Gentlemen: 

As one of the largest shareholders of California Coastal Communities, Inc. ("CALC" or the "Company") and a long-time supporter of the Company, we are deeply disturbed by the intransigence of both management and the Board with regard to the Bolsa Chica project. Their unwillingness to seriously pursue a sale of Bolsa Chica, or instead the entire Company, has eliminated all confidence we previously had in management and the Board's commitment to maximizing value for shareholders. Management simply cannot resist the temptation of personally pursuing the overly ambitious project of developing Bolsa Chica, even though this plan is fraught with obvious risk given their lack of experience in handling projects of such magnitude.

As an expression of our gross dissatisfaction with management's corporate strategy, we have voted against the proposed slate of Directors and the Company's stock option plan proposal in the proxy. It is glaringly obvious that the Company needs to immediately remove those Directors who, having become quite comfortable in their positions, are no longer able to provide an objective view independent from management as to the best strategy to maximize value for shareholders. The Company has an unusually small, four-member Board of Directors, with one member being the Chief Executive Officer. The complete lack of financial commitment and alignment with shareholders by two of those non-management Directors - a majority of the independent Directors - is painfully obvious, as is their close personal relationship with the CEO. Mssrs. Sabin and Burnaman have both been Directors since September 1997 - yet, Mr. Burnaman owns a grand total of 2,250 shares (1,250 shares acquired as a result of exercising stock options and only 1,000 shares purchased directly) while Mr. Sabin only owns 4,000 shares (not including options granted by the Company). It is clear we are in desperate need of new Board members that will infuse the Company with fresh thinking and a new, wholly independent perspective.

We also reiterate that CALC should immediately hire a first-tier investment bank to pursue a sale of either Bolsa Chica or the entire Company. We remain convinced that a buyer would be willing to pay at least $300 - $350 million today for Bolsa Chica, which equates to approximately $30 - $35 per share, and a minimum of $40 - $45 per share to purchase the entire Company. While there is a possibility that an additional $10 - $12 per share of value could be created if management independently develops Bolsa Chica over a four- year period, we believe the significant execution risk outweighs the present value of future development profits. It is imperative that the Board and management disabuse themselves of any ego-driven desire to single-handedly undertake the Bolsa Chica project and recognize that the most value for shareholders on a present value, risk-adjusted basis is created through an immediate sale of such property.

Sincerely, 

MERCURY REAL ESTATE ADVISORS LLC

David R. Jarvis                                                                                                                                                                                                               Malcolm F. MacLean IV

Chief Executive Officer                                                                                                                                                                                                  President

Source: Mercury Real Estate Advisors LLC

Last Updated ( Tuesday, 27 June 2006 )