GS MORTGAGE SECS CORP II COM MORT PAS THR CER SRS 1998 GL 11 - 8-K - 19970722 - EXHIBIT_99
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COMPLETE APPRAISAL OF
REAL PROPERTY
The Galleria at White Plains
100 Main Street
City of White Plains,
Westchester County, New York
IN A SELF-CONTAINED REPORT
As Is Market Value
As of May 14, 1996
Prepared For:
Cadillac Fairview U.S., Inc.
20 Queen Street West, Fourth Floor
Toronto, Ontario M5H 3R4
Prepared By:
Cushman & Wakefield, Inc.
Valuation Advisory Services
51 West 52nd Street, 9th Floor
New York, NY 10019
Cushman & Wakefield, Inc. CUSHMAN &
51 West 52nd Street WAKEFIELD(R)
New York, NY 10019-6178
(212) 841-7500 Improving your place
in the world.
June 18, 1996
Mr. John Macdonald
Cadillac Fairview U.S., Inc.
20 Queen Street West, Fourth Floor
Toronto, Ontario M5H 3R4
Re: Complete Appraisal of Real Property
The Galleria at White Plains
100 Main Street
City of White Plains, Westchester County, New York
Dear Mr. Macdonald:
In fulfillment of our agreement as outlined in the Letter of Engagement, Cushman
& Wakefield, Inc. is pleased to transmit our Self-Contained Complete Appraisal
Report estimating the Market Value of the leased fee estate in the above
referenced property. Specifically, we are providing an "As Is" Market Value
estimate as of the date of inspection.
The subject property is The Galleria at White Plains, an enclosed urban regional
mall containing a total of 882,728+/- square feet. Owned GLA is composed of mall
shops, food court, and kiosks totaling 326,813+/- square feet. We would note
that our projected net operating income is substantially below the 1996 budgeted
figure. This is primarily due to the fact that the budget was prepared before
Filene's Basement vacated the property. This tenant was scheduled to produce
$313,200 in base rent obligations, $60,344 in CAM contributions, and $256,546 in
tax obligations ($630,090 total). Management's budget also includes $105,834 in
percentage rent from Family Pet Center which we have modeled as a non-reporting
temporary tenant paying $37,773 in base rent only.
The value opinion reported herein is qualified by certain assumptions, limiting
conditions, certifications, and definitions, which are set forth in the report.
This report has been prepared for Cadillac Fairview U.S., Inc. ("Client") and
its affiliates and is intended only for its specified use. It may not be
distributed to or relied upon by other persons or entities without written
permission of Cushman & Wakefield, Inc.
The property was inspected by and the report was prepared by Jay F. Booth.
Richard W. Latella, MAI has reviewed and approved the report but did not inspect
the property for this assignment.
Cushman & Wakefield, Inc.
Client Name
Company -2- Date
Based upon our Complete Appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have formed an opinion that the "As Is"
Market Value of the leased fee estate in the referenced property, subject to the
assumptions, limiting conditions, certifications, and definitions, as of May 14,
1996, was:
ONE HUNDRED MILLION DOLLARS
$100,000,000
This report has been prepared in accordance with our interpretation of your
institution's guidelines, and in compliance with FIRREA and the Uniform
Standards of Professional Appraisal Practice, including the Competency
Provision.
This letter is invalid as an opinion of value if detached from the report, which
contains the text, exhibits, and an Addenda.
Respectfully submitted,
Cushman & Wakefield, Inc.
/s/ Jay F. Booth
----------------
Jay F. Booth
Retail Valuation Group
State of New York Certified General
Real Estate Appraiser No. 46000026796
/s/ Richard W. Latella
----------------------
Richard W. Latella, MAI
Senior Director
Retail Valuation Group
JFB:RWL:emf
C&W File No. 96-9216
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
Property Name: The Galleria at White Plains
Property Type: Enclosed Urban Regional Shopping Mall
Location- The subject property is located in
downtown White Plains, New York between
Main Street (north), Martine (south),
Court (east), and Lexington Avenue
(west). The property address is 100 Main
Street.
Tax Map/Parcel Nos.: 125.75-4-2; 125.75-4-3
Interest Appraised: Leased Fee
Date of Value: May 14,1996
Date of Inspection: May 14,1996
Ownership: Cadillac Fairview W.P. Associates
Land Area
Mall Site: 5.44+/- acres
JCPenney Parcel (Ground Lease): 1.46+/- acres
------------------------------- -------------
Total Appraised Portion of Site: 6.90+/- acres
Stern's Parcel (Not Owned): 2.25+/- acres
------------------------------- -------------
Total Site: 9.15+/- acres
Zoning: B-6 (UR-3), Enclosed Mall District
Highest and Best Use
As If Vacant: Retail use built to its maximum feasible
F.A.R. and conforming to surrounding
land use patterns.
As Improved: Continued use as a multi-level urban
shopping mall.
Improvements
Description: Four-level enclosed urban regional mall
anchored by JCPenney and Stern's.
Constructed in 1980, the mall contains
882,728+/- square feet of which mall
shops, food court, and kiosks comprise
326,813+/- feet.
Year Built/Renovated: 1980/1993
Building Area
JCPenney*: 227,316+/- square feet
Stern's*: 328,599+/- square feet
Mall Shop GLA: 326,813+/- square feet
-------------- ----------------------
Total GLA: 882,728+/- square feet
*Stores separately owned; JCPenney
subject to ground lease; Stern's will
become Macy's as of mid-July 1996.
Value Indicators
Sales Comparison Approach: $101,000,000 to $103,000,000
Value Per Sq/Ft Owned GLA: $ 309.05 to $ 315.16
Income Approach
Discounted Cash Flow: $99,000,000
Direct Capitalization: N/A
Value Conclusion: $100,000,000
Value Per Square Foot: $ 305.99 (Owned GLA -
326,813 Sq/Ft)
Implicit Capitalization Rate (FY 1997): 8.65% (NOI - $8,565,847)
Exposure Time Implicit
In Market Value Estimate: 12+/- months
Special Risk Factors:
The following special risk factors for the subject property have been
considered during the appraisal assignment at hand:
o The Westchester Mall opened in March 1995 and is located one-half mile
south of the subject. Anchors include Nordstrom and Neiman-Marcus.
With the opening of this property, combined with a generally poor year
for retailers in 1995, the subject property experienced a 10.0-15.0
percent decline in sales. Although we have taken a no growth" stance
on sales projections for 1996, the complete impact of The Westchester
remains difficult to measure at this time. We believe that The
Westchester is likely to draw away sales from the subject for another
9-12+/- months due to continued curiosity shopping. However, we
believe that, in the long-run, these two properties can co-exist in
the White Plains market. A more complete discussion of The Westchester
can be found in the Retail Market Analysis section of this report.
o We would also note the potential for tenants at the subject property
opening stores at The Westchester in addition to, or instead of,
operating at The Galleria. To date, very few tenants have defected the
subject entirely for The Westchester. Several stores, including
Athlete's Foot, The Limited Group, and The Gap, have opened second
units at The Westchester, retaining their existing stores at The
Galleria. This issue remains a potential risk for the subject in the
near-term.
o Finally, Stern's has been an underperforming store at the subject
since it replaced Abraham & Straus in May 1995. The conversion was
part of the Federated Department Store/R.H. Macy & Company merger. The
company is currently in the process of converting Stern's to a Macy's
unit, closing their existing Macy's store two blocks from the subject.
We assume that this conversion will be performed in a timely,
workmanlike manner and that no serious disruption will impact the
mall. Federated has stated that Stern's will likely close the first
week of July 1996, opening one- to two-weeks later as Macy's following
store renovations.
Summary of Salient Facts and Conclusions
Special Assumptions Affecting Valuation:
1. Throughout this analysis we have relied on information provided by
ownership and management which we assume to be accurate. In this
regard, we have reviewed actual lease documents for several in-line
stores and all anchor tenants, a current rent roll of all tenants,
operating statements, and a 1996 budget for income and expenses at the
subject property, including any capital improvement projects.
2. Our cash flow analysis and valuation has recognized that all signed
leases and any pending leases with a high probability of being
consummated are implemented according to the terms presented to us by
management. Such leases are identified within the body of this report.
3. The forecasts of income, expenses, and absorption of vacant space
included herein are not predictions of the future. Rather, they are
our best estimates of current market thinking on future income,
expenses, and demand. We make no warranty or representation that these
forecasts will materialize.
4. The Americans With Disabilities Act (ADA) was enacted in 1990,
requiring equal access to public places for disabled persons.
Virtually all landlords of commercial facilities and tenants engaged
in business that serve the public have compliance obligations under
the law. While we are not experts in this field, our understanding of
the law is that it is broad-based and that most existing commercial
facilities are not in full compliance because of construction prior to
enactment. We recommend a compliance study be performed by qualified
personnel to determine the extent of potential non-compliance at the
subject and any costs to cure.
5. Please refer to the complete list of assumptions and limiting
conditions included at the end of this report.
PHOTOGRAPHS OF SUBJECT PROPERTY
[PHOTO]
[GRAPHIC OMITTED]
View of Stern's store facing north on Court Street.
[PHOTO]
[GRAPHIC OMITTED]
Stern's entrance along Main Street at Court.
Photographs of Subject Property
[PHOTO]
[GRAPHIC OMITTED]
View of JCPenney store from corner of Main and Lexington.
[PHOTO]
[GRAPHIC OMITTED]
Midsection of mall exterior along south side of Main Street.
Photographs of Subject Property
[PHOTO]
[GRAPHIC OMITTED]
Center court area looking down upon food court seating.
[PHOTO]
[GRAPHIC OMITTED]
Food court area.
Photographs of Subject Property
[PHOTO]
[GRAPHIC OMITTED]
Mall concourse.
[PHOTO]
[GRAPHIC OMITTED]
JCPenney throat.
TABLE OF CONTENTS
Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................9
INTRODUCTION...................................................................1
Identification of Property...............................................1
Property Ownership and Recent History....................................1
Purpose and Intended Use of the Appraisal................................1
Extent of the Appraisal Process..........................................2
Date of Value and Property Inspection....................................2
Property Rights Appraised................................................2
Definitions of Value, Interest Appraised, and Other Pertinent Terms......2
Legal Description........................................................4
REGIONAL ANALYSIS..............................................................5
NEIGHBORHOOD ANALYSIS ........................................................14
RETAIL MARKET ANALYSIS .......................................................17
PROPERTY DESCRIPTION..........................................................54
Site Description........................................................54
Improvements Description................................................56
REAL PROPERTY TAXES AND ASSESSMENTS...........................................62
ZONING .......................................................................64
HIGHEST AND BEST USE..........................................................65
A. Highest and Best Use of Site As Though Vacant........................65
B. Highest and Best Use of Property As Improved.........................67
VALUATION PROCESS.............................................................69
SALES COMPARISON APPROACH.....................................................70
INCOME APPROACH...............................................................85
RECONCILIATION AND FINAL VALUE ESTIMATE......................................115
ASSUMPTIONS AND LIMITING CONDITIONS..........................................117
CERTIFICATION OF APPRAISAL...................................................119
ADDENDA......................................................................120
The subject of this appraisal is The Galleria at White Plains, a four-level
enclosed urban regional mail containing 882,728+/- square feet. The mail is
anchored by JCPenney (227,316+/-sf) and Stern's (328,599+/-sf). Both anchors own
their own stores, although JCPenney is on a long-term ground lease. Stern's is
currently in the process of being converted to Macy's, another store division of
Federated Department Stores, Inc. Mall shops, food court, and kiosks comprise
326,813+/- square feet of the property (owned GLA), with a current occupancy of
about 81.4 percent, including pending leases.
The Galleria is sited on 9.15+/- total acres bounded by Main Street to the
north, Martine Avenue to the south, Court Street to the east, and Lexington
Avenue to the west in downtown White Plains, New York. The site itself is
bisected by Grove Street which provides ingress/egress into a municipally-owned
parking garage.
Historically, The Galleria has been the area's dominant destination center
for traditional merchandise. With a substantial trade area and high levels of
income, The O'Connor Group recently opened The Westchester, an 830,000+/- square
foot regional mall located about one-half mile south of the subject. Although
the two malls compete to a certain degree, the potential exists to draw
additional customers to the area by means of the expanded merchandise offered
between the two malls. In the near-term, the subject is likely to feel the
impact of this project in terms of lost sales growth and the potential for
increased vacancy.
Property Ownership and Recent History
Title to the appraised portion of the subject property is held by Cadillac
Fairview W.P. Associates. The mall was originally developed by Cadillac Fairview
Company (now a subsidiary of JMB Realty) and opened in August 1980. JMB to
continues to operate the center since acquiring an interest in Cadillac
Fairview.
Over the past three years, the subject has undergone significant changes.
Most notably, a major renovation and remerchandising strategy has been
completed. Approximately $15.5 million was spent between 1992 and 1993 on the
renovation which was completed in November 1993. This is equal to roughly $47.43
per square foot of owned GLA. In May 1995, A&S was converted to Stern's as part
of the Federated/Macy's merger. Stern's has been an underperformer and will be
replaced by Macy's in July 1996. Details of other property changes can be found
in the Property Description section of this report.
The property is currently encumbered by a number of leases with tenants who
are open and operating. Abstract summaries of the JCPenney ground lease and
Abraham & Straus (Stern's) Operating and Reciprocal Easement Agreement (OREA)
have been reviewed and are contained in our files.
Purpose and Intended Use of the Appraisal
The purpose of this appraisal is to estimate the 'As Is" Market Value of a
Leased Fee Estate in the subject property. The appraisal is to be used by the
Client and its affiliates to determine the asset's value in its underwriting
efforts.
o Inspected the exterior of all buildings and site improvements and a
representative sample of shops with Winnette Peltz, the property
manager;
o Interviewed representatives of the property management company;
Reviewed leasing policy, concessions, tenant build-out allowances, and
history of recent occupancy with the leasing manager;
o Reviewed a detailed history of income and expenses as well as a budget
forecast for 1996;
o Conducted market research of occupancies, asking rents, concessions
and operating expenses at competing shopping centers which involved
interviews with on-site managers and a review of our own data base
from previous appraisal files;
o Prepared an estimate of stabilized income and expenses (for
capitalization purposes);
o Prepared a detailed discounted cash flow (DCF) analysis using Pro-Ject
+plus software for the purpose of discounting a forecasted net income
stream into a present value of the leased fee estate for the center;
o Conducted market inquiries into recent sales of similar retail
properties to ascertain sale prices per square foot, effective gross
income multipliers, and capitalization rates. This process involved
telephone interviews with buyers, sellers, and/or participating
brokers;
o Prepared Sales Comparison and Income Approaches to value;
o Reconciled the value indications and concluded a final value estimate
for the subject in its "As Is" condition; and
o Prepared a Complete Appraisal of real property, with the results
conveyed in this Self-Contained Report.
Date of Value and Property Inspection
The date of value is May 14, 1996. On that date, Jay F. Booth inspected the
property and its environs. Richard W. Latella, MAI has reviewed and approved the
report and has inspected the subject property on other occasions.
Property Rights Appraised
Leased Fee Estate.
Definitions of Value, Interest Appraised, and Other Pertinent Terms
The definition of market value taken from the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation, is as follows:
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller, each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
Exposure Time
Under Paragraph 3 of the Definition of Market Value, the value estimate
presumes that "A reasonable time is allowed for exposure in the open
market". Exposure time is defined as the estimated length of time the
property interest being appraised would have been offered on the market
prior to the hypothetical consummation of a sale at the market value on the
effective date of the appraisal. Exposure time is presumed to precede the
effective date of the appraisal.
The following definitions of pertinent terms are taken from the Dictionary
of Real Estate Appraisal, Third Edition (1993), published by the Appraisal
Institute.
Fee Simple Estate
Absolute ownership unencumbered by any other interest or estate, subject to
the limitations imposed by the governmental powers of taxation, eminent
domain, police power, and escheat.
Leased Fee Estate
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the leased
fee owner) and the leased fee are specified by contract terms contained
within the lease.
Market Rent
The rental income that a property would most probably command on the open
market, indicated by the current rents paid and asked for comparable space
as of the date of appraisal.
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities
that cannot be sold at their face amounts.
Market Value As Is on Appraisal Date
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; related to what
physically exists and is legally permissible and excludes all assumptions
concerning hypothetical market conditions or possible rezoning.
Legal Description
We have not been provided with a complete metes and bounds legal
description of the subject property. The property can generally be described as
Tax Map Parcel Nos. 125.75-4-2 (Account No. 30010002106) and 125.75-4-3 (Account
No. 3003002005), City of White Plains Assessor's Office.
The short- and long-term value of real estate is influenced by a variety of
factors and forces which interact within a given region. Regional analysis
serves to identify those forces which affect property value and the role they
play within the region. The four primary forces which influence real property
value include environmental characteristics, governmental forces, social
factors, and economic trends. These forces determine the supply and demand for
real property which, in turn, affect market value.
A. Environmental Characteristics
The primary environmental forces which influence the region include
physical location, geography, and infrastructure. These characteristics provide
a basis for the region's stability and describe the area's overall locational
bearing. Both natural and man-made environmental forces influence real property
values and are best understood in relation to the subject property's location.
General Overview
The subject property is located in the City of White Plains, Westchester
County, New York. White Plains is the county seat and second largest city in
Westchester County behind Yonkers. Westchester County covers nearly 450 square
miles of wooded suburban settings and established cities, containing 6 cities,
34 towns, and 23 villages. Westchester is bordered to the north by Putnam
County, New York; to the south by New York City; to the east by Long Island
Sound and Fairfield County, Connecticut; and to the west by the Hudson River.
Westchester County has benefited from its proximity to New York City, as well as
an excellent transportation network.
Transportation
Westchester County's transportation network includes four interstate
highways, seven parkways, three commuter rail lines, and a national airport.
Following is a brief overview of the transportation network serving the county.
Highways & Interstates
A primary mode of transportation in Westchester County is the automobile.
County residents benefit from four interstate highways (I-287, I-87, I-95,
I-684), and seven parkways (Saw Mill River, Hutchinson River, Bronx River,
Sprain Brook, Cross County, Taconic State, Playland, and Central Westchester).
Interstate 95 is the East Coast's primary north-south thoroughfare, passing
through southern Westchester en route to Connecticut and other points north.
Interstate 87 (New York State Thruway) parallels the Hudson River, linking
Westchester with New York City to the south and Upstate New York. I-287 (Cross
Westchester Expressway) is the major east-west conduit, connecting the Tappan
Zee Bridge with I-95, and passing through White Plains. The addition of
Interstate 684, which runs north from White Plains through the central portion
of the county and into Putnam, has spawned growth in Northern Westchester
County. These and other local roadways lay the foundation for all major economic
and employment centers within the county.
The Westchester County Airport is centrally located in Harrison off of
Interstate 684, offering airline and charter passenger services, corporate and
general aviation, and aircraft maintenance and storage facilities. The facility
opened a new terminal in 1995 after undergoing a $95 million modernization. New
York City's four international airports, Newark, JFK, LaGuardia, and Stewart,
are all within an hour's drive from most parts of Westchester.
Public & Commuter Services
Public transportation in Westchester County is good, particularly in terms
of commuter rail service into Midtown Manhattan, New York City. Commuter rail
lines are controlled by Metro North, with three main branch lines: the Hudson
Line, Harlem Line, and New Haven Line. In addition, there is an inter-county bus
network, called the Bee-Line, which has routes along most major roadways and
into Putnam County and New York City.
Other Services
Westchester County is also serviced by freight carriers, cargo and shipping
companies, and rail. Conrail and a number of smaller rail lines provide
rail-freight service within the region. The Hudson River accommodates domestic
and international shipping of bulk products, primarily by tugboat carriers from
docking facilities along the Hudson River.
B. Governmental Characteristics
Governmental influences on the region impact property values via political
and legal actions at all levels. The legal climate at a particular time or in a
particular place may overshadow the natural market forces of supply and demand.
Government provides many necessary facilities and services that affect land use
patterns, including public utilities, refuse collection, transportation
networks, zoning codes, and fiscal policies.
Government Structure
Westchester County government is organized among the three traditional
branches, executive, legislative, and judicial. The county executive is chosen
by general election. The county legislature is composed of a 17-member board
representing various districts in the county. The county is the largest single
employer, public or private, in Westchester, providing an array of services,
including police protection, sewage treatment, bus service, road construction
and repair, and a number of social, health, and human services.
Below the county, Westchester's 43 separate cities, towns, and villages
have their own individual government structures with a wide range of services.
These municipal governments generally have an elected mayor or supervisor, and a
municipal council or board that serves as the legislative arm. Municipal
services include water, sewer, and street maintenance, as well as fire and
police protection. All local governments have the power to assess and levy taxes
on real property, and all have planning and zoning boards that determine
municipal zoning codes and master plans for their communities.
The State of New York carries a general sales tax, gas tax, tobacco and
alcohol tax, public utilities tax, motor vehicle tax, and individual income tax,
among others. Locally, property taxes are levied based upon a millage rate per
$100 of assessed value. Property taxes include a county rate, municipal rate,
and school rate.
Services & Utilities
The City of White Plains and Westchester County provide a range of
municipal and county services, including police and fire protection, emergency
medical services, street construction and maintenance, traffic signalization,
planning and zoning, community and economic development, and parks and
recreation. Consolidated Edison provides electric service to most areas of
Westchester, except for the northeastern part which is served by New York State
Electric and Gas. Con Edison also supplies natural gas to the region, except for
North Salem, Lewisboro, Pound Ridge, and portions of Bedford and Yorktown.
Bond Rating
Moody's Bond Record places the State of New York's bond rating as 'A'
relative to investment qualities. Westchester County carries a bond rating of
'Aaa', while the City of White Plains carries a bond rating of 'Aa1'. 'Aa' bonds
are judged to be of high quality by all standards but include elements that may
present long-term risks which appear somewhat higher than 'Aaa'. 'Aaa' bonds are
judged to be the best quality and carry the smallest degree of investment risk.
The '1' designation suggests that the bond group possesses the strongest
investment attributes.
C. Social Forces
Real estate values can be influenced to a large degree by social issues
impacting the region, including population trends, income levels, the profile of
workers in the area, and other quality of life issues. The demographic
composition of the population reveals the potential, basic demand for real
estate services.
Population
The population and its geographic distribution are basic determinants of
the need for real estate. Aggregate population growth is distributed among
regions in response to changing economic opportunities, while the demand for
real estate is created by a population's demand for the goods and services to be
produced or distributed within the region. Thus, population and demographic
trends can influence the demand for services provided by property, thereby
affecting property value.
After peaking in the early 1970s, population in Westchester County has
remained relatively stable, exhibiting only moderate increases over the past 10
years. Between 1980 and 1990, population in Westchester increased at a compound
annual rate of only 0.1 percent per year. From 1990 to 1995, population has
grown at an annual rate of about 0.3 percent per annum to 888,980.
