one
4 that was completely sold. However, within those
5 costs, we included--because you cannot separate
6 exactly which costs belong, there is common areas.
7 Right, you have the general gate. You have roads. So
8 you cannot exactly separate the costs per area. For
9 simplicity in our model, we included all the
10 historical costs in Phase 1, but we understand that
11 part of the Phase 1 construction costs would be
12 allocated to the different phases.
13 Q. The hotel itself--
14 A. (Ms. Bambachi) The hotel was not
15 operational.
16 Q. And it was not in construction, the hotel?
17 I mean, you're telling me there are areas that are
18 common between the hotel and real estate--
19 A. (Ms. Bambachi) Yes.
20 Q. --that was in construction, but the hotel
21 was not in construction.
22 A. (Ms. Bambachi) Yes.
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1 Q. Okay. Now, so, if we're looking at the
2 Claimants' projects, there were no hotels operational,
3 you cannot look at them and say, well, actually, this
4 project in terms of hotels has a track record of
5 performance of X because none of them had started
6 operating.
7 A. (Ms. Bambachi) Yes. And that's why we don't
8 make what--we base our forecasts on business plans,
9 but we also go to the market and look for hotel values
10 per keys because we couldn't benchmark with the market
11 exactly all the parameters as we could for the
12 real-estate business.
13 Q. So, you do two things. You received models
14 from the Claimants, from Mr. Seda, mainly?
15 A. (Ms. Bambachi) Business-planning documents.
16 Q. Yes. And the--you've used them to get your
17 assumptions. And then you've compared the data
18 provided by JLL?
19 A. (Ms. Bambachi) Market data, yeah. Data
20 collected by JLL based on Market Transactions, actual
21 transactions on hotels, yes.
22 Q. Now, I'm not going to get into the data from
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[Page 1472]
1 JLL. We've had the cross of JLL today. I don't know
2 if you've seen it. Also, there's Dr. Hern's Reports
3 have a lot of comments on the JLL data and by his
4 opinion they are not--they are not proper comparators,
5 so I'm not going to get into that.
6 My point now is you've used the Claimant's
7 models, underwriting models, you call them I think.
8 How do you call them?
9 A. (Ms. Bambachi) So, it's several--several
10 documents, so in general we call them business
11 planning documents, individually we have underwriting
12 models, we have operation models, we have actual
13 information on sales, actual information on
14 construction completion, construction that was still
15 to be executed.
16 Q. If I'm talking--if we're talking about
17 hotels, there are no sales, so you don't have anything
18 on the revenue the hotel is bringing. You don't have
19 actual data about the revenue that any of the hotels
20 in question is achieving?
21 A. (Ms. Bambachi) I'm confused. You asked me
22 where I was sourcing my forecasts. I'm sourcing my
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1 forecast from business planning documents.
2 Q. Because you're saying we got actual
3 performance data on the hotels.
4 (Overlapping speakers.)
5 A. (Ms. Bambachi) So, yeah, excuse me. So, the
6 sales are Phase 1, that's related to real estate but
7 the construction costs we have actual information on
8 the construction costs for the Luxé hotel. So, it's a
9 combination of actual information and actual economic
10 information. I think it's mostly operates as models
11 when it refers to hotels, but I don't remember if they
12 all have exactly the same name. It's a combination of
13 all that information.
14 Q. So, again, so that we don't mix everything
15 up--
16 SECRETARY MARZAL: Excuse me. I'm sorry,
17 the Interpreters are really having a hard trouble
18 following. Sorry, slow down a little bit.
19
BY MR. DAOUD:
20 Q. Sorry. So we don't mix real estate and
21 hotels. I'm only talking about hotels now.
22 In terms of actual performance that you can
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[Page 1474]
1 base your assumptions on or compare in terms of
2 revenue for the hotels, you have nothing, is that
3 correct?
4 A. (Ms. Bambachi) We have relied on comparisons
5 in revenues with The Charlee and other market
6 comparables.
7 Q. That's Charlee.
8 A. (Ms. Bambachi) Yeah.
9 Q. But for the ones you're actually valuing,
10 you have no actual performance data on the revenues.
11 A. (Ms. Bambachi) No, because they're not
12 operating yet.
13 Q. Yes. And then you have part of the
14 construction--you have data on the construction costs
15 for part of one hotel. That's the Luxé.
16 A. (Ms. Bambachi) 72 percent, yes.
17 Q. And the costs is only one part of the story.
18 You also have to look at revenues to get the full
19 picture.
20 A. (Ms. Bambachi) Future cash flows, yeah.
21 Q. And, so, when you say you have The Charlee,
22 now The Charlee has 42 rooms, right?
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1 A. (Ms. Bambachi) Yes.
2 Q. We're looking at still your Page 32 of the
3 same table, if we're looking at the Meritage, for
4 example, it has 300 apartasuites.
5 A. (Ms. Bambachi) Yes.
6 Q. Okay. That's roughly seven times bigger
7 than The Charlee?
8 A. (Ms. Bambachi) Yeah.
9 Q. The Luxé has 116.
10 A. (Ms. Bambachi) Yes.
11 Q. That's almost three times The Charlee?
12 A. (Ms. Bambachi) Yes.
13 And the Luxé also has some of the cabañas
14 that are rented via the hotel, so the hotel has
15 revenues from these 116 rooms. It also has revenues
16 for the rentals of some cabañas, so it's actually
17 slightly higher--
18 (Overlapping speakers.)
19 Q. But I'm talking about really hotels--
20 A. (Ms. Bambachi) No, but that's in the hotel
21 cash flows, that's why I'm adding it.
22 Q. Sure. But I'm talking about what a normal
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[Page 1476]
1 person would look at and say 'oh, that's a hotel'. So
2 the cabañas, I know they get rented.
3 A. (Ms. Bambachi) Yeah, yeah. I'm just saying
4 it's within the hotel cash flows. If we're talking
5 hotel cash flows, it's within the hotel cash flows.
6 Q. No, no, I understand that. But I'm saying
7 like for a lay person, like I've rented apartments
8 before and never called them "hotels." So, the
9 cabañas aren't hotel in that sense for a lay person.
10 Now, maybe you call them hotel in your Reports, but
11 I'm not criticizing that. I'm just saying--I'm just
12 confirming that the cabañas aren't a hotel in the
13 normal sense of word.
14 A. (Ms. Bambachi) It's semantics, but in our
15 model and in the business model, these cabañas were
16 sold to owners and these owners could put them in a
17 rental pool, and this would be operated via the hotel
18 business, and it's part of the hotel future cash
19 flows.
20 Q. And they can also live in them, if they want
21 to.
22 A. (Ms. Bambachi) It's a choice, yes.
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1 Q. Yes.
2 A. (Ms. Bambachi) They can either choose to
3 live in them, or they can put them in the rental pool.
4 And within the future cash flows, the hotel generates
5 revenues also for the rental of these cabañas.
6 Q. Okay. But what I mean is when you look at
7 The Charlee Hotel or the Luxé hotel or the Meritage
8 hotel, nobody can live in them. You go there, you
9 live-I mean, obviously--
10 (Overlapping speakers.)
11 Q. If you decide to live in a hotel for years,
12 okay, you can do it but that's not the normal use of
13 the rooms.
14 A. (Ms. Bambachi) I'm not judging.
15 Q. Okay. Then you have hotels in Cartagena and
16 450 Heights--
17 REALTIME STENOGRAPHER: I'm sorry. From
18 back here. Can we take a break soon?
19 MR. DAOUD: I'm in the hands of the
20 Tribunal.
21 PRESIDENT SACHS: Yes, now we should have a
22 break soon. 5 minutes, would that be okay?
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1 MR. DAOUD: Should we stop now?
2 PRESIDENT SACHS: I'm looking at the court
3 reporters. 10.
4 MR. DAOUD: Sorry, I'm not sure. Should I
5 finish--
6 PRESIDENT SACHS: No, no, no, you have 10
7 more minutes before the break.
8 MR. DAOUD: I have--Okay, because I think
9 the court reporter wants a 10 minute break.
10 PRESIDENT SACHS: Do you want to have it
11 now?
12 REALTIME STENOGRAPHER: If we are going to
13 break in 10 minutes, I'll hold off until then.
14 PRESIDENT SACHS: Let's have a break now. I
15 think it's better that we have the break now. 15
16 minutes. 3:30, please. Thank you.
17 (Recess.)
18 PRESIDENT SACHS: All right. Can we resume,
19 please. Mr. Daoud, are you ready?
20 MR. DAOUD: Yes, I am. Thank you.
21 PRESIDENT SACHS: Please proceed.
22 MR. DAOUD: Thank you.
[Page 1479]
1 BY MR. DAOUD:
2 Q. Okay. So to--just to recall before the
3 break, I think you agree that among the projects
4 you're valuing there at Valuation Date, there was no
5 hotel operational.
6 A. (Ms. Bambachi) Correct.
7 Q. Now, however, you point to The Charlee
8 Hotel, and do you consider that Charlee Hotel as
9 relevant to determining the expected performance of
10 the other of the hotels you're valuing?
11 A. (Ms. Bambachi) It is one of the elements
12 that we have considered relevant in assessing the
13 reasonability of the forecast we used, yes.
14 It's a combined analysis in which we look at
15 information from The Charlee, we look at information
16 from SDI, we look at information on value of hotel per
17 key combined within contents in our forecast that are
18 based on the business planning documents.
19 Q. Now, if we're talking about track records of
20 the Claimants--
21 A. Hmm.
22 Q. --in the hotel business and we want to see
[Page 1480]
1 their track records and operating hotels, is there
2 any--any track records outside of The Charlee? In
3 operating hotels.
4 A. (Ms. Bambachi) So, I'll refer to the track
5 record. We refer to a track record in a broader sense
6 as a developer, including the hotel business. In the
7 hotel business, we look at The Charlee, yes.
8 Q. Is there anything other than Charlee?
9 A. (Ms. Bambachi) Yes. The sale and delivery
10 of Phases 1, 2, and 5 of Luxé.
11 Q. Is that hotels?
12 A. (Ms. Bambachi) I started my prior answer
13 saying that when we look--when we refer to a track
14 record, we refer to a track record as a developer of
15 mixed deals, real estate development, including
16 hotels. So, when we look at hotels, we look at
17 Charlee. When we look at real estate track record, we
18 can refer to Luxé and construction delivery of
19 Phases 1, 2 and 5, I think it is; Meritage, almost
20 complete sale of Phase 1 and the construction that was
21 ongoing in both Meritage and Luxé.
22 Q. Okay. Would you agree that most of them,
[Page 1481]
1 vast majority of your damages are hotel-based, not
2 real estate based?
3 A. (Ms. Bambachi) We value the projects as one.
4 We separate them for the purpose of forecasting cash
5 flows. Yes, the long-term parts of the project as a
6 whole are derived from the hotel business, but our
7 projects are one, including a real estate part and the
8 hotel part.
9 Q. Sure.
10 But then I mean, Dr. Hern, I think, says
11 that it's 80 percent of the damages are hotel-based.
12 But would you agree with that, roughly?
13 A. (Ms. Bambachi) I will qualify that they are
14 derived from the hotel cash flows, but it doesn't mean
15 that the hotel business is one and the real estate is
16 another. It's one and only. It's projects including
17 both businesses. It's the source of the cash flows
18 what you're referring to.
19 Q. Okay. So, what you're doing when you're
20 doing--when you're looking at the track record, you're
21 telling me you look at them broadly; that means that,
22 in order to look at how well the Claimants are
[Page 1482]
1 expected to operate a hotel, you also look at how well
2 they're building real estate. That's not hotels.
3 A. (Ms. Bambachi) Building? We look at what
4 they have built and delivered. Operating the hotel,
5 we look at Charlee.
6 Q. Okay. So, for one to see how--what's the
7 track record of the Claimants in operating hotels,
8 would you agree with me that, well, you--we would need
9 to see which hotels they have operated so far.
10 A. (Ms. Bambachi) For the hotel operation, the
11 operating parameters, yes.
12 Q. And if you look at how they've been building
13 real estate that is not hotels, would that tell you
14 anything about how well they can operate a hotel?
15 A. (Ms. Bambachi) Not precisely. No, I
16 wouldn't update any of hotel operating parameters from
17 how they build the hotel or how they build a real
18 estate unit.
19 Q. And the only hotel you can look at to see
20 how well they operate hotels is The Charlee.
21 A. (Ms. Bambachi) Yes.
22 Q. Now, The Charlee, as you were saying, it's a
[Page 1483]
1 42-room hotel.
2 A. (Ms. Bambachi) Yes.
3 Q. Compared to much bigger hotels if we're
4 looking at the table. Around seven times more in the
5 Meritage and almost three times more in Luxé, and then
6 they're also linked projects and--for hotels in Tierra
7 Bomba, 450 Heights, and Sante Fé--all of them, I
8 think, bigger than The Charlee. Would you agree?
9 A. (Ms. Bambachi) Yes.
10 Q. Okay. And if we want to look at all of
11 these hotels, these five big hotels, the only track
12 records we have for the Claimants to look at how well
13 are they going to operate these five big hotels, the
14 only track record we have is a 42-room hotel, which is
15 The Charlee; correct?
16 A. (Ms. Bambachi) So, to compare operating--
17 Q. Can you just say "yes" or "no," and then
18 explain, correct or incorrect?
19 A. (Ms. Bambachi) Okay. So the track record we
20 use is The Charlee, but that's not the only source of
21 information we use in our forecast.
22 Q. For operating revenue from hotels, do you
[Page 1484]
1 have any track record to use other than The Charlee?
2 A. (Ms. Bambachi) We don't focus our revenues
3 based on The Charlee.
