Frauenshuh's Recommendation to THD

Dear Mr. Reichard,

Frauenshuh, Inc. has been asked by The Telluride Hospital District and Telluride Medical Center (collectively referred to as “THD”) to provide an independent review and commentary on the Request for Information (RFI) process that has been undertaken by the THD to qualify, solicit, evaluate and narrow the alternatives of sites to be considered for a future medical center development serving the greater Telluride/Mountain Village area.

It should be noted that Frauenshuh, Inc. has not been a participant in the evaluation of the specific stakeholder proposals, correspondence with stakeholders or governmental entities as part of the RFI process.

Therefore, this letter does not opine on the specific position of THD staff or Community Advisory Committee (CAC) in its evaluation, consideration or stated preference for one or more sites considered during this process. Ultimately, the selection of a site among the identified alternatives is a business decision that resides solely with THD leadership and governing board. This letter assesses the solicitation process, information requested and considered and timeline by which THD provided their invited participants to respond to the RFI.

Site Selection Objective

Site Selection is commonly a process of elimination. That is, in a formal site selection process, numerous potential site options are identified. Sites that are “qualified” to meet basic criteria for location, size, availability and related attributes are identified, and requests for proposals or information is solicited.

The proposal or information gathering process informs the site selection team of the attributes or constraining factors that differentiate sites, both positively and negatively. These factors often include a combination of physical, economic, governmental and policy (political) considerations. In most cases, one or many of these factors eliminate alternatives.

The ultimate goal of the process is to attain a “short-list” of sites that have eliminated general feasibility constraints, and appear to be available and competitively viable for the use. Ideally, there is more than one alternative available, and the user (in this case THD) will ultimately negotiate the most favorable and viable alternative. Having more than one alternative is an advantage in the site selection process, as market and other factors can change during the negotiation process. Ultimately, action is required, and the user will need to move to a decision on the best available site based on all feasibility and business considerations.

Ideally, the site selection process is not encumbered by a commitment to a specific developer or pre-determined method of project design, delivery or financial methodology dictated by the party in control of the property as a condition of site conveyance; and ultimately, allow the user to select or determine the most favorable option for project ownership and development delivery and financing method as a separate decision from the selection of a preferred site or sites.

RFI Process Implementation by THD

THD extended invitations to five sites that were identified as having the potential to accommodate the needs of the Medical Center both on a near term and long term basis. Each of the sites offers different location, access, ownership, zoning/covenant, physical characteristics and economic and financial considerations that required formalized evaluation through the RFI process. The parties controlling the potential conveyance of the site for the THD use (i.e. “stakeholders”) were invited through a formal Request for Information (RFI) document.

A core team of THD staff and representatives developed an initial framework of topic points, questions and timelines to which the stakeholders were asked to respond. This framework was intended to give THD’s representatives qualitative and quantitative criteria upon which to evaluate and deliberate the opportunities and constraints associated with the site alternatives.

THD conducted a pre-issuance meeting with stakeholders to finalize RFI language and proceeded with two presubmittal meetings to answer stakeholder questions or concerns about the process. Additionally, representatives of the CAC attended meetings with the Lawson Hill Home Owner’s Association (HOA), the town of Mountain Village and the town of Telluride to determine any remaining questions or objections. The formal RFI was issued in March of 2014.

A deadline of June 23rd, 2014 was set by THD for submittal of RFI responses. THD received one proposal from Mountain Village and two proposals from Lawson Hill. The town of Telluride did not submit a response to the RFI.

A Community Advisory Committee (CAC) was formed by THD to receive, review and deliberate the information submittals from the respondents. THD staff and an architectural and construction consultant were engaged to assemble the information received from respondents, and presented the responses to the CAC on July 2nd, 2014.

The CAC THD hosted a public forum on August 12th, 2014, for further public engagement about the process and to gather additional input from the community about expectations for a new facility.

The CAC subsequently met on August 20th to conduct further review of the submittal information and consideration of the respondent information and a direction was concluded to proceed with two sites:

· Lawson Hill HOA – Lots H & I

· Town of Mountain Village – Town Hall Site

The CAC’s evaluation was based on a review of the responses by TMC staff, information gathered during the public forum and ultimately, deliberation of the CAC.

Conclusions and Key Considerations to the THD Site Selection Process

In review of the evaluation process implemented by THD through the effort of its staff and the CAC, we believe moving forward with the recommendation of the CAC to pursuit the two preferred alternative sites is a proper course of action.

The implementation steps taken by the THD and the communication process with the stakeholder respondents and the public appeared well organized and executed by THD, its staff and CAC members. Adequate response timelines, care for public engagement and thorough discernment of the RFI submittal information were priority considerations of the TMC staff and CAC. TMC staff prepared qualitative and quantitative information and clarification on points that were relevant to the CAC’s deliberations and guidance for this RFI phase.

It is our understanding that the next step for the THD is to begin discussions and ultimately negotiate Letters of Intent/business terms (LOI) with the two principal site owners over the next 60-90 day period. During this period, should negotiations with one or both property owners’ reach an impasse, THD would retain its sole right to negotiate exclusively with one of the property owners, or revisit its scope and alternative site options.

If the next step in this process ultimately results in the execution of an LOI, negotiation of a final definitive binding agreement will follow, and full and final determination of site feasibility will be completed to the satisfaction and timeline of the THD and Seller.

We commend the efforts of the THD, its staff and community members for taking an active and engaged role in its continuing mission to select a site that serves the health care needs of the region for the long term. If we can be of service as the process moves into the next phase of site evaluation, we are happy to assist as needed.

Best Regards,

David M. Anderson

Senior Vice President Frauenshuh Commercial Real Estate Group

Beth Kelly