Through 2000, population growth is forecasted to be flat according to Woods
& Poole Economics, lower than the rate of growth projected for the state as a
whole. The Westchester County Planning Department projects population growth of
0.1 percent per year through 2000, while Demographics USA and CACI Marketing
Systems forecast growth of 0.2 and 0.4 percent per annum, respectively. The
consensus forecast is for 0.2 percent annual population growth through 2000.
A color graphic depicting projected population growth over the next five
years is included in the Retail Market Analysis section of this report. As can
be seen, the largest areas of growth are forecasted to be in areas of central
and northern Westchester County. Purchase is projected to see growth of 6.0-7.6
percent per annum, while most areas surrounding White Plains will have increases
between 0.1-3.0 percent per year.
Households
Household formation is an important component of demographic analysis which
helps to identify changing patterns or shifts within the population. A household
consists of all people occupying a single housing unit, thus providing
significant sociological information about the region. Household formation also
has a significant influence on demand for real estate. Households, combined with
effective purchasing power, provide the basic demand for housing units and
household needs, thereby transforming needs into effective demand for real
estate improvements.
Like the nation as a whole, household formation has occurred at a rate in
excess of population growth within the subject region. This acceleration has
been the result of several trends, namely the fact that the population is
generally living longer, divorce rates have been on the rise, and many younger
professionals are postponing marriage and/or leaving home at an earlier age, all
resulting in increases of one- and two-person households. The total number of
households in Westchester County has increased from 309,450+/- in 1980 to
323,900+/- in 1995, a compound annual increase of about 0.3 percent per year.
Accordingly, the number of persons per household within the MSA has decreased
from 2.80 in 1980 to 2.74 in 1995.
Projections through 2000 show household growth at 0.0-0.1 percent per year,
slightly higher than population growth forecasts. Westchester County Planning is
projecting annual household formation at a rate of 0.4 percent per year, while
Demographics USA and CACI forecast annual growth of 0.3 and 0.4 percent,
respectively. Combined, the consensus forecast shows annual household growth of
0.3 percent per year through 2000.
Income levels, either on a per capita, per family, or per household basis,
indicate the economic level of residents within the region and form an important
component of economic analysis. Average income has a direct impact on the
ability of residents to satisfy material desires for goods and services,
directly affecting the demand and price levels of real estate.
Average income levels within the subject region are above state and
national figures. On a per capita basis, Westchester County has an average
income of $37,850 for 1995, about 44.5 percent higher than the state level of
$26,189 and 68.3 percent higher than national statistics. Income growth has
generally outpaced state and national trends, experiencing annual growth of
roughly 7.8 percent per year (1980-90); 3.2 percent per year from 1990 to 1995
(not adjusted for inflation). Income projections show per capita income growth
of 4.4 percent per year for Westchester County.
A large part of the differential between Westchester's income levels and
that of the state or region is accounted for by residents who commute into
Manhattan to predominantly professional, technical, and managerial employment.
Although income levels are above average for the state, higher taxes and housing
costs can often erode the purchasing power of area residents. As such, the
effective disposable income of residents-adjusted for tax payments,
contributions to pension funds, and the cost of new housing-do not rank as well
against other regions of the state. This is not the case for Westchester County.
Sales & Marketing Management places median household effective buying income at
$59,654 for Westchester County as of 1994, 43.7 percent higher than the state
median of $41,500 and 60.9 percent above the U.S. median of $37,070. The City of
White Plains shows a median household EBI of $55,207.
A color graphic displaying average household income by area is presented in
the Retail Market Analysis section of this report. As shown, areas of central
and southern Westchester are generally more affluent than other sectors. The
highest levels of income are located in Scarsdale, Purchase, Armonk, and
Bedford, as well as Briarcliff Manor and Chappaqua.
D. Economic Trends
Economic forces are significant to real property value. The fundamental
relationships between current and anticipated supply and demand and the economic
ability of the population to satisfy its wants, needs, and demands through
purchasing power are tantamount to such an analysis. Some of the specific market
characteristics considered in economic analysis include employment trends, the
economic base of the region, expansion and new development, and the overall
economic health of the region.
Westchester County is noted for the number of large corporations that
maintain headquarters or branch operations within the county. Over one-third of
the county's non-agricultural wage and salary employment is provided by the 450
largest firms that each employ over 50 or more people. At least 35 companies, 8
of which are Fortune 500 firms, maintain their corporate U.S. or international
headquarters within the county. The presence of so many companies with national
or international operations serves as a buffer against some of the short-term
swings seen in state and local economies.
Employment Distribution
The largest sectors of non-agricultural employment in Westchester include
Services, Wholesale/Retail Trade, Government, and Finance, Insurance and Real
Estate (F.I.R.E.). Services currently accounts for about 39.1 percent of
non-farm employment, growing at an annual rate of 0.6 percent per year over the
last five years. Wholesale/Retail Trade accounts for 19.4 percent of
non-agricultural employment, declining by nearly 1.6 percent per annum since
1990. Government and F.I.R.E. round out the top sectors of employment,
accounting for approximately 12.1 and 10.2 percent of non-farm employment,
respectively. Government jobs have been cut-back in recent years, while F.I.R.E.
employment has declined by 1.9 percent per year since 1990.
Major Employers
One of the primary employers in Westchester County is International
Business Machines (IBM). The firm's corporate headquarters are located in
Armonk; the U.S. headquarters are in Purchase. IBM accounts for roughly 2.0
percent of all jobs in Westchester County. Other major employers in the region
include Kraft General Foods, Philip Morris, Nestle, Readers Digest, AT&T, Union
Carbide, Texaco, NYNEX, and Pepsico.
Corporate migration over the years has transformed Westchester from a
strictly bedroom suburb of New York City, to a major employment center in its
own right. Since 1960, the number of non-residents who commute into the county
for work each day has steadily increased as new jobs have been created. The
labor force contains a larger percentage of professional, technical, and
clerical workers, and smaller percentages of blue collar categories than that of
New York State as a whole. This is a reflection of the trend to locate corporate
headquarters in Westchester.
Although a number of firms have been drawn to Westchester over the past
decade, the largest, IBM, has undergone a corporate-wide restructuring. As part
of the restructuring program, IBM has vacated significant amounts of office and
industrial space throughout the county, as well as eliminating a number of jobs.
The number of IBM employees has fallen from approximately 15,000 in 1985, to
about 8,000 today.
The following chart details some of the largest employers presently located
within Westchester County.
Employers No. Employees
========================================================================
Westchester County 9,640
------------------------------------------------------------------------
International Business Machines 8,000
------------------------------------------------------------------------
NYNEX 5,160
------------------------------------------------------------------------
U.S. Postal Service 3,900
------------------------------------------------------------------------
Yonkers Public Schools 2,861
------------------------------------------------------------------------
Pepsico, Inc. 2,550
------------------------------------------------------------------------
Consolidated Edison of New York 2,100
------------------------------------------------------------------------
General Motors 2,000
------------------------------------------------------------------------
City of Yonkers 1,965
------------------------------------------------------------------------
General Foods U.S.A. 1,960
------------------------------------------------------------------------
Bank of New York 1,944
------------------------------------------------------------------------
AT&T 1,822
========================================================================
Source: The Westchester County Association
========================================================================
Unemployment Rates
Unemployment rates in Westchester County have historically been below state
and national figures. As of 1994, the unemployment rate for Westchester was 5.5
percent, 140 points below the state unemployment rate of 6.9 percent. Mirroring
national trends, unemployment peaked in 1992 at 6.2 percent, followed by a
generally declining trend through 1994 (5.5%).
====================================================================
Historic Unemployment Rates
====================================================================
Westchester United
Year County New York States
====================================================================
Feb-96 n/a 6.6% 5.5%
--------------------------------------------------------------------
Feb-95 n/a 6.9% 5.5%
--------------------------------------------------------------------
1994 5.5%* 6.9% 6.1%
--------------------------------------------------------------------
1993 5.4% 7.7% 6.9%
--------------------------------------------------------------------
1992 6.2% 8.5% 7.5%
--------------------------------------------------------------------
1991 5.4% 7.2% 6.8%
--------------------------------------------------------------------
1990 3.4% 5.2% 5.6%
====================================================================
Source: Employment & Earnings: Bureau of Labor Statistics.
Westchester County
* As of June 1994.
Although it is too soon to know what the 1995 annual adjusted rates will
be, it appears that unemployment declines have moderated within the region and
the state as a whole.
Employment Growth
Over the past five years, it is clear that employment growth in Westchester
has moderated over the growth experienced between 1980 and 1990. Total non-farm
employment grew at a compound annual rate of 1.3 percent per year from 1980 to
1990, declining by a rate of -1.1 percent from 1990 to 1995. Services and
Finance, Insurance and Real Estate have historically led employment growth,
followed by Transportation, Communication and Public Utilities and Government.
Farm and Agricultural Service employment has remained relatively stable, while
losses in the Manufacturing base have continued, but at a more moderate pace.
Woods & Poole Economics projects little or no non-farm employment growth over
the next five years, with an annual rate of decline forecasted at -0.2 percent
per year.
Another measure of the economic health of a region is retail sales
patterns. Consumers drive the economy by creating demand for goods and services
and, in turn, generate the need for housing, office space, retail centers, and
warehouse/distribution facilities. It is estimated that consumer spending
accounts for two-thirds of all economic activity in the United Sates today. As
such, retail sales patterns have become an important indicator of the economic
health of a region.
Retail sales growth has been relatively strong in Westchester County over
the past nine years. Since 1985, total retail sales have grown at a compound
annual rate of 3.0 percent per, lower than statewide growth of 3.8 percent and
national growth of 5.4 percent per annum. During this same period, White Plains
experienced a decline in retail sales of -0.1 percent per year. From 1990-94,
sales growth has tracked at 1.3 percent per annum for Westchester, with New York
showing annual growth of 1.9 percent per year. The City of White Plains
exhibited an annual sales decline of -3.3 percent per annum between 1990-94.
Woods & Poole forecasts Westchester County to see annual retail sales growth of
only 0.05 percent per year above inflation through 2000 (adjusted to 1987
dollars).
E. Critical Observations
The following bullet points summarize some of our general observations
relating to the subject's region:
o The region's economy is relatively diverse. No single sector of
employment truly dominates the economic base. Economic volatility is
mitigated to a certain extent by the high concentration of government
employment.
o Employment growth is projected to be flat in Westchester County
through 2000, although F.I.R.E. and Services should see moderate
increases.
o Population growth is forecasted to be 0.2 percent per year, while
household formation will occur at an annual rate of 0.3 percent.
o Income levels are projected to increase at an annual rate of about 4.4
percent per year for the region through 2000. Retail sales projections
are forecasted to grow by only 0.05 percent per year above inflation
over the next five years. Demographics USA forecasts that average
household Effective Buying Income will increase at an annual rate of
3.4 percent per year.
o Westchester has become an important suburb region to New York City.
Nearly one-third of the county's labor force commute to New York City;
approximately two-thirds of this number into Manhattan.
The short- and long-term outlook for Westchester County and its surrounding
region is for stability, with moderate long-term growth in employment and
population, and better growth projected for income levels and buying power. The
economy is relatively well diversified, with a strong labor force and good
transportation system. On balance, we are relatively optimistic about the
short-term outlook of the subject region. Long-term, the region should see
stability and moderate growth. As we foresee a slow economic growth condition
for the region, it is our opinion that the long-term prospect for net
appreciation in commercial real estate values remains positive. Westchester
County should sustain and continue moderate growth into the future, while
remaining desirable to the major industries, maintaining a strong labor force
with good government support.
A neighborhood is defined as a grouping of complimentary land uses affected
by similar operations of the social, economic, governmental, and environmental
forces that influence property value. The area most closely surrounding the
subject, whether it contains residential property, commercial property, or a
mixture of commercial and residential properties, is called a neighborhood.
General Overview
The subject property is located in the City of White Plains which is
situated in lower-central Westchester County. White Plains comprises a total of
9.6 square miles and is the fourth largest city, by population, within the
county. It is bordered to the west by the Town of Greenburgh, to the north by
the towns of North Castle and Harrison, to the east by the Town of Harrison, and
to the south by the Village of Scarsdale. Neighboring communities include
affluent residential areas such as Purchase, Hartsdale, Rye, and Ardsley.
The City of White Plains has evolved into a dynamic community over the past
20 years. In the process, it has transformed into a desirable retail, office,
and residential location. The downtown area has developed into a significant
suburban office market with major retail activity centered around the Galleria
at White Plains and the newly constructed Westchester. Additionally, White
Plains is the county seat for Westchester, spawning a strong governmental
presence due to the location of city, county, and state and federal agencies and
courts.
Access
White Plains is a convenient location for areas both inside Westchester
County and out. The Bronx River and Hutchinson River Parkways provide direct
access into the city from as far south as The Bronx. The New England Thruway
(I-95) also services the city along Westchester County's eastern border. I-95
provides access between New York City and Connecticut. The Cross Westchester
Expressway (I-287) is the major east-west limited access roadway connecting I-95
with White Plains and west to the Tappan Zee Bridge and Rockland County. The
Taconic and Saw Mill Parkways link with communities north of White Plains and
provide access with northern Westchester County and Putnam County. Major local
arterials include Mamaroneck Road (Route 125), North Broadway (Route 22), and
North Street (Route 127).
White Plains also benefits from a good network of public transportation.
Metro North's White Plains station runs express and local trains into New York
City's Grand Central Station. Peak travel time is approximately 30 minutes. The
city also has an efficient local bus system. Westchester County airport is
located about 5 miles northeast of the downtown area.
Land Use Patterns
The subject property is located along the south side of Main Street between
Court Street and Lexington Avenue. Areas surrounding and directly influencing
the subject are decidedly commercial in nature. There are numerous shops and
office facilities fronting the heavily trafficked streets that service the
neighborhood. The Westchester County Courthouse and County Office Building are
one block south, while the City Municipal Building is two blocks to
the east. The White Plains rail station is located two blocks to the west. The
convenience of rail service via Metro North and the number of commuters who work
in downtown White Plains have the effect of increasing the subject's market
potential and provide an important component of customers for the mall.
Business and Employment
White Plains and surrounding areas are home to national and international
corporate headquarters, including such Fortune 500 companies as Pepsico, Texaco,
and Kraft General Foods. IBM is headquartered in nearby Armonk and maintains
facilities throughout portions of Westchester County. Other notable facilities
include New York Hospital-Cornell Medical Center, Manhattanville College, and
SUNY Purchase.
White Plains is a major retail area in which many of the region's largest
department stores have located. The area attracts shoppers from all parts of
Westchester County, Yonkers, The Bronx, and parts of Connecticut and Putnam
County, New York, principally due to the retail presence of such department
stores as Bloomingdale's, Lord & Taylor, JCPenney, Saks Fifth Avenue,
Neiman-Marcus, Nordstrom, Macy's, and Sears. The most recent addition to this
mix of retail entities has been development of The Westchester, an enclosed
regional mall which has incorporated the existing Neiman-Marcus store, as well
as construction of the region's first Nordstrom department store.
While White Plains has been impacted by the past national recession, its
economic diversity, as well as the quality of area improvements and office and
retail space users, has helped to cushion the effect on employment and income
for residents in the area. The downturn in retail sales for the City of White
Plains, however, accentuates the overall affect the national recession has had.
White Plains Office Market
The subject property benefits from its location within the Central Business
District and the "daytime" population that works in White Plains. The White
Plains CBD posted relatively healthy results in 1995, primarily as a result of
Oxford Health Plans' commitment to 265,000+/- square feet at Westchester One.
This transaction was the largest lease in Westchester County since 1992 and had
a tremendous impact on the overall vacancy rate.
The overall vacancy rate in White Plains at year-end 1995 was 26.4 percent,
slightly higher than third quarter results, but 4.0 percent lower than year-ago
levels. Class A faired considerably better than Class B space, with the Class A
vacancy rate declining from 30.2 percent in fourth quarter 1994 to 23.7 percent
at year-end 1995. Class B space experienced an increase in vacancy from 31.2
percent to 35.5 percent during the same period.
Recent Development Activity
As discussed in the Retail Market Analysis, The Westchester Mall opened in
1995. This project is the most recent development within the City of White
Plains. The Westchester provides additional draw to the downtown vicinity,
particularly on the weekends.
Conclusion
Overall, we believe that the neighborhood surrounding and influencing the
subject is conducive for the continued operation of the mall. On balance, the
long-term prospects for appreciation in real estate values appears good.
A retail center's trade area contains people who are likely to patronize
that particular retail center. These customers are drawn by a given class of
goods and services from a particular tenant mix. A center's fundamental drawing
power comes from the strength of the anchor tenants as well as the regional and
local tenants which complement and support the anchors. A successful combination
of these elements creates a destination for customers seeking a variety of goods
and services while enjoying the comfort and convenience of an integrated
shopping environment.
The subject can be described as a regional shopping center.
A regional shopping center (1) provides for extensive variety of goods,
including a wide selection of general merchandise, apparel, and home
furnishings, as well as a variety of services and recreational facilities
The major occupants of a regional center include a least one, but no more
than two, full line department stores. Each full-line department store
generally has an area of not less than 75,000+/- square feet. In many
instances, the department stores are physically a part of the center but
are independently owned. In theory, its typical size for definitive
purposes is 450,000 square feet of gross leasable area; it practice it may
range from 300,000 to 850,000 square feet The regional center is the second
largest type of shopping center. As such, it provides services typical of a
business district yet not as extensive of those of the super regional
center.
In order to define and analyze the market potential for The Galleria at
White Plains, it is important to first establish the boundaries of the trade
area from which the subject will draw its customers. In some cases, defining the
trade area may be complicated by the existence of other retail facilities on
main thoroughfares within trade areas that are not clearly defined or whose
trade areas overlap with that of the subject. The Galleria's potential trade
area clearly overlaps with its newest competitor, The Westchester in White
Plains. The subject's capture rate of area expenditure potential is also
influenced to a lesser extent by other regional centers such as the Stamford
Town Center and the Cross County Shopping Center in Yonkers. In addition,
peripheral competition is seen in such centers as Jefferson Valley Mall in
Yorktown Heights, Danbury Fair Mall in Danbury, Connecticut, Vernon Hills Mall
in Eastchester, and the Poughkeepsie Galleria in Poughkeepsie, New York.
Although located outside of the subject's effective trade area, it is
anticipated that Palisades Center, a 3.3+/- million square foot mega-mall
currently under construction in eastern Rockland County approximately 15+/-
miles from the subject, will certainly impact regional shopping dynamics.
Finally, there are several free-standing department stores in White Plains
within a mile and a half radius of The Galleria including Sears, Macy's, Saks
Fifth Avenue and Bloomingdale's. While some cross-shopping does occur, these
department stores act more as a draw to the White Plains community, creating an
image for the area as a prime shopping district and generating more retail
traffic to White Plains than would exist in their absence. We recognize and
mention these stores and centers to the extent that they provide a complete
understanding of the area's retail structure.
(1) Urban Land Institute Dollars and Cents of Shopping Centers - 1996
Once the trade area is defined, the area's demographics and economic
profile can be analyzed. This will provide key insight into the area's dynamics
as it relates to the subject. The sources of economic and demographic data for
the trade area analysis are as follows: Equifax National Decision Systems
(ENDS), Sales and Marketing Management's Survey of Buying Power, The Urban Land
Institute's Dollars and Cents of Shopping Centers (1995), CACI, The Sourcebook
of County Demographics, and The Census of Retail Trade - 1992. The subject's
Effective Trade Area, profiled by Equifaix National Decision Systems, has been
defined based on the results of a customer survey conducted by Urban Retail
Properties, Co., which included polling the mall's customer's to determine the
zip code of their primary residence.
Scope of Trade Area
Traditionally, a retail center's sales are principally generated from
within its primary trade area, which is typically within reasonably close
geographic proximity to the center itself. Generally, between 55 and 65 percent
of a center's sales are generated within its primary trade area. The secondary
trade area generally refers to more outlying areas which provide less frequent
customers to the center. Residents within the secondary trade area would be more
likely to shop closer to home due to time and travel constraints. Typically, an
additional 20 to 25 percent of a center's sales will be generated from within
the secondary area. The tertiary or peripheral trade area refers to more distant
areas from which occasional customers to the mall reside. These residents may be
drawn to the center by a particular service or store which is not found locally.
Industry experience shows that between 10 and 15 percent of a center's sales are
derived from customers residing outside of the trade area. This potential is
commonly referred to as inflow.
Before the trade area can be defined, it is necessary that we thoroughly
review the retail market and the competitive structure of the general
marketplace, with consideration given as to the subject's position therein.
Subsequent to our discussion of the area's retail structure, a profile of the
department stores which anchor the subject is presented in order to fully
acquaint the reader with its overall market position therein.
Retail Structure
With respect to regional mall competition, the subject appears to be well
positioned. In order to examine the subject property in its proper context, we
must first examine the nature of the competition. According to customer surveys,
the subject's principal competitor has been considered to be the Cross County
Shopping Center in Yonkers. However, J.W. O'Connor and Company opened The
Westchester, an 830,000+/- square foot upscale mall located along Westchester
Avenue approximately one mile south of the subject, in March of 1995. Due to its
relative newness in the marketplace, its impact cannot be properly gauged at
this time. Nonetheless, we view it as having a definitive impact on the subject,
at least for the short run. In addition, peripheral competition does exist
within its secondary and tertiary area with respect to certain other centers
mentioned above.
The following table identifies the larger alternative retail properties in
the area as well as the malls located outside the region within the secondary
trade areas that could overlap with that of the subject.
===================================================================================================================
Competitive Retail Shopping Centers
===================================================================================================================
Year
Map Opened/ Distance from
Key Center/Location Renovated Total GLA Anchor Stores Subject
===================================================================================================================
S Galleria at White Plains 1980/ 882,728 Stern's* N/A
100 Main St. 1993 JC Penney
White Plains, NY
-------------------------------------------------------------------------------------------------------------------
1 The Westchester 1995 830,000 Neiman Marcus 1+/- mile
125 Westchester Ave. Nordstrom
Westchester, NY
-------------------------------------------------------------------------------------------------------------------
2 Stamford Town Center 1982 1,200,000 Macy's 30+/- miles
100 Greyrock Place Filene's
Stamford, CT Saks Fifth Avenue
-------------------------------------------------------------------------------------------------------------------
3 Cross County S.C. 1954 1,190,000 Stern's 8+/- miles
6K Mall Walk Sears
Yonkers, NY
-------------------------------------------------------------------------------------------------------------------
4 Danbury Fair Mall 1986 1,450,000 Filene's, JCPenney 25+/- miles
I-84 Fairground Site & Rt. 7 Lord & Taylor
Danbury, CT Macy's, Sears
-------------------------------------------------------------------------------------------------------------------
5 Jefferson Valley Mall 1983 580,371 Macy's 40+/- miles
Route 6 and Taconic State Sears
Yorktown Heights, NY Service Merchandise
-------------------------------------------------------------------------------------------------------------------
6 Poughkeepsie Galleria 1987/1992 1,000,000 Filene's, JCPenney 45+/- miles
Interstate 84 & Route 9 Montgomery Ward
Poughkeepsie, New York Sears, Dicks, Lechmere
===================================================================================================================
Total 7,134,153
===================================================================================================================
* Will be converted to Macy's during July 1996
===================================================================================================================
Source: Shopping Center Directory -1995
===================================================================================================================
Retail Market Analysis
================================================================================
Subject Retail Center
Name: The Galleria at White Plains
Location: 100 Main St.