4 Q. I know that but--
5 A. (Ms. Bambachi) No, but it seems like in the
6 question you're confusing both.
7 Q. I'm not confusing. I'm saying you are--you
8 make the point that the Claimants have a track record
9 that shows that they're successful at their business.
10 A. (Ms. Bambachi) Yes, I understand they're
11 successfully operating The Charlee at Medellín.
12 Q. Now, if we look at the hotel portion of the
13 business, which is almost 80 percent of the damages,
14 for that hotel portion, the only track record they
15 have in operating hotels is The Charlee.
16 A. (Ms. Bambachi) Yes, but I will say that's
17 not the source of our forecasts.
18 Q. Well, that's not my question.
19 A. Okay.
20 Q. The only track record they have in operating
21 hotels is the Charlee, correct?
22 A. (Ms. Bambachi) I understand, yes.
[Page 1485]
1 Q. Correct?
2 A. (Ms. Bambachi) I understand, yes, I just
3 said it.
4 Q. Yes. All right.
5 Charlee, again 42 rooms, these five big
6 ho--five hotels having many more rooms or suites--
7 A. (Ms. Bambachi) Can I add something on what
8 you just said?
9 Q. Of course.
10 A. (Ms. Bambachi) That's exactly why we don't
11 base our forecast on The Charlee operating cash flows.
12 We just use it as a benchmark. We have specific
13 forecasts for each hotel based on the specific
14 characteristics, locations, et cetera, which we
15 validate then with hotel transactions per key.
16 Q. Yes. But again, I'm talking about the track
17 record. I'm not talking about the forecast.
18 PRESIDENT SACHS: Mr. Daoud, I think we have
19 covered that point, so could you move on?
20 MR. DAOUD: Yes. I'm pursuing the point but
21 I keep getting dragged to questions of forecasts. I
22 know the forecasts are based on the Claimants' models
[Page 1486]
1 and compared with comparators from JLL. I'm talking
2 about now--I'm not going to repeat myself.
3 BY MR. DAOUD:
4 [Redacted]
5 [Redacted]
6 [Redacted]
7 [Redacted]
8 [Redacted]
9 [Redacted]
10 (Comments off microphone.)
11 A. (Mr. Dellepiane) Go ahead.
12 Q. Do you know where The Charlee Hotel is in
13 Medellín?
14 A. (Mr. Dellepiane) I do.
15 Q. Where is it?
16 A. (Mr. Dellepiane) In Parque Lleras.
17 Q. Okay. The Tierra Bomba is in Cartagena.
18 A. (Mr. Dellepiane) Correct.
19 (Overlapping speakers.)
20 Q. That's not--
21 A. Outside--outside Cartagena.
22 Q. Yes. That's not Medellín.
[Page 1487]
1 A. (Mr. Dellepiane) Apparently not.
2 Q. The Luxé, the Meritage, 450 Heights, these
3 are in the suburbs of Medellín.
4 A. (Mr. Dellepiane) No, that is not correct.
5 Q. No? But I'm looking at your--I'm looking at
6 your table.
7 A. (Mr. Dellepiane) Luxé is not in the suburbs
8 of Medellín. It's in Guatapé. It's quite away from
9 the suburbs.
10 Q. Okay.
11 A. It's a rural area. It's a beautiful,
12 natural space, not the suburbs. That's why I'm
13 correcting. 450 Heights and Meritage are. If I had
14 to write that again, I wouldn't say suburbs. I would
15 say they're somewhere between the fringe of the urban
16 area, and I guess you can call that suburbs, and Santa
17 Fé is definitely not in the suburbs. It's also very
18 rural, and I'm not sure you put that in the question.
19 Q. So, my point is they're all in very
20 different areas than The Charlee. Charlee's in
21 Medellín. None of the five hotels is in Medellín,
22 either suburbs of Medellín, rural areas outside of
[Page 1488]
1 Medellín or just in completely different parts of
2 Colombia like one next to Cartagena.
3 A. (Mr. Dellepiane) Well, that's the whole
4 point, right? It's--If he was flooding the market
5 with the "Charlee" brand in the Medellín urban area,
6 that would be--there would be a problem of absorption.
7 But what he's doing is actually replicating the
8 lifestyle brand--or was doing--was replicating the
9 lifestyle brand into the tourist hubs, established
10 once, like Cartagena and others in--or being sought to
11 be established, like Guatapé.
12 Q. Okay. And--
13 A. (Mr. Dellepiane) It's a replicable model.
14 Basically, the idea is basically to scale the brand.
15 It's not invented by Mr. Seda. It's a pretty smart
16 idea that has been done many times.
17 Q. Yes. If that idea worked in The Charlee,
18 that means it will work again five more times in
19 different places.
20 A. (Mr. Dellepiane) Is that a question?
21 Q. Yeah.
22 A. (Mr. Dellepiane) No. No, it's not. In
[Page 1489]
1 fact, that's why we risk these quite heavily. We're
2 giving three of these five projects more than a
3 30 percent chance of disappearing before they even get
4 started.
5 Our valuation is already taking them with a
6 30 percent reduction, a haircut, 33 percent haircut on
7 value just because of that, in addition to other
8 discounts.
9 Q. So, 33 percent haircut?
10 A. (Mr. Dellepiane) Yeah.
11 Q. Okay. Because you're--it's 23 in your
12 Report.
13 A. (Mr. Dellepiane) I'm sorry, 23--
14 (Overlapping speakers.)
15 Q. Maybe you can increase it to 33.
16 A. (Mr. Dellepiane) Well, I provided a, I
17 thought, a very conciliatory start today, explaining
18 that the range of evidence in the record goes from
19 66 percent to 90 percent and we're at 77 percent
20 survival rate, 23 percent failure rate.
21 Q. Yeah. And you don't--
22 A. It's very substantial.
[Page 1490]
1 Q. And you don't apply that failure rate to the
2 Meritage or the Luxé.
3 A. No, clearly not. These places are
4 established. Luxé is in operation. Except for the
5 hotel, it wasn't finished--for what's going on here,
6 and the Meritage is not in operation but sold its
7 entire Phase 1 and part of the following phase.
8 Q. Okay. Maybe "yes" or "no," and then the
9 explanation. So you don't apply--
10 A. (Mr. Dellepiane) I said no.
11 Q. --the failure rate--
12 A. I said no.
13 Q. Yes. And you're telling me it's very
14 well-established except for the hotel in Luxé, but you
15 haven't thought of applying a failure rate to the
16 hotel.
17 A. (Mr. Dellepiane) One could. The Tribunal
18 could instruct us to apply a failure rate to the Luxé.
19 If they feel that being thirty--and I'm going to get
20 the math right this time, sorry, 26.4 percent away
21 from completion and the construction and--means that
22 the hotel was literally going to be a failure.
[Page 1491]
1 So, this is something that you have to be
2 very careful about because the failure rates as
3 applied are basically putting a huge haircut that
4 assumes almost a binary yes-no progression with a
5 project; whereas, in reality, what you're saying is
6 that the project could be financially more, less or
7 medium successful. We have an expected value, and
8 then we put a big haircut on these three projects.
9 And apply the haircut on Luxé. I think it
10 doesn't merit it because it's, you know, an
11 established brand applied to an established area, not
12 far from the hub from where the brand was created.
13 Q. So, again, so you have one hotel
14 operational, that's The Charlee, and there is two
15 other hotels, Meritage and Luxé, that are not
16 operational, and--
17 A. (Mr. Dellepiane) Correct.
18 Q. --in your opinion, there is zero chance that
19 they fail.
20 A. (Mr. Dellepiane) No. That is not--that is a
21 massive, massive misconstruction of what our Valuation
22 Model does. Our Valuation Model takes business
[Page 1492]
1 projections, which are middle-of-the-road expected
2 values, expected in the statistical sense that
3 have--the hotel could have a higher occupancy, a
4 higher revenue per average room, available room,
5 higher ADRs or lower.
6 Our forecast is the middle of the road, is
7 the expected value because Mr. Seda would not benefit
8 from going to his investors and saying let's--trust
9 me, this is going to be worth a fortune and then that
10 not materializing, that is a very short-lived investor
11 right there. And we know that for that, and that
12 gives us validity to the source documents.
13 Then we go to the market, totally separate
14 from that, and we say how can these market variables
15 inform our Discounted Cash Flow model? And we test
16 that. And we find that the projections that were
17 given to us, that we worked with were actually
18 conservative. So--
19 Q. Are you going to answer the question on the
20 failure rate or not?
21 A. (Mr. Dellepiane) I am answering the
22 question. Your question was: Is there a zero chance
[Page 1493]
1 that they fail? I'm explaining that when you take
2 middle-of-the-road, expected value projections, they
3 amalgamate, they encompass the probability of failure
4 and the probability of success and the probability of
5 more success. What you shouldn't do is treat them as
6 binary.
7 Q. Then why did you apply a separate failure
8 rate to the other three projects?
9 A. (Mr. Dellepiane) Because the proof of
10 concept hadn't taken place. Because no one had built,
11 to this day to my knowledge, a Sante Fé de Antioquia
12 luxury property. I've tried to go and stay there
13 myself, and I have not been able to find a place and I
14 don't think you can find a place in Sante Fé de
15 Antioquia on the river that actually provides the kind
16 of vision and idea that this had in mind. So the
17 reason we apply that failure rate is because we're
18 conservatively risking these properties saying there's
19 a chance this goes through, there's a chance it
20 doesn't.
21 Q. Okay. So, there's a chance that these three
22 go through and there's a chance that they don't, but
[Page 1494]
1 there is no chance the Meritage doesn't go through,
2 even though the Meritage Hotel had not even started
3 construction.
4 A. (Mr. Dellepiane) I don't think you
5 understand my pros and cons on probabilities, and I
6 hope I don't have to repeat it entirely because it was
7 a long answer, but let me try again.
8 What I'm trying to say to you is that our
9 valuation and our projections already encompass
10 probabilities of failure, and it already encompassed
11 the possibilities of higher and lower ADRs, and they
12 come up with an expected value. We find that that
13 expected value is lower compared to any market
14 evidence that we find, and that's when we're satisfied
15 to say, okay, our income-based DCF is actually
16 premised on conservative variables that are lower than
17 those in the marketplace, and therefore, it's been
18 risked appropriately.
19 For the three projects, we go further and
20 say not in a binary way that we just described "yes"
21 or "no." But we say what happens if those first four
22 years of development, development, development don't
[Page 1495]
1 pan out and the public isn't there, the demand isn't
2 there. We just don't find the attractiveness. Or if
3 Colombia takes too long to build the double lane
4 highway that they needed to build, which they did
5 finish.
6 So, there were issues in 2017 that hadn't
7 been completed. The two-lane highway to Sante Fé was
8 an important piece of this.
9 Q. Sir, to sim--I mean, to simplify all--this
10 very long answer, could you maybe say that for Tierra
11 Bomba, 450 Heights, and Sante Fé, you apply the
12 failure rate because they were not in construction and
13 you did not apply the failure rate to the Luxé and the
14 Meritage because they are in construction? Is that
15 your position or not?
16 A. (Mr. Dellepiane) It's one of the
17 determinants. I think I explained it in the
18 presentation today. If you want to ask the question
19 that way, I would say, getting to the construction
20 point would be--would be definitely an issue because
21 if they got to the point of deploying those assets on
22 the ground, then there's definitely a lot of backing
[Page 1496]
1 and support for it--doesn't guarantee it but it's a
2 lot of backing and support.
3 Q. So you don't say in your report that the
4 reason why you apply failure rates to Cartagena, 450
5 Heights, and Santa Fé and you don't apply one to the
6 Luxé and the Meritage is because the first three are
7 in construction, they are not in construction, and the
8 second--the last two are in construction.
9 A. (Mr. Dellepiane) I was trying to help you
10 with your--trying to shorten the answer, but if you
11 want to go to the Report, I believe the way we explain
12 the selection of projects that deserve an--
13 (Overlapping speakers.)
14 A. --risk is--hold on.
15 Q. --I'm sorry, I'm sorry. The question--the
16 question--the question is simple. I'm trying to
17 shorten the answer.
18 A. (Mr. Dellepiane) Okay. Let's go to the
19 Report.
20 Q. Is the criterion you use to apply a failure
21 rate or not is whether the project is in construction
22 or not?
[Page 1497]
1 A. (Mr. Dellepiane) It's one of the
2 determinants was the beginning part of my answer.
3 Sorry if I went too long. It's the equilibrium point
4 that determines the majority of it, and obviously the
5 equilibrium point is related to construction, so all
6 of this is intertwined.
7 Q. So--
8 A. Trying to get yes-or-no answers to this is a
9 little difficult.
10 Q. So, the failure point, the equilibrium point
11 is the point at which the project starts being in
12 construction, correct?
13 A. (Mr. Dellepiane) Not exactly. It's a point
14 at which the funds have been committed sufficiently in
15 order to begin construction.
16 Q. Yes. So, it is the point at which you can
17 start construction.
18 A. (Mr. Dellepiane) That is correct.
19 Q. Okay. Now, is it the case that you apply
20 failure rate to Cartagena, 450 Heights, and Sante Fé
21 because they have not fai--they have not reached the
22 fai--the equilibrium point, but you do not apply
[Page 1498]
1 failure rate to the Meritage and the Luxé because they
2 have reached an equilibrium point.
3 A. (Mr. Dellepiane) Yes. That's what I
4 referred to earlier as proof of concept.
5 Q. Okay. So, that's good, so that we know when
6 you have--when you reach an equilibrium point, you
7 apply--you don't apply failure rate. When you don't,
8 you apply the failure rate. That's what you do.
9 Correct?
10 PRESIDENT SACHS: I think we have this now
11 on the record.
