TRANS-NATIONAL COMMERCIAL - INDUSTRIAL

DEVELOPMENT

PROSPECT

Quietly nestled within the tranquil town of Presidio, Texas lies a unique opportunity for the development of a

commercial – industrial complex perfectly positioned to take advantage of rapidly increasing interest in

international commerce in this remote region.

Brief History and Background of Presidio - Ojinaga

Presidio and its sister city of Ojinaga, Mexico are located at the confluence of the Rio Grande and Rio Conchos in

the middle of the Chihuahuan desert. The community is ancient by U.S. standards, with the surrounding area

being the oldest continuously cultivated area in the United States. Indigenous farmers have lived at Presidio

since 1500 B.C. and by 1400 A.D. the area Indians lived in small pueblos along the river. The first European to

arrive was Cabeza de Vaca, reaching Presidio in 1535. The Spanish began to settle the region and were the only

foreigners until the first wave of white settlers came to the area after the Mexican war in 1848. Even so, it was

largely Comanche territory until the end of the century when it fell into the hands of Pancho Villa in 1914. The

advent of modern civilization came with the arrival of the Kansas City, Mexico and Orient Railway in 1930. In

1986, the Texas Department of Transportation replaced the old wooden bridge on the Rio Grande with a 7 span,

2 lane bridge that greatly expanded Presidio as a the only port of entry between El Paso and Del Rio – a distance

of some 380 miles.

The economy has traditionally been agriculturally based with cattle being the major export from Mexico and

produce such as cantaloupe and onions representing the largest part of crops on the irrigated land on both sides

of the river. The farming activity on the U.S. side has all but ceased while farming on the Mexico side continues

to expand, with some 40,000 acres recently being added to arable land.

For the most part, the area has remained isolated and untouched by the NAFTA related development seen in

other cities along the border. Until now, the Presidio – Ojinaga crossing has been very quiet, but efforts have

been underway to change that significantly in the not-too-distant future.

Recent and Current Events Related to Commerce

The first definitive effort by the federal government to develop the port came in 1997 when the Intermodal

Surface Transportation Efficiency Act designated a trade corridor named “La Entrada al Pacifico”. The

cooperative trade corridor extends from Topolobampo, Sinaloa on the Pacific Coast through Presidio, up

through Midland-Odessa and on to Amarillo, Wichita Falls and Dallas. The initial project was conceived to assist

local Mexican power companies in the regional conversion from coal to natural gas and increase efficiency of

import/export logistics as well as promoting and expanding trade between the neighboring nations.

Natural Gas Initiative

With the completion of the 42” Trans-Pecos Pipeline made by Energy Transfer Partners in 2017, the U.S. portion

of the natural gas project was completed. The line interconnects with major interstate and intrastate lines at the

Waha Hub, which is the central distribution point for gas produced in the Permian Basin. The pipeline extends

south through Fort Stockton then passing near Alpine and Marfa, finally crossing the U.S.-Mexico border just

north of Presidio. It is capable of delivering up to 1.4 billion cubic feet per day to Mexico; where the market was

recently opened up to private companies, spurring significant investment in distribution. TransCanada has

completed the Matzalan – Topolobampo – El Encino pipelines that connect points along the Pacific Coast to a

hub near the city of Chihuahua. Construction of the final stretch of line between El Encino and Ojinaga was

recently completed by Gasoducto de Aguaprieta, a subsidiary of IEnova, a private transmission company. That

completes the connection between the TransCanada lines and the Trans-Pecos line, opening the entire Northern

Mexico market to natural gas from the Permian Basin. (See the map below). Although the direct economic

impact of this part of the development plan on the Presidio-Ojinaga economy is quite limited, it is significant in

that milestones in the overall plan have been made and have been reached. Further, longstanding resistance to

development from residents of the Big Bend has been formidable, but now seems not to be insurmountable.

That may indicate that the other parts of the development plan could take place at an accelerated pace.

(See http://www.naturalgasintel.com/articles/109845-texas-to-mexico-trans-pecos-pipeline-nearing-in-service,

http://www.naturalgasintel.com/articles/110521-transcanada-northwestern-mexico-pipeline-to-be-finished-

this-year, and https://www.pointlogicenergy.com/market-news/Get-the-Point/2017/2017-5-24-mexico-

gas.html. )

Natural Gas Pipeline Highway

Natural Gas Pipeline under Construction Railroad

The Highway System Initiative

After the significant upgrade of the international bridge in 1986, development of the highway system has been quite slow. There was a substantial improvement made for commercial traffic on the Mexico side in 2003, when a bypass was constructed between Hwy 16 and Hwy 67. Hwy 16 is the main road between Ojinaga and Chihuahua, but travel on this road was quite slow as it passed through Peguis Canyon and had many sharp curves and steep grades. The bypass connects from Hwy 16 at El Huerfano to La Mula on Hwy 67, eliminating a time consuming and dangerous part of the trip between the two cities. On the U.S. side, a bypass was constructed to improve the flow of commercial traffic by rerouting it away from downtown Presidio and improvements were made to reduce curves and grades in the area around Shafter as well.