White Plains, New York
Owner The Cadillac Fairview Corporation
Distance and Time from Subject: N/A
Year Opened: 1980
Year(s) Expanded/Renovated: 1993
Total GLA: 882,728+/- SF
Mall GLA: 326,813+/- SF
Mall Shop Ratio: 37%
Anchor Tenants: Stern's/Macy's 328,599 SF
JCPenney 227,316 SF
-------- ----------
Total Anchor GLA 555,915 SF
Number of Mall Shops: 150+/-
Occupancy (Mall GLA): 81.4+/-%
Average Market Rent (Mall GLA): $32-$38/SF
Land Area: 9.15+/- AC
Parking/Ratio
Existing: 2,416; 2.7 spaces per 1,000 SF of GLA
Demographics: Effective Market Population: 698,222
Average Household Income: $85,799
Retail Sales: $344/SF -1995
The Galleria at White Plains is a four-level, urban regional mall in
downtown White Plains. It is anchored by Stern's and JCPenney with about 326,813
square feet of in-line mall shop space. Federated Department Stores has recently
announced that Stern's will be converted to a Macy's during July 1996. This
follows the 1995 conversion of A&S to Stern's. Macy's presently occupies a
free-standing location a block to the south in White Plains, which reportedly
posted sales in excess of $65-$70 million during 1995. The more diverse
merchandising of Macy's, which includes a wide array of moderate and upscale
soft goods and housewares, is anticipated to provide greater appeal to the
relatively affluent Westchester County shopper.
Originally developed in 1980, the center underwent extensive renovation and
reconfiguration between 1992 and 1993. Both interior and exterior renovation was
performed in conjunction with a remerchandising of the mall.
Vacancy at the Galleria is currently about 7.3 percent. During 1995,
average mall shop sales were $344 per square foot for comparable stores,
compared to $380 per square foot in 1994. This decrease in mall shop sales is
considered to have resulted form the confluence of several factors, including
increased competition via the entry of The Westchester into the White Plains
marketplace; the conversion of A&S to Stern's; and a downward sales trend
experienced by most apparel retailers during 1995. Average leasing rates for
stores less than 1,000 square feet are running between $50.00 and $70.00 per
square foot, while stores over 1,000 square feet range from $32.00 to $50.00 per
square foot. The mall average is approximately $35.00 per square foot.
Reportedly, JCPenney did $48.0+/- million in sales in 1994, equivalent to $211
per square foot. In 1995 JCPenney reportedly experienced a decline in sales to
$45.0+/- million. Estimated sales for Stern's were $30+/- million, or $91.30 per
square foot.
The Galleria serves a wide spectrum of shoppers and a substantial downtown
employment base. The existence of this center, coupled with The Westchester,
provides a formidable draw to the White Plains district.
Finally, it is noted that the Galleria has the potential to lose some
existing tenants to The Westchester over the next several years as leases
expire. To date, this has been a non-issue for the Galleria as many tenants have
renewed leases and remodeled stores at the subject. Several stores have actually
elected to open second units at The Westchester, including Athlete's Foot, The
Limited Group, and The Gap, indicating their belief that this market is strong
enough to support multiple stores. Although this additional risk of losing
tenants to The Westchester is noted, the two properties have a minimal overlap
of tenants, namely The Limited Group Stores, The Gap, and Athlete's Foot.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 1
Name: The Westchester
Location: 125 Westchester Ave.
Westchester, New York
Owner: The O'Connor Group
Distance and Time from Subject: 1+/- miles south
(5+/- minute drive time)
Year Opened: 1995
Year(s) Expanded/Renovated: N/A
Total GLA: 830,000+/- SF
Mall GLA: 483,800+/- SF
Mall Shop Ratio: 58%
Anchor Tenants: Neiman-Marcus 143,200 SF
Nordstrom 203,000 SF
--------- ----------
Total Anchor GLA: 346,200 SF
Number of Mall Shops: 120+/-
Occupancy (Mall GLA): 93.0%
Average Rent (Mall GLA): $60-$65+/-/SF
Land Area: 12+/- AC
Parking/Ratio: 3,200+/- cars; 3.86 per 1,000+/- SF
Demographics: Primary Market Population: 700,000
Average Household Income: $100,000
(Source: Directory of Major Malls)
Retail Sales: $400+/SF
The Westchester Fashion Mall opened in March 1995 with over 830,000 square
feet and two anchor stores. This is the site of the former B. Altman and
existing Neiman-Marcus store in White Plains. The completed center consists of
an expanded and renovated Neiman-Marcus department store, a new Nordstrom
store, a five-story parking garage, and three levels of fashion-oriented mall
shop space. The total project cost was reported to be $275 million, including
the $16 million renovation of Neiman Marcus. In addition, The Limited Group
reportedly occupies nearly 140,000 square feet in the center.
The Westchester Fashion Mall competes for customers with the Galleria at
White Plains and Stamford Town Center. The Westchester's upscale orientation
has, and will likely continue to have some effect on certain fashion oriented
tenants at the Galleria as well as Stamford Town Center. In fact, The
Westchester will likely have a greater impact on Stamford Town Center due to the
similar merchandising mixes which overlap by approximately 50.0 percent. It has
been reported that The Westchester pulls much more from surrounding suburbs,
including western Connecticut and northern Westchester County. Their target
market is geared toward shoppers who have typically traveled to Stamford or into
Manhattan for shopping needs.
Tenancy at The Westchester includes (or will include) Tiffany's, Crate &
Barrel, Coach, Banana Republic, The Gap, Brooks Brothers, The Limited--Cacique,
Victoria's Secret, Structure, and The Limited, Sharper Image, The Museum
Company, Abercrombie & Fitch, and other fashion-oriented tenants.
It has been suggested that The Westchester has not performed to projected
sale levels and that some tenants have found occupancy costs too high. In fact,
occupancy costs are reported to be higher than the subject. CAM charges are
currently being quoted at $23.00 per square foot. Management has noted that the
high-end fashion tenants are performing well, but that other more local and
regional tenants are struggling with the costs of business. For this reason, a
near-term shake-out among underperforming tenants is likely at The Westchester,
not uncommon for newly opened malls. Nonetheless, many of the upscale,
fashion-oriented tenants have done well here.
First year sales have been reported at $390.00 per square foot, with sales
through the first four months of 1996 tracking between $430.00 and $440.00 per
foot on an annualized basis.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 2
Name: Stamford Town Center
Location: 100 Greyrock Place
Stamford, Connecticut
Owner: Rich - Taubman Associates
Distance and Time from Subject: 30+/- miles
(45+/- minute drive time)
Year Opened: 1982
Year(s) Expanded/Renovated: 1995
Total GLA: 1,200,000+/- SF
Mail GLA: 705,000+/- SF
Mail Shop Ratio: 59%
Anchor Tenants: Macy's 250,000 SF
Filene's 170,000 SF
Saks Fifth Avenue 75,000 SF
----------------- ----------
Total Anchor GLA: 495,000 SF
Number of Mail Shops 145+/-
Occupancy (Mail GLA): 90%
Average Rent (Mail GLA): NA
Land Area: 11+/-AC
Parking/Ratio: 3,800+/- cars; 3.17 per 1,000+/- SF
Demographics: Primary Market Population: 350,000
Average Household Income: $45,000
(Source: Directory of Major Malls)
Retail Sales: $350-$400/SF (estimated)
The Stamford Town Center is located off Interstate 95 in downtown Stamford,
Connecticut. This urban regional mall is an integral part of the downtown
Stamford market and includes four levels of shopping, a multi-level parking
garage, and three anchor stores. The interior of the mall is illuminated by a
matrix of artificial skylights that cast fluorescent lighting onto the mall
concourse. In-line shops are decidedly upscale/fashion-oriented with very few
vacancies observed. Several suites are currently being remodeled or prepared for
opening.
JCPenney closed its 173,247 square foot store here in July 1994, citing
unrealized sales projections at the location. Since the mall's inception, the
upper-end stores have emerged as the dominant market at Stamford, cutting
support for JCPenney and some of the low to middle-end shops. The May Company
purchased the JCPenney store for a reported price of $18,950,000 ($109.38 per
square foot) and opened a Filene's department store during late 1995.
The owners of Stamford Town Center also control a 4.5 acre parcel across
from the mall. Plans had been in the works to expand the mall by 400,000 square
foot possibly with Nordstrom as an anchor. The owners have more recently decided
to develop the property as a two-level specialty center with discount and off
price oriented tenants. The idea is to bring in category killers that enhance
the overall draw of the mall by tapping that segment of the market it does not
now address.
Saks had sales of $16.6 million in 1994, equivalent to approximately $214
per square foot. Reportedly, Macy's did $61.0 million in 1993, equivalent to
$230 per square foot. The mall's management declined to release information
regarding 1995 results.
Stamford competes for the upscale customer which is located between the
wealthy suburbs of Greenwich and the towns of central Fairfield County,
including Norwalk and Darien. The center's more affluent clientele are generally
coming from the south and west in Westchester and even Manhattan. Occupancy is
estimated to be over 95.0 percent with sales in excess of $350 per square foot.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 3
Name: Cross County Shopping Center
Location: 6K Mall Walk
Yonkers, New York
Owner. Brooks Shopping Centers, Inc.
Distance and Time from Subject: 8+/- miles southwest
(20+/- minute drive time)
Year Opened: 1954
Year(s) Expanded/Renovated: NA
Total GLA: 1,190,000+/- SF
Mall GLA: 718,971 +/- SF
Mall Shop Ratio: 60%
Anchor Tenants: Stern's 260,000 SF
Sears 211,029 SF
----- ----------
Total Anchor GLA: 471,029 SF
Number of Mall Shops: 108+/-
Occupancy (Mall GLA): 99%
Average Rent (Mall GLA) $20-$40 (estimated)
Land Area: 74+/- AC
Parking/Ratio: 5,400+/- cars; 4.5 per 1,000+/- SF
Demographics: Primary Market Population: 2,000,000
Average Household Income: $45,000
(Source: Directory of Major Malls)
Retail Sales: $250/SF (estimated)
Cross County is a two-level open-air mail located in Yonkers, one of the
southernmost towns in Westchester County and approximately 8 miles from The
Galleria. Cross County opened in 1954 and consists of 2 anchors (Stern's and
Sears) and 102 mall stores. While the Sears store (formerly Wanamaker's) is in
good condition, the majority of the center, including Stern's, is in poor to
average condition. In conjunction with the closing of Stern's at the Galleria at
White Plains, Federated Department Stores has announced it will substantially
renovate its Cross County store.
Cross County appeals to a client base similar to that of the more
moderate-income level Galleria shopper. Its tenant mix lacks consistency as
there are a large amount of lower end retailers that are local non-credit
tenants. The mall's management would not release any information about the
center. The Galleria and Cross County have significant overlap in their trade
areas, but the more affluent northern, eastern and western Westchester residents
are drawn to The Galleria in greater numbers. Cross County is not a competitor
for the daytime Downtown White Plains base. Although most competitive for the
lower to moderate end shopper, Cross County reports a sizable primary target
market of some 2,000,000 people with an average household income of over
$40,000.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 4
Name: Danbury Fair Mall
Location: I-84 Fairground Site & Rt. 7
Danbury, Connecticut
Owner: Wilmorite, Inc.
Distance and Time from Subject: 25+/- miles northeast
(40+/- minute drive time)
Year Opened: 1986
Year(s) Expanded/Renovated: 1987/1988/1991/1992
Total GLA: 1,270,146+/- SF
Mall GLA: 462,146+/- SF
Mall Shop Ratio: 36%
Anchor Tenants: Filene's 173,000 SF
JCPenney 137,000 SF
Lord & Taylor 80,000 SF
Macy's 240,000 SF
Sears 178,000 SF
----- ----------
Total Anchor GLA: 808,000 SF
Number of Mall Shops: 210+/-
Occupancy (Mall GLA): 97%
Average Rent (Mall GLA) $30-$50 estimated
Land Area: 120+/- AC
Parking/Ratio: 6,500+/- cars; 4.5 per 1,000+/- SF
Demographics: Primary Market Population: 360,000
Average Household Income: $47,000
(Source: Directory of Major Malls)
Retail Sales: $420/SF
Danbury Fair Mall is a two-level, super-regional shopping center in
Danbury, Connecticut. Built in 1986, the mail is located at Interstate 84 and
Route 7 on the former Connecticut state fairgrounds. Danbury Fair is anchored by
Sears, Macy's, Lord & Taylor, Filene's, and JCPenney, and contains approximately
500,000+/-square feet of mall shop area. The total project includes 1,270,146+/-
square feet.
Danbury Fair serves an extensive trade area which encompasses areas of
Central Connecticut and Southeast New York State. The mall's primary trade area,
which encircles a 15-mile radius around the site, includes a population of over
360,000 with 128,281 households. Average household income is estimated to be
$81,669. The mall was reported to be 96 to 97 percent occupied and sales were
estimated at $420 per square foot.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 5
Name: Jefferson Valley Mail
Location: Route 6 and Taconic State Parkway
Westchester County
Yorktown Heights, New York
Owner Melvin Simon & Associates
Distance and Time from Subject: 40+/- miles northwest; 60+/- minute
drive time
Year Opened: 1983
Year(s) Expanded/Renovated: N/A
Total GLA: 580,371+/- SF
Anchor Tenants: Jordan Marsh 119,900+/- SF
Sears 155,400+/- SF
Service Merchandise 32,815+/- SF
------------------- -------------
Total 308,115+/- SF
Number of Mall Shops: 108+/- stores
Land Area: 50+/- AC
Parking/Ratio: 2,950+/- cars/5.1+/- per 1,000+/- SF
Demographics: Primary Population: 152,821
Average Household Income: $63,500
(Source: Directory of Major Malls)
Jefferson Valley Mail is a two-level regional mall anchored by Jordan Marsh
and Sears in Yorktown Heights, New York. The mall contains approximately 580,371
square feet and was constructed in 1983.
Jefferson Valley Mall captures most of its sales from upper Westchester
County and neighboring Putnam County. Sears is clearly not a fashion leader and
Jordan Marsh is not a regional force in this market. The merchandising mix of
this center is not positioned to capture the market' more upscale potential.
Average mall shop sales in 1993 were $310 per square foot for comparable
stores. Leases range from $20.00 to $43.00 per square foot with average rent by
size category as follows: less than 1,000 feet, $43.00; 1,000 to 3,999 feet,
$30.00; 4,000 to 5,999, $25.00; and 6,000 to 30,000, $20.00. Food court rents
average approximately $70.00 per square foot, while kiosks average $190.00.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 6
Name: Poughkeepsie Galleria
Location: I-84 and Route 9
Poughkeepsie, New York
Owner Pyramid Companies
Distance and Time from Subject: 45+/- miles northeast
(60+/ minute drive time)
Year Opened: 1987
Year(s) Expanded/Renovated: 1992
Total GLA: 1,000,000+/- SF
Mail GLA: 235,549+/- SF
Mall Shop Ratio: 24%
Anchor Tenants: Filene's 119,873 SF
JCPenney 179,953 SF
Montgomery Ward 150,000 SF
Sears 112,000 SF
Dick's Sporting Goods 125,000 SF
Lechmere 77,337 SF
-------- ----------
Total Anchor GLA: 764,000 SF
Number of Mall Shops: 145+/-
Occupancy (Mall GLA): 96%
Average Rent (Mall GLA) $20-$30/SF
Land Area: 120+/- AC
Parking/Ratio: 7,000+/- cars; 6.5 per 1,000+/- SF
Demographics: Primary Market Population: 450,000
Average Household Income: $45,000
(Source: Directory of Major Malls)
Retail Sales: $308/SF
The Poughkeepsie Galleria was constructed in 1987 and contains
approximately 1.0 million square feet. The center is located off Interstate 84
and Route 9 in Dutchess County and is anchored by six major tenants. This is a
two level enclosed mall with a traditional mix of tenants that cater to a broad
middle income market.
Current occupancy in this center is pegged at 96.0 percent. Average mall
shop sales are reported to be $308 per square foot with rents ranging from $20
to $30 on average. By virtue of its distance form the subject, it is only
indirectly competitive with The Galleria.
The mall properties cited above (inclusive of the subject) comprise
approximately 7.1+/- million square feet of mall space. Along with The
Westchester, the subject is one of two regional malls located within the White
Plains MSA, and together with the more remote Cross County Center and The
Jefferson Mall, one of four regional malls located within Westchester County.
Other Competition
As discussed, direct mall competition for the subject in its immediate
trade area is limited to The Westchester. In addition to the facilities
described, the balance of the retail inventory proximate to the Galleria at
White Plains consists of several free-standing department stores, as well as two
notable shopping centers located within the subject's primary trade area. A
brief description of these department stores and retail centers will serve to
portray the balance of the neighborhood retail alignment.
The eastern section of White Plains has long been a magnet for top
retailers. The nearby Saks and Bloomingdale's locations, along with Sears and
Macy's department stores in downtown White Plains, are free-standing units and
are not deemed to be directly competitive to The Galleria's full array of shops.
It is expected that they will continue to attract shoppers to the area, and
while they carry much of the same quality of merchandise, shoppers will prefer
the convenience of enclosed attached parking with a variety of specialty stores
in one location.
Bloomingdale's occupies a free-standing, three-story department store
constructed in 1975. The store is situated in the middle of an ample site
surrounded by open parking (this would permit additional development or
expansion if the parking were decked). The 240,000+/- square foot store
includes almost all of the departments found in its New York City store
including a gourmet food shop on a below grade level.
Saks was one of the first upscale Manhattan-based department stores to come
to Westchester when it opened its White Plains store in 1954. The
160,000+/- square foot store sits across Maple Avenue from The Westchester.
Parking is provided on two levels of open pavement, each of which serves
the stores two retail levels. A two-story enclosed deck was later added to
the property, however, it is not attached to the store.
Westchester Place has been a proposed 820,000 square foot mall in White
Plains to be developed around the existing Saks Fifth Avenue site at
Bloomingdale Road and Maple Avenue. The developer, Alex Conroy of
Greenwich, has reportedly purchased the former NYNEX property and has a
partnership agreement with Saks. The project was originally proposed to be
an 800,000+/- square foot regional mall with Saks and other anchors (to be
named). This project is not expected to go forward along the scale as
proposed but will likely be something much smaller. At this time, there is
no firm development plan. Saks' real estate personnel have advised us that
they are considering a number of options for the store at this time.
Macy's is a cornerstone of downtown White Plains retail. The 350,000+/-
square foot three-level store was opened in 1949. The building sits at the
corner of Main Street and Mamaroneck Avenue. Parking is provided by an
adjacent municipally-owned, decked structure which is attached to the top
level of the store by a covered walkway. Because of
the difficult vehicular access of its downtown location, Macy's relies more
on pedestrian traffic than do the other area department stores. Federated
Department Stores, owner of Stern's, Bloomingdale's and Macy's, has
announced that they will convert the Stern's located at the Galleria at
White Plains to a Macy's, and vacate the free-standing location. No firm
alternative use plans for the free-standing store have been announced. It
is believed that Federated will sell the property, which might be picked up
by a big box user or discount department store.
Sears has a free-standing unit near the White Plains Municipal Building.
Shoppers are inconvenienced with the fact that they have to pay to park to
shop at a Sears store when other suburban locations are free.
There are other retail projects which also compete to some degree with the
subject.
The Pavilion at White Plains
This four-level, 180,000+/- square foot enclosed power center is a re-use
of the former Alexander's department store a few blocks from The
Westchester Fashion Mall. Leases in the center range from $16 to $20 per
square foot for major tenants, and $20 to $25 per square foot for smaller
space users. The site was purchased for $16.0 million and the project
developed by The Fischer Group of New York and locally based Hamilton
Development. It was originally planned as a high-end anchorless center, but
its developers could not secure tenants or financing in the face of The
Westchester. They decided to reposition it as a power center. The center
reportedly leased relatively quickly under its repositioned merchandising
format. Nonetheless, the developers had encountered severe cost overruns
with estimates of $50.0 to $55.0 million in total development costs. As
such, they were forced to look for a buyer.
This project opened over the course of a six month time period between
December 1993 and June 1994. The buyer reportedly acquired the property
with a strong emphasis on in-place income. The project has covered parking
and development rights to expand by 70,000 square feet. The buyer has no
immediate plans to expand, but will want to gauge the impact of The
Westchester.
Vernon Hills Mall
Vernon Hills is a 350,000 square foot specialty center located in
Eastchester, approximately 5 miles south of The Galleria. It was built in
1958. Vernon Hills, owned by Salvatore Pepe, is an unenclosed combination
of small strip centers and free standing stores. It includes a limited
array of upscale merchants, including Lord & Taylor in an owned, 110,000+/-
square foot store, Brooks Brothers, Ann Taylor, Laura Ashley, and Talbot's.
A subsidiary of the May Company, Lord & Taylor crries a moderate to better
mix of merchandise. This two level store has a good assortment of moderate,
bridge, and between sportswear and dresses. Bonwit Teller, which occupied
one of the free-standing units in the center, closed in early 1990 due to
the chain's bankruptcy. This store has since been subdivided and leased to
The Gap, Gap Kids and Gap Shoes, Banana Republic and Brooks Brothers. This
center is 100 percent occupied; rents for small shop spaced are reported to
be between $35 to $50 per square foot, triple net.
The Pyramid Companies is currently constructing Palisades Center. Upon
completion in November 1996, this center will contain approximately 3.3 million
square feet of gross leasable area and will integrate tenants representing every
category of retail offering. Being developed on a 120 acre site off of
Interstate 87 in West Nyack, New York, Palisades will be a four level, 3.3
million square foot super-regional shopping center. Palisades will be comprised
of eight towers to be tenanted by big-box anchors, category retailers and/or
traditional department stores which will aggregate approximately 2.4 million
square feet and a mail shop area of up to 850,000 square feet.
Major stores include a 118,000 square foot BJ's Wholesale Club, The Home
Depot at 135,000 square feet, a 132,000 square foot Wal-Mart, Filene's at
200,000 square feet, Lord & Taylor at 118,000 square feet, and a 156,000 square
foot JC Penney.
Big-box tenants include a 100,000 square foot Toys R Us Superstore, a
55,000 square foot Dick's Clothing and Sporting Goods, a proposed 55,000 square
foot Nordstrom's Rack, a proposed 33,000 square foot Borders Books & Music, and
Bed, Bath and Beyond and Nobody Beats the Wiz, both of 48,000 square feet. The
mall will also include large space user tenants Gap Old Navy at 24,000 square
feet, a 23,000 Just for Fun, and a 30,000 square foot Crate & Barrel. The
project will comprise 752,000 square feet of mall shop space located on four
levels along with approximately 70,000 square feet of Disney concepts.