12 MR. DAOUD: Okay.
13 BY MR. DAOUD:
14 Q. Now, the first--So...
15 A hotel for a project that has reached the
16 equilibrium point, does it--can it still fail or not?
17 A. (Mr. Dellepiane) I'm sorry. The hotel
18 business, it's not premised on the same equilibrium
19 point dynamics that my colleague explained earlier.
20 So I think you're miss--
21 Q. You're right.
22 (Overlapping speakers.)
[Page 1499]
1 (Unclear.)
2 A. (Mr. Dellepiane) You're going to a dangerous
3 territory. The equilibrium point concept is for the
4 fiduciary workings of pre-sales of residential units.
5 Q. Let's frame this differently.
6 The equilibrium point is the point for real
7 estate. The equilibrium point is the point where you
8 have enough financing to cover your projected
9 construction costs, correct? Or your projected costs,
10 correct?
11 A. (Mr. Dellepiane) Certain costs, including
12 margin, et cetera. It's not just to deploy the cost,
13 but yes.
14 Q. Okay.
15 A. (Mr. Dellepiane) Generally.
16 Q. Now, whether for hotels or real estate, the
17 equilibrium point is when you have the necessary
18 financing for these costs for real estate. In the
19 Claimants' hotels, that's--the financing comes in the
20 form of pre-sales and with hotels it comes from equity
21 and loans, is that correct?
22 A. (Mr. Dellepiane) Well you--I warned you
[Page 1500]
1 before about extending the concept of equilibrium
2 point to the hospitality section portion of the
3 business, and you again ask me whether for hotels or
4 real estate the equilibrium point is when you have the
5 necessary financing. That's not correct. Equilibrium
6 point could be measured that way. The Investor could
7 decide to build before or after having the financing.
8 I think we established equilibrium point concept as
9 discussed in this record is in relation to the
10 Fiduciary Trust Fund sales. It's not in relation to
11 hospitality.
12 Q. Would you agree that you apply a failure
13 rate when you have--when the project has not had the
14 necessary financing yet to cover the costs and you do
15 not apply a failure rate when the project has had that
16 necessary financing?
17 A. (Mr. Dellepiane) Let's look at my report.
18 Q. Oh, you don't know?
19 A. (Mr. Dellepiane) I do know. We're being
20 very precise with language. I want to go back to the
21 Report and make sure that we--that I can describe why
22 we did.
[Page 1501]
1 And we said, we're exposed to additional
2 risk that might prevent us from reaching--prevent them
3 from reaching equilibrium point to be deemed
4 economically viable. So, to account for that, we've
5 adjusted for the probability of failure. So yes.
6 Q. Now, if you have your necessary financing to
7 cover the costs--okay?--whether we're in the hotel
8 business or in the real-estate business.
9 A. (Mr. Dellepiane) Right.
10 Q. Is it impossible that the project still
11 fails because of a lack of financing?
12 A. (Mr. Dellepiane) Well, it's not completely
13 impossible. It's incredibly unlikely when you've
14 risked the project appropriately and then including
15 industry risks, including middle-of-the-road
16 projections, you've benchmarked your key variables on
17 revenues and costs against the market, you've done all
18 that homework properly, as we have, and in this kind
19 of risk-adjusted rate, and that presents an attractive
20 Net Present Value and an attractive Rate of Return,
21 then to say that is it impossible that it could still
22 fail by financing? I would say, yeah, at that point,
[Page 1502]
1 yeah. I mean it's not impossible but it's extremely
2 unlikely. It would have to be subject to some very
3 large outside force that prevented it from happening.
4 But that's the kind of risk that is contemplated in
5 the business, and the beta and in the Discount Rate.
6 That's exactly what that risk is. It's a compound
7 risk that takes years of cash flows and makes every
8 year more and more and more risky and less and less
9 likely to materialize. That's what the discounting
10 process is.
11 Q. But I'm talking about the project completely
12 failing. Is it impossible?
13 A. (Mr. Dellepiane) That is--
14 Q. Is that taken into account by the Discount
15 Rate?
16 A. (Mr. Dellepiane) A hundred Percent. That's
17 exactly what is it is--
18 (Overlapping speakers.)
19 Q. The why did--
20 A. (Mr. Dellepiane) And you think--
21 Q. --then why did you--
22 A. (Mr. Dellepiane) let me please--
[Page 1503]
1 Q. --why did you--
2 (Overlapping speakers.)
3 PRESIDENT SACHS: Don't over-speak please.
4 THE WITNESS: (Mr. Dellepiane) Can I finish
5 my answer.
6 It's a hundred percent taking into
7 consideration the Discount Rate. If you take one
8 dollar of Year 10 at our Discount Rate, it's 40 cents
9 in Year 1. If you take one dollar in 20 years at our
10 Discount Rate of 8 percent, it's 20 cents in year-- in
11 Year 1. That is the process of discounting. You are,
12 in a way, I think, confusing or confounding the idea
13 that there is still a stream of cash flows being
14 projected with the idea that there is inherently and
15 behind that process methodologically, there is a tree
16 diagram that says yes-no, yes-no, yes-no, yes-no. One
17 can convert a discount rate into a series of
18 probabilities of adjustment that can happen on a
19 binary basis every day and every year.
20 Now, obviously, in some industries that's
21 how they model cash flows. In real estate, in this
22 kind of business, brick and mortar, et cetera, you
[Page 1504]
1 don't model cash flows that way. It's incredibly
2 arbitrary to say let's open up a restaurant and figure
3 out what if we close tomorrow, what if we close the
4 day after tomorrow, what about next year, and so on
5 and so forth.
6 So, to avoid that, to bypass all that
7 speculation and arbitrariness, you pick a discount
8 rate, which is an equivalent form of risking a
9 business. But it's exactly--it ultimately does
10 exactly what you're asking, which is to contemplate a
11 go/no-go decision, the go/no-go possibilities that
12 exist between now and the end of the project.
13 BY MR. DAOUD:
14 Q. So, if the WACC or Discount Rate takes into
15 account the risk of failure, why did you for the three
16 other projects add a Discount Rate, a failure risk of
17 23 percent?
18 A. (Ms. Bambachi) Because we're taking Discount
19 Rate from going concerns and we're applying those to
20 companies that had a proven concept, and we're saying
21 perhaps it's not sufficient for those that hadn't
22 reached the equilibrium point. So I think there's a
[Page 1505]
1 distinction. You've made it very clear in your other
2 questions and I think you've helped me clarify why--
3 Q. But your--
4 A. --why Luxe and Meritage are in a different
5 place relative to these other three.
6 Q. What I don't understand is that you apply
7 failure risk when you don't--when the project doesn't
8 have the necessary financing yet, and you don't apply
9 it when the nec--when the project has the necessary
10 financing. You confirm that.
11 A. (Mr. Dellepiane) Sorry, what's the question?
12 Q. Is that correct or not?
13 PRESIDENT SACHS: It's the question we had
14 before.
15 MR. DAOUD: Yeah, okay.
16 BY MR. DAOUD:
17 Q. So I'm proceeding on the basis that you
18 still think it's correct.
19 So, for you whether or not you've had
20 financing determines whether or not you apply failure
21 risk. Now, I am telling you, if you've had the
22 financing that you think is necessary for the project,
[Page 1506]
1 does that mean that it is still impossible, that it
2 has become impossible that you fail because of lack of
3 financing?
4 A. (Mr. Dellepiane) I think I answered the
5 question. It is, the possibilities are amalgamated
6 and contemplated via the Discount Rate.
7 Q. So if you've had--
8 A. (Mr. Dellepiane) And what I avoid by that is
9 speculating as to in what way, by what reason, due to
10 what cause and when that failure may or may not happen
11 because it's too many years into perpetuity. So the
12 Discount Rate gives you all that information in one
13 observation of Market Values from publicly traded
14 companies.
15 Q. I'm sorry, but the--you add the failure risk
16 when there isn't enough financing. When there isn't
17 yet enough financing. You remove it when you get the
18 financing. Now, I'm saying is it impossible that
19 after you got the financing, you still need more
20 financing?
21 A. (Mr. Dellepiane) No. I referred this
22 morning in a presentation, earlier today--pardon me,
[Page 1507]
1 this afternoon, in my presentation about the fact that
2 there could be cash short-falls. But if you have a
3 project that is solvent with attractive positive NPVs,
4 according to all known information is an attractive
5 project, you're not going to kill it or assume to be
6 dead because there could be cash short-falls at some
7 point. Projects run into cost overruns. Projects run
8 into cost-savings. Colombia devalues the currency,
9 the staff, the local materials become cheaper. All of
10 this is amalgamated in our projections. That's my
11 point.
12 Q. But if you had the necessary financing and
13 then at the point you need more financing, you're back
14 to a point where you still need financing to continue
15 covering the costs of the Projects?
16 A. (Mr. Dellepiane) Oh, I see your concern.
17 You're saying that we should understand the term need
18 of financing as one box that we check or don't check,
19 but that's a massive oversimplification. The status
20 of the Meritage and the status of Luxé is different
21 from the status of all the other projects. And in the
22 Report, what we say in the First Report--sorry, the
[Page 1508]
1 Second Report, is precisely the way we refer to the
2 equilibrium point, and we don't associate directly
3 with financing, although the two are intertwined.
4 (Overlapping speakers.)
5 PRESIDENT SACHS: Might I interject a
6 question for my own comprehension. How do you capture
7 a risk such as a delay in further construction work
8 problems with subcontractors and the finalization of
9 the work, how is that captured? Is that also covered
10 by the DCF, or would that be a risk factor that you
11 have to apply separately and in addition?
12 THE WITNESS: (Mr. Dellepiane) Yeah. Thank
13 you for your question.
14 It's covered in two ways. One is via the
15 cash-flow projections in the models. Those models
16 have, in general given how they were structured.
17 Particularly for real estate, it's very dangerous for
18 them to actually be overpromising because of this
19 fiduciary Trust Fund mechanisms. There's things that
20 could click-in. I don't know specifically about
21 these, but in general there's clauses that could
22 click-in and say, if you don't finish this
[Page 1509]
1 construction by a certain date, you can incur
2 penalties, et cetera. And the managing agent collects
3 fees of the projects in operation. So, obviously, it
4 has a huge incentive to get things going, but things
5 happen, as you know.
6 And so, the other way in which this risk is
7 contemplated is, as you said it, in the Discount Rate
8 or as I think you hinted. It's in the DCF and the
9 cash flows, but it's also in the Discount Rate. How?
10 Because by taking companies in this business, these
11 companies face those types of risks all the time, and
12 by taking a Colombia Country-Risk Premium that is
13 specific to Colombia, we're additionally saying, well,
14 you knew Colombia has, I think, 23 holidays a year. I
15 think we have, like, 11 in the U.S. Things--not
16 everything happens exactly at the same pace, the same
17 way. So, this is all contemplated in the cash flows
18 in the Discount Rate via the beta parameter, the
19 volatility of real estate relative to the overall
20 market, which is higher, 1.2 times the market, and
21 then additionally through the Country-Risk Premium.
22 PRESIDENT SACHS: Thank you.
[Page 1510]
1 BY MR. DAOUD:
2 Q. Is it on?
3 In your experience, have you seen a project,
4 after obtaining the financing, go over budget with
5 construction and need more financing? Have you seen
6 that ever, or not?
7 A. (Mr. Dellepiane) I have seen projects go
8 over budget. I've seen some perform better than
9 expected.
10 Q. Okay. And have you seen that--I mean, you
11 can go over budget because construction material gets
12 more expensive?
13 A. (Mr. Dellepiane) Sure.
14 Q. You can go over budget because the
15 construction takes longer, correct?
16 A. (Mr. Dellepiane) Correct.
17 Q. You can go over budget because you encounter
18 technical difficulties while doing the
19 construction--carrying out the construction?
20 A. (Mr. Dellepiane) Yeah, I would put that one
21 in a lesser category. If you're--I would put
22 that--more weight on that if there was a particular
[Page 1511]
1 topography, geography, or archeology. That's a big
2 issue in mining because there might be archaeological
3 or environmental concerns. I think here, the
4 construction is mostly horizontal construction, it
5 doesn't need to dig that deep for foundation.
6 This is, as I said in my presentation today,
7 relatively simple. In terms of the kinds of risks
8 that it faced.
9 Q. You can go over budget because the Exchange
10 Rate of the currency you're--you need for construction
11 changes?
12 A. (Mr. Dellepiane) It can. Although, in this
13 case it's exactly the opposite. Colombia has become
14 much more attractive for businesses that command a
15 price that is somewhat related to the U.S. dollar and
16 a cost that is mostly related to the Colombian peso.
17 Colombian peso has devalued, therefore making labor
18 and local materials extremely cheap in dollars.
19 Q. So, you think that's highly, highly unlikely
20 that the Claimants would have had problems with
21 financing the construction because of changes to the
22 Exchange Rate?
[Page 1512]
1 A. (Mr. Dellepiane) No. Actually, I don't need
2 to make a likelihood assessment of that because I use
3 a forecast by the International Monetary Fund, you
4 see, when you take middle-of-the-road forecast from
5 the market, that's the beauty, it doesn't need to be
6 Ms. Bambachi or Mr. Dellepiane that make a forecast
7 about what's going to happen with the devaluation,
8 who's going to win or lose in the event of a
9 devaluation--
10 (Overlapping speakers.)
11 Q. A "yes" or "no," and then given us--
12 A. (Mr. Dellepiane) I said "no." Look at the
13 Transcript.
14 Q. Is it highly unlikely for this to happen?
15 What is the position, your position, and then you can
16 explain why.