Recently the pace has accelerated, with TX DOT sponsoring a $10 million expansion of the International Bridge between Presidio and Ojinaga in order to facilitate commercial traffic flows. The Presidential permit was approved in June of 2017 and the new bridge is under construction. Once it is completed, the existing bridge will be replaced, providing two traffic lanes in each direction. In anticipation of the change, the Presidio International Port Authority was formed to oversee operations and set and collect tolls.

(See https://hurd.house.gov/media-center/in-the-news/txdot-funds-new-lanes-presidio-ojinaga-bridge, and https://hurd.house.gov/media-center/press-releases/presidio-port-entry-receives-presidential-permit-start-construction. )

The next step in the process is now starting to take shape, with TX DOT creating a US 67 Corridor Master Plan (CSJ# 5000-00-116). The agency held public meetings in May of this year in Fort Stockton, Alpine, Marfa and Presidio to begin introduction and rollout. The goal is to identify long term strategies for growth anticipated along the route from Presidio to the junction with Interstate 10 just west of Fort Stockton. From those studies, funds will be allocated to make the changes identified.

(See https://www.txdot.gov/inside-txdot/projects/studies/el-paso/us67-i10-presidio.html, and http://ftp.dot.state.tx.us/pub/txdot/get-involved/elp/us-67/040518-presentation.pdf. )

The Railroad Initiative

The once formidable trade facilitated by the railroad has dwindled over the decades as the line changed ownership numerous times. In the 1970’s the export of tractors, harvesters and other farm equipment was a huge business, with the rail returning with cattle and machine parts. Tourism was flourishing, with many people interested in taking the trip down to Topolobampo through the Cañon del Cobre (the Mexican Grand Canyon). By the 1990’s the line became extinct as the South Orient Railroad went bankrupt and abandoned the line. To make matters worse, in 2008 an arsonist set fire to the north end of the bridge, causing extensive damage and effectively closing the bridge.

(see http://cs.trains.com/trn/b/fred-frailey/archive/2014/02/22/at-the-end-of-the-line.aspx. )

The future of the line altered course in 2001, when the State of Texas bought the line and entered into a 40 year lease with Texas-Pacifico Transportation, a subsidiary of Grupo Mexico, the largest copper mining company in Mexico with the largest copper reserves of any company in the world. That effort would have failed as well, except for two factors. The first was an investment of nearly $36M by the TX Dot to rehabilitate the infrastructure so that the line became viable again and the second was the fracking boom that hit the Permian Basin, giving Texas-Pacifico a huge revenue stream related to the hauling of sand needed in fracking operations. (see http://ftp.dot.state.tx.us/pub/txdot-info/rail/south_orient/rehabilitation.pdf, and http://www.texaspacifico.com/docs/TXPF_PRESENTATION_OFFICIAL.pdf. )

TX Dot continues to invest heavily in the line and in August of 2017, TX Dot received a $7M grant to be used along with an investment by Texas-Pacifico of $9M, for the reconstruction of the Presidio-Ojinaga Rail bridge and repair of the Alpine-Presidio section of the line.

(see https://hurd.house.gov/media-center/in-the-news/grant-will-rebuild-presidio-railroad-bridge-ojinaga, and https://ftp.dot.state.tx.us/pub/txdot-info/fed/fastlane/2017/south-orient-application.pdf. )

Under the lease, Texas-Pacifico is required to maintain the infrastructure as improved by TX Dot, alleviating future maintenance costs. It is TX Dot’s goal to divert about 45 million truck miles to train miles over the next 20 years. TX Dot’s cost benefit analysis shows a total 20 year benefit of about $86M in 2015 dollars.

(see https://ftp.dot.state.tx.us/pub/txdot-info/fed/fastlane/2017/south-orient-analysis.pdf. )

Although construction was to begin in the fall of 2017, the usual red tape and government bureaucracy has resulted in delays. TX Dot’s media relations department recently confirmed that the grant agreement for the work should be fully executed later this year and that construction is expected to begin soon thereafter. Texas-Pacifico has confirmed that construction will begin sometime in September or October of this year.

The Prospect

The property that is the subject of this offering is a tract of land currently being used as farm land, consisting of approximately 243 acres that abuts the levee on the Rio Grande River and is bounded by the South Orient Railroad to the east and has direct access to the approach to the Presidio-Ojinaga International Highway Bridge to the west. It is within the City Limits of Presidio and has access to city utilities.