This center will also include a "thEATery" concept which was created to
maximize the impact of the entertainment facility that will be developed by
situating restaurants adjacent to a 20-screen cinema complex. Sony Theaters will
be locating on the fourth level of the mall. Up to 22 casual dining restaurants
may be incorporated within the 215,000 square foot "thEATery" and provide a
varied cross-section of dining choices for the consumer. Restaurants will
include several of the Brinker International concepts including Chili's and
Macaroni Grill, and such other notable eating establishments as Legal Seafood,
Champps Americana, Bice and The Palm.
Palisades Center is located approximately 15 miles northeast of the subject
and will likely have some impact on area shopping patterns. Management at the
subject noted that the Galleria only draws about 5.0 percent of its customers
from across the river in Nyack. They do not expect the Palisades to have a
material impact on sales at the subject.
GLA per Capita
The data presented summarizes the extent of existing regional mall
development inside the trade area. According to the National Research Bureau,
the average GLA per capita for the United States and State of New York were
5.5+/- and 4.2+/- square feet, respectively, for 1995. This statistic pertains
to centers in excess of 400,000 square feet
As noted previously, inclusive of the subject, Westchester County is the
location of four regional malls with a combined GLA of 3.5+/- million square
feet. With an estimated Westchester County population of 898,586, this results
in approximately 3.9+/- square feet of regional mall GLA per person. This is
below the composite state and national averages indicating that the market is
not saturated and could potentially absorb some additional regional mall space
and still be within the average parameters for the state.
Anchor Alignment
The anchor alignment of the subject also helps to define the potential
boundaries of the subject's trade area. The subject property is anchored by JC
Penney and Stern's. Stern's will be converted to a Macy's during 1996. The
following is a profile of each of these anchor tenants.
JC Penney, the fourth largest retailer in the United States (after
Wal-Mart, K-Mart and Sears), operates 1,233 JC Penney department stores and
526 drug stores (Thrift Drug and Treasury Drug) throughout all 50 states
and Puerto Rico. The $21 billion company has changed its historical image
as a discount dime store and has targeted upper-middle-class consumers by
adding brand-name soft goods and dropping hard goods from the in-store
product mix. Today the company's product mix centers on apparel, shoes,
jewelry, and home furnishings. In 1994, retail sales rose 7.4 percent to
$20.4 billion, surpassing the $20 billion mark for the first time. Net
income also exceeded $1 billion for the first time ever. Total revenues
were up 7.7 percent to $21.1 billion. The company has experienced a ten
year compound annual growth rate in retail sales (1984-1994) of about 4.2
percent. Overall, productivity among stores increased by 8.9 percent to
$159 per square foot from $146 per square foot in 1993, and $137 per square
foot in 1992. Catalog sales totaled $3.8 billion in 1994-95, accounting for
19 percent of total retail sales. Drug stores, under the Thrift Drug name,
totaled 526 units in 1994-95 and accounted for 7.6 percent of total sales
which achieved $243 per square foot. The company currently has
approximately 113 million square feet of store space. In February 1995, the
company acquired the 97 unit Kerr Drug Store chain. The company will
continue to expand its private brand lines. In addition, the catalog
operation is posed to continue to do well, coming off of its highest sales
in its 31 year history. The company did not fare as well in fiscal 1995
(year ending January 1995) with earnings falling by 20 percent and same
store sales declining by 2.5 percent in the fourth quarter and 1.4 percent
for the fiscal year. The company is planning a $700 capital expenditure
program over the next three years to help bolster store performance. Value
Line reports that the company's financial strength warrants an "B++"
rating. Standard & Poors has forecasted a continued modest rise in
comparable store sales. They rate the company "A-".
Federated Department Stores, Inc. is one of the leading full-line
department store companies in the United States. The year 1994 was a major
acquisition year for the company. On December 19, 1994 the company
completed a $4.1 billion purchase of Macy's and it has recently
consolidated the A&S/Jordan Marsh division into Macy's East. On May 26,
1994 the company purchased Joseph Home Co., a department store retailer
operating ten units in Pittsburgh and Erie, Pennsylvania
for $116.0 million, including the assumption of $40.0 million in debt and
acquisition costs. Upon completion of this merger with Macy's, Federated
operates 355 department stores in 35 states at urban or suburban sites,
principally in densely populated areas operating under the names of
Bloomingdale's, The Bon Marche, Bullocks, Burdines, Goldsmith's, Jordan
Marsh, Lazarus, Rich's, Stern's and Macy's. The company also operates more
than 135 specialty and clearance stores under the names of "Aeropostale,"
'Charter Club" and MCO" and a mail order catalog business under the name of
"Bloomingdale by Mail." The company recently announced the closure of the
MCO stores.
The properties consist primarily of stores and related retail facilities
including warehouse and distribution centers. Of the 355 stores, 181 stores
were entirely or mostly owned and 174 stores were entirely or mostly
leased. The company owns or leases other properties including office space
in New York and Cincinnati. During 1994, the company added 142 department
stores and 135 specialty and clearance stores. Of the 142 department store
additions, 121 were a result of the acquisition of Macy's and 10 as a
result of the acquisition of Horne's. All 135 specialty and clearance
stores were added through the Macy's acquisition. Federated's net sales for
1994 increased by 15 percent to $8,315.9 million, compared to $7,229.4
million reported in 1993. On a comparable store basis net sales increased
by 3.1 percent. The company's retail operating division sales as of January
28, 1995 were as follows:
========================================================================================================
Federated Department Stores Company
========================================================================================================
Number Gross Average Sales
of Stores 1994 Sales Square Feet Per Square Foot
========================================================================================================
Abraham & Straus/Jordan Marsh 34 $1,441.1 8,999 $160
--------------------------------------------------------------------------------------------------------
Bloomingdale's 16 $1,297.5 * 4,439 $292 ($268.57)
--------------------------------------------------------------------------------------------------------
The Bon Marche 40 $ 873.0 4,892 $178
--------------------------------------------------------------------------------------------------------
Burdines 46 $1,248.5 7,648 $163
--------------------------------------------------------------------------------------------------------
Lazarus 51 $1,130.3 10,212 $111
--------------------------------------------------------------------------------------------------------
Rich's/Goldsmith's 25 $ 999.7 4,991 $200
--------------------------------------------------------------------------------------------------------
Stern's 22 $ 707.4 3,946 $179
--------------------------------------------------------------------------------------------------------
Macy's East 64 $3,447.7 ** 17,162 $201
--------------------------------------------------------------------------------------------------------
Macy's West/Bullocks 57 $2,334.8 ** 11,845 $197
--------------------------------------------------------------------------------------------------------
Macy's Specialty 122 $ 128.4 ** 420 $395
--------------------------------------------------------------------------------------------------------
MCO 14 $ 83.1 ** 704 $118
--------------------------------------------------------------------------------------------------------
Total 491 $8.315.9 75,228
========================================================================================================
* Includes $105.3 million in sales of the company's Bloomingdale's By Mail subsidiary. Net of this
allocation, sales were equal to $269 per square foot.
** Represents sales of divisions acquired pursuant to merger.
========================================================================================================
Federated has a C++ rating from Value Line. By fiscal 1995, savings from
the closure of Macy's corporate office (second half of 1995) and other
consolidation benefits may help boost Federated's share net to $2.00 to
$2.10. Value Line's earning projections to 1998-2000 is that excess cash
flow will enable Federated to reduce its long term debt by about $1 billion
between fiscal 1995 and the end of the decade, and the operating margin
will gradually widen following a market improvement in fiscal 1996.
Federated's historical and projected sales are as follows:
Federated's management believes the department store business will continue
to consolidate and, accordingly, intends to consider the possible
acquisition of department store assets and companies from time-to-time.
Future acquisitions, if any, are expected to be financed through a
combination of cash on hand and from operations and possible long term debt
or other securities issuance. The company's budgeted capital expenditures
are approximately $2,800 million for 1995 to 1998, with approximately 68
percent budgeted for existing stores, 21 percent budgeted for new stores
and 11 percent for technology.
Trade Area Definition
The Galleria at White Plains is located in downtown White Plains in the
heart of the Central Business District. The Central Business District is
afforded three interchanges with I-287, the Cross Westchester Expressway. It is
also immediately proximate to the downtown office buildings and employment
centers. Market research indicates that approximately 20 percent of the mall's
customers walk to the mall. The property is also located within two blocks of
the White Plains train and bus terminals, both of which are major hubs. This
strategic location makes it one of the most accessible retail locations within
the New York MSA. The advantage of interstate access has the effect of expanding
the mall's trade area by virtue of reducing travel time for residents in more
distant locations.
As discussed in the previous section, the location and accessibility of
competing centers also has direct bearing on the formation and make-up of a
mall's trade area. To the south of the mall is the Cross County Shopping Center.
The center is most frequently cited and cross shopped by patrons of the
Galleria. As an open air center it lacks the ambiance and convenience of the
subject and its anchors are not as strong.
Also found to the south is the Vernon Hills Mall, an upscale open air
center that does well but is considered to be secondary competition. To the
north and northeast are both the Jefferson Valley and Danbury Fair Malls, which
combined, do a very good job at limiting the subject's northern penetration.
However, their sheer distance from the subject marks them as secondary
competition.
The Stamford Town Center to the east has positioned itself formidably as a
fashion center catering to the wealthier communities of southeastern Connecticut
and Westchester County. In view of the subject's more broad-based traditional
merchandising, it co-exists quite readily with Stamford Town Center. The recent
completion of The Westchester shows that it is merchandised to be upscale and as
such, should compete most directly with Stamford Town Center. Quite obviously,
there will be some effect on the Galleria through curiosity and cross shopping,
and some tenants will likely leave for the O'Connor project, but we feel
comfortable that both malls can co-exist in the White Plains market. We further
believe that the decision by Federated to convert the Stern's to a Macy's will
bode well for the subject's long term merchandising and direction. Effectively,
the Galleria is more clearly defining its traditional, broad based mass market
appeal, leaving the higher end market for its competitors. The balance of the
Central Business District retail structure is made up of the various department
and specialty stores that comprise the retail infill. In our opinion, they
collectively act as a traffic generator which in turn benefits the area in
general.
Although located outside of the subject's effective trade area, it is
anticipated that Palisades Center, a 3.3+/- million square foot mega-mall
currently under construction in eastern Rockland County approximately 15+/-
miles from the subject, will certainly impact regional shopping dynamics.
Relative to the Galleria at White Plains, this center's strongest draw for
Westchester County shoppers will most likely be the depth of big box and
category killer tenants whose expansions have been inhibited in Westchester
County due to a scarcity of development sites. These retailers include Wal-mart,
BJ's Wholesale Club and Home Depot.
To summarize, the foundation of our analysis in the delineation of The
Galleria at White Plains trade area may be summarized as follows:
1. The Hudson River effectively defines the subject trade area's western
border. With the planned 1996 completion of Palisades Center,
competition will become much more intense in this area, with the
subject benefiting from the physical and psychological barriers posed
by the river.
2. Highway accessibility including area traffic patterns, geographical
constraints and nodes of residential development.
3. The position and nature of the area retail structure including the
location of destination retail centers and the strength and
composition of the retail infill as discussed above.
4. The size, anchor tenancy and merchandising composition of the mall
tenants enhances its total market penetration.
5. Adequate cross shopping occurs with various free-standing department
stores within the White Plains Central Business District, whose
overall presence compliments rather than competes with the mall.
Ownership has provided us with the results of their most recent customer
survey which has identified shopping patterns based upon origin by zip codes.
After reviewing this report in conjunction with our independent analysis of the
trade area, we are in concurrence with its findings. As such, we have elected to
rely on some of the demographic results it has
produced. An analysis of key demographic indicators can then be performed based
upon this defined trade area.
Population
Once the market area has been established, the focus of our analysis
centers on the trade area's population. Equifax National Decision Systems
provides historical, current and forecasted population estimates for the total
trade area. Patterns of development density and migration are reflected in the
current levels of population estimates. The chart on the Facing Page compares
these statistics.
Between 1990 and 1996, ENDS reports that the population within the primary
trade area increased by 7,929 to 383,211. This 2.11 percent increase (0.35
percent per annum) is consistent with of the effective trade area. Expanding to
the effective trade area, the current population increases to 698,228. The
current projection is for a continuation of this trend with additional growth of
0.37 percent per annum for the primary and effective trade areas. On balance, we
note that population growth throughout the trade area has outpaced that of the
New York MSA and New York State, although trails the national growth rate.
Provided on the Following Pages are graphic representations of the current
population distribution and projected population growth.
A household consists of all the people occupying a single housing unit.
While individual members of a household purchase goods and services, these
purchases actually reflect household needs and decisions. Thus, the household is
a critical unit to be considered when reviewing market data and forming
conclusions about the trade area as it impacts the retail center.
National trends indicate that the number of households are increasing at a
faster rate than the growth of the population. Several noticeable changes in the
way households are being formed have caused the acceleration in this growth,
specifically:
o The population in general is living longer on average. This results in
an increase of single and two person households.
o The divorce rate increased dramatically during the last decade, again
resulting in an increase in single person households.
o Many individuals have postponed marriage, thus also resulting in more
single person households.
Between 1990 and 1996, the primary trade area added 6,856 households,
increasing by 4.9 percent to 145,604 units. This growth is equivalent to a
compound annual increase of .81 percent. Alternatively, the secondary trade area
added 6,161 households to 121,318, indicating a slightly higher .87 percent
annual rate of growth. Combined, the total trade area is currently estimated to
contain 266,922 households.
Between 1996 and 2001, the primary trade area is expected to grow by 3.52
percent (.69 percent per annum) to 150,725 households. This rate of growth is
slightly less than that for the secondary area which is expected to grow by 3.79
percent. Overall, the total trade area is expected to grow by 3.64 percent to
nearly 277,000 households.
Trade Area Income
A significant statistic for retailers is the income potential of a trade
area's population. Income levels, either on a per capita, per family or
household basis, indicate the economic level of the residents of the market area
and form an important component of this total analysis. More directly, average
household income, when combined with the number of households, is a major
determinant of an area's retail sales potential. The trade area income figures
support the profile of an affluent, upper-middle income market. According to
ENDS, average household income within the primary trade area is currently
$90,118.
Available data shows an identifiable pattern of income levels throughout
the total trade area as shown below along with comparisons to the state and
United States.
=================================================
Average Household Income
=================================================
Survey Area Avg HH Income
=================================================
Primary Trade Area $90,118
-------------------------------------------------
Secondary Trade Area $80,457
-------------------------------------------------
Effective Trade Area $85,779
-------------------------------------------------
Westchester County $88,846
-------------------------------------------------
New York MSA $59,659
-------------------------------------------------
State of New York $57,348
-------------------------------------------------
United States $49,031
=================================================
Sources: Equifax National Decision Systems
These statistics show that the primary trade area has an average household
income of $90,118 which decreases to $85,779 with the inclusion of the lower
income, but still relatively affluent, areas in the secondary market. The
effective trade area's average household income is well above that of the MSA,
state and country.
Provided on the Following Page is a graphic presentation of the household
income distribution throughout the total trade area. As can be seen, the subject
lies near the middle of the upper income communities. Generally, the highest
concentrations of wealth (average incomes of $120,000 and higher) are found to
the south and east of the center, but quite proximate to the mall. We also note
that average household income throughout the total trade area is forecasted to
increase at compound annual rate of 4.49 percent.
Another measure of the ability of a trade area to support retail business
is the area's effective buying income (EBI). This data is not measured by
specific trade area, but rather by both the metropolitan statistical area (MSA),
as well as on a county basis as reported in Sales and Marketing Management's
Survey of Buying Power. At the onset of 1995, Westchester County had an
aggregate EBI of $25.6 billion. A comparison can be made to the total New York
consolidated area and New York State.
======================================================================================================================
Effective Buying Income
======================================================================================================================
1990 1995 Compound Annual Chg.
-----------------------------------------------------------------------------------------------------
Total EBI Median HH Total EBI Median HH Total EBI Med HH EBI
Area ($Bil) EBI ($Bil) EBI ('90-95) ('90-95)
======================================================================================================================
Westchester $19.1 $42,287 $25.6 $59,654 6.08% 7.12%
County
----------------------------------------------------------------------------------------------------------------------
New York $132.1 $25,129 $172.7 $40,569 5.51% 10.05%
MSA
----------------------------------------------------------------------------------------------------------------------
New York $269,608.7 $27,632 $347,315.8 $42,460 5.20% 8.97%
State
======================================================================================================================
Source, Sales & Marketing Management "Survey of Buying Power"
======================================================================================================================
The data above shows that the median household effective buying income for
Westchester County significantly exceeds that of the New York consolidated area
and New York State. Since 1990, the total EBI has grown at a compound annual
rate of 6.09 percent while the median household EBI has grown by 7.12 percent.
Both of these measures have exceeded inflation over this period.
Retail Sales
Retail sales growth for the Westchester County was compared to that of the
New York consolidated area and New York State. This Comparison is shown below.
=========================================================================================================================
Retail Sales
=========================================================================================================================
1990 1995 Compound Annual Chg.
--------------------------------------------------------------------------------------------------------
Total Sales Median HH Total Sales Median HH Total Sales Med HH
Area ($Mil) Sales ($Bil) Sales ('90-95) Sales('90-95)
=========================================================================================================================
Westchester $7,927.8 $24,431 $8,457.4 $26,144 1.30% 1.36%
County
-------------------------------------------------------------------------------------------------------------------------
New York $48,121.1 $13,810 $50,734.8 $15,080 1.06% 1.78%
MSA
-------------------------------------------------------------------------------------------------------------------------
New York $122,452.8 $17,871 $134,422.0 $20,523 1.88% 2.81%
State
=========================================================================================================================
Source: Sales & Marketing Management "Survey of Buying Power"
=========================================================================================================================
Total retail sales for Westchester County have increased at a compound
annual rate of 1.30 percent, while retail sales per household have increased at
an annual compound rate of 1.36 percent. While overall these growth rates trail
those of the state, we note that annual compound growth of total retail sales
has exceeded that of the New York Metro Area. Further, Westchester County's
retail sales per household of $26,144 exceeds that of the New York metro area by
over 70.0 percent and that of New York State by 27.0 percent.
While retail sales trends within the MSA and region lend insight into the
underlying economic aspects of the market, it is the subject's sales history
that is most germane to our analysis.
We have been provided with a summary of comparable mall shop sales for the
years 1991 to 1995. Per square foot sales figures represent the weighted average
sales for the calendar year for small shop tenants in continuous occupancy of
the same suite for the previous twenty four months. These results are summarized
below.
As illustrated above, comparable sales posted a noticeable decrease between
1994 and 1995 to $344 per square foot. This decrease in mall shop sales is
considered to have resulted from the confluence of several factors, including
increased competition via the entry of The Westchester into the White Plains
marketplace; the conversion of A&S to Stern's; and a downward sales trend
experienced by most apparel retailers during 1995.
Total reporting mall shop sales for 1995 were $88.6 million. Based on a
reporting GLA of 267,105 square feet, this results in mall shop sales of $331.61
per square foot. This measure shows reporting tenant performance only, since
some tenants do not report sales by lease agreement or fail to report sales for
a particular sales period. While the aggregate sales amount is reflective of the
total sales generated by the mall shops, it is important to recognize that this
includes all sales including sales from partial year tenants. Furthermore, since
the unit rate is based upon a full reporting year, it has the effect of
understating the mall shop sales performance on a unit rate basis.
By comparison, the Urban Land Institute's Dollars and Cents of Shopping
Centers (1995) reports national and regional sales averages for regional and
super-regional shopping malls. Nationally, average sales at super-regional
centers is reported at $203.09 per square foot, down 1.4 percent from 1993. For
regional malls, average sales are reported to be $176.16, virtually even from
1993. A comparison of national and regional figures is shown on the following
chart.
================================================================================
Regional/Super-Regional Centers
================================================================================
Area Average Median Lower Decile Upper Decile
================================================================================
United States $176.16/ $163.54/ $125.88/ $285.40/
$203.09 $198.93 $140.46 $305.23
--------------------------------------------------------------------------------
East $204.96/ $183.05/ $126.07/ $323.74/
$220.64 $183.81 $130.46 $379.81
--------------------------------------------------------------------------------
West $188.63/ $167.46/ $124.00/ $264.89/
$190.51 $187.64 $143.01 $258.68
--------------------------------------------------------------------------------
South $156.27/ $154.18/ $129.63/ $195.24/
$210.30 $207.99 $145.75 $293.70
--------------------------------------------------------------------------------
Midwest $178.99/ $179.24/ $125.50/ $290.57/
$195.03 $192.42 $148.18 $261.09
================================================================================
Source: Urban Land Institute Dollars and Cents of Shopping Centers (1995)
As a regional mall in the eastern part of the country, the subject's 1995
sales performance of $332 per square foot can be compared to its peers as shown
below.
===============================================================
Average Subject Variance
===============================================================
United States $176 $332 187%
---------------------------------------------------------------
East $205 $332 162%
===============================================================
On a relative basis, the subject is substantially outperforming its peer
group on average in terms of sales productivity, and ranks in the upper decile
on both a national and regional basis.
Anchor Store Sales
Neither JCPenney or Federated Department Stores (A&S/Stern's) is required
to report sales to mall management. Anecdotally, Stern's posted satisfactory
results during 1995, although both A&S and Macy's have historically reported
significantly higher sales volumes in the White Plains marketplace than their
more mid-market counterpart. The JCPenney store is considered to perform
well-above the company's national average. As noted earlier in this report,
JCPenney and Federated Department Stores (Macy's, A&S, Stern's) represent two of
the nation's leading department store companies.
It has been reported that JCPenney had sales of about $45.0 million in
1995, down from about $48.0 million in 1994. Stern's had sales of roughly $30.0
million in 1995, down from A&S sales of $45.0 million in 1994.
A comparison of the subject's department store performance can be made to
their peers. The Urban Land Institute also tracks sales of owned and non-owned
department stores by selected affiliation and region. This information is
summarized in the following chart.
========================================================================================
Department Store Sales Data
========================================================================================
Category/Region Average Sales PSF Top 10% PSF Top 2% PSF
========================================================================================
Super-Regional U.S.
Owned Dept. Stores $144.99 $247.99 $505.13
National Chain $146.89 $271.91 $532.63
Non-Owned Dept. Stores $154.34 $243.28 $367.33
National Chain $154.34 $243.28 $367.33
Eastern Region $152.35 --- ---
Western Region $147.26 --- ---
Midwestern Region $131.12 --- ---
Southern Region $159.23 --- ---
========================================================================================
Average - All Super-Regional Centers $148.82 $251.62 $443.11
========================================================================================
Regional Malls U.S.
Owned Dept. Stores $149.26 $245.53 $352.79
National Chain $149.03 $237.27 $343.94
Non-Owned Dept. Stores $162.14 $215.20 $266.01
National Chain $163.08 $215.32 $266.09
Eastern Region $174.78 --- ---
Western Region $165.36 --- ---
Midwestern Region $151.49 --- ---
Southern Region $150.39 --- ---
========================================================================================
Average - All Regional Centers $158.19 $228.33 $307.21
========================================================================================
Source: Urban Land Institute Dollars & Centers of Shopping Centers (1995)
========================================================================================
Data from ULI shows that the mean sales level for department stores in
super-regional malls varies from $131.12 to $159.23 per square foot with an
overall average of $148.82 per square foot. Stores in the top 10 percent of
their peers average (unweighted) approximately $252 while the top 2 percent
average approximately $443 per square foot.