17 A. (Mr. Dellepiane) Okay. Thank you for
18 rephrasing the question because now it gets me to
19 correct it. My 'no' was in relation to what I thought
20 the question was.
21 Your question is: Is it highly unlikely for
22 a devaluation to take place or--an appreciation of the
[Page 1513]
1 currency to take place making the project more
2 expensive? Is that your question?
3 Q. My question is: In the case of the
4 Claimants' projects, how likely is it that due to a
5 change, sudden change, in the Exchange
6 Rate--devaluation, evaluation, whichever--they--the
7 financing would become no longer sufficient to cover
8 the costs?
9 A. (Mr. Dellepiane) Given the projections by
10 the macroeconomic forecast first, extremely unlikely.
11 (Overlapping speakers.)
12 A. (Mr. Dellepiane) There's a lot of factors
13 that could affect the valuation, that one is extremely
14 unlikely.
15 Q. Okay. Now, can you please go to Tab 3.
16 This is the Witness Statement of Felipe López Montoya
17 submitted by the Claimants. Paragraph 45.
18 A. (Mr. Dellepiane) Yes.
19 Q. "Colpatria had issued its initial
20 disbursement for the Luxé Project in January 2016.
21 Starting in March 2016, we had entered into
22 negotiations to increase the agreed credit limit due
[Page 1514]
1 to unexpected changes in the currency exchange rate.
2 The original loan amount of COP 8 billion (USD 4
3 million), that we had been approved for on
4 23 September 2014, would no longer cover the cost of
5 construction."
6 Do you see that?
7 A. (Mr. Dellepiane) I do.
8 Q. Okay. In that case, "yes" or "no," the
9 Exchange Rates changed unexpectedly?
10 A. (Mr. Dellepiane) I think it's much more than
11 the Exchange Rate. And yes, Colombia had a--
12 Q. I'm sorry, sir. From the paragraph you're
13 seeing, does it say that it changed unexpectedly or
14 not?
15 A. (Mr. Dellepiane) I'm reading your question.
16 Q. What question?
17 A. (Mr. Dellepiane) You said, "do you see that?
18 In that case, "yes" or "no" to the Exchange Rate and
19 was it unexpected?"
20 Q. Does the paragraph say that there was an
21 unexpected change in the Exchange Rate?
22 A. (Mr. Dellepiane) Oh, okay. Yes, it does.
[Page 1515]
1 Q. "Yes it does." And due to that, they ran
2 out of money and needed more financing?
3 A. (Mr. Dellepiane) They did.
4 Q. And that's for the Luxé Project?
5 A. (Mr. Dellepiane) Correct.
6 Q. One of the Claimants' projects?
7 A. (Mr. Dellepiane) Correct.
8 Q. Okay, thank you.
9 Now, if we go back to your Second Report,
10 Page 32, the same table we were--we look at the
11 Meritage. The Meritage, the only phase that was in
12 construction is Phase 1, correct?
13 A. (Ms. Bambachi) Correct.
14 Q. And that's also the only phase that had the
15 necessary financing to cover the costs, correct?
16 A. (Ms. Bambachi) Yeah, sorry, I need to make a
17 clarification on the prior question, which comes back
18 to what we discussed earlier. So, we allocated all
19 the historical costs of construction to Phase 1 but
20 they included costs that really belonged to other
21 phases, too.
22 (Overlapping speakers.)
[Page 1516]
1 Q. That's not my question. My question is:
2 Phase 1 is the only phase that had the necessary
3 financing?
4 A. (Ms. Bambachi) As of the Date of Valuation,
5 it's the phase that had reached the equilibrium point,
6 yes.
7 Q. Phases 2, 3, 4, 5, 6, 7, 8 did not have the
8 necessary financing?
9 A. (Ms. Bambachi) Phases 2 and 3 are the
10 construction of the hotel, so there is no equilibrium
11 point there. Phase 4 and 5--
12 Q. I'm sorry, there is no equilibrium point,
13 but can you also determine whether or--has
14 construction started there or not?
15 A. (Ms. Bambachi) No.
16 Q. Okay.
17 A. (Ms. Bambachi) Phases 4 and 5, I understand
18 Phase 4 had two stages, but I understand that the
19 sales efforts had not started yet. Phase 6, there
20 were some sales of units that were actually built in
21 Phase 1, so I would say that Phase 6--this was an
22 update that it's not included in this table but some
[Page 1517]
1 of the units of Phase 6 were in construction also
2 because they were part of in Phase 1, like, the
3 construction was part of Phase 1.
4 Q. Okay. But apart from the construction that
5 was part of Phase 1, which was the only phase that
6 started construction, all the other phases had not
7 started construction?
8 A. (Ms. Bambachi) By date of valuation, no they
9 hadn't.
10 (Overlapping speakers.)
11 Q. Yes, by the date of valuation.
12 A. (Ms. Bambachi) Except for the costs that
13 were included in Phase 1, that were common to all the
14 different phases.
15 Q. And you don't apply a Failure Rate to Phase
16 1, correct?
17 A. (Ms. Bambachi) We don't apply Failure Rates.
18 The answer is no, because we don't apply Failure Rates
19 per phase. We look at the project as a whole.
20 Q. So, you've seen one phase that started
21 construction had reached the equilibrium point, and on
22 that basis, you did not apply any Failure Rate to this
[Page 1518]
phase and all the other phases to all projects altogether?
A. (Ms. Bambachi) What we see is that the first phase of the Project, and the only one that was put on the market, was completely sold. That's what we see, and that's why we understand that the concept--the proof of concept hurdle has been successful in this case, and that's why we don't apply--
(Overlapping speakers.)
A. (Ms. Bambachi) You're talking over me.
Q. Sorry.
REALTIME STENOGRAPHER: I need a pause in between question and answer, and please slow down.
THE WITNESS: (Ms. Bambachi) Okay. So, I was saying that what we see is not the equilibrium--it is the equilibrium point but what we see is the complete sale of the only phase of what was put in the market, which is Phase 1.
BY MR. DAOUD:
Q. Yes.
So, based on that, you consider that there is no Failure Risk that will apply to the whole
[Page 1519]
project?
A. (Ms. Bambachi) I don't want to repeat my colleague. We understand that the Project still has risks inherent, but those risks are captured--those risks are captured in the cash flows and in the Discount Rate.
Q. Please, just "yes" or "no," and then you can explain. I understand that. Just--I want to clarify a few things. In this project, in the Meritage, only one phase had started construction, Phase 1, correct?
A. (Ms. Bambachi) Yes, but the Phase 1 also includes construction costs related to the development of the other phases of the Meritage.
(Overlapping speakers.)
Q. Okay, and then, the other seven phases had not started construction, apart from the construction that's part of Phase 1, correct?
A. (Ms. Bambachi) Except for the construction cost of all those phases that is included in the Phase 1.
Q. Yes. And then--because part of the Project, meaning Phase 1, had started construction. You have
[Page 1520]
not applied Failure Rate to all of the project. You do not distinguish phases?
Have you applied the Failure Rate--
Sorry?
A. (Ms. Bambachi) I was just pausing.
No, we have not applied a Failure Rate to the Meritage, as you're saying.
Q. Um-hmm.
A. (Ms. Bambachi) But in the way you're saying it, it appears as if we're not risking the Project. We are risking the Project--
(Overlapping speakers.)
Q. I'm saying, what you call Failure Rate--
A. (Ms. Bambachi) Can I finish please?
PRESIDENT SACHS: I'm sorry, let the Expert please finish the sentence.
MR. DAOUD: I know, but I'm trying to--
PRESIDENT SACHS: Yes, we know.
Please finish the sentence.
THE WITNESS: (Ms. Bambachi) I'm saying that the way you're saying it, it appears as if we're not risking the Project. We are risking the projects via
[Page 1521]
the cash flows and the Discount Rate, as my colleague explained before.
Q. I know you are applying a Discount Rate. My question is: The Failure Risk, what you call a Failure Risk in your Report, you do not apply it, I mean, you apply zero percent Failure Risk to the Meritage?
A. (Ms. Bambachi) I answered that. I said no, we have not applied a Failure Rate.
Q. Yes, okay.
Now, as of the Valuation Date, did the Meritage have enough financing for the entirety of the Project, sufficient to cover the costs of the entirety of the Projects, including all of its phases?
A. (Ms. Bambachi) No, because many of the phases were not even in the market yet.
Q. Thank you.
Now, before we started talking about Failure Risks, I was talking about the track record, and then we left it. So, I'm going to come back to it, with your permission. We had agreed--you had agreed that The Charlee Hotel was the only track record the
[Page 1522]
Claimants had in respect of the hotel business?
A. (Ms. Bambachi) I understand it's the only hotel they were operating at the time.
Q. Yes. And would you say that the "Charlee" brand is relevant to the determining the likelihood of success of the Claimants' hotel projects?
A. (Ms. Bambachi) Yes, we understand, and we've explained it extensively in our Reports. We understand that the brand is a big part of the--of the value of the development of the Project.
Q. Okay. And in that sense that customers of hotels in the future, these hotels aren't complete yet, would knowing that these hotels are part of the "Charlee" brand would be more tempted to stay at them? Would you agree with that?
A. (Ms. Bambachi) In principle, but I don't think you have to, like, restrain it to being the same customers in the different hotels, because I think the different hotels also were in different areas and attracting different kind of public or of customers.
Q. So, does it help the Meritage, the fact that The Charlee--the fact The Charlee is successful, does
[Page 1523]
that help the Meritage attract more hotel clients?
A. (Ms. Bambachi) I understand it does. When you know a brand of a hotel and you find another brand of the hotel, it does not need to be exactly the same, talking about my personal Experience. I choose a hotel, I know a hotel in a certain place, I go to another place, I find a hotel I knew, yeah.
Q. So, you stay in one time in a Hilton and then you see another in a different trip, completely different place you see another Hilton, and you say, oh, I know the Hilton is good. I stay there. Not systematically. It can happen. It's a factor.
A. (Ms. Bambachi) Yeah, exactly.
(Overlapping speakers.)
Q. Okay. You would say that more or less the same applies to The Charlee?
A. (Ms. Bambachi) Yeah, and the track record is not only in customers finding the hotel attractive, or expecting the same services, it's also in the experience in operating a hotel and successfully operating a hotel with a profit.
Q. Yeah, but for the person wanting to find the
[Page 1524]
hotel to stay, it's the brand that makes the most difference, they're not going to go and study the models or the track record of the hotel economically, I assume.
A. (Ms. Bambachi) No, for customers, yes. I was just saying track record is a broader thing than what you're characterizing as just customers choosing the hotel based on the other hotel.
Q. And that is despite the fact that the Meritage is in completely different areas than the five--sorry--than The Charlee is in the completely different area than the five hotels that are in the projects you're having?
A. (Ms. Bambachi) Yes, because what you're expecting is--it doesn't need to be exactly the same hotel for you to relate one property with the other. It's the concept, it's the lifestyle. It's the team. It's much more than just the location, yes.
Q. Okay. Can you please turn to Tab 2 of your binder, that's C-6bis. That's a sort of brochure for the Meritage.
A. (Ms. Bambachi) Um-hmm.
[Page 1525]
Q. Now, if you look at the first page, for example, it says, "M Meritage Luxury Community." Do you see "Charlee" anywhere here?
A. (Ms. Bambachi) No.
Q. If you look at the second page, you see the "M," third page "M," and then you have more pages.
A. (Ms. Bambachi) What should I be looking at?
Q. To be honest, I'm just going through it. I'm not seeing The Charlee.
Is it part of the brand being marketed to clients "Charlee" to clients of the future Meritage?
A. (Ms. Bambachi) It doesn't seem to be the same brand, but they can still belong, like, to the same chain of a different brand, but it's still the same--
Q. So, they would have to know that it's owned by Mr. Seda who also owns--the customers--
A. (Ms. Bambachi) But for example, the gym has the same brand.
Q. The gym has the same brand?
A. (Ms. Bambachi) If you go to C--SP-0013 I think is the number, the page number.
[Page 1526]
Q. But the hotel doesn't have the same brand.
A. (Ms. Bambachi) From this it appears it doesn't, but it doesn't need to have exactly the same name for people to know that they belong to the same operators.
Q. For a layman to know that they belong to the same operators?
A. (Ms. Bambachi) I look into the hotels to what operator they belong to.
Q. I don't think you're a layman.
Okay. Can you please turn to Tab 9. This is the Claimants' Opening Presentation from Monday, CD-1.
And if you turn the page, that says Slide 220. We obviously didn't put the entire document here, nor did we in other--for other tabs. We often made selections to avoid having too big of a bundle.
Now, this--this slide says under the Title 1, it says: "The Claimants' projects were additions to a portfolio that was already operating successfully with high, market-exceeding profit margins."
[Page 1527]
A. (Ms. Bambachi) Yes.
Q. This chart that you have relates to The Charlee Hotel, correct?
A. (Ms. Bambachi) Yes.
Q. Does this chart show that The Charlee Hotel had market-exceeding profit margins?
A. (Ms. Bambachi) It shows that it has healthy profit margins.
Q. Compared to what?
A. (Ms. Bambachi) I didn't write this.
Q. You--
A. (Ms. Bambachi) I didn't write this. What I see here is EBITDA margins ranging from 24 to 37 percent, which seem very healthy margins
(Overlapping speakers.)
A. (Ms. Bambachi) very healthy EBITDA margins.
Q. Okay. I mean, I'm--my question is: When you look at this graph, do you see a comparison between the profit margin of The Charlee and the profit margin of the market. It says "market-exceeding profit margins."