International Highway Bridge

and Port of Entry Facilities

Bridge

Subject Property South Orient Railroad

Presidio-Ojinaga

Railroad Bridge

Rio Grande River

International Boundary

Ojinaga Railroad

Station (Closed)

Livestock

Holding Pens

Rio Grande River

Levee

1

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3

4

5

6

Property Overview and Vistas of Mexico

View Southeast toward Sierra Matasaguas, MX

View Southeast toward Ojinaga, MX

View East toward Sierra El Peguis, MX View East toward El Paradero Mountain, MX

View West toward Sierra Ranchito and Sierra Rica, MX View South toward Santa Cruz Mountain, MX 1 2

3 4

4 4

Property Structures and Vistas of US

1 2

1 2

3 1 4 1

5

3

4

5

Farmhouse Barn and Shed

View North from Levy to Presidio View North toward Presidio, Chinati Mountains, Cienaga Mountains

View Northeast toward El Peguis and El Paradero, MX

Property Views from the Railroad Bridge

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2

Damaged Rail Bridge

1

2

Highway Bridge Subject Property

Highway Bridge Subject Property

Highway and Railroad Access Points

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3

1

Thompson Street

Grade Crossing Subject Property

Subject Property

Subject Property Rail Switch

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Environmental Considerations

Since the property has been used as farmland and is mostly flat and level, surface preparation for commercial purposes would be quite easy. Within the property, there is an old oxbow of the Rio Grande River. Around the outside of the oxbow runs an old irrigation ditch, located on an elevated levee. The ditch and levee can be easily removed if desired. Although the USACE and the NCRS have both confirmed that none the land has been classified as wetlands; the oxbow itself where the old riverbed was located appears to be wetland, so development of that small piece should be carefully studied. Further, in a letter dated April 2, 2014, the USFWS conveyed that no listed species or designated Critical Habitat is known to occur within the prospect area and noted that the Rio Grande River floodplain may provide habitat for nesting migratory birds, therefore normal care should be exercised to avoid taking of migratory bird nests, eggs, and/or young during development. (See https://www.navcen.uscg.gov/pdf/bridges/publicNotices/D08gPN02-17_Rio%20Grande%20Mile%20948%208%20Btw%20Presidio%20TX_Ojinaga%20Chihuahua%20Mexico.pdf).

Although the subject property lies within the 100 year flood plain of the Rio Grande River, the property is protected from flooding by the levee constructed for that purpose. The area suffered flooding generally considered to be the worst in recorded history in 2008, and the levee failed upriver from the property. The levee was repaired and upgraded to improve protection during 100 year floods. During that flood, the subject property was unaffected – appearing as a virtual island during the event.

Oxbow

Subject Property

The Opportunity

As remote and as isolated as this port with a two lane bridge and no rail connection may be, it currently manages to maintain international trade in both directions across the border with Mexico. As of April of 2018, trade for the year totaled $73.67 million and trade for all of 2017 was $210.66 million. The trade is fairly balanced, with exports representing $38.9M and imports representing $34.7M, through April.

As expected, 100% of the exports were to Mexico, but imports were split with Mexico at $34.7M, Canada at $27.5K, China at $5.7K and Germany at $3.6K. The top 5 exports were Tractors ($4.6M), Horses ($3.3M), Self-propelled Construction Machinery ($3M), Harvesting Machinery ($2.9M), and Motor Vehicles for Transporting People ($2.7). The top 5 imports were Live Cattle ($10.1M), Prefabricated buildings ($6.8M), Motor Vehicle Parts ($4.9M), Misc. Iron and Steel Articles ($2.9M) and Misc. Aluminum Articles ($2.6M).

(see https://www.ustradenumbers.com/port/presidio-border-crossing-texas/ ).

With greatly expanded access for commerce between Mexico and the U.S. through this area, there are a number of industries that could benefit from strategic access to both the rail and road ports of entry.

Railroad

Perhaps the most logical commercial use for the property would be as support to rail operations, either as a customs clearing area or perhaps a train station. As a customs clearing facility or freight forwarding facility, the property presents the ability to connect rail based operations to highway based operations at a critical point. Alternatively, there has been some discussion of rebuilding the train station at Ojinaga, but it might make more sense for the station to be in the U.S., providing better access for the tourism trade south of the border.