Data for department stores in regional malls shows that the mean ranges
from $149.03 to $174.78 per square foot with an overall average of $158.19 per
square foot. The unweighted average for the top 10 percent and 2 percent is
approximately $228 and $307 per square foot, respectively.
Summary
Within the shopping center industry, a trend toward specialization has
evolved so as to maximize sales per square foot by deliberately meeting customer
preferences rather than being all things to all people. This market segmentation
is implemented through the merchandising of the anchor stores and the tenant mix
of the mall stores. While remaining clearly positioned to appeal to the broad
middle of the market, the subject property reflects this trend toward market
segmentation, as evidenced by the recent remerchandising of mall shop tenants
and the planned conversion of Stern's to Macy's. We believe that the conversion
of Stern's to Macy's later this year will bode well for the mall. Macy's is a
highly recognized name in the New York region, and a formidable presence in the
White Plains retail market. Macy's
broad merchandising mix provides for a wide array of soft goods and housewares
ranging from mid-market to more upscale price points. Macy's delivery of a
strong traditional merchandise base together with more upscale offerings is well
matched to the Galleria's position within the Westchester County marketplace - a
dominant mall for traditional merchandise that is also located in one of the
nation's most affluent markets.
JMB recently completed a fairly significant renovation of the mall, and its
re-tenanting program continues as of this writing. This plan is partly in
response to changing (advancing) demographics and follows a typical cycle for
the rejuvenation of the center which is now 15+/- years old. Equally as
important, however, is the fact that ownership has and continues to fortify the
subject's competitive position against The Westchester, which provides shoppers
a wide array of unique retailers together in a distinctly upscale and appealing
shopping environment.
Conclusion
We have analyzed the profile of the New York MSA and Westchester County in
order to make reasonable assumptions as to the continued performance of the
subjects trade area.
A metropolitan and locational overview was presented which highlighted
important points about the study area and demographic and economic data
specific to the trade area were presented. The trade area profile discussed
encompassed a zip code based analysis separating the primary and secondary
components that was established based upon a thorough study of the
competitive retail structure. Marketing information relating to these
sectors was presented and analyzed in order to determine patterns of change
and growth as it impacts The Galleria at White Plains. Next we discussed
the subject's retail sales history. This data is useful in giving
quantitative dimensions of the total trade area, while our comments serve
to provide qualitative insight into this market. A compilation of this data
provides the basis for our projections and forecasts particular to the
subject property. The following summarizes our key conclusions:
o The subject is benefited by its location in the nation's largest
metropolitan area. Within this component of the MSA, the subject is
the dominant destination retail center for a primary trade area of
nearly 380,000 people. It is also well positioned to serve a
substantial Central Business District population that dramatically
increases during business hours. These individuals have additional
purchasing power not measured in the trade area demographic
statistics.
o The MSA has excellent inter and intra-regional accessibility. The
subject is benefited by excellent regional accessibility being located
proximate to I-287 and the regional road network.
o The subject offers a cohesive merchandising mix with a strong
allocation of regional and national tenants. Therefore, merchants have
the benefit of stronger advertising budgets and are more familiar to
shoppers which typically results in higher sales levels.
o From a competitive standpoint, the mall dominates the market for
traditional merchandise. The decision by Federated Department Stores
to convert the subject Stern's to a Macy's format, is, in our opinion,
an important development that will serve to broaden the subject's
market appeal.
o Coincidental to the opening of The Westchester, an 830,000+/- square
foot regional mall anchored by Neiman Marcus and Nordstrom's tenanted
by an upscale mall shop tenant base, and the conversion of A&S to
Stem's, comparable mall shop sales posted a noticeable decrease during
1995. It is our opinion that with the conversion of Stern's to Macy's,
together with the declining novelty of The Westchester, sales should
mark an increase during 1996. We note that despite the recent decline
in mall shop sales, the mall shop's per square foot sales volumes
remain in the top decile on both a regional and national basis.
Our analysis concludes that the existing and planned merchandising mix of
the mall shops, its excellent Central Business District location, and the
popularity of the anchor department stores all combine to establish The Galleria
at White Plains as a major retail center in its trade area. We believe that with
competent management, aggressive marketing and a responsive maintenance program,
it should maintain and likely enhance its position throughout the foreseeable
future.
Marketability and Marketing Period
In this subsection, we consider the potential market appeal, marketability
and demand for a center like the subject in light of the current real estate
investment market. As discussed elsewhere in this report, the subject involves
an enclosed, two-level, regional mall containing 301,767 square feet of mall
shop GLA anchored by two anchor stores for a combined mall GLA of 883,782 square
feet.
We have considered the potential market demand and investor risk in our
analysis and valuation of the subject property through our selection of
investment parameters, growth rates, and various assumptions employed. In our
analysis, we have attempted to reflect current market conditions and investor
criteria. Most of the shopping center properties which have been offered for
sale at a "reasonable" price, have sold within twelve months exposure to the
open market or less. Properties for which seller expectations of value exceed
the market's perception have required more extended marketing periods and have
generally sold below the initial asking price, or have been pulled off the
market. A "reasonable" price is defined as that price which offers a sufficient
return to the investor relative to the demand for and the risk associated with
the property. These returns vary widely in the current market depending on the
particular investment, its occupancy level, the surrounding demographics, and
upside or downside of the income stream.
The subject is characterized as a well-located, established regional mall
which dominates the traditional merchandising format within its primary market.
The subject's primary trade area has a current population of approximately
383,221 people and is projected to experience moderate but steady population and
household growth in the foreseeable future. We believe that if the subject were
offered for sale, it would represent an important investment opportunity for a
well positioned center with some upside through lease rollover and continued
efforts to upgrade the tenant mix. Based on the above, it is our estimate that a
market sale of the subject property should be realized within twelve months
exposure on the market.
Site Description
Location: 100 Main Street, City of White Plains,
Westchester County, New York. The site
is bounded by Main Street to the north,
Martine Avenue to the south, Court
Street to the east, and Lexington Avenue
to the west.
Land Area
Mail Site: 5.44+/- acres
JCPenney Parcel (Ground Lease): 1.46+/- acres
------------------------------- -------------
Total Appraised Portion of Site: 6.90+/- acres
Stern's Parcel (Not Owned): 2.25+/- acres
--------------------------- -------------
Total Site: 9.15+/- acres
Shape/Topography: Generally rectangular. There are mild
topographic changes throughout the
property. For the most part, the
majority of the mall site is level,
occupied by existing improvements, and
functional for its use.
Frontage: The mall parcel has accessible frontage
along all fronting streets, including
Grove Street which bisects the subject
site and provides ingress/egress into
the adjacent parking structure.
Access: Access to the subject site is good by
virtue of its centralized Central
Business District location. The downtown
is served by two primary interstate
highways, I-287 and I-684. Other major
roadways include The Bronx River
Parkway, New York Post Road, and
Mamaroneck Road. The site is also served
by excellent rail and bus service.
Street Improvements: Paving, curbing, sidewalks, and
lighting.
Soil Conditions: We did not receive nor review a soil
report. However, we assume that the
soil's load-bearing capacity is
sufficient to support existing
structures. We did not observe any
evidence to the contrary during our
physical inspection of the property. The
tract's drainage appears to be adequate.
Utilities: All municipal utilities including water,
sewer, electric, gas, and telephone are
connected and in use.
Water: City of White Plains
Sewer: Con Edison
Gas: Con Edison
Telephone: NYNEX
Property Description
===============================================================================
Land Use Restrictions: We were not given a title report to
review. We do not know of any easements,
encroachments, or restrictions that
would adversely affect the site's use.
However, we recommend a title search to
determine whether any adverse conditions
exist.
The current leases in-place for anchor
and mall tenants dictate a retail use
for the property. Furthermore, the
operating covenants and OREA between
ownership and the respective anchor
stores are assumed to be in full force
and affect.
Flood Hazard: According to the City of White Plains
Planning Department, the subject site is
not located in a flood hazard zone.
Therefore, the property does not require
flood hazard insurance.
Wetlands: We were not given a wetlands survey. If
subsequent engineering data reveal the
presence of regulated wetlands, it could
materially affect property value. We
recommend a wetlands survey by a
competent engineering firm.
Seismic Hazard: To the best of our knowledge, the site
is not located in a Special Study Zone.
Hazardous Substances: We observed no evidence of toxic or
hazardous substances during our
inspection of the site. However, we are
not trained to perform technical
environmental inspections and recommend
the services of a professional engineer
for this purpose.
Site Improvements: Parking is provided in an adjacent
municipal-owned garage. Other site
improvements include minimal
landscaping, concrete sidewalks,
concrete curbing, yard lighting,
signage, and underground and overhead
utilities.
Comments: Overall, the subject site is of
sufficient size to accommodate existing
improvements. It offers a utilitarian
shape, relatively level topography, and
has good access.
Subject improvements consist of a four-level enclosed urban regional mall
containing 882,728+/- square feet. A leasing plan for each level is provided in
the Addenda. Provided below is a detailed description of existing construction
at the subject property.
Building Area
Stern's*: 328,599+/- square feet
JCPenney*: 227.316+/- square feet
---------- ----------------------
Total Anchor Stores: 555,915+/- square feet
Mall Shop GLA: 326,813+/- square feet
-------------- ----------------------
Total GLA: 882,728+/- square feet
*Stores separately owned; JCPenney
subject to ground lease; Stern's will
become Macy's in mid-July 1996.
Year Built/Renovated: 1980/1993
Building Height: Approximately 75' to top of roof
Construction Detail
Foundations: Reinforced concrete footings on
engineered fill.
Framing: Reinforced concrete column and beam.
Ceiling Height: Approximately 16-18 feet along mall
concourse.
Floor System: Reinforced concrete slab on grade lower
level and reinforced concrete and
concrete beam on upper levels.
Exterior Walls: Pre-cast concrete panels with aggregate
finish.
Roof Structure/Cover: Single-ply roofing over concrete deck.
The roof was replaced in 1993-94 at a
cost of approximately $1.6 million. The
roof has a 10-year guarantee.
Skylights: Series of decorative skylights
throughout.
Doors
Exterior: Customer entrances are anodized aluminum
and glass. Receiving and service doors
are metal and steel roll-up.
Interior: Hollow metal and fire-rated metal.
Loading: Both anchor tenants have loading dock
areas.
Property Description
===============================================================================
Mechanical Detail
Heating and Air Conditioning: Mall stores and corridors are served by
three (3) York Centrifugal chillers; two
(2) 550 ton and one (1) 275 ton unit.
There is also a supplemental 300 ton
McQuay unit. Heat is supplied by an
oil-fired boiler to individually
controlled units for tenant usage.
Anchor stores have individual units for
which they are separately metered. The
central plant was upgraded in 1995-96,
replacing the chillers with absorbers
under an energy savings program
sponsored by Con Edison. The cost of the
upgrade was about $1.2 million. Con
Edison provided a rebate of $500,000,
indicating a net cost of $700,000. The
new system is projected to save about
$250,000 per year to the cost of energy.
Plumbing: A complete sanitary sewer system and
domestic water system serves all
required fixtures of each tenant and is
tapped into the municipal water and
sewer distribution lines. All roof areas
are drained to rain water conductors
which are connected to the site storm
water system. Sewers under buildings are
cast iron per code; water lines are
copper and PVC per code requirements.
Electric: Service to all tenants is from a primary
distribution system through secondary
pad-mounted transformers; 277/480 volt,
3-phase, 4-wire. The local supplier is
Con Edison. Lighting is generally a mix
of fluorescent, incandescent, mercury
vapor, and sodium vapor fixtures.
Electric work is assumed to be in
accordance with National Electric Code.
Vertical Transportation: Vertical transportation consists of one
(1) bank of escalators at the JCPenney
throat near the food court, serving all
four levels (Main Street to Fashion
Level 2). There is a second set at
Stern's end which serves Fashion Levels
1 and 2.
A feature elevator in the food court
serves all four levels. Departments
stores each have escalators and
elevators. In addition, there are three
(3) elevator banks that serve the
attached municipal parking garage which
connects to the mall.
Property Description
===============================================================================
Life Safety/Security: A complete and fully automatic sprinkler
system is installed throughout
the property. Fire alarms and pull
stations are located throughout, along
with an electronically wired smoke
detector system which is centralized and
tied into the local municipal
authorities.
There is also 24-hour on-premise
security. Closed circuit T.V. monitors
the mall (interior and exterior) and all
perimeter doors. There is an emergency
power generator with sufficient capacity
to maintain the lighting and ventilation
system in the event of power loss.
Interior Detail
Layout/Renovations: The subject's open, four-level interior
makes a dramatic presentation, with a
large open center court featuring
abundant natural light, decorative
trees, and seating areas. Diverse mall
shop store fronts provide a "street
scape" shopping experience. JCPenney
occupies a four-level store, while
Stern's operates on three levels.
The interior renovation which occurred
between 1992-93 generally involved
replacing flooring and mirrored
ceilings, re-glazing of the skylights,
and improved lighting. The effect has
been a much improved, contemporary look
to the mall which enhances its appeal.
Street Level: The Street Level was reconfigured in
1992-93 to accommodate Filene's Basement
in the former General Cinema space.
Herman's and Emigrant Savings already
occupied space on this level. Both
Filene's Basement and Herman's have
vacated because of parent company
financial troubles. Bunny's children's
store will be taking the former Filene's
space. Emigrant has suggested that they
would like to take space inside the
mall. Negotiation has been underway to
bring in a restaurant user for their
space, including TGI Fridays. Overall,
the street level has more appeal to
incoming pedestrian traffic since
renovation. Escalators facilitate
customer movement into the center and
provide an open view to the levels
above. We are advised that Bunny's will
add exterior display windows which
should further compliment this entrance
to the property.
Property Description
===============================================================================
Garden Level: The Garden Level is the second level of
the mall. It primarily houses the food
court which is one of the subject's
strong features. The food court has been
refurbished, including a retrofit and
redesign of the seating area. Seating
has been reconfigured and the Grove
Street entrance re-worked with a pop-out
atrium. The net effect has increased
seating from 600 to 700 seats, with a
slight decrease in GLA. The Main Street
access point has also been improved with
an atrium pop-out that affords a
friendlier appearance.
Fashion Level 1: Fashion Level 1 is a full mall floor
that runs the full distance between
JCPenney and Stern's. In addition to the
interior cosmetic renovation, the most
significant move on this level included
Victoria's Secret's relocation and
expansion to Space 314 which added new
GLA from former cutouts in the floor
outside of the current demising wall.
Lerner also had a significant expansion.
Fashion Level 2: Fashion Level 2 is the upper-most level.
It is also a full selling floor running
the length of the mall. The most
significant changes to this level during
renovation involved relocation and
expansion of Limited Express. The Gap
also expanded from 3,868 square feet to
7,511 square feet.
Floor Coverings: Mall corridors are generally a mix a
travertine marble, quarry file, and
glazed ceramic tile. Stores are a
mixture of carpet, vinyl tile, and
marble.
Ceilings: A mixture of painted sheetrock, mylar,
or alkane mirrored ceilings.
Lighting: The mall concourse is lighted primarily
with incandescent fixtures. Exterior
lighting is mounted, high pressure
sodium.
Partitions: Generally gypsum wallboard on metal
studs, fire code sheetrock from floor to
roof deck on all party walls separating
each tenant.
Property Description
===============================================================================
Tenant Areas: Tenant suites are improved in accordance
with individual tenant specifications.
Generally, vacant suites are in
semi-finished condition having been
previously occupied. Mall management has
been offering early renewal leases to
older tenants in exchange for
tenant-paid upgrades. These offerings
continue as of this writing.
Restrooms: Department stores have public and
employee toilet facilities with
provisions for handicapped. Generally,
each tenant has facilities that do not
have to be made available for public use
by code. Large shops and eating
establishments have additional
facilities as necessary to meet code
requirements. In addition, a bank of
public toilet facilities for both men
and women are provided at the food
court. Both men's and women's facilities
were improved during the renovation.
Site Improvements
On-Site Parking: On-site parking is provided by a
city-owned parking garage which can
accommodate 2,416 cars. The resulting
parking ratio is 2.7 spaces per 1,000
square feet of GLA.
Landscaping: There is minimal landscaping surrounding
the property.
Other Improvements: Other site improvements consist of
concrete curbing and asphalt paving,
yard lighting, all underground and
overhead utilities, and signage. Other
mall features include a customer service
area for coat and package check, gift
wrapping, stroller rental, and community
information. A community room is also
available for public use.
Comments: The subject features a modem design. Our
inspection revealed high quality
materials and workmanship. Analysis of
the structural integrity of the building
is beyond the scope of our expertise and
best made by a professional engineer.
Our analysis of improvements concludes
that the layout and design are
functional and conducive for retail
utilization.
At the time of inspection, some tenant
areas were in the process of being
prepared for tenant occupancy. It is our
assumption that future and proposed
construction and fit-out will be done in
conformance with ownership's commitment
to state-of-the-art retailing concepts.
As noted, Stern's will be converted to
Macy's in July 1996. Federated
Departments Stores will reportedly do
some renovation of the store and close
it for approximately one week. This
conversion to Macy's is considered to by
positive for the property.
Our review of the local environs reveals
that there are no external influences
which negatively impact the value of the
subject property.
The subject property is currently assessed for taxation purposes by the
City of White Plains. Properties in White Plains are assessed as of January 1 of
each year, with taxes levied on a fiscal basis from July 1 to June 30. The
following chart presents an overview of the subject's current assessment and tax
liability.
==============================================================================================
Subject Assessment
Tax Map Parcel No/ Land A.V./ Millage 1995/96
Account No. Description Total A.V. Rate* Taxes
==============================================================================================
125.75-4-2/ Main St. Reg. Shop. Ctr. $ 564,200/ 0.36282 $2,221,311
30010002106 2.39 acres $6,122,350
----------------------------------------------------------------------------------------------
125.75-4-3/ Main St. Reg. Shop. Ctr. $ 46,800/ 0.36282 $ 372,852
30030002005 3.05 acres $1,027,650
==============================================================================================
Total $7,150,000 0.36282 $2,594,163
==============================================================================================
*Bronx Valley District
==============================================================================================
As can be seen, a total assessment of $7,150,000 yields a tax liability of
$2,594,163 for 1995/96 at the subject. This assessment does not include JCPenney
or Stern's which are separately assessed and pay their own taxes.
Mill Rate History
The subject's assessment of $7,150,000 has not changed since 1984/85, the
last assessment available from the city tax roll. However, tax rates in White
Plains have increased over this same period as shown on the following chart.
As shown, tax rates in the Bronx Valley District of White Plains have grown
at a compound annual rate of 7.62 percent. This historical growth helps to
project a tax growth rate for our cash flow analysis following.
For 1996, management has budgeted a tax expense of $2,631,484, up from
$2,504,654 in 1995 and $2,367,435 in 1994. Based upon the 1995/96 billing and a
mid-year increase for the 1996/97 billing, this projection appears to be
reasonable.
Conclusion
For our analysis, we have utilized a real estate tax expense of $2,672,000
for calendar year 1996. This accounts for six months of the fiscal 1995/96
billing ($2,594,163), and six months of our projected 1996/97 billing of
$2,749,813 (6.0% growth over 1995/96).
The subject site is zoned B-6 (UR-3) Enclosed Mall District by the City of
White Plains. According to the ordinance, this district is designed for
super-regional enclosed shopping malls, with accompanying parking and other
facilities commonly found accessory to such uses.
For projects of the subject's magnitude and caliber, specific site plan
review is required for a number of factors that come to bear within the approval
process. Accordingly, while certain bulk area requirements may come into
consideration, it is the full plan review that considers all influencing factors
that has primary weight. The district permits a maximum floor area ratio (FAR)
of 6.0. Parking is required at a ratio of 3.0 cars per 1,000 square feet. We
note that the current parking ratio of 2.7 spaces is below the required amount
by zoning. A representative of the city zoning office indicated that the project
either received a variance when it was built, or the parking requirement has
been changed since its construction.
We are not experts in the interpretation of such mixed use zoning
ordinances. However, the subject improvements appear to be a conforming use
based on our review of public information and conversations with the planning
department. The city has allowed construction of the subject property to its
current configuration. Furthermore, renovation of the mall between 1992/93,
including exterior work, has received approval by the City of White Plains.
We know of no deed restrictions, private or public, that further limit the
subject property's use. The research required to determine whether or not such
restrictions exist, however, is beyond the scope of this appraisal assignment.
Deed restrictions are a legal matter and only a title examination by an attorney
or title company can usually uncover such restrictive covenants. Thus, we
recommend a title search to determine if any such restrictions do exist.
Highest and best use analysis evaluates existing land use for the subject
property and seeks to determine if alternative uses would prove more profitable.
The definition and analysis apply specifically to the land. The analysis further
examines whether the land value at its highest and best use exceeds the total
value of the property under its existing use or as improved. Highest and best
use identifies the most profitable, competitive use to which the property can be
put. Therefore, highest and best use is a market-driven concept.
Definition
Highest and best use is defined as follows:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility, and maximum profitability
(Dictionary of Real Estate Appraisal, Third Edition, 1993).
The definition indicates that there are two types of highest and best use
analysis required; the site as though vacant, and the site as currently
improved. In each case, the highest and best use must generally meet four
criteria. The use must be (1) physically possible, (2) legally permissible, (3)
financially feasible, and (4) maximally productive.
A. Highest and Best Use of Site As Though Vacant
According to the Dictionary of Real Estate Appraisal, Third Edition (1993),
a publication of the Appraisal Institute, the highest and best use of the site
as though vacant is defined as:
Among all reasonable, alternative uses, the use that yields the highest
present land value, after payments are made for labor, capital, and
coordination. The use of a property based on the assumption that the parcel
of land is vacant or can be made vacant by demolishing any improvements.
Physical Constraints
The first constraint imposed on the possible use of the site is dictated by
the physical aspects of the parcel itself. Physical factors influencing the use
of the site include location, size, shape, topography, soils, abutting uses, the
availability of utilities, and other characteristics.
The subject site contains a total of 9.15+/- acres (2.25+/- not owned) in
the heart of downtown White Plains, New York. The parcel is bounded by Main
Street to the north, Martine to the south, Court Street to the east, and
Lexington Avenue to the west. Topography is generally level, with good
accessibility via local streets. The downtown central business district has good
regional access by virtue of the infrastructure and public transportation
serving it. Surrounding development is predominantly office in nature, with a
heavy concentration of retail product along Mamaroneck, including Macy's
department store and Sears further up Main Street.
All necessary utilities are available to the site, including public water,
gas, electricity, and telephone services. Physical characteristics--i.e. size,
shape, subsoil conditions, and location--support various types of development,
including commercial, retail, and office uses. Abutting uses reflect a mix of
commercial development.