A. (Ms. Bambachi) Okay. So, if I were to
[Page 1528]
analyze the performance of The Charlee, I would not recommend to do it on an EBITDA basis. I would recommend to do it on a RevPar basis, and that's because EBITDA might have different--
Q. But that's not my question. My question is: Does this chart show that?
A. (Ms. Bambachi) Okay. This chart does not compare to other market comparators.
Q. Yeah.
A. (Ms. Bambachi) I wouldn't recommend comparing to other market comparators in--
(Overlapping speakers.)
A. (Ms. Bambachi) --at the EBITDA level. That's why we look at RevPar and we look at the whole value per key. What you can still see here is that these EBITDA margins are from a healthy company.
Q. I mean, do I see a comparison of the market here?
A. (Ms. Bambachi) I said it's not comparing market but what I say is I look at 34 percent EBITDA, and I say it is a healthy company.
Q. Healthy company compared to the market?
[Page 1529]
A. (Ms. Bambachi) Compared to the money they want to make out of every dollar of sales. It's just--but I didn't write this. This is Claimants' Opening. I don't know this comparison--
(Overlapping speakers.)
Q. I know, I know, nor did I.
Now, it does reference your model. It does reference BRG-121.
A. (Ms. Bambachi) The information but not the conclusion and the titles.
Q. Okay. Have you anywhere in your Report said that the chart--or provided data showing that The Charlee exceeds the profit margins of the market?
A. (Ms. Bambachi) We show--and this is out of memory--so we show that it outperforms the market in terms of RevPar, which is the revenue per average room.
(Overlapping speakers.)
A. (Ms. Bambachi) Can I finish?
Q. I'm asking about profit margins. You can answer "yes" or "no" and then--
(Overlapping speakers.)
[Page 1530]
PRESIDENT SACHS: Please, do not speak at the same time.
THE WITNESS: (Ms. Bambachi) Sorry.
I don't remember if we based our comparison out of EBITDA. I do know that we show that The Charlee outperforms the market in terms of RevPar, and I think it's in terms of occupancy.
Q. Okay. Thank you. Can you please turn to Tab 1. This is Dr. Hern's Second Report, if you go to Page 59, Figure 5.1. Do you see it?
A. (Ms. Bambachi) Yes.
Q. That's the comparison of the EBITDA margin.
And in the orange, you have different--in blue you have the Claimants' projects, the EBITDA margins of the Claimants' projects, according to your valuation, according to your assumptions.
Do you see that?
A. (Ms. Bambachi) Yes.
Q. And then, orange you have the market comparisons, and The Charlee.
So, do you see that?
A. (Ms. Bambachi) Yes.
[Page 1531]
Q. Now, if we look at The Charlee, you have you "Charlee total" and then next to it, right next to it "Charlee rooms" and then next to it "Charlee F&B," which is food and beverages.
Do you see that?
A. (Ms. Bambachi) Yes.
Q. And the total is the average between the EBITDA margins of The Charlee rooms and Charlee F&B, correct?
A. (Ms. Bambachi) Yes, that's correct.
Q. Okay. Now, for the other--the other comparators, international luxury, Colombia Luxury, Damodaran, these--oh, sorry, I'm--yeah--these are averages. They're not, like, rooms or F&Bs? I don't know if you--do you--do you know that for a fact or not?
A. (Ms. Bambachi) I don't know that for a fact. I would say that these are the samples I explained in my direct. Why they are not comparable to either The Charlee or any of the hotels, Claimants' hotels.
Q. But on that chart, you see that The Charlee is at 22 percent and the other market comparators are
[Page 1532]
at 19, 20, and 21 percent.
A. (Ms. Bambachi) I can see that mathematically they are similar but that provides no information because you're comparing apples with bananas who happen to be the same size. It has no relevance.
Q. Okay. And you wouldn't say that between 22--I understand that--I understand your comment. I'm just talking about the numbers between 22 percent and 19, 20, 21 percent, there isn't a big margin, big difference. It's very close?
A. (Ms. Bambachi) Mathematically, they're very close, yes.
Q. Okay. Thank you.
Can I--Can we go back to Slide 30--sorry, Slide 34 in your presentation. I have already asked you about it.
A. (Ms. Bambachi) 34?
Q. Yes.
A. (Ms. Bambachi) Yes.
Q. I already asked you about it. About why this chart was put today and not in your Second Report, but I have another question.
[Page 1533]
Here, if I look at the number of transactions over which you have put, I don't know how to call that, an oval form?
A. (Ms. Bambachi) Scattered plot.
Q. Yes. Okay. Here you don't see--
A. (Ms. Bambachi) Ah, in the circle you mean?
Q. Yes, in the circle, oval circle or a circle.
I--If you look at these only alone, you don't see a correlation between the average room rates and the total value per key. That's your point?
A. (Ms. Bambachi) My point is that to make an adjustment over a statistical variable, you need to find a relationship that maintains throughout the sample. What I find here, if I try to make a, for example, let's say we try to make an adjustment due to the room rate, and we look at this--what kind of adjustment can you infer when you have different room rates that have the same hotel value per key. There is no adjustment to be done statistically.
Q. Okay. If we're looking at the dots in red, there is more or less a correlation, not a perfect correlation, but I'm seeing a correlation. I'm seeing
[Page 1534]
a diagonal. Are you seeing a diagonal?
A. (Ms. Bambachi) I see the--for example, you have one observation that has an average room rate of $500, and a hotel value per key of 150, and I see another one that has a hotel--an average room of a higher average room with a lower value per key.
So, there is no clear way if you try to make a statistical relationship between these to infer an adjustment. There is no way you can adjust it.
Q. I'm not--
A. (Ms. Bambachi) There is no statistical constant relation that indicates that one thing determines the other. And that is leaving aside the fact that this whole analysis is based on one observation of an average room rate per sample per a hotel in the comparable sample, and that observation was obtained no less than in 2020 which we know was a disrupted industry.
So, when you combine both of them together, any adjustment that would be inferred from the source of the average room rate or the lack of correlation between the two variables will be completely
[Page 1535]
speculative.
Q. Okay. Do you--Can you say with all that, can we say that there is some correlation between the average room rate and the total value per key, if you look at the red dots? Or if you look at all the dots.
A. (Ms. Bambachi) So, correlation means that you can infer one variable from the other. If I look at the average room rate, I have one that has a 500-dollar average room rate and total value per key that is exactly the same as the other one that has double the room rate, so what kind of adjustment can you make?
Q. If you pick--You can pick ones where there is no correlation, and you can pick ones where there is a correlation.
A. (Ms. Bambachi) The correlation is the average of all of them. So, if you have so many points that have no correlation--there is no--it has to do with the interval of confidence of the adjustment you make. It's statistics.
Q. Okay. My point is, if you look at the--
A. (Ms. Bambachi) If you want hard to look at
[Page 1536]
it, you might find a diagonal, but it's not enough to do a statistical analysis and--
Q. So, you don't see an imperfect diagonal here?
A. (Ms. Bambachi) It's true. It will be like kindergarten. If you remove also the other point, if you remove the outlier, sorry I'll stop laughing, but if you remove the outlier and you amplify this, the diagonal that you're making appear, and I actually had that graph before here but I thought it was too much. But if you remove this diagonal, which is a clear outlier with an average room rate of 3,000, indicating also that the sample of room rates collected is not very reliable--and you amplify this--
PRESIDENT SACHS: I'm sorry. Too fast, too fast.
THE WITNESS: (Ms. Bambachi) I got excited. Ok, I'll start over.
There is a clear outlier and the average room rate of 3,000 and a hotel value per key of 1,400. If you remove this outlier and amplify on the bottom corner of the graph, the diagonal that you're looking
[Page 1537]
at disappears. When you change the scale of the graph, it disappears. If I were to make a serious statistical analysis based on this to adjust the sample, I would clearly remove it. First I would look for a better sample of average room rates.
Second, I would remove the outlier and then any correlation that you are seeing now will completely disappear.
Q. Thank you. I'm going to be honest, I didn't understand--not your fault, but I didn't understand.
A. (Ms. Bambachi) There is no correlation. That's the take-away.
Q. Okay. Can we please--can we please go back to Tab 1, so the Second Report of Dr. Hern, Page 50, Table 4.1.
Okay, so this is a table from Dr. Hern's--Dr. Hern's Report.
Do you see the first row says Meritage and then it says--and then it has a date of May 2013? Can you see that?
A. (Mr. Dellepiane) Yes.
Q. And then are you aware of this Transaction?
[Page 1538]
A. (Mr. Dellepiane) I saw it here.
Q. I'm sorry?
A. (Mr. Dellepiane) I saw it here in his Report.
Q. Yes, so, you've seen it before?
A. (Mr. Dellepiane) To the extent described in this Report.
Q. Okay. Did you look at the underlying documents?
A. (Mr. Dellepiane) I don't recall right now what those might be. I'm--
Q. Okay. Not a problem.
A. (Mr. Dellepiane) I think I saw them back here, but you'll take me through it.
Q. Okay. Now, if you look at the column saying price paid for shares percent purchased, you have COP 2.25 billion paid for 100 percent of the Shares in Meritage.
Do you see that?
A. (Mr. Dellepiane) Yep.
Q. Do you dispute it? That 100 percent of the Shares were sold for that price.
[Page 1539]
A. (Mr. Dellepiane) Umm...
Q. Or issued for that price.
A. (Mr. Dellepiane) I have to remind myself. That's actually an acquisition or a share issuance? The two are not the same.
Q. I think it's a share issuance.
A. (Mr. Dellepiane) I think that's more precise. Yeah, it's an issuance.
Q. So, do you dispute that it was for 100 percent of the Shares and for a price of 2.25 billion?
A. (Mr. Dellepiane) It's an initial capitalization of the Company. It could be one dollar.
Q. Yes, but the dispute that it was made at COP 2.25 billion.
A. (Mr. Dellepiane) Unless you want to go through the document, I will take your word that that's what the Share Certificate says in the issuance.
Q. Okay. And then, if you look at the next--sorry, the last column, BRG DCF but-for value of
[Page 1540]
project at Valuation Date, it says COP 163 billion.
Do you dispute that this is the value attributed to the Meritage Project in the but-for scenario at the Valuation Date?
A. (Mr. Dellepiane) I don't recall checking that, but if you represent to me that that's the correct conversion, I will take it upon me to double-check and submit something if I'm in disagreement, but let's assume that that's--the conversion is correct.
Q. I think this--these figures were--
A. (Mr. Dellepiane) This is his Second Report, right?
Q. Yes. But they were all, I think, in his First Report as well. So, are you-I mean--
A. (Mr. Dellepiane) Like I said, I'm not disputing the numbers. You're asking me do I remember exactly that this number is correct? I don't. But I'll take your word that the conversion is adequate.
Q. Okay. For the record, it's in the First Report as well, the same table, Page 97, Table 6.4.
Okay. And then just looking at the numbers,
[Page 1541]
your valuation is 72 times bigger than the price paid for the Shares, correct?
A. (Mr. Dellepiane) No. It's 72 times higher than the capitalization and the share issuance, which is not the price paid for the shares. It's very different.
Q. For the amount paid to have that--for each Shareholder to have these Shares, to acquire these Shares, acquire not meaning purchase but acquire meaning--
A. (Mr. Dellepiane) As I said, they could have chosen to capitalize this Company with one dollar. They chose a number. That is done for various reasons, including tax considerations, including division of equity between partners, contribution of sweat equity versus cash. There's a lot of considerations at the time when a Company's first established as to what should be the original nominal value of shares, this is the nominal value of shares. You pull up the 10-K from IBM or many other companies that are worth thousands of dollars per share, and you will find most of them or many of them, if not most,
[Page 1542]
have a nominal value per share, one cent or one dollar for simplicity purposes.
Q. Sir--
A. (Mr. Dellepiane) And they were originally capitalized by some amount that was just a cash contribution which is not necessarily the contributions that each of the partners make.
Q. The issuance of these Shares to the Shareholders in question was made in return for a payment of a sum. Do you agree?
A. (Mr. Dellepiane) No, that is exactly the wrong interpretation of this. The issuance of these Shares was made in exchange for consideration that these people put into the firm, is my understanding.
Q. Yes.
So, they had to--
A. (Mr. Dellepiane) I thought you said that they would receive a payment in exchange.
Q. That's not a payment?
A. (Mr. Dellepiane) They're not receiving a payment. They're making a payment.
(Overlapping speakers.)
[Page 1543]
Q. No, they're making a payment, of course.
A. (Mr. Dellepiane) I'm sorry, can we speak one at time. I'm trying not to encroach on your speaking.
Q. Back to--okay.
Q. Again, the Shareholders that got these Shares paid COP 2.25 billion, and in return the Shares were issued to them, is that correct?
A. (Mr. Dellepiane) That's my understanding, and they would have agreed to a certain capitalization total at that time in order to initially capitalize the Company, and usually a set of contributions that each of them would make. Some would stop at making cash contributions; others would continue by contributing sweat equity. Others would continue in other forms, some might pay in capital in kind.
Q. I'm sorry, so, these Shares are equity or they're not equity?
A. (Mr. Dellepiane) I didn't talk about equity--ah, yes I mentioned sweat equity. Yeah, these Shares are equity, this is equity holdings.
Q. So, in this issuance of shares, certain Shareholders became holders of shares in return for a
[Page 1544]
transfer of an amount of money?
A. (Mr. Dellepiane) Presumably an amount of money. I don't know if all of the Shares were capitalized in exchange of cash consideration, is my point. There could have been other consideration contributed. One of them might have a car and the Company needs a car and they might have put a car. Ultimately, this is the nominal value of the Shares that they're agreeing to capitalize in a certain distribution and a certain percentage among the initial holders, initial partners.