(see http://netnoticias.mx/2015-09-28-1d953df3/rehabilitaran-estacion-de-tren-en-ojinaga/. )

Petroleum

Pemex began the exploration process for shale gas production in Chihuahua and elsewhere as of 2010, and with the recent constitutional reforms in Mexico that ended Pemex’s 75-year monopoly, foreign companies have begun to invest in gas and oil exploration and production in Mexico, as well. As of February of 2014 Pemex had drilled 29 wells in Chihuahua and officials have claimed that more than 18 trillion cubic meters of gas were found in initial exploration. Studies undertaken on the potential of fracking in the region took in $230 million in investments and are expected to be published early in 2015. Cesar Duarte, Governor of Chihuahua, supports fracking and claims that the money it brings in will help support economic and social development in the state. (See http://www.internationalfrontier.com/i/pdf/Pemex-shale-strategy.pdf. )

Since Texas Pacifico’s main business is hauling frac sand in the Permian Basin, it seems logical that their interest in repairing the bridge at Presidio is in anticipation of hauling frac sand into Mexico as the Chihuahua Shale play begins to develop. Further, there will be a need for drilling and production equipment in the area and the route through Presidio is the shortest route from the Permian into Northern Mexico.

The subject property could serve as a holding / inspection area for frac sand crossing by rail, or as a clearing area for oilfield equipment and parts headed to Mexico. Alternatively, many of the larger service companies would benefit from having a staging area on the border to facilitate operations between Midland and Chihuahua.

Tourism

As previously mentioned, one of the most popular trips in Mexico is the ride on the railroad on El Chepe from Chihuahua to Topolobampo through the Cañon del Cobre. Currently, tourists from the U.S. must travel to Chihuahua City in order to make the trip. (see http://www.chepe.com.mx/trenes/chepe-regional. )

The reestablishment of the line from Ojinaga to Chihuahua presents an opportunity to support tourism in Northern Mexico from Presidio, affording security and convenience to tourists. This base could also support highway based tourism from both sides of the border. Nearby attractions on the U.S. side are: The Big Bend National Park, River Canoeing in Santa Elena Canyon, Minimalist Art Exhibits in Marfa, the Marfa Lights, and McDonalds Observatory at Fort Davis. On the Mexico side, there is Chihuahua, with its museums and cathedrals, Creel with nearby Basaseachic Falls, and Los Mochis / Topolobampo on the Pacific Coast.

With beautiful mountain vistas in every direction, the property could support safe and secure hotel and parking accommodations and transportation to facilitate tourist activities on both sides of the border with convenient access to customs and immigration facilities.

Maquilla Activity

Because of the lack of infrastructure to support transportation, the Presidio – Ojinaga area was bypassed by the development of maquiladoras that are so prevalent in other areas along the border in Texas. Currently, that may be a blessing in that the area will not likely suffer the consequences of the recent political policy regarding NAFTA. Now that situation has been largely resolved, there exists newfound potential to develop those activities in this area where current income levels remain quite low on both sides of the border, and land prices are quite competitive in comparison with the larger border cities.

Import / Export Activity

The old fishing village of Topolobampo is now a modern seaport that was inaugurated in 1991 in order to consolidate the commercial expectations of Mexico’s northeast region. It has an ideal infrastructure for handling containers and receiving large ships, allowing it product exchange with Japan, Korea, Taiwan, Singapore, Hong Kong, Australia, Canada, New Zealand, and Central and South America. Its privileged position in the Pacific Rim makes it an ideal port for commercial exchange with Asian markets. Its importance was the reason for the construction of the railroad in the first place, and reestablishment of the line directly connects the mid-continent region of the United States to a Pacific port, without having to go through California. Conversely, Topolobampo will have renewed access to U.S. markets for its abundant fishing and seafood industry.

Chihuahua has a huge agricultural economy and the Port of Ojinaga-Presidio is vital because it’s a principal entry point for Mexican beef used by the U.S. fast food industry. It produces 60% of the cotton in Mexico and has substantial produce operations growing cantaloupe, onions, peaches, nuts, apples and various other food crops. Just recently, an additional 40,000 acres has been placed into production as farmland near Ojinaga. Facilities to handle quarantine and inspection operations, as well as customs clearance, are in demand as recent problems in those operations on the Mexico side have substantially delayed imports. In addition, this port more directly connects the substantial brewing industry in Chihuahua with major markets in Texas, affording substantial savings in transportation costs in the future.

The automotive industry is growing in Chihuahua. Ford has an engine manufacturing plant there that could benefit by having a direct transportation route to its assembly plants in Claycomo, MO and Louisville, KY. Toyota recently completed a $1.2B plant in Chihuahua to manufacture Corollas that will be able to go directly to markets in Midland and Dallas and beyond.

The aerospace industry is setting a footprint south of the border as well. One example is Beechcraft, who has opened two facilities in Chihuahua to make sheet metal parts and electrical assemblies that supply operations at its major facilities in Wichita, KS. Another is the plant established in the city by Labinal, Inc., a world leader in the field of electrical wiring solutions for the aerospace and defense markets, with a home office and major facility in Denton, TX.

Opportunities for development of the subject property abound and will expand rapidly as the completion of transportation upgrades are completed in the near future and commerce begins to flow.