Physically, the site could accommodate a number of potential uses.
Surrounding land use patterns suggest an office or retail development of the
property. Finally, there appear to be no physical constraints limiting
development of the subject property as though vacant. The site's size, location,
and configuration support a retail or office use for the subject as though
vacant.
Legal Considerations
Legal factors influencing the highest and best use of the subject property
involve local land use guidelines, including comprehensive plans, zoning, and
building codes. The intensity of development may also be affected by surrounding
land uses, neighborhood concerns, and the local planning process.
The subject site is zoned B-6 (UR-3), an enclosed mall district designation
by the City of White Plains. This zoning district allows for a variety of retail
uses, but is specifically designed for enclosed shopping mall development, with
accompanying parking and other facilities commonly found accessory to such uses.
As discussed in the Zoning section of this report, various bulk area
requirements are set forth under the zone. However, specific site plan review is
required for the approval process.
Considering surrounding uses, it is clear that a retail or office use of
the site would be most appropriate. Under the current zoning, however, only
retail uses are allowed.
There are no other known land use regulations, easements, or encumbrances
which might impact development on the subject. Further, the site does not appear
to possess any significant natural, cultural, recreational, or scientific
attributes which may influence its use. Based upon this analysis, the legally
permissible development of the subject site as though vacant would be an
enclosed regional mall, assuming proper parking requirements are met.
Financial Feasibility/Economic Considerations
After determining those uses which are physically possible and legally
permissible, the uses considered must be analyzed in light of their financial
feasibility. Based on the foregoing discussion, potential uses for the subject
site include retail and office development. For a potential use to be seriously
considered, it must have the potential to provide a sufficient return to attract
investment capital over alternative forms of investment. A positive net income
or acceptable rate of return would indicate that a use is financially feasible.
As discussed in the Neighborhood Analysis, the current office market in
downtown White Plains has an overall vacancy rate of 26.4 percent, with Class A
buildings showing a vacancy rate of 23.7 percent. This level of vacancy,
although lower than year-ago levels, is prohibitive to new speculative office
development. For this reason, office development is not believed to be feasible
in the central business district at this time.
As will be discussed in the Income Approach section of this report, a
retail use of the subject site provides a sufficient return to the land and is
thus believed to be the most highly productive, feasible use of the site.
Maximum Productivity
Finally, of the financially feasible, physically possible, and legally
permissible uses considered, the use that produces the highest price or value
consistent with the rate of return warranted by the market for that use is the
highest and best use. While this test of maximum productivity implies a
quantitative analysis, it is often most qualitative and sensitive to community,
social, political, and governmental concerns.
In the case of the subject, the site is located in a downtown area that has
a variety of uses, primarily retail and office in nature, with supporting
residential development. Existing neighborhood uses support both an office and
retail use of the site. The subject's size, accessibility, and location lead us
to the conclusion that the highest and best use of the subject property, as
though vacant, is for retail development. Convenient access and parking are also
overriding issues for potential development of the site.
A developer mindful of the prospective lot coverage, yet savvy as to the
market's potential for absorbing new product, would consider the site's feasible
potential. Parking is an overriding constraint that dictates the ultimate size
of a potential development. Accordingly, our retail use premise assumes that
parking would be provided to a level sufficient for the total project.
Conclusion As Though Vacant
Based on the preceding analysis, the highest and best use of the subject
property, as though vacant, is for regional mall development built to the site's
maximum feasible F.A.R.
B. Highest and Best Use of Property As Improved
According to the Dictionary of Real Estate Appraisal, highest and best use
of the property as improved is defined as:
The use that should be made of a property as it exists. An existing
property should be renovated or retained as is so long as it continues to
contribute to the total market value of the property, or until the return
from a new improvement would more than offset the cost of demolishing the
existing building and constructing a new one.
Physical Constraints
In considering the physical characteristics of the subject as improved, the
existing use must also meet criteria in order to maintain the property's highest
and best use. Existing improvements can be analyzed three ways: 1) they can be
retained as is; 2) they can be modified, altered, or rehabilitated; and 3) they
can be demolished in favor of an alternative use.
The subject site is currently improved with an enclosed regional shopping
center. Built in 1980 and renovated in 1993, subject improvements are considered
to be in good condition. The layout and design are conducive for its existing
use, with good linkage and access within the downtown. Regional access to the
property is also good.
There do not appear to be any other physical factors such as soil or
drainage conditions or other physical characteristics that adversely affect the
continued utility and/or existence of subject improvements. Thus, the subject
site, as currently improved, is a physically possible use. Although the property
could altered for alternative property types, such uses would be costly and
prove infeasible.
Legal Considerations
The subject site as currently improved represents a legal, conforming use.
There do not appear to be any public or private use restrictions or covenants
which adversely affect the current use of the property. Although the subject
building could legally be modified or possibly demolished for an alternative
use, this would not be a logical progression since the subject does not suffer
from prohibitive functional or physical problems which inhibit its current use.
Furthermore, the leases and operating agreements in-place dictate a retail use
for the property. Therefore, the subject site, as improved, is legally
permissible.
Financial Feasibility/Economic Considerations
As will be discussed in the Income Approach section of this report, the
subject property, as improved, is capable of producing a sufficient return to
the land. Moreover, analysis of the subject property as if vacant indicates that
the highest and best use of the site is for retail development. This
determination has been made by comparing alternative uses for the property and
establishing which use provides the greatest return to the land. Demolishing
existing improvements would not be financially feasible due to the cost involved
and the potential return an alternative use would bring. Thus, current
improvements to the subject provide the most financially feasible use of the
site.
Maximum Productivity
Based upon the foregoing analysis, the subject parcel, as currently
improved, represents the maximally productive use of the site. Although the site
could be developed with an alternative configuration by demolishing existing
improvements, this scenario would not be economically justifiable and, as a
result, fail the test of financial feasibility and maximum productivity. In our
opinion, no other use of the site would provide as great a return.
Conclusion As Improved
The highest and best use of the subject property is therefore as currently
improved. The existing use is physically possible, legally permissible,
financially feasible, and maximally productive. Market conditions in White
Plains indicate demand for properties of the subject's stature, with vacancy and
rental rates which justify the financial feasibility of existing improvements.
Appraisers typically use three approaches in valuing real property: The
Cost Approach, the Income Approach and the Sales Comparison Approach. The type
and age of the property and the quantity and quality of data effect the
applicability in a specific appraisal situation.
The Cost Approach renders an estimate of value based upon the price of
obtaining a site and constructing improvements, both with equal desirability and
utility as the subject property. Historically, investors have not emphasized
cost analysis in purchasing investment grade properties such as regional malls.
The estimation of obsolescence for functional and economic conditions as well as
depreciation on improvements makes this approach difficult at best. Furthermore,
the Cost Approach fails to consider the value of department store commitments to
regional shopping centers and the difficulty of site assemblage for such
properties. As such, the Cost Approach will not be employed in this analysis due
to the fact that the marketplace does not rigidly trade leased shopping centers
on a cost/value basis.
The Sales Comparison Approach is based on an estimate of value derived from
the comparison of similar type properties which have recently been sold. Through
an analysis of these sales, efforts are made to discern the actions of buyers
and sellers active in the marketplace, as well as establish relative unit values
upon which to base comparisons with regard to the mall. This approach has a
direct application to the subject property. Furthermore, this approach has been
used to develop investment indices and parameters from which to judge the
reasonableness of our principal approach, the Income Approach.
By definition, the subject property is considered an income/ investment
property. Properties of this type are historically bought and sold on the
ability to produce economic benefits, typically in the form of a yield to the
purchaser on investment capital. Therefore, the analysis of income capabilities
are particularly germane to this property since a prudent and knowledgeable
investor would follow this procedure in analyzing its investment qualities.
Therefore, the Income Approach has been emphasized as our primary methodology
for this valuation.
This valuation concludes with a final estimate of the subject's market
value based upon the total analysis as presented herein.
The Sales Comparison Approach provides an estimate of market value by
comparing recent sales of similar properties in the surrounding or competing
area to the subject property. Inherent in this approach is the principle of
substitution, which holds that, when a property is replaceable in the market,
its value tends to be set at the cost of acquiring an equally desirable
substitute property, assuming that no costly delay is encountered in making the
substitution.
By analyzing sales that qualify as arms-length transactions between willing
and knowledgeable buyers and sellers, market value and price trends can be
identified. Comparability in physical, locational, and economic characteristics
is an important criterion when comparing sales to the subject property. The
basic steps involved in the application of this approach are as follows:
1. Research recent, relevant property sales and current offerings
throughout the competitive marketplace;
2. Select and analyze properties considered most similar to the subject,
giving consideration to the time of sale, change in economic
conditions which may have occurred since date of sale, and other
physical, functional, or locational factors;
3. Identify sales which include favorable financing and calculate the
cash equivalent price; and
4. Reduce the sale prices to a common unit of comparison, such as price
per square foot of gross leasable area sold;
5. Make appropriate adjustments between the comparable properties and the
property appraised;
6. Interpret the adjusted sales data and draw a logical value conclusion.
The most widely-used, market-oriented units of comparison for retail
properties such as the subject are the sale price per square foot of gross
leasable area (GLA) purchased, and the overall capitalization rate extracted
from the sale. This latter measure will be addressed in the Income Approach
which follows this methodology. An analysis of the inherent sales multiple also
lends additional support to the Sales Comparison Approach.
Market Overview
The typical purchaser of properties of the subject's caliber includes both
foreign and domestic insurance companies, large retail developers, pension
funds, and real estate investment trusts (REIT's). The large capital
requirements necessary to participate in this market and the expertise demanded
to successfully operate an investment of this type, both limit the number of
active participants and, at the same time, expand the geographic boundaries of
the marketplace to include the international arena. Due to the relatively small
number of market participants and the moderate amount of quality product
available in the current marketplace, strong demand exists for the nation's
quality retail developments.
Most institutional grade retail properties are existing, seasoned centers
with good inflation protection. These centers offer stability in income and are
strongly positioned to the extent that they are formidable barriers to new
competition. They tend to be characterized as having three to five department
store anchors, most of which are dominant in the market. Mall shop sales are at
least $300 per square foot and the trade area offers good growth potential in
terms of population and income levels. Equally important are centers which offer
good upside potential after face-lifting, renovations, or expansion. With new
construction down substantially, owners have accelerated their renovation and
remerchandising programs. Little competition from over-building is likely in
most mature markets within which these centers are located. Environmental
concerns and "no-growth" mentalities in communities continue to be serious
impediments to new retail developments.
Over the past 18+/- months, we have seen real estate investment return to
favor as an important part of many institutional investors' diversified
portfolios. Banks are aggressively competing for business, trying to regain
market share lost to Wall Street, while the more secure life insurance companies
are also reentering the market. The re-emergence of real estate investment
trusts (REITs) has helped to provide liquidity within the real estate market,
pushing demand for well-tenanted, quality property, particularly regional malls.
Currently, REITs are one of the most active segments of the industry and are
particularly attractive to institutional investors due to their liquidity.
The market for dominant Class A institutional quality malls is tight, as
characterized by the limited amount of good quality product available. It is the
consensus that Class A property would trade in the 7.0 to 8.0 percent
capitalization rate range. Conversely, there are many second tier and lower
quality malls offered on the market at this time. With limited demand from a
much thinner market, cap rates for this class of malls are felt to be in the
much broader 8.5 to 15.0 percent range. Reportedly, there are 50+/- malls on the
market currently. Pessimism about the long term viability of many of these lower
quality malls has been fueled by the recent turmoil in the retail industry. It
is felt that the subject resides on the better quality end of this latter
category.
To better understand where investors stand in today's marketplace, we have
surveyed active participants in the retail investment market. Based upon our
survey, the following points summarize some of the more important "hot buttons"
concerning investors:
1. Occupancy Costs - This "health ratio" measure is of fundamental
concern today. Investors like to see ratios under 13.0 percent and
become quite concerned when they exceed 15.0 percent. This appears to
be by far the most important issue to an investor today. Investors are
looking for long term growth in cash flow and want to realize this
growth through real rent increases. High occupancy costs limit the
amount of upside through lease rollovers.
2. Market Dominance - The mall should truly be the dominant mall in the
market, affording it a strong barrier to entry. Some respondents feel
this is more important than the size of the trade area itself.
3. Strong Anchor Alignment - Having at least three department stores, two
of which are dominant in that market. The importance of the
traditional department store as an anchor tenant has returned to favor
after several years of weak performance and confusion as to the
direction of the industry. As a general rule, most institutional
investors would not be attracted to a two-anchor mall.
4. Dense Marketplace - Several of the institutional investors favor
markets of 300,000 to 500,000 people (at least 150,000 households) or
greater within a 5 to 7 mile radius. Population growth in the trade
area is also very important. One advisor likes to see growth 50.0
percent better than the U.S. average. Another investor cited that they
will look at trade areas of 200,000+/- but that if there is no
population growth forecasted in the market, a 50+/- basis point
adjustment to the cap rate at the minimum is warranted.
5. Income Levels - Household incomes of $50,000+ which tends to be
limited in many cases to top 50 MSA locations.
6. Good Access - Interstate access with good visibility and a location
within or proximate to the growth path of the community.
7. Tenant Mix - A complimentary tenant mix is important. Mall shop ratios
of 35+/- percent of total GLA are considered average with 75.0 to 80.0
percent allocated to national tenants. Mall shop sales of at least
$250 per square foot with a demonstrated positive trend in sales is
also considered to be important.
8. Physical Condition - Malls that have good sight lines, an updated
interior appearance, and a physical plant in good shape are looked
upon more favorably. While several developers are interested in
turnaround situations, the risk associated with large capital
infusions can add at least 200 to 300 basis points onto a cap rate.
9. Environmental Issues - The impact of environmental problems cannot be
understated. There are several investors who won't even look at a deal
if there are any potential environmental issues no matter how
seemingly insignificant.
10. Operating Covenants - Some buyers indicated that they would not be
interested in buying a mall if the anchor store operating covenants
were to expire over the initial holding period. Others weigh each
situation on its own merit. If it is a dominant center with little
likelihood of someone coming into the market with a new mall, they are
not as concerned about the prospects of loosing a department store. If
there is a chance of loosing an anchor, the cost of keeping them must
be weighed against the benefit. In many of their malls they are
finding that traditional department stores are not always the optimum
tenant but that a category killer or other big box use would be a more
logical choice.
In the following section we will discuss trends which have become apparent
over the past several years involving sales of regional malls.
Evidence has shown that mall property sales which include anchor stores
have lowered the square foot unit prices for some comparables, and have affected
investor perceptions. In our discussions with major shopping center owners and
investors, we learned that capitalization rates and underwriting criteria have
become more sensitive to the contemporary issues affecting department store
anchors. Traditionally, department stores have been an integral component of a
successful shopping center and, therefore, of similar investment quality if they
were performing satisfactorily.
During the 1980's a number of acquisitions, hostile takeovers and
restructurings occurred in the department store industry which changed the
playing field forever. Weighted down by intolerable debt, combined with a
slumping economy and a shift in shopping patterns, the end of the decade was
marked by a number of bankruptcy filings unsurpassed in the industry's history.
Evidence of further weakening continued into 1991-1992 with filings by such
major firms as Carter Hawley Hale, P.A. Bergner & Company, and Macy's. In early
1994, Woodward & Lothrop announced their bankruptcy involving two department
store divisions that dominate the Philadelphia and Washington D.C. markets.
Recently, most of the stores were acquired by the May Department Stores Company,
effectively ending the existence of the 134 year old Wanamaker name, the
nation's oldest department store company. More recently, however, department
stores have been reporting a return to profitability resulting from increased
operating economies and higher sales volumes. Sears, once marked by many for
extinction, has more recently won the praise of analysts. Federated Department
Stores has also been acclaimed as a text book example on how to successfully
emerge from bankruptcy. They have merged with Macy's and more recently acquired
the Broadway chain to form one of the nation's largest department store
companies.
With all this in mind, investors are looking more closely at the strength
of the anchors when evaluating an acquisition. Most of our survey respondents
were of the opinion that they were indifferent to acquiring a center that
included the anchors versus stores that were independently owned if they were
good performers. However, where an acquisition includes anchor stores, the
resulting cash flow is typically segregated with the income attributed to
anchors (base plus percentage rent) analyzed at a higher cap rate then that
produced by the mall shops.
However, more recent data suggests that investors are becoming more
troubled by the creditworthiness of the mall shops. With an increase in
bankruptcies, store closures and consolidations, we see investors looking more
closely at the strength and vulnerabilities of the in-line shops. As a result,
there has been a marked trend of increasing capitalization rates.
Cushman & Wakefield has extensively tracked regional mall transaction
activity for several years. In this analysis we will show sales trends since
1991. Summary charts for the older sales (1991-1993) are provided in the
Addenda. The more recent sales (1994/1995) are provided herein. These sales are
inclusive of good quality Class A or B+/- properties that are dominant in their
market. Also included are weaker properties in second tier cities that have a
narrower investment appeal. As such, the mall sales presented in this analysis
show a wide
(1) Inclusive of $2.4 million held back for deferred maintenance.
(2) Inclusive of partnership units.
(3) Net of allocation to excess land.
(4) Sale includes 75,712 square foot professional building.
(5) Adjusted to reflect 100% interest.
variety of prices on a per unit basis, ranging from $59 per square foot up to
$556 per square foot of total GLA purchased. When expressed on the basis of mall
shop GLA acquired, the range is more broadly seen to be $93 to $647 per square
foot. Alternatively, the overall capitalization rates that can be extracted from
each transaction range from 5.60 percent to rates in excess of 11.0 percent.
One obvious explanation for the wide unit variation is the inclusion (or
exclusion) of anchor store square footage which has the tendency to distort unit
prices for some comparables. Other sales include only mall shop area where small
space tenants have higher rents and higher retail sales per square foot. A
shopping center sale without anchors, therefore, gains all the benefits of
anchor/small space synergy without the purchase of the anchor square footage.
This drives up unit prices to over $250 per square foot, with most sales over
$300 per square foot of salable area. A brief discussion of historical trends in
mall transactions follows.
o The fourteen sales included for 1991 show a mean average price per
square foot sold of $282. On the basis of mall shop GLA sold, these
sales present a mean of $357. Sales multiples range from .74 to 1.53
with a mean of 1.17. Capitalization rates range from 5.60 to 7.82
percent with an overall mean of 6.44 percent. The mean terminal
capitalization rate is approximately 100 basis points higher, or 7.33
percent. Yield rates range between 10.75 and 13.00 percent, with a
mean of 11.52 percent for those sales reporting IRR expectancies.
o In 1992, the eleven transactions display prices ranging from $136 to
$511 per square foot of GLA sold, with a mean of $259 per square foot.
For mall shop area sold, the 1992 sales suggest a mean price of $320
per square foot. Sales multiples range from .87 to 1.60 with a mean of
1.07. Capitalization rates range between 6.00 and 7.97 percent with
the mean cap rate calculated at 7.31 percent for 1992. For sales
reporting a going-out cap rate, the mean is shown to be 7.75 percent.
Yield rates range from 10.75 to around 12.00 percent with a mean of
11.56 percent.
o For 1993, a total of sixteen transactions have been tracked. These
sales show an overall average sale price of $242 per square foot based
upon total GLA sold and $363 per square foot based solely upon mall
GLA sold. Sales multiples range from .65 to 1.82 and average 1.15.
Capitalization rates continued to rise in 1993, showing a range
between 7.00 and 10.10 percent. The overall mean has been calculated
to be 7.92 percent. For sales reporting estimated terminal cap rates,
the mean is also equal to 7.92 percent. Yield rates for 1993 sales
range from 10.75 to 12.50 percent with a mean of 11.53 percent for
those sales reporting IRR expectancies. On balance, the year was
notable for the number of dominant Class A malls which transferred.
o Sales data for 1994 shows fourteen confirmed transactions with an
average unit price per square foot of $197 per square foot of total
GLA sold and $288 per square foot of mail shop GLA. Sales multiples
range from .57 to 1.43 and average .96. The mean going-in
capitalization rate is shown to be 8.37 percent. The residual
capitalization rates average 8.13 percent. Yield rates range from
10.70 to 11.50 percent and average 11.17 percent. During 1994, many of
the closed transactions involved second and third tier malls. This
accounted for the significant drop in unit rates and corresponding
increase in cap rates. Probably the most significant sale involved the
Riverchase Galleria, a 1.2 million square foot center in Hoover,
Alabama. LaSalle Partners purchased the mall of behalf of the
Pennsylvania Public School Employment Retirement System for $175.0
million. The reported cap rate was approximately 7.4 percent.
o Cushman & Wakefield has researched 14 mall transactions for 1995. With
the exception of Sale No. 95-1 (Natick Mall) and 95-2 (Smith Haven
Mall), by and large the quality of malls sold are lower than what has
been shown for prior years. For example, the average transaction price
has been slipping. In 1993, the peak year, the average deal was nearly
$133.8 million. Currently, it is shown to be $90.7 million which is
even skewed upward by Sale Nos. 95-1 and 95-2. The average price per
square foot of total GLA is calculated to be $152 per square foot. The
range in values of mall GLA sold are $93 to $607 with an average of
$275 per square foot. Characteristic of these lesser quality malls
would be higher initial capitalization rates. The range for these
transactions is 7.47 to 11.1 percent with a mean of 9.14 percent, the
highest average over the past five years. market participants feel
that continued turmoil in the retail industry will force cap rates to
move higher over the ensuing year.
While these unit prices implicitly contain both the physical and economic
factors affecting the real estate, the statistics do not explicitly convey many
of the details surrounding a specific property. Thus, this single index to the
valuation of the subject property has limited direct application. The price per
square foot of mall shop GLA acquired yields one common form of comparison.
However, this can be distorted if anchor and/or other major tenants generate a
significant amount of income. The following chart summarizes the range and mean
for this unit of comparison by year of sale.
As discussed, one of the factors which may influence the unit rate is
whether or not anchor stores are included in the total GLA which is transferred.
Thus, a further refinement can be made between those malls which have
transferred with anchor space and those which have included only mall GLA. Chart
A, shown below makes this distinction.
===============================================================================================================
CHART A
Regional Mall Sales
Involving Mall Shop Space Only
===============================================================================================================
1991 1992 1993 1994
===============================================================================================================
Sale Unit NOI Sale Unit NOI Sale Unit NOI Sale Unit NOI
No. Rate Per SF No. Rate Per SF No. Rate Per SF No. Rate Per SF
===============================================================================================================
91-1 $257 $15.93 92-2 $348 $25.27 93-1* $355 $23.42 94-1 $136 $11.70
---------------------------------------------------------------------------------------------------------------
91-2 $232 $17.65 92-9 $511 $33.96 94-4 $471 $32.95 94-3 $324 $22.61
---------------------------------------------------------------------------------------------------------------
91-5 $203 $15.89 92-11 $283 $19.79 93-5 $396 $28.88 94-12 $136 $14.00
---------------------------------------------------------------------------------------------------------------
91-6 $399 $24.23 93-8 $265 $20.55 94-14 $241 $18.16
---------------------------------------------------------------------------------------------------------------
91-7 $395 $24.28 93-16 $268 $19.18
---------------------------------------------------------------------------------------------------------------
91-8 $320 $19.51
---------------------------------------------------------------------------------------------------------------
91-10 $556 $32.22
===============================================================================================================
Mean $337 $21.39 Mean $381 $26.34 Mean $351 $25.00 Mean $209 $16.62
===============================================================================================================
*Sale included peripheral GLA.