Q. Okay. Now, I'm going to move to the document, so that you see it for yourself, but just before we do that, a simple math question: COP 163 billion, which is your valuation of the Meritage, is 72 times the 2.25 billion that were made by the Shareholders in return for the issuance of 100 percent of the Shares, correct?
A. (Mr. Dellepiane) The math is correct, it's 72 times and so on. The problem is that you're comparing two things that are incredibly or he's comparing two things that are tremendously misleading.
[Page 1545]
What you need to look at is what is the internal rate of return of these investments.
And they're actually quite reasonable, they're between 30 and 40 percent. For an investment of this kind, they're nothing to scream about either for being too high or too low.
So, when you look at the nominal value of capitalized shares at the time of issuance, compare that to the Market Value of the Company years later, once the company in this case has actually sold out all of its offering in Phase 1, began to sell, began to construct, and this is now a real thing, it's on track. It's a train that left the station.
To see a 72 time increase, it could be 6,000 times increase or it could be 10 time increase, and I tell you why it doesn't mean anything? Because the initial capitalization number is a nominal number that doesn't mean anything. So, if you compare a number that means a lot which is an economic number with a number that doesn't mean anything, the multiple could be anything, and it's not indicative of anything.
If you look, on the other hand, at the rates
[Page 1546]
of return that these investors would have received, that's more telling and it's actually a reasonable number.
Q. Okay. But you agree that it's 72 times higher?
A. (Mr. Dellepiane) I agree that 72 times 2.25 equals 163. That's as far as I can agree.
Q. Okay. Can you please go to Tab 4, that is BRG 48, and if we move to the second page, you see that this is the Company agreement of Meritage, RR Meritage Associates.
Do you see that?
A. (Mr. Dellepiane) I do.
Q. Okay. Now, if you move to the last page, you have the Class I investor members and then Class II investor members in Royal Realty.
And inside the Class I, you have Mr. Seda who got 11.4 percent of the Shares?
A. (Mr. Dellepiane) Um-hmm.
Q. And then you have, I think by my count, thirteen other shareholders that got the remaining 89 percent or so.
[Page 1547]
Do you see that?
A. (Mr. Dellepiane) Yeah, I do.
Q. Now, you're saying basically that the amount of 2.25 billion that was made to the Company in return for this--for the 100 percent of the Shares is--doesn't correspond to the actual value of the Shares. It's much lower?
A. (Mr. Dellepiane) Sorry, that's not what I said. Could I have a calculator, just a regular hand calculator?
Q. I don't have a calculator.
A. (Mr. Dellepiane) I was going to make a point.
Q. If you have your phone, you can--
A. (Mr. Dellepiane) I don't want to pull my phone. I don't think that's--
PRESIDENT SACHS: You can use your phone for the exercise.
THE WITNESS: (Mr. Dellepiane) Thank you. Sorry, thank you, I got it. Thank you.
Okay. Thank you.
Q. Can you hear me? Yes?
[Page 1548]
So, the math is good?
A. (Mr. Dellepiane) What I was checking, and in fact is the case, is that Group A and Group B of investors are not buying their Shares at the same price. This is part of the point I was making earlier. The implied value per share of the Group A's is lower than the implied value per share of Group B.
I'd have to look into further into why that might be the case, but it's exactly, exactly telling of what I tried to illustrate before when I said when you capitalize a Company at the early stage, at the issuing stage, there might be contributions in kind or there might be consideration that some group brings and the other one doesn't. Therefore, they're recognized a higher value per share or a higher consideration per share implicitly.
Q. Okay. So what you're saying is that it's possible that some of these Shareholders have brought a contribution in kind, and therefore got more shares for the same value of money?
A. (Mr. Dellepiane) Basically.
Q. Do you know that as a fact?
[Page 1549]
A. (Mr. Dellepiane) No, no. I was just checking whether these two issuances--look at a new schedule, I haven't seen this in a while. It's just pictures and you try to figure out what you can.
Sorry to distract.
Q. Have you asked for information to try to determine this?
A. (Mr. Dellepiane) No, because it's completely irrelevant for the reason I said before. It doesn't matter at all. We're determining the Fair Market Value of a stream of assets--a series of assets in a portfolio as of January 2017. They could have capitalized this company in 1982 with COP 2 or they could have capitalized this company a few months before the Valuation Date. The question is in what stage of development, what assets and liabilities? What are the prospects? What are the things that we consider in the valuation? That's what gives value to a company. That's how you evaluate the value of a company.
And as I said, go look at the New York Stock Exchange, and you will find that many, many, many
[Page 1550]
companies have nominal value of shares worth one cent per share because it's under that way. And in fact, multiply that by all the shares outstanding and you still won't get to a fraction, 72 times would be paled in comparison, and what you will find is that those companies are simply worth many, many, many hundreds of multiples of the nominal value of those Shares, the nominal value of those Shares, in other words, is completely irrelevant to a fair-market-value determination.
Q. And that's because the value evolves--that's because the value evolves with the development of the Project?
A. (Mr. Dellepiane) That's for a number of reasons.
Q. Is that one of the reasons?
A. (Mr. Dellepiane) It's not the only one.
At the time capitalizing the Company, there is no need for them to actually say, well, we believe this project will be--is worth a lot of money, say, I don't know, $20 million, okay? How much do we need to monetize a $20 million to turn this project into a
[Page 1551]
$20 million asset? We need $2 million, okay, let's capitalize it with $2 million. And once we put in the brand, the know-how, the business savvy, the experience, leverage the existing structure of RPG Group, et cetera. And with that, it becomes a $20 million enterprise. Without that, it's just 2 million dollars. You want to value $2 million in the bank, just look at the balance on the bank account, and that's basically what you're looking at here is the balance in the bank account on Day 1. That's not the value of the Company, and certainly not the value of a going concern like Meritage and Luxé who had already started construction.
Q. Okay. Now you say this was irrelevant, so you didn't ask for documents to see what the different Shareholders contributed in order to get these Shares, correct?
A. (Mr. Dellepiane) Yeah. This is the starting balance of the bank account. This is--as I said this morning--this afternoon, it's even in a world of sort of reliance on damages, this won't actually even begin to satisfy that principle because it wouldn't tell you
[Page 1552]
where the contributions were by 2017 of those actually invested, time, equity, and brand name into the Project, to be what it was in 2017.
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8 MR. DAOUD: We have can the break now.
9 PRESIDENT SACHS: 5:30, please. And please
10 again, do not talk to anybody about the case of the
11 Hearing.
12 MR. MOLOO: For planning purposes, may I ask
13 roughly how long do you think it will be?
14 MS. BANIFATEMI: May I ask how much we have?
15 SECRETARY MARZAL: Respondent has one hour
16 21 minutes left.
17 MS. BANIFATEMI: Left. Thank you.
18 MR. DAOUD: It doesn't only depend on me but
19 the Experts as well, but I think probably around half
20 an hour. Around half an hour.
21 (Discussion off the record.)
22 (Recess.)
[Page 1574]
1 PRESIDENT SACHS: All right. We may pursue,
2 Mr. Daoud, please.
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21 BY MR. DAOUD:
22 Q. Can you please go to your Second Report,
[Page 1577]
1 Page 69, Paragraph 135? That's Page 69, and I'm at
2 135(c), so the next page.
3 Now here you are discussing Dr. Hern's room
4 rate comparison and you're saying it was performed
5 during the pandemic, which has severely impacted the
6 hospitality business, a factor that Dr. Hern doesn't
7 consider. Now, I want to just confirm a few things
8 with you, if I may?
9 A. (Ms. Bambachi) Yes.
10 Q. Have you taken into account the impact of
11 the pandemic in your assumptions?
12 A. No, we haven't because we are doing an ex-
13 ante approach valuation.
14 Q. Okay. And that means that--
15 A. (Ms. Bambachi) If you will continue this
16 line of questions.
17 Q. I mean, I thought you were supposed to each
18 answer--I wanted--
19 A. (Mr. Dellepiane) I'm not--I'm not adding
20 answers. If you're going to talk about ex-ante, ex-
21 post, I will pursue that. If you're going to talk
22 about hotel rates, she will.
[Page 1578]
1 A. (Ms. Bambachi) I thought it was related to
2 hotel rates because of the paragraphs. It was not--
3 Q. Okay. Then please proceed--
4 A. (Mr. Dellepiane) Thank you.
5 Q. Please proceed.
6 BY MR. DAOUD:
7 Q. Yes. So, you have haven't taken into
8 account because it's ex-post.
9 A. (Mr. Dellepiane) That question is answered,
10 and I'm not going to supplement.
11 Q. So, and to clarify, "ex-post" means
12 information we now know but that was not known at the
13 Valuation Date, is that correct?
14 A. (Mr. Dellepiane) Correct.
15 Q. Now, had you taken that into--had you taken
16 the impact of COVID which became known after the
17 Valuation Date, would that have changed your
18 assumptions on hotels?
19 A. (Mr. Dellepiane) So, there is--sorry,
20 can--sorry, but I'm so sorry--there's probably two
21 ways to take that into account. One would be
22 to--sorry, I'm just thinking of your question.
[Page 1579]
1 One would be to try to--and it's done in two
2 ways: One is to maintain a date of valuation of
3 January 2017 in this case, and take into consideration
4 the actual events and the macroeconomy, et cetera, in
5 the cash flows that are being forecasted; the other
6 one is to actually do a Date of Award assessment and
7 stand as of now and say are there any historical
8 profits that were lost or not, and then from here on
9 look forward. Sorry, I'm just thinking of the
10 framework from which I can answer your question.
11 Q. So, maybe I can help you on that. If you do
12 the former, if you keep your Valuation Date but still
13 take information into account that happened after the
14 Valuation Date, would that, the question is: Would
15 your assumptions change or not?
16 A. (Mr. Dellepiane) They would--they would
17 change. The problem is that they would change, and
18 then the question becomes in what way do you risk
19 that? And the further problem--and another point:
20 They would change, right? If we were to incorporate
21 actual events, they would definitely be different
22 somewhat. They would no longer measure up to the idea
[Page 1580]
1 of a Fair Market Valuation as of that date. We need
2 to understand that. It would become some other
3 construct which may or may not be useful to a court or
4 a Tribunal, but there would no longer be a fair-market
5 value assessment as of that date. It would be some
6 hypothetical construct that is a hybrid of what the
7 value might have been, plus/minus things that became
8 known. It would no longer be what the mandate
9 requires, which is the value at which this particular
10 set of assets and investments would have exchanged
11 hands between parties willing to sell, able, et
12 cetera, et cetera.
13 So, we can conduct not any but virtually all
14 these permutations and exercises mechanically. The
15 question is can they adopt--conform to the
16 fair-market-value standard as of the date of breach.
17 Q. Okay. Now, my question is, your assumptions
18 on hotel revenues, would they change if you did that?
19 A. (Mr. Dellepiane) The assumption of hotel
20 revenues would probably change. The assumptions on
21 real estate prices will also change.
22 Q. No, no, please.
[Page 1581]
1 (Overlapping speakers.)
2 Q. One question--one question at a time. I
3 didn't ask about real estate (unclear)--
4 (Overlapping speakers.)
5 A. (Mr. Dellepiane) You want to know how things
6 would have evolved?
7 Q. No, no, no. I want to know how hotel
8 revenues, your assumptions about hotel revenues would
9 change. Would they change? "Yes" or "no"?
10 A. (Mr. Dellepiane) Let me put it this way:
11 Yes, we're agreeing that there will be different
12 variables. When you are asking me to think of
13 something that hasn't been brought up to the extent
14 that I recall before and you're asking me to think on
15 my feet about how this would impact our assessment.
16 Ultimately, I think, that's what I'm here to tell you
17 is evidence, and I'm telling you that the hospitality
18 sector suffered, the real-estate sectors in the
19 suburbs of all major cities in the world pretty much
20 have actually gone up in value massively,
21 significantly, including in Medellín. So we should be
22 very careful not to associate the pandemic with
[Page 1582]
1 a--potential downturn of this particular business
2 because there's two sides to this business.
3 Q. Okay. But you have confirmed that
4 80 percent of the damages are based on the hotel
5 business. So, in this paragraph of your Report, you
6 say the pandemic had severely impacted that business.
7 Now, you also tell me now that the real
8 estate prices have gone up--
9 A. (Mr. Dellepiane) I'm telling you now
10 that--all I'm telling you now because this hasn't been
11 brought up and there is no--
12 Q. No, no, I'm not blaming you. I'm not
13 blaming you. I'm just confirming again on hotels,
14 hotel revenues, would they have been impacted? You
15 said yes. Would that impact be negative or positive?
16 A. (Mr. Dellepiane) For hospitality, it would
17 be a temporary negative impact of not--well, I don't
18 want to speculate about the proportion. Not all the
19 hotels are in operation by then so it wouldn't
20 necessarily impact all the operations. You should be
21 very careful not to assume that because the damages
22 represent--are represented by--largely by the
[Page 1583]
1 hospitality portion, that wouldn't have a one-to-one
2 impact. So we have to run the model. We have to
3 bring in all those variables and think about how it
4 would impact--I would have to think about how the real
5 estate impact would have--the real estate portion
6 would be impacted positively about that.
7 Q. And you haven't done that exercise. You
8 haven't--
9 A. (Mr. Dellepiane) No, I'm doing the fair
10 market value as of January 25, 2017.
11 Q. You do ex-ante and not ex-post. And would
12 it change the failure rate for hotels, the impact of
13 the pandemic?
14 A. (Mr. Dellepiane) I don't know. I haven't
15 looked at the latest Bureau of Labor Statistics data.
16 The last datapoint, I think, is in 2019 in our sample.
17 Q. You--I don't know if you're aware or not,
18 but the Colombian pesos lost value against the dollar
19 after the Valuation Date. You also didn't take that
20 into account. You took into account the projections
21 as of the Valuation Date, so anything that--unexpected
22 that happened after the Valuation Date you didn't take
[Page 1584]
1 them into account, right?
2 A. (Mr. Dellepiane) As I explained earlier
3 today to you, the devaluation of the currency would
4 have been a favorable effect for this business that
5 has costs mostly in pesos. The reason why Luxé--and I
6 was trying to say this to you before you ended the
7 cross--the reason why Luxé ran into that problem in
8 relation to the Exchange Rate was because the loan
9 they had was a small loan in pesos, so it didn't
10 satisfy their needs, but the devaluation would have
11 had a positive valuation impact.
12 MR. DAOUD: Mr. Chairman, I'm sorry, I'm
13 trying to finish in half an hour. It would help if
14 when I ask a question, first I get a "yes" or a "no"
15 before the explanation; then second, we don't get
16 answers to questions I haven't asked including for the
17 interest of time.
18 PRESIDENT SACHS: Please proceed.
19 MR. DAOUD: Thank you.
20 BY MR. DAOUD:
21 Q. So, the question is if there is an
22 unexpected change in the currency rate after the
[Page 1585]
1 Valuation Dates, you have not taken it into account,
2 correct?
3 A. (Mr. Dellepiane) If it was not contemplated
4 in the projection that we used from the International
5 Monetary Fund, then the answer is correct, we did not.
6 Q. Okay, thank you.
7 Now, let's take an example for 2022. If you
8 go to your Exhibit BRG-121, which is your model, an
9 Excel sheet. This one isn't in the bundle, I'm
10 afraid. To be honest, it has been difficult to put in
11 the bundle. 121.
12 A. (Mr. Dellepiane) Sorry, 121 or 00--
13 (Overlapping speakers.)
14 Q. 121.
15 A. (Mr. Dellepiane) I think you're opening the
16 wrong file.
17 Q. Until we get that, the hotel revenues, the
18 projected cash flows are in pesos, and then you
19 convert them to dollars, and you discount them back to
20 the Valuation Date, correct?
21 A. (Mr. Dellepiane) I believe that's correct.
22 Q. Okay. So yes, at Tab Macro (Y). And then
[Page 1586]
1 it's Cell R-9. It's a bit difficult to see.
2 (Voices off microphone.)
3 So, this is your assumption for the
4 projected Exchange Rates for 2022, and it shows COP
5 3,012 for $1; is that correct?
6 A. (Mr. Dellepiane) That's right.
7 Q. So, that's the number you've used. Now, if
8 you move to RH--Exhibit RH-29, that's the English
9 version, that's one of the exhibits to Dr. Hern's
10 Report. RH-29. And there is a tab called "FX." It's
11 towards the end.
12 Do you have it, sir?
13 A. (Mr. Dellepiane) I'm looking at the same
14 thing.
15 Q. Oh, sorry. I thought you had your own.
16 A. (Mr. Dellepiane) I don't have anything. I'm
17 not allowed.
18 Q. Tab FX, it's the last--it's the third from
19 the last, and it's Cell C-14, and here you have the
20 actual Exchange Rates in 2022, COP 3,951 for a dollar.
21 Do you see that?
22 A. (Mr. Dellepiane) I do.
[Page 1587]
1 Q. So, had you taken that into account when
2 converting the expected cash flows for the Year 2022,
3 for example, from pesos to dollars, they would have
4 given you 33 percent less dollars, roughly.
5 A. (Mr. Dellepiane) Yes and no. The mechanical
6 act of dividing by a bigger number will produce a
7 smaller number, but you cannot make that adjustment
8 without changing your inflation. You got to look at
9 the whole market and understand what are the prices in
10 this new environment in Colombian pesos, and the
11 devaluation of foreign exchange rates and inflation
12 rates move together, as you know. So, we got to be
13 very careful not to make one adjustment without
14 changing the other--tentacles of the same animal.
15 Q. Okay. Now, have you discussed the question
16 of ex-post and ex-ante information with counsel for
17 Claimants? Have you--have they given you any
18 instructions?
19 A. (Mr. Dellepiane) Yeah. Our instruction was
20 to value as of the date of the breach.
21 Q. Okay.
22 A. Or January 2017.
[Page 1588]
1 Q. Okay. Now--
2 A. (Mr. Dellepiane) That's the extent of the
3 discussion.
4 Q. Yeah. Are you aware that the Claimants
5 claim that Colombia expropriated their Investment but
6 also claimed that it breached other treaty standards
7 such as fair and equitable treatment, national
8 treatment, full protection and security?
9 A. (Mr. Dellepiane) I've read it--
10 (Overlapping speakers.)
11 A. Sorry.
12 Q. These are legal--I just want to know whether
13 you're aware of it or not. I'm not asking you about
14 them.
15 A. (Mr. Dellepiane) I generally understand that
16 it's not just expropriation that they claim as the
17 cause of harm.
18 Q. Okay. And the valuation in your Report, as
19 you understand, is relevant to quantifying damages
20 relating to all of these different kinds of breaches,
21 or only expropriation?
22 A. (Mr. Dellepiane) I think we have to be
[Page 1589]
1 specific one by one. I'm not sure what they--how they
2 have used our quantification, if it's all the
3 cumulative breaches or any of those individually will
4 produce the same result, I've not been consulted. And
5 sometimes they ask me and say, will this number still
6 be the same number if I just claim violation of FET,
7 or is this a number if I just claim, would you have
8 done something differently? If they didn't check with
9 me, I assume that it's because the full value of the
10 Investment is lost in any of these scenarios and,
11 therefore, other than the actual residual value of the
12 land as is, and, therefore the damage will be the same
13 under any of these causes of harm.
14 Q. Okay. So, as far as you know, they just
15 asked you for an ex-ante valuation. You don't know if
16 it's used for only expropriation or for everything.
17 You assume it's fair.
18 A. (Mr. Dellepiane) Yeah. Well, a valuation as
19 of that date and then interest, so full reparation to
20 the date of our Second Report.
21 Q. Of course. I'm not arguing. I'm talking
22 about the ex-ante exercise. Okay.
[Page 1590]
1 And again, I don't know if you're aware or
2 not, the Claimants claim that only the Meritage
3 project was expropriated. They don't claim that other
4 projects were expropriated. If you're--I don't know
5 if you're also aware of this or not.
6 A. (Mr. Dellepiane) I'm not sure if indirectly
7 expropriated or impeded entirely or unfairly treated.
8 For my purposes, I'm valuing--we are valuing the
9 entirety of those projects, risking them, et cetera,
10 et cetera, expressing them as of January 2017.
11 Q. Okay. For the record, on Day 1, Page 83,
12 Lines 4 to 6, counsel for Claimant says what has been
13 expropriated, what has been expropriated here in our
14 submission is the Meritage Claimants' interest in the
15 Newport shares. And also if you turn to Tab 10,
16 that's the Claimants' Memorial, if you go to the third
17 page of the index.
18 A. (Mr. Dellepiane) Okay.
19 Q. You will see at the bottom, it says:
20 Colombia unlawfully expropriated Claimants'
21 investment.
22 And then if you go to the next page, it
[Page 1591]
1 says: Colombia expropriated Claimants' investment in
2 the Meritage Project. You don't see something on
3 other projects.
4 It's also the same in the next tab, the
5 reply. I'm not--to save time, I'm not going to go
6 there, but again it says: Colombia unlawfully
7 expropriated the Meritage Claimants' investments.
8 So, for the other projects, basically no
9 expropriation is being claimed, only other
10 non-expropriatory breaches.
11 And again one more question: Has--if you
12 turn to Tab 7, I don't know if you're familiar with
13 this authority or not, but it's Claimant's Authority;
14 it's a book on damages called by Ripinsky and
15 Williams. I don't know if you're familiar with it.
16 Claimants again in their Opening, Day 1, Page 145,
17 Lines 20-21, they were talking about the Income
18 Approach, and they said Ripinsky and Williams say that
19 in their seminal text on the matter. So that's a text
20 that's heavily relied on by the Claimants, I think
21 quoted at least--cited at least ten times in their
22 submissions and considered by them to be seminal.
[Page 1592]
1 If you go to Page 253, at the bottom, you
2 have a paragraph saying: ex-post information.
3 A. (Mr. Dellepiane) I see that.
4 Q. And it says: The question of ex-post
5 information is a difficult one. Valuation itself
6 takes place during the arbitration proceedings,
7 typically several years after the Valuation Date.
8 This presents a question: May or even should the
9 information subsequent to the Valuation Date be taken
10 into account? These questions are particularly
11 relevant when the DCF method is used to estimate the
12 investments and FMV.
13 So, here it was asking the question about
14 FMV, whether or not to use ex-post information.
15 So, and it continues saying--or they
16 continue saying because it apparently requires
17 conservation of future events in relation to
18 valuation.
19 And then if you turn to the next page, you
20 will see they'll take different types of legal
21 breaches of treaties, in turn. There is a section on
22 lawful expropriation. And then if we turn to
[Page 1593]
1 Page 256, at the top there's a section on unlawful
2 expropriations.
3 And then--so he analyzes what the rule is
4 for each type of breach and then in the middle you
5 have non-expropriatory breaches, so that's anything
6 other than expropriation, fair and equitable
7 treatment, national treatment, and full protection and
8 security, et cetera.
9 And he says: Under the non-expropriatory
10 case analysis where the aim of compensation is to
11 re-establish the situation which would, in all
12 probability, have existed if that act had not been
13 committed, information changes should logically be
14 taken into account, both if they are
15 compensation-increasing and compensation-decreasing,
16 compared to the assessment at the time of breach on
17 the basis of ex-ante information.
18 This is because the ex-post information is
19 used with a sole aim of increasing with the precision
20 of the analysis, and there is no floor figure, below
21 which compensation cannot fall, as in expropriation
22 cases. There have been several arbitral decisions
[Page 1594]
1 where Tribunals took account of events subsequent to
2 the Valuation Date, including compensation-reducing
3 factors. They did that without shifting the Valuation
4 Date forward but by correcting the cash-flow
5 projections and other value affecting factors in light
6 of the information available at the time of the Award.
7 So, what this says here is that, for
8 non-expropriatory breaches, you take into account
9 information known after the Valuation Date, you don't
10 move the Valuation Date, as it is, but you take into
11 account information that became known after. And as
12 we saw at the very beginning, that whole question that
13 authors here are considering relates to a DCF method
14 used to estimate an investment's FMV.
15 And then to recap at Page 257 at the bottom,
16 you have additional remarks, the practice to date can
17 be summarized as follows, and then you have (1) lawful
18 expropriation, and then (2), unlawful expropriation.
19 MR. MOLOO: Mr. President, is there a
20 question here? He's been putting in submissions for
21 the last five minutes or so.
22 MR. DAOUD: Yes. I'm going to ask a
[Page 1595]
1 question.
2 And then (3), non-expropriatory breaches of
3 international law, ex-post information to be taken
4 into account, regardless of whether it leads to an
5 increase or a decrease in value, and the Valuation
6 Date not moved to the Date of Award.
7 Same thing, just recapped.
8 Any of these things have been--counsel for
9 Claimants have told you about this text, have given
10 you any instructions in this regard?
11 THE WITNESS: (Mr. Dellepiane) That is an
12 extremely broad question. I met with these lawyers so
13 many times. I want to respond honestly. I'm not sure
14 how to answer that.
15 Has any of these things ever come up in my
16 conversations with counsel? Yes.
17
18 BY MR. DAOUD
19 Q. Yes.
20 A. (Mr. Dellepiane) Of course they did.
21 Q. And they told you to nonetheless use ex-ante
22 information only and no ex-post information?
[Page 1596]
1 A. (Mr. Dellepiane) No. That's not what I said
2 before. I said that they asked me to perform a Fair
3 Market Value assessment as of January 25, 2017. I
4 decided to use what information--in fact, JLL includes
5 some datapoints that are post-date of valuation
6 because they need a sample big enough to be
7 representative.
8 There is one note I would make since you
9 made me read all this, which is fascinating, is that
10 these non-expropriatory breaches--and I have actually
11 happened to have studied this topic quite a lot, as
12 you might know--refers to contractual or to try to put
13 back in what would be like a contract setting, so I'm
14 not going to get into whether it's legally applicable
15 or not. But when they try to do what I suggested
16 before could be done, which is to take a date in the
17 past and then adjust the cash flows for events in the
18 future to put in the position that would have existed
19 in all probability, et cetera, usually when I've seen
20 that apply is in the context of contractual breaches.
21 I have never seen it applied in an investor-State
22 case, but this I don't know. It was the first time-
[Page 1597]
1 (Overlapping speakers.)
2 Q. Never seen it applied in an investor-State
3 case?
4 A. (Mr. Dellepiane) Myself, no.
5 Q. Okay. But you--So, is that like--are you
6 confident that this is representative of the practice
7 or you don't know, that's just what you've
8 experienced?
9 A. (Mr. Dellepiane) I've never been instructed
10 by a tribunal to mix and match that way that I recall
11 right now.
12 Q. Okay. Can we go back to Page 1, please.
13 That's the title of--the book.
14 THE INTERPRETER: Please, you need to speak
15 closer to the mic.
16 MR. DAOUD: It's called--the title is
17 Damages in International Investment Law.
18
19 BY MR. DAOUD
20 Q. And then I'm not going to spend more time on
21 that.
22 A. (Mr. Dellepiane) We agree that that includes
[Page 1598]
1 contractual discussions, in the whole book. And I
2 read this book pretty much cover to cover.
3 Q. It doesn't--I mean, if you have a
4 contractual--
5 (Overlapping speakers.)