===============================================================================================================
From the above we see that the mean unit rate for sales involving mall shop
GLA only has ranged from approximately $209 to $381 per square foot. We
recognized that these averages may be skewed somewhat by the size of the sample.
To date, there have been no 1995 transactions involving only mall shop GLA.
Alternately, where anchor store GLA has been included in the sale, the unit
rate is shown to range widely from $53 to $410 per square foot of salable area,
indicating a mean of $227 per square foot in 1991, $213 per square foot in 1992,
$196 per square foot in 1993, $193 per square foot in 1994 and $145 per square
foot in 1995. Chart B following depicts this data.
Within Charts A and B, we have presented a summary of recent transactions
(1991-1995) involving regional and super-regional-sized retail shopping malls
from which price trends may be identified for the extraction of value
parameters. These transactions have been segregated by year of acquisition so as
to lend additional perspective on our analysis. Comparability in both physical
and economic characteristics are the most important criteria for analyzing sales
in relation to the subject property. However, it is also important to recognize
the fact that regional shopping malls are distinct entities by virtue of age and
design, visibility and accessibility, the market segmentation created by anchor
stores and tenant mix, the size and purchasing power of the particular trade
area, and competency of management. Thus, the "Sales Comparison Approach", when
applied to a property such as the subject can, at best, only outline the
parameters in which the typical investor operates. The majority of these sales
transferred either on an all cash (100 percent equity) basis or its equivalent
utilizing market-based financing. Where necessary, we have adjusted the purchase
price to its cash equivalent basis for the purpose of comparison.
As suggested, sales which include anchors typically have lower square foot
unit prices. In our discussions with major shopping center owners and investors,
we learned that capitalization rates and underwriting criteria have become more
sensitive to the contemporary issues dealing with the department store anchors.
As such, investors are looking more closely than ever at the strength of the
anchors when evaluating an acquisition.
As the reader shall see, we have attempted to make comparisons of the
transactions to the subject primarily along economic lines. For the most part,
the transactions have involved dominant or strong Class A centers in top 50 MSA
locations which generally have solid, expanding trade areas and good income
profiles. Some of the other transactions are in decidedly inferior second tier
locations with limited growth potential and near term vacancy problems. These
sales tend to reflect lower unit rates and higher capitalization rates.
"As Is" Valuation
Because the subject is theoretically selling mall shop GLA only, we will
look at the recent sales in Chart A more closely. As a basis for comparison, we
will analyze the subject based upon projected NOI. First year NOI has been
projected to be $26.21 per square foot (FY 1997), based upon 326,813+/- square
feet of owned GLA. Derivation of the subject's projected net operating income is
presented in the "Income Approach" section of this report as calculated by the
Pro-Ject model. With projected NOI of $26.21 per square foot, the subject falls
toward the low end of the range exhibited by the comparable sales.
Since the income that an asset will produce has direct bearing on the price
that a purchaser is willing to pay, it is obvious that a unit price which falls
toward the middle of the range indicated by the comparables would be applicable
to the subject. The subject's anticipated net income can be initially compared
to the composite mean of the annual transactions in order to place the subject
in a frame of reference. This is shown on the following chart.
===============================================================
Sales Year Mean NOI Subject Forecast Subject Ratio
===============================================================
1991 $12.39 $26.21 211.5%
---------------------------------------------------------------
1992 $26.34 $26.21 99.5%
---------------------------------------------------------------
1993 $25.00 $26.21 104.8%
---------------------------------------------------------------
1994 $16.62 $26.21 157.7%
---------------------------------------------------------------
1995 $12.35 $26.21 ---
===============================================================
*All 1995 sales include anchor space.
With first year NOI forecasted at approximately 99.5 to 211.5 percent of
the mean of these sales in each year, the unit price which the subject property
would command should be expected to fall within a relative range.
Net Income Multiplier Method
Many of the comparables were bought on expected income, not gross leasable
area, making unit prices a somewhat subjective reflection of investment behavior
regarding regional malls. In order to quantify the appropriate adjustments to
the indicated per square foot unit values, we have compared the subject's first
year pro forma net operating income to the pro forma income of the individual
sale properties. In our opinion, a buyers criteria for the purchase of a retail
property is predicated primarily on the property's income characteristics. Thus,
we have identified a relationship between the net operating income and the sales
price of the property. Typically, a higher net operating income per square foot
corresponds to a higher sales price per square foot. Therefore, this adjustment
incorporates factors such as location, tenant mix, rent levels, operating
characteristics, and building quality.
Provided below, we have extracted the net income multiplier from each of
the improved sales. We have included only the recent sales data (1993-94). The
equation for the net income multiplier (NIM), which is the inverse of the
equation for the capitalization rate (OAR), is calculated as follows:
Valuation of the subject property utilizing the net income multipliers
(NIMs) from the comparable properties accounts for the disparity of the net
operating incomes ($NOI's) per square foot between the comparables and the
subject. Within this technique, each of the adjusted NIM's are multiplied by the
$NOI per square foot of the subject, which produces an adjusted value indication
for the subject. The net operating income per square foot for the subject
property is calculated as the first year of the holding period, as detailed in
the Income Approach section of this report.
From the process above, we see that the indicated net income multipliers
range from 9.71 to 15.16 with a mean of 13.22. The adjusted unit rates range
from $254 to $397 per square foot of owned GLA with a mean of $346 per square
foot. The comparables with $NOIs/SF comparable to the subject show multipliers
between 13.71 and 15.16, resulting in adjusted unit rates for the subject from
$359 to $397 per square foot.
We recognize that the sale price per square foot of gross leasable area,
including land, implicitly contains both the physical and economic factors of
the value of a shopping center. Such statistics by themselves, however, do not
explicitly convey many of the details surrounding a specific income producing
property like the subject. Nonetheless, the process we have undertaken here is
an attempt to quantify the unit price based upon the subject's income producing
potential.
Considering the above average characteristics of the subject relative to
the above, we believe that a unit rate range of $310 to $320 per square foot is
appropriate. Applying this unit rate range to 326,813+/- square feet of owned
GLA results in a value of approximately $98.0 million to $101.3 million for the
subject as shown:
326,813 SF 326,813 SF
x $310 x $320
------------ ------------
$101,300,000 $104,600,000
Rounded Value Estimate - Market Sales Unit Rate Comparison
$101,300,000 to $104,600,000
Arguably, it is the mall shop GLA sold and its intrinsic economic profile
that is of principal concern in the investment decision process. A myriad of
factors influence this rate, perhaps none of which is more important than the
sales performance of the mall shop tenants. Accordingly, the abstraction of a
sales multiple from each transaction lends additional perspective to this
analysis.
The sales multiple measure is often used as a relative indicator of the
reasonableness of the acquisition price. As a rule of thumb, investors will look
at a sales multiple of 1.0 as a benchmark, and will look to keep it within a
range of .75 to 1.25 times mall shop sales performance unless there are
compelling reasons why a particular property should deviate.
The sales multiple is defined as the sales price per square foot of mall
GLA divided by average mall shop sales per square foot. As this reasonableness
test is predicated upon the economics of the mall shops, technically, any income
(and hence value) attributed to anchors that are acquired with the mall as
tenants should be segregated from the transaction. As an income (or sales)
multiple has an inverse relationship with a capitalization rate, it is
consistent that, if a relatively low capitalization rate is selected for a
property, it follows that a correspondingly above-average sales (or income)
multiple be applied. In most instances, we are not privy to the anchor's
contributions to net income. As such, the sales multiples reported may be
slightly distorted to the extent that the imputed value of the anchor's
contribution to the purchase price has not been segregated.
The sales that are being compared to the subject show sales multiples that
range from 0.68 to 1.16 with a mean of about 0.96. As is evidenced, the more
productive malls with higher sales volumes on a per square foot basis tend to
have higher sales multiples. Furthermore, the higher multiples tend to be in
evidence where an anchor(s) is included in the sale.
Based upon forecasted 1995 performance, as well as anticipated changes to
the market area, the subject is projected to produce comparable sales of $344
per square foot for all reporting tenants.
In the case of the subject, the overall capitalization rate being utilized
for this analysis is considered to be in the mid- to high-range of those rates
exhibited by the comparable sales. As such, we would be inclined to utilize a
multiple below the mean indicated by the sales. As such, we will utilize a lower
sales multiple to apply to just the mall shop space. Applying a ratio of say,
0.90 to 0.95 percent to the forecasted sales of about $344 per square foot in
fiscal year 1997, the following range in value is indicated.
Unit Sales Volume (Mall Shops) $344 $344
Sales Multiple x 0.90 x 0.95
------------ ------------
Adjusted Unit Rate $309.00 $327.00
Mall Shop GLA x 326,813 x 326,813
------------ ------------
Value Indication $101,000,000 $106,900,000
------------ ------------
The analysis shows an adjusted value range of approximately $101.0 to
$106.9 million. Inherent in this exercise are mall shop sales which are
projections based on our investigation into the market which might not fully
measure investors expectations. It is clearly difficult to project with any
certainty what the mall shops might achieve in the future, particularly as the
lease-up is achieved and the property brought to stabilization. While we may
minimize the weight we place on this analysis, it does, nonetheless, offer a
reasonableness check against the other methodologies.
Giving consideration to all of the above, the following value range is
warranted for the subject property based upon the sales multiple analysis.
Estimated Value - Sales Multiple Method
Rounded to $101,000,000 to $106,900,000
We have considered all of the above relative to the physical and economic
characteristics of the subject. It is difficult to relate the subject to
comparables that are in such widely divergent markets with different cash flow
characteristics. The subject has above average sales levels compared to its
peers, with a typical anchor alignment and good representation of national
tenants.
We also recognize that an investor may view the subject's position as being
vulnerable to near-term competition and investment risk from The Westchester.
After considering all of the available market data in conjunction with the
characteristics of the subject property, the indices of investment that
generated our value ranges are as follows:
Unit Price Per Square Foot
Salable SF: 326,813+/-
Price Per SF of Salable Area: $310 to $320
Indicated Value Range: $101,300,000 to $104,600,000
Sales Multiple Analysis
Indicated Value Range $101,000,000 to $106,900,000
The parameters above show a value range of approximately $101.0 to $106.9
million for the subject on an "As Is" basis. Based on our total analysis,
relative to the strengths and weaknesses of each methodology, it would appear
that the Sales Comparison Approach indicates a prospective market value within
the more defined range of $101.0 to $103.0 million for the subject as of May 14,
1996.
The Income Approach is based upon the economic principle that the value of
a property capable of producing income is the present worth of anticipated
future net benefits. The net income projected is translated into a present value
indication using the capitalization process. There are various methods of
capitalization that are based on inherent assumptions concerning the quality,
durability and pattern of the income projection. Where the pattern of income is
irregular due to existing leases that will terminate at staggered, future dates,
or to an absorption or stabilization requirement on a newer development,
discounted cash flow analysis is the most accurate.
Discounted Cash Flow Analysis (DCF) is a method of estimating the present
worth of future cash flow expectancies by individually discounting each
anticipated collection at an appropriate discount rate. The indicated market
value by this approach is the accumulation of the present worth of future
projected years' net income (before income taxes and depreciation) and the
present worth of the reversion (the estimated property value at the end of the
projection period). The estimated value of the reversion at the end of the
projection period is based upon capitalization of the next years projected net
operating income. This is the more appropriate method to use in this assignment,
given the step up in lease rates and the long term tenure of retail tenants.
A second method of valuation, using the Income Approach, is to directly
capitalize a stabilized net income based on rates extracted from the market or
built up through mortgage equity analysis. This is a valid method of estimating
the market value of the property as of the achievement of stabilized operations.
This becomes difficult for a property such as the subject since it is not
operating at a stabilized level of operation. As such, this methodology will not
be utilized for this analysis.
Discounted Cash Flow Analysis
The Discounted Cash Flow (DCF) produces an estimate of value through an
economic analysis of the subject property in which the net income generated by
the asset is converted into a capital sum at an appropriate rate. First, the
revenues which a fully informed investor can expect the subject to produce over
a specified time horizon are established through an analysis of the current rent
roll, as well as the rental market for similar properties. Second, the projected
expenses incurred in generating these gross revenues are deducted. Finally, the
residual net income is discounted into a capital sum at an appropriate rate
which is then indicative of the subject property's current value in the
marketplace.
In this Income Approach to the valuation of the subject, we have utilized a
10 year holding period for the "As Is" investment with the cash flow analysis
commencing on June 1, 1996. Although an asset such as the subject has a much
longer useful life, investment analysis becomes more meaningful if limited to a
time period considerably less than the real estate's economic life, but of
sufficient length for an investor. A 10-year holding period for this investment
is long enough to model the asset's performance and benefit from its continued
lease-up and performance, but short enough to reasonably estimate the expected
income and expenses of the real estate. It is noted that we will discuss income
and expenses based upon calendar year 1996 for consistency with the budget.
The revenues and expenses which an informed investor may expect to incur
from the subject property will vary, without a doubt, over the holding period.
Major investors active in the market for this type of real estate establish
certain parameters in the computation of these cash flows and criteria for
decision making which this valuation analysis must include if it is to be truly
market-oriented. These current computational parameters are dependent upon
market conditions in the area of the subject property as well as the market
parameters for this type of real estate which we view as being national in
scale.
By forecasting the anticipated income stream and discounting future value
at reversion into a current value, the capitalization process may be applied to
derive a value that an investor would pay to receive that particular income
stream. Typical investors price real estate on their expectations of the
magnitude of these benefits and their judgment of the risks involved. Our
valuation endeavors to reflect the most likely actions of typical buyers and
sellers of property interest similar to the subject. In this regard, we see the
subject as a long term investment opportunity for a competent owner/developer.
An analytical real estate computer model that simulates the behavioral
aspects of property and examines the results mathematically is employed for the
discounted cash flow analysis. In this instance, it is the PRO-JECT Plus+
computer model. Since investors are the basis of the marketplace in which the
subject property will be bought and sold, this type of analysis is particularly
germane to the appraisal problem at hand. On the Facing Page is a summary of the
expected annual cash flows from the operation of the subject over the stated
investment holding period.
A general outline summary of the major steps involved may be listed as
follows:
1. Analysis of the income stream: establishment of an economic (market)
rent for tenant space; projection of future revenues annually based
upon existing and pending leases; probable renewals at market rentals;
and expected vacancy experience;
2. Estimation of a reasonable period of time to achieve stabilized
occupancy of the existing property and make all necessary improvements
for marketability;
3. Analysis of projected escalation recovery income based upon an
analysis of the property's history as well as the experiences of
reasonably similar properties;
4. Derivation of the most probable net operating income and pre-tax cash
flow (net income less reserves, tenant improvements, leasing
commissions and any extraordinary expenses to be generated by the
property) by subtracting all property expenses from the effective
gross income; and
5. Estimation of a reversionary sale price based upon capitalization of
the net operating income (before reserves, tenant improvements and
leasing commissions or other capital items) at the end of the
projection period.
Following is a detailed discussion of the components which form the basis
of this analysis.
The total potential gross revenues generated by the subject property are
composed of a number of distinct elements: minimum rent determined by lease
agreement; additional overage rent based upon a percentage of retail sales;
reimbursement of certain expenses incurred in the ownership and operation of the
real estate; and other miscellaneous revenues.
The minimum base rent represents a legal contract establishing a return
to investors in the real estate, while the passing of certain expenses onto
tenants serves to maintain this return in an era of continually rising costs of
operation. Additional rent based upon a percentage of retail sales experienced
at the subject property serves to preserve the purchasing power of the residual
income to an equity investor over time. Finally, miscellaneous income adds an
additional source of revenue in the complete operation of the subject property.
First year forecasted revenues may be allocated to the following components:
Revenue Summary
Initial Year of Investment - Fiscal Year 1997
Revenue Component Amount Unit Rate* Income Ratio
--------------------------------------------------------------------------------
Minimum Rent $ 9,125,386 $ 27.92 53.4%
--------------------------------------------------------------------------------
Overage Rent $ 113,699 $ 0.35 0.7%
--------------------------------------------------------------------------------
Expense Recoveries $ 7,541,690 $ 23.08 44.1%
--------------------------------------------------------------------------------
Miscellaneous Income $ 303,750 $ 0.93 1.8%
--------------------------------------------------------------------------------
Total $17,084,525 $ 52.28 100.0%
================================================================================
* Reflects total owned GLA of 326,813 SF
Minimum Rental Income
Minimum rent produced by the subject property is derived from that paid
by the various tenant types. The projection utilized in this analysis is based
upon the actual rent roll and our projected leasing schedule in place as of the
date of appraisal, together with our assumptions as to the absorption of the
vacant space, market rent growth, and renewal/turnover probability. We have also
made specific assumptions regarding deals that are in progress and have a strong
likelihood of coming to fruition. In this regard, we have worked with management
and leasing personnel to analyze each pending deal on a case by case basis. We
have incorporated all executed leases in our analysis. For those pending leases
that are substantially along in the negotiating process and are believed to have
a reasonable likelihood of being completed, we have reflected those terms in our
cash flow. These transactions represent a reasonable and prudent assumption from
an investor's standpoint.
The rental income which an asset such as the subject property will
generate for an investor is analyzed as to its quality, quantity and durability.
The quality and probable duration of income will affect the amount of risk which
an informed investor may expect over the property's useful life. Segregation of
the income stream along these lines allows us to control the variables related
to the center's forecasted performance with greater accuracy. Each tenant type
lends itself to a specific weighting of these variables as the risk associated
with each varies.
The minimum rents forecasted at the subject property are essentially
derived from various tenant categories, namely mall tenant revenues consisting
of all in-line mall shops and food court tenants. In our investigation and
analysis of the marketplace, we have surveyed, and ascertained where possible,
rent levels being commanded by competing centers. However, it should be
recognized that large retail shopping centers are generally considered to be
separate entities by virtue of age and design, accessibility, visibility, tenant
mix, and the size and purchasing power of its trade area. Consequently, the best
measure of minimum rental income is its actual rent roll leasing schedule.
As such, our a analysis of recently negotiated leases for new and
relocation tenants at the subject provides important insight into perceived
market rent levels for the mall. Insomuch as a tenant's ability to pay rent is
based upon expected sales achievement, the level of negotiated rents is directly
related to the individual tenant's perception of their expected performance at
the mall. This is particularly true for the subject where sales levels have
fallen over the past year.
Mall Shop Tenants
Rent from all interior mall tenants comprise the majority of minimum
rent. Aggregate rent from these tenants is forecasted to be $9,055,386, or
$27.71 per square foot. Minimum rent may be allocated to the following
components:
================================================================================
Minimum Rent Allocation
Interior Mall Shops
================================================================================
FY 1997 Revenue Applicable GLA* Unit Rate (SF)
================================================================================
Mall Shops $8,002,308 315,688 SF $ 25.35
--------------------------------------------------------------------------------
Food Court $ 705,807 9,693 SF $ 72.82
--------------------------------------------------------------------------------
Kiosks $ 347,271 1,432 SF $242.51
--------------------------------------------------------------------------------
Total $9,005,386 326,813 SF $ 27.71
================================================================================
* Represents leasable area as opposed to actual leased or occupied area;
exclusive of anchor space.
In-Line Shops
Our analysis of market rent levels for in-line shops has resolved itself
to a variety of influencing factors. Although it is typical that larger tenant
spaces are leased at lower per square foot rates and lower percentages, the type
of tenant as well as the variable of location within the mall can often distort
this size/rate relationship.
The following chart presents an analysis of in-line shop rents based upon
existing leases on an annualized basis for 1996:
Income Approach
================================================================================
================================================================================
1996 Leases In-Place*
================================================================================
Size Category Annualized Rent Applicable GLA Rent/SF
================================================================================
< 750 $ 424,988 6,981 SF $60.88
--------------------------------------------------------------------------------
751 - 1,200 $ 745,680 15,705 SF $47.48
--------------------------------------------------------------------------------
1,201 - 2,000 $ 1,212,153 32,273 SF $37.56
--------------------------------------------------------------------------------
2,001 - 3,500 $ 1,828,887 57,673 SF $31.71
--------------------------------------------------------------------------------
3,501 - 5,000 $ 1,542,446 54,395 SF $28.36
--------------------------------------------------------------------------------
5,001 - 15,000 $ 1,605,324 50,569 SF $31.75
--------------------------------------------------------------------------------
< 15,000 $ 261,000 26,100 SF $10.00
--------------------------------------------------------------------------------
Total $ 7,620,478 243,696 SF $31.27
--------------------------------------------------------------------------------
Total (Excl. > 15,000) $ 7,359,478 217,596 SF $33.82
* Includes existing leases for calendar year 1996. Partial year tenants
have been annualized to reflect the full 12 months
As can be seen, lease rates generally have an inverse relationship with
suite size and show an overall average rent of $31.27 per square foot. Excluding
Tenants Over 15,000 square feet (new Bunnie's lease), the average attained rent
is calculated to be $33.82.
Recent Leasing Activity (By Size Category)
Since existing rents can be skewed by older leases within the mall, an
analysis of recent leasing activity can provide a better understanding of
current rental rates. The chart on the Facing Page presents an overview of
recent in-line shop leasing for the subject property. As shown, 32 leases
(excluding Tenants > 15,000 SF) reflect an overall average rent of $35.35 per
square foot. The highest rent is attained from Group 1 (Tenants < 750 SF) with
an average of $64.30 per square foot. The averages generally decline by size
category to $33.31 per square foot for Group 6 (Tenants 5,001 - 10,000 SF).
Group 1 (Tenants < 750 SF) - This size category includes four leases
which show an average rental rate of $64.30 per square foot. The leases
range from $60.00 to $70.47, with Auntie Anne's having the highest
attained initial rent.
Group 2 (Tenants 751-1,200 SF) - Six leases have been included for this
grouping, ranging from $30.21 to $70.00 per square foot. The overall
weighted average is $48.67 per foot. The highest rent has been obtained
from Major Jewelers who has, or is expected to have, above average sales.
Nails & More has the lowest rental rate, but leased a difficult space
adjacent to the parking garage entrance with limited visibility.
Group 3 (Tenants 1,201-2,000 SF) - This group has a total of five leases
which range between $30.00 and $82.70 per square foot with an average
rent of $43.99. Candie's is the most recent lease in this category. Their
rent starts at $30.00 per square foot, increasing to $48.00 by the end of
the lease term, with no Tls given.
Group 4 (Tenants 2,001-3,500 SF) - Seven leases in the category range
from $20.00 (Radio Shack) to $56.87 (Hair Design). The weighted average
for Group 4 is calculated to be $37.46 per square foot. Two of the most
recent leases show rates between $32.00 to $38.00 per square foot.