6 PRESIDENT SACHS: Gentlemen, I'm afraid this
7 is not so helpful anymore.
8 MR. DAOUD: I propose to move on,
9 Mr. Chairman. I think that should be my last line of
10 questions.
11 If you please go back to Slide 22 of your
12 presentation. I will try to be brief here. Who--who--
13 THE WITNESS: (Ms. Bambachi) Is it related
14 to parameters or to ex-post and ex-ante methodology?
15 BY MR. DAOUD:
16 Q. It's related to what you discussed here. I
17 think that was you--
18 A. (Ms. Bambachi) I did this slide.
19 (Overlapping speakers.)
20 Q. So, in context, I believe that what you say
21 here in this slide is that Dr. Hern did not use the
22 correct allocation of the historical sales to the
[Page 1599]
1 right phase of the Project, Meritage Project.
2 A. (Ms. Bambachi) Yes, when I recalculate this,
3 I use an updated allocation which I believe
4 is--Dr. Hern didn't have that information by the time
5 he did that calculation.
6 Q. Yes. That was the first time--first thing I
7 wanted to confirm with you because you refer at the
8 bottom in the notes to BRG 157 and BRG 156.
9 A. Are you looking at the demonstratives?
10 Q. To the notes at the bottom of the slide.
11 A. (Ms. Bambachi) Ah, BRG 157, yeah, that's
12 correct.
13 Q. And these are--
14 A. (Ms. Bambachi) The new documents.
15 Q. They are new documents that were provided
16 like 10 days ago or so.
17 A. (Ms. Bambachi) Yes.
18 Q. So, he didn't have these documents.
19 A. (Ms. Bambachi) Yes, that's correct.
20 Q. That's the first thing.
21 And then the second thing is if we go to BRG
22 157. Now, it's not in the bundles, but we will
[Page 1600]
1 distribute to you a copy.
2 Now, to clarify, this is an English
3 translation of the original, the Spanish original, the
4 document was presented--was produced by you, or by the
5 Claimants without an English translation, so we've
6 done an unofficial translation right now to show it to
7 you and the Tribunal.
8 And if you look at--this is a letter dated
9 28th of May--March 2016.
10 Do you see that?
11 A. (Ms. Bambachi) Yes, I see that. Yes, I see
12 that.
13 Q. That's before the Valuation Date, correct?
14 A. (Ms. Bambachi) Yes, that's correct.
15 Q. And that's before the temporary measures of
16 August 2016?
17 A. (Ms. Bambachi) It's before August 2016.
18 Q. It's like five months or so before.
19 And then it is sent to Corficolombiana by a
20 person called Jorge Hernan Herrera Marquez. And it's
21 titled "Request for Reimbursement of Resources for
22 Failure to Fulfill the Purpose of the Contract
[Page 1601]
1 Meritage Stage 4 and 5."
2 And then it says: "We identified by the
3 number X request the total refund of the contributions
4 that we have deposited for the Meritage Project since
5 the deadline to reach the point of equilibrium of
6 Stages 4 and 5 in which we are investors expired on
7 17 October 2015, and we do not wish to continue with
8 this investment." Do you see that?
9 A. (Ms. Bambachi) Yes.
10 Q. So, and then he's asking for his
11 contribution to be returned and giving his bank
12 account details.
13 So, do you see from this document that the
14 equilibrium point was reached later than was
15 contractually required, according to this gentleman?
16 A. (Ms. Bambachi) I don't have in mind the
17 Contract under which this person bought the piece or
18 the Unit or whatever he was buying. In our model, the
19 forecasted date of equilibrium is not October 2015 for
20 Phases 4 and 5.
21 Q. So, is it because the forecast date that you
22 used is inaccurate or--
[Page 1602]
1 A. (Ms. Bambachi) I believe we were using the
2 latest Business Plan as of the Date of Valuation.
3 Q. Was it maybe pushed, they tried first for
4 October 2015 and failed?
5 A. (Ms. Bambachi) We can speculate, but I don't
6 know.
7 Q. You haven't looked into that?
8 A. (Ms. Bambachi) No.
9 Q. Okay. And there was already at least one
10 investor before the Measures started, wanting to get
11 out of this project?
12 A. (Ms. Bambachi) That's what the document
13 says, yes.
14 Q. Okay. Thank you very much for being here
15 today.
16 MR. DAOUD: Thank you, Mr. Chairman. I have
17 no further questions.
18 PRESIDENT SACHS: Thank you, Mr. Daoud.
19 Thank you.
20 We will have some questions in redirect?
21 MR. MOLOO: Just a few, Mr. President.
22 REDIRECT EXAMINATION
[Page 1603]
1 MR. MOLOO: Thank you, Mr. President.
2 BY MR. MOLOO:
3 Q. Just a few questions. The first, you were
4 asked about the difference in majority and minority
5 stakeholder--Shareholder interests. Just to be clear,
6 when a minority stake is being valued alongside a
7 majority, it's all being sold together in a
8 hypothetical world, do you treat the valuation of the
9 majority and minority differently?
10 A. (Ms. Bambachi) No, I treat them the same
11 when the transaction is for the full package including
12 a minority and a majority, we distribute the price
13 evenly or uniformly between the holders.
14 Q. And are you aware that in the Shareholder's
15 agreements whether or not there were drag-along and
16 tag-along rights?
17 A. (Ms. Bambachi) No, I'm not aware.
18 Q. Assuming--if I tell you there are drag-along
19 and tag-along rights, what does that imply?
20 A. (Ms. Bambachi) If there are, that may affect
21 the allocation of the price.
22 Q. One question on--you were asked about
[Page 1604]
1 currency risk, business interruption risk, you know,
2 let's say there's a strike, all of these things, does
3 that uniquely affect a business that's in development
4 or in operation, or is it unique to any one particular
5 phase of a project?
6 A. (Mr. Dellepiane) No, not particularly. I
7 think, what would be unique here would be for a
8 project, would be as I mentioned, I think I mentioned
9 environmental concerns if they were in a very
10 particular region.
11 Q. And what generally captures all of that,
12 whether it's, you know--no matter what stage the
13 business is in?
14 A. (Mr. Dellepiane) The business risk in
15 general is captured in the beta, well, in the complete
16 Cost of Equity but in the beta in particular, the
17 volatility of that particular industry relative to the
18 average of the market.
19 Q. What about--
20 A. (Mr. Dellepiane) Sorry, and in the cash
21 flows. I think I broke it down earlier. You have
22 business projections, revenues, costs, prices, units,
[Page 1605]
1 the cost to build those units and maintain them and
2 run your business, taxes, we take in factor in
3 taxation. The Country's Premium also gives you a
4 buffer in case taxation changes negatively.
5 Cause it--Keep in mind, when you have this
6 premium on the Discount Rate, all it's doing is saying
7 it could be worse. It's not considering that it could
8 be better, so this is why we talk about risking with
9 risk adders. We begin with a Risk-Free Rate, and we
10 start adding the Equity-Risk Premium and the beta that
11 multiples that and makes it a multiple to make it more
12 volatile than the average of the market then the
13 Country-Risk Premium and so on.
14 So--
15 Q. And is that also true of currency risk?
16 A. (Mr. Dellepiane) Yes, it's all blended
17 within--that element that the market has a lot more
18 wisdom to come up with via thousands and millions of
19 individual transactions by informed sophisticated
20 traders of bonds and stocks, it's a lot more valuable
21 information than me as an expert coming in to say
22 let's add 2 percent here because this is an emerging
[Page 1606]
1 market. Let's add 4 percent here because this is a
2 start-up. What do I know? The market does.
3 Q. You were taken to C-0006bis. I would like
4 to put that up, if possible, Franz. And you were
5 asked whether or not--this seems to be a deck for the
6 Meritage community.
7 A. (Mr. Dellepiane) Yeah, I've seen it.
8 Q. And you were shown a couple of pages in what
9 I think is quite a lengthy document. And you were
10 asked, well, where is The Charlee on this.
11 Can we go to Slide 54, please.
12 A. (Mr. Dellepiane) Do you know the page number
13 at the bottom?
14 Q. SP-054.
15 A. (Mr. Dellepiane) No, it's not in the version
16 we got.
17 (Overlapping speakers.)
18 MR. DAOUD: Sorry to intercept. You don't
19 have in your bundle the full--
20 THE WITNESS: (Mr. Dellepiane) Oh, that's
21 convenient.
22 MR. DAOUD: We put like one-third or so.
[Page 1607]
1 MR. MOLOO: Okay, I will show you the rest
2 of the document, then.
3 BY MR. MOLOO:
4 Q. Here, you can see the section that--okay.
5 54, you can see the Royal Property Group there?
6 A. (Mr. Dellepiane) Yes.
7 Q. If you go to 55, do you know what this is?
8 A. (Mr. Dellepiane) Management and sales of
9 RPG. That's the entry to The Charlee Hotel, if I
10 recall, and the gym.
11 Q. This is by the way the same deck that you
12 were only given the first third? This is the part
13 that--
14 A. (Mr. Dellepiane) Yeah, on the bottom it says
15 the prior projects or executed projects, hotel The
16 Charlee, Luxé by the Charlee.
17 Q. Let's go to 56. Do you know what this
18 picture is of?
19 A. (Mr. Dellepiane) Yeah, I--it's the rooftop
20 of The Charlee Hotel in Medellín.
21 Q. Go to 57. Do you know what this is?
22 A. (Mr. Dellepiane) This is the Luxé. I
[Page 1608]
1 visited this property as well. Well, it's a rendering
2 obviously. Well, the bottom and right are renderings.
3 The top left I think might be a real picture because
4 these are actually built.
5 Q. Go to 58. Do you know what this is?
6 A. (Mr. Dellepiane) Well, it's--no, it doesn't
7 say there. But--
8 Q. At the bottom it talks about the Luxé by The
9 Charlee.
10 A. (Mr. Dellepiane) It does mention some of the
11 prior executed projects.
12 It looks a lot like the Luxé. I'm not sure
13 I saw that particular angle.
14 MR. DAOUD: Maybe questions shouldn't be
15 that leading.
16 MR. MOLOO: Well, I think this is definitely
17 appropriate redirect.
18 BY MR. MOLOO:
19 Q. But we get the point I think that there's
20 additional slides in this deck that connect the two,
21 it looks like.
22 Let's go to C-110. Which I think --we don't
[Page 1609]
1 need to go there.
2 Let's go to BRG 1, Page 19. Sorry, Franz,
3 I'm jumping all over the place.
4 You were asked about--you were shown a
5 chart, I think, from Dr. Hern, but you were asked
6 about how The Charlee Hotel compares to the market.
7 Actually, let's go to 20. Sorry, I did mean 19. Go
8 back one.
9 And you were asked to compare it to-you
10 know, how does it compare to the market generally. I
11 believe you had some charts comparing The Charlee
12 Hotel to other hotels in the Colombia market.
13 MR. DAOUD: I'm sorry, but the question that
14 was given to the Experts was how does it compare to
15 the market with respect to profit margins.
16 MR. MOLOO: And I believe--
17 MR. DAOUD: Based on the slide from the
18 Claimants.
19 BY MR. MOLOO:
20 Q. Okay. So, my question is: How does it
21 compare generally in terms of its success to the
22 market based on the--the Colombian market based on the
[Page 1610]
1 analysis that you've done?
2 MR. DAOUD: I will note that this does not
3 concern our questions but...
4 PRESIDENT SACHS: It's permitted.
5 Please. Thank you.
6 THE WITNESS: (Ms. Bambachi) Yes, so in our
7 Report we explained that The Charlee outperforms the
8 Colombian market comparing it to a sample provided by
9 SDR, and we show this in terms of occupancy in
10 Figure 2, and then in the next page we do so in terms
11 of ADR, which is the average rate, and combine the
12 occupancy and the ADR, compute the RevPar which is the
13 indicator I responded I would look at if I was to test
14 the performance of The Charlee.
15 Q. And what does RevPar mean?
16 A. (Ms. Bambachi) RevPar is just occupancy
17 times ADR. ADR is the rate that they are charging.
18 It doesn't take into account that maybe you have only
19 50 percent of the whole services. When you combine
20 them, it's an indicator of both the level of rates
21 that the hotel can collect, and the demand of the--the
22 occupation of the hotel, how many rooms are rented
[Page 1611]
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5 PRESIDENT SACHS: All right. We have no
6 further questions for you. You are now released.
7 Thank you very much for your expert testimony.
8 THE WITNESS: (Ms. Bambachi) Thank you.
9 THE WITNESS: (Mr. Dellepiane) Thank you.
10 (Witnesses step down.)
11 PRESIDENT SACHS: Okay, we should deal with
12 housekeeping and organizational matters. I think we
13 can start off the record so that you can start to
14 clean up the Transcript. When we come a point of time
15 where we should put something on the record, we will
16 do so.
17 (Discussion off the record.)
18 PRESIDENT SACHS: So, I wish you good
19 evening, and sorry that we will meet again on a
20 Saturday. The dress code on Saturday is not casual
21 but smart casual, please. Thank you.
22 (Whereupon, at 6:25 p.m., the Hearing was
[Page 1614]
1 adjourned until 9:00 a.m. the following day.)
[Page 1615]
I, David A. Kasdan, RDR-CRR, Court
Reporter, do hereby certify that the
foregoing proceedings were stenographically
recorded by me and thereafter reduced to
typewritten form by computer-assisted
transcription under my direction and
supervision; and that the foregoing
transcript is a true and accurate record of
the proceedings.
I further certify that I am neither counsel
for, related to, nor employed by any of the
parties to this action in this proceeding,
nor financially or otherwise interested in
the outcome of this litigation.
Signature
DAVID A. KASDAN