Group 5 (Tenants 3,501-5,000 SF) - This category includes six leases
which reflect an overall average rent of $26.81 per square foot. The
highest rents ($32.00) have been attained from Limited Too and American
Eagle, each of whom signed leases at the subject in the face of The
Westchester opening. Child Place is the most recent lease at $25.00 per
square foot.
Group 6 (Tenants 5,001-15,000 SF) - A total of four leases have been
included in this grouping, including two older leases to Express & Bath
and Victoria's Secret. Leases range from $32.00 to $35.00 per square
foot, with a weighted average of $33.31 for the category.
Group 7 (Tenants > 15,000 SF) - This category is represented by only one
lease. Bunnie's, a children's store, will be leasing the former Filene's
Basement space beginning August 1996 on a gross basis of $10.00 per foot.
Filene's previously occupied the space at $12.00 per square foot, net, on
a lease which began in November 1992. Herman's formerly paid $7.75 per
square foot for a 15,451 square foot space in this category. The lease,
however, dated back to 1980.
Market Comparisons - Occupancy Cost Ratios
In further support of developing a forecast for market rent levels, we
have undertaken a comparison of minimum rent to projected sales and total
occupancy costs to sales ratios. Generally, our research and experience with
other regional malls shows that the ratio of minimum rent to sales falls within
the 7.0 to 10.0 percent range in the initial year of the lease, with 7.5 percent
to 8.5 percent being most typical. By adding additional costs to the tenant,
such as real estate tax and common area maintenance recoveries, a total
occupancy cost may be derived. Expense recoveries and other tenant charges can
add up to 100 percent of minimum rent and comprise the balance of total tenant
costs.
The typical range for total occupancy cost-to-sales ratios falls between
11.0 and 15.0 percent. As a general rule, where sales exceed $250 to $275 per
square foot, 14.0 to 15.0 percent would be a reasonable cost of occupancy.
Experience and research show that most tenants will resist total occupancy costs
that exceed 15.0 to 18.0 percent of sales. However, ratios of upwards to 20.0
percent are not uncommon. Obviously, this comparison will vary from tenant to
tenant and property to property.
In higher end markets where tenants are able to generate sales above
industry averages, tenants can generally pay rents which fall toward the upper
end of the ratio range. Moreover, if tenants perceive that their sales will be
increasing at real rates that are in excess of inflation, they will typically be
more inclined to pay higher initial base rents. Obviously, the opposite would be
true for poorer performing centers in that tenants would be squeezed by the thin
margins related to below average sales. With fixed expenses accounting for a
significant portion of the tenants contractual obligation, there would be little
room left for base rent.
In this context, we have provided an occupancy cost analysis for several
regional malls with which we have had direct insight over the past year. This
information is provided on the Following Page. On average, these ratio
comparisons provide a realistic check against projected market rental rate
assumptions.
From this analysis we see that the ratio of base rent to sales ranges
from 7.1 to 10.6 percent, while the total occupancy cost ratios vary from 9.6 to
17.3 percent when all recoverable expenses are included. The surveyed mean for
the malls and industry standards analyzed is 8.3 percent and 13.4 percent,
respectively. Some of the higher ratios are found in older malls situated in
urban areas that have higher operating structures due to less efficient layout
and designs, older physical plants, and higher security costs, which in some
malls can add upwards of $2.00 per square foot to common area maintenance.
These relative measures can be compared with two well known publications,
The Score (1996) by the International Council of Shopping Centers and Dollars &
Cents of Shopping Centers (1995) by the Urban Land Institute. The most recent
publications indicate base rent-to-sales ratios of approximately 7.0 to 8.0
percent and total occupancy cost ratios of 10.1 and 12.3 percent, respectively.
In general, while the rental ranges and ratio of base rent to sales vary
substantially from mall to mall and tenant to tenant, they do provide general
support for the rental ranges and ratio which is projected for the subject
property.
Conclusion - Market Rent Estimate for In-Line Shops
Previously, in the Retail Market Analysis section of the appraisal, we
discussed the subject's sales potential. Comparable mall sales in calendar year
1995 reportedly dropped to $344 per square foot. In light of the mall's
performance and recent stabilizing of sales through the first three months of
1996, we are forecasting sales to be $344 per square foot in 1996. Based upon a
ratio of, say, 8.5 to 9.0 percent, an average rent for the subject between
$29.25 and $31.00 is indicated. We also recognize that the subject has the
potential to recoup sales as the general retail environment improves.
The following chart presents a comparison of existing leases with recent
leasing and our projected market rental rate for each property.
In-Line Rent Comparisons and Conclusions - Retail Component
After considering all of the above, we have developed a weighted average
rental rate of approximately $32.64 per square foot based upon a relative
weighting of tenant space by size (excluding Tenants > 10,000 SF). The average
rent is a weighted average rent for all in-line mall tenants only. This average
market rent has been allocated to space as shown on the Facing Page.
Occupancy Cost - Test of Reasonableness
Our weighted average rent can next be tested against total occupancy
costs in the mall based upon the standard recoveries for new mall tenants. Our
total occupancy cost analyses can be found on the following chart.
Total Occupancy Cost Analysis-1996
Tenant Cost Estimated Expenses/SF
================================================================================
Economic Base Rent $ 32.64
(Weighted Average)
--------------------------------------------------------------------------------
Occupancy Costs (A)
Common Area Maintenance (1) $ 14.30
--------------------------------------------------------------------------------
Real Estate Taxes (2) $ 9.78
--------------------------------------------------------------------------------
Other Costs (3) $ 1.76
--------------------------------------------------------------------------------
Total Tenant Costs $ 58.48
--------------------------------------------------------------------------------
Projected Average Sales (1996) $344.00
--------------------------------------------------------------------------------
Rent to Sales Ratio 9.49%
--------------------------------------------------------------------------------
Cost of Occupancy Ratio 17.00%
================================================================================
(A) Costs that are occupancy sensitive will decrease for new tenants on a
unit rate basis as lease-up occurs and the property stabilizes. Average
occupied area for mall tenant reimbursement varies relative to each major
recovery type.
(1) CAM expense is based on gross leasable occupied area (GLOA). Generally,
the standard lease clause provides for an administrative fee to be passed
through with CAM less certain exclusions, including anchor contributions.
The standard denominator is based on leased or occupied area. A complete
discussion of the standard recovery formula is presented later in this
report.
(2) Tax estimate is based upon gross leasable occupied area (GLOA) which is
the recovery basis for taxes.
(3) Other recoverable costs include tenant contributions for utilities: HVAC
($1.66/SF); Water/Sewer ($.10/SF).
Total costs, on average, are shown to be 17.0 percent of projected
average 1996 retail sales which we feel is high but relatively typical of urban
located properties. It is noted that recoverable expenses are occupancy
sensative and, as occupancy increases, the pass-through obligation to tenants
will ultimately decline, reducing the overall occupancy cost burden to tenants.
Nonetheless, the high occupancy costs tend to limit the potential for rent
growth in the near-term until both occupancy increases and sales begin to edge
back to previously experienced levels within the property.
The food court contains thirteen spaces totaling 9,693 square feet (an
average of 746 square feet per unit). Acropolis and JB's Texas Grill are the two
most recent leases in the food court with rents of $82.85 and $91.10 per square
foot, respectively, or $43,000 per unit. The overall average rent is calculated
to be $74.58 per square foot for the food court. We are advised that Sbarro has
reached an agreement to buy out Bizzarre Pizza's lease and operate a Sbarro's
and Umberto's in the food court area. Sbarro was forced to close at lease
expiration earlier this year because of a non-competing clause in Bizzarre
Pizza's lease. We have ascribed a market rental rate of about $80.00 per square
foot for food court tenants. Food court tenants pay additional costs for food
court expenses based upon a pro-rata share of the expense.
Kiosk Tenants
We have also segregated permanent kiosk rental rates within our analysis
since they typically pay higher rents than in-line and food court tenants. The
leasing plan provides for nine permanent kiosks at the subject, including Dime
Savings ATM. Combined, these units total 1,432 square feet (179 square feet per
kiosk). The overall average rent attained from existing kiosks is $217.00 per
square foot ($38,900 annually), excluding the ATM. Vitamin Works is the most
recent kiosk lease, occupying 163 square feet at an initial rent of $40,000 per
year, or $245.40 per square foot. Quintex has renewed their lease for one year
at their current rent of $37,000 ($226.99/SF). Another recent lease is Jewel Hut
who leases 156 square feet at a rent of $40,000 per year, or $256.41 per square
foot. We have ascribed a market rental rate of $40,000 for kiosks in our
analysis.
Concessions
Free rent is an inducement offered by developers to entice a tenant to
locate in their project over a competitors. This marketing tool has become
popular in the leasing of office space, particularly in view of the
over-building which has occurred in many markets. As a rule, most major retail
developers have been successful in negotiating leases without including free
rent. Our experience with regional malls shows that free rent is generally
limited to new projects in marginal locations without strong anchor tenants that
are having trouble leasing, as well as older centers that are losing tenants to
new malls in their trade area. Management reports that free rent has been a
relative non-issue with new retail tenants. A review of the most recent leasing
confirms this observation. It has generally been limited to one or two months to
prepare a suite for occupancy when it has been given.
Accordingly, we do not believe that it will be necessary to offer free
rent to retail tenants at the subject. It is noted that, while we have not
ascribed any free rent to the retail tenants, we have, however, made rather
liberal allowances for tenant workletters which acts as a form of inducement to
convince a tenant to locate at the subject. These allowances are liberal to the
extent that ownership has been relatively successful in leasing space "as is" to
tenants. In addition, it is ownership's policy upon lease renewal to require
tenants to remodel space at their own cost. We have made allowances of $8.00 per
square foot to new tenants (currently vacant) and for future turnover space. We
have also ascribed a rate of $1.00 per square foot to rollover space. This
assumption offers further support for the attainment of the rent levels
previously cited.
Finally, our analysis concludes that the current vacant retail space will
be absorbed over a three year period through July 1999. We have identified
60,892+/- square feet of vacant space, net of newly executed leases and pending
deals which have good likelihood of coming to fruition. This is equivalent to
18.6 percent of mall shop GLA. The chart on the Facing Page details our
projected absorption schedule. The absorption of the in-line space over a three
year period is equal to 5,074+/- square feet per quarter. We have assumed that
the space will all lease at 1996 base date market rent estimates as previously
referenced. Effectively, this assumes no rent inflation for absorption space.
Based on this lease-up assumption, the following chart tracks retail
occupancy through July 1, 1999, the first full year of fully stabilized
occupancy.
The final category of minimum rent involves anchor department stores. As
noted, Stern's is not owned and required only to pay contributions for common
area maintenance. JCPenney is on ground lease terms based upon an annual payment
of $70,000 per year. JCPenney also pays a contribution for CAM.
Rent Growth Rates
Market rent will, over the life of a prescribed holding period, quite
obviously follow an erratic pattern. A review of investor's expectations
regarding income growth shows that projections generally range between 3.0 and
4.0 percent for retail centers. Cushman & Wakefield's Winter 1995 survey of
pension funds, REITs, bank and insurance companies, and institutional advisors
reveals that current income forecasts are utilizing average annual growth rates
between zero and 5.0 percent. The low and high mean is shown to be 2.8 and 3.9
percent, respectively. The Peter F. Korpacz Investor Survey (First Quarter 1996)
shows slightly more conservative results with average annual rent growth of 2.96
percent.
It is not unusual in the current environment to see investors structuring
no growth or even negative growth in the short term. The White Plains area in
general has been negatively impacted by the last recession and difficult retail
environment. Sales at many retail establishments have been down this past year.
The subject has also been impacted by the global problems of many of its
retailers. The tenants' ability to pay rent is closely tied to its increases in
sales. However, rent growth can be more impacted by competition and management's
desire to attract and keep certain tenants that increase the mall's synergy and
appeal. As such, we have been conservative in our rent growth forecast.
* Indicated growth rate over the previous year's rent
Releasing Assumption
The typical lease term for new in-line retail leases in centers such as
the subject generally ranges from five to twelve years. Market practice dictates
that it is not uncommon to get rent bumps throughout the lease terms either in
the form of fixed dollar amounts or a percentage increase based upon changes in
some index, usually the Consumer Price Index (CPI). Often the CPI clause will
carry a minimum annual increase and be capped at a higher maximum amount.
For new leases in the regional malls, ten year terms are most typical.
Essentially, the developer will deliver a "vanilla" suite with mechanical
services roughed in and minimal interior finish. This allows the retailer to
finish the suite in accordance with their individual specifications. Because of
the up-front costs incurred by the tenants, they require a ten year lease term
to adequately amortize these costs. In certain instances, the developer will
offer some contribution to the cost of finishing out a space over and above a
standard allowance.
Upon lease expiration, it is our best estimate that there is a 70.0
percent probability that an existing tenant will renew their lease while the
remaining 30.0 percent will vacate their space at this time. While the 30.0
percent may be slightly high by some historic measures, we think that it is a
prudent assumption in light of what has happened over the past year. An
exception to this assumption exists with respect to existing tenants who, at the
expiration of their lease, have sales that are substantially below the mail
average and have no chance to ever achieve percentage rent. In these instances,
it is our assumption that there is a 100.0 percent probability that the tenant
will vacate the property. This is consistent with ownership's philosophy of
carefully and selectively weeding out under-performers.
As stated above, it is not uncommon to get increases in base rent over
the life of a lease. Our global market assumptions for non-anchor tenants may be
summarized as shown on the following page.
================================================================================
Renewal Assumptions
================================================================================
Lease Free Tenant Lease
Tenant Type Term Rent Steps Rent Alterations Commissions
================================================================================
Mail Shops 10 yrs. 10% in 6th year No Yes Yes
--------------------------------------------------------------------------------
Food Court 10 yrs. 10% in 6th year No Yes Yes
--------------------------------------------------------------------------------
Kiosks 5 yrs. 10% in 3rd year No No Yes
================================================================================
Upon lease rollover/turnover, space is forecasted to be released at the
higher of the last effective rent (defined as minimum rent plus overage rent if
any) and the ascribed market rent as detailed previously increasing by our
market rent growth rate assumption.
In the initial full year of the investment (FY 1997), it is projected
that the subject property will produce approximately $9,125,386 in minimum
rental income. This estimate of base rental income is equivalent to $27.92 per
square foot of total owned GLA. Alternatively, minimum rental income accounts
for 53.4 percent of all potential gross revenues. Further analysis shows that
over the holding period (FY 1997-2006), minimum rent advances at an average
compound annual rate of 3.4 percent. This increase is a synthesis of the mall's
lease-up, fixed rental increases, as well as market rents from rollover or
turnover of space. On a more stabilized basis (1999-2006), minimum rent
increases at an annual rent of 1.7 percent per year.
Overage Rent
In addition to minimum base rent, many tenants at the subject property
have contracted to pay a percentage of their gross annual sales over a
pre-established base amount as overage rent. Many leases have a natural
breakpoint although a number have stipulated breakpoints. The average overage
percentage for small space retail tenants is in a range of 5.0 to 6.0 percent,
with food court and kiosk tenants generally at 8.0 to 10.0 percent. Anchor
tenants typically have the lowest percentage clauses with ranges of 1.5 to 3.0
percent being common.
Traditionally, it takes a number of years for a retail center to mature
and gain acceptance before generating any sizable percentage income. As a center
matures, the level of overage rents typically becomes a larger percentage of
total revenue. It is a major ingredient protecting the equity investor against
inflation.
In the Retail Market Analysis section of this report, we discussed the
historic and forecasted sales levels for the mall tenants. Because the mall has
seen some decline in sales over the past year, it is difficult to predict with
accuracy what sales will be on an individual tenant level. As such, we have
employed the following methodology:
o For existing tenants who report sales, we have forecasted that
sales will continue at our projected sales growth rate as
discussed herein.
o For tenants who do not report sales or who do not have percentage
clauses, we have assumed that a non-reporting tenant will always
occupy that particular space.
o For new tenants, we have projected sales at the forecasted average
for the center at the start of the lease. In 1996 this would be
approximately $344 per square foot.
Thus, in the initial full year of the investment holding period, overage
revenues are estimated to amount to $113,699 (net of any recaptures) equivalent
to $0.35 per square foot of owned GLA and 0.67 percent of potential gross
revenues. On balance, our forecasts for overage rent are deemed to be reasonable
and never exceed 0.67 percent of gross revenues during the holding period.
In the Retail Market Analysis section of this report, we discussed that
retail specialty store sales at the subject property have declined over the past
year.
Retail sales in White Plains have been flat-declining in recent years,
while sales in Westchester County have been increasing at a compound annual rate
of 3.0 percent per annum since 1985, according to Sales and Marketing
Management. According to both the Cushman & Wakefield and Korpacz surveys, major
investors are looking at a range of growth rates of 0 percent initially to a
high of 5 percent in their computational parameters. Most typically, growth
rates of 3 percent to 4 percent are seen in these surveys.
Nationally, total retail sales have been increasing at a compound annual
rate of 6.2 percent since 1980 and 4.9 percent per annum since 1990. Between
1990 and 1994, GAFO sales have grown at a compound annual rate of 5.83 percent
per year. Through 2000, total retail sales are forecasted to increase by 4.12
percent per year nationally, while GAFO sales are projected to grow by 5.04
percent annually.
After considering all of the above, combined with the potential for
increased competition with The Westchester, we have forecasted sales growth
based upon the following schedule.
In all, we believe our sales growth forecast is reasonable. For new
tenants, sales are established based upon the mall's average sales level.
Generally, for existing tenants, we have assumed that sales continue subsequent
to lease expiration at their previous level unless they are under-performers
that prompt a 100.0 percent turnover probability; then sales are reset to the
corresponding mall overage.
In most instances, no overage rent is generated from new tenants due to
our forecasted rent steps which serve to change the breakpoint.
Expense Reimbursement/Miscellaneous Income
By lease agreement, tenants are required to reimburse the lessor for
certain operating expenses. Included among these operating items are real estate
taxes, common area maintenance (CAM), utilities (HVAC/Water & Sewer), and a
common seating charge for food court tenants. Miscellaneous income is
essentially derived from specialty leasing for temporary tenants, Christmas
kiosks and other charges. In the first full year of the investment, it is
projected that the subject property will generate approximately $7,541,690 in
reimbursements for these operating expenses, $232,875 for temporary leasing, and
$70,875 in other miscellaneous income.
Under the standard lease, mall tenants pay their pro-rata share of the
balance of the CAM expense after anchor contributions are deducted and
management fees are added. Provided below is a summary of the standard clause
that exists for a new tenant at the mall.
================================================================================
Common Area Maintenance Recovery Calculation
================================================================================
CAM Expense Actual hard cost for year, inclusive of
interest and depreciation
--------------------------------------------------------------------------------
Add Administrative
Fee
--------------------------------------------------------------------------------
Less Contributions from Department Stores
& Majors > 15,000 SF
--------------------------------------------------------------------------------
Equals: Net pro-ratable CAM billable to mall tenants on the basis of
gross leasable occupied area (GLO).
================================================================================
Department Store/Major Tenant Obligations
Department stores at the subject property are obligated to pay
contributions for common area maintenance expenses. JCPenney pays $0.15 per
square foot (1980-90), $0.25 per square foot (1991-2000), and $0.35 per square
foot for the remainder of the lease term. Stern's pays a flat contribution of
$15,000 per year towards CAM. Both Herman's and Filene's Basement formerly paid
CAM contributions which were typically deducted before mall shop pass-throughs.
Bunnie's (former Filene's space) will not pay any CAM contribution.
Real Estate Taxes
Mall tenants pay real estate tax recoveries based upon a pro-rata share
of the expense. The pass-through is based upon pro-rata share of gross leasable
occupied area (GLOA). The tax recovery has a similar structure wherein major
tenant contributions are deducted before mall shop tenants are billed.
Other Recoveries/Income
Other recoveries and income consist of common seating charges for food
court tenants, HVAC and water/sewer charges, temporary leasing, and
miscellaneous income. Common seating charges are assessed to food court tenants
for operation of the food court area. This charge is in addition to the regular
mall common area maintenance and is billed based upon occupied area of the food
court.
Individual tenant electric usage is billed directly by Con Edison.
However, other utilities are recoverable from tenants. Included here are HVAC
charges, electricity for operation of the central plant, gas/fuel charges, and
water/sewer expenses. Individual usage for HVAC is assessed by usage surveys.
The current charge for operation of the central plant is budgeted at $1.66 per
square foot. Usage varies by tenant but averages about $5.01 per square foot.
Water and sewer is also billed to tenants and currently averages about $0.10 per
square foot.
The final revenue categories consist of temporary leasing of in-line
space, revenue from temporary kiosks at Christmas time, and miscellaneous
income. Temporary leasing is related to temporary tenants that occupy vacant
in-line space. Other sources of miscellaneous revenues include temporary
seasonal kiosk rentals, forfeited security deposits, phone revenues, and
interest income. Our forecast for these additional revenues is net of a
provision for vacancy and credit loss. Overall, it is our assumption that these
other revenues will increase by 3.0 percent per annum over the holding period.
Allowance for Vacancy and Credit Loss
The investor of an income producing property is primarily interested in
the cash revenues that an income-producing property is likely to produce
annually over a specified period of time rather than what it could produce if it
were always 100.0 percent occupied with all tenants paying rent in full and on
time. It is normally a prudent practice to expect some income loss, either in
the form of actual vacancy or in the form of turnover, non-payment or slow
payment by tenants. We have reflected a 4.5 percent stabilized contingency for
both stabilized and unforeseen vacancy and credit loss. Please note that this
vacancy and credit loss provision is applied to all mall tenants equally. We
have phased in the 4.5 percent factor as the mall leases up.
In this analysis we have also forecasted that there is a 70.0 percent
probability that an existing tenant will renew their lease. Upon turnover, we
have forecasted that rent loss equivalent to six months would be incurred to
account for the time and/or costs associated with bringing space back on line.
Thus, minimum rent as well as overage rent and certain other income has been
reduced by this forecasted probability.
We have calculated the effect of the total provision of vacancy and
credit loss on the in-line shops. Through the 10 years of this cash flow
analysis, the total allowance for vacancy and credit loss, including provisions
for downtime, ranges from a low of 5.11 percent (2000) of total potential gross
revenues to a high of 24.76 percent (1996). On average, the total allowance for
vacancy and credit loss over the 10 year projection period averages 9.30
percent of these revenues.
While 9.30 percent average vacancy over the projection period might be
considered high by investment surveys, we believe it to be a prudent assumption
in light of the risks associated with the subject property and its new
competition from The Westchester.
As discussed, if an existing mall tenant is a consistent under-performer
with sales substantially below the mail average, then the turnover probability
applied is 100.0 percent. This assumption, while adding a degree of conservatism
to our analysis, reflects the reality that management will continually strive to
replace under performers. On balance, the aggregate deductions of all gross
revenues reflected in this analysis are based upon overall long-term market
occupancy levels and are considered what a prudent investor would allow for
credit loss. The remaining sum is effective gross income which an informed
investor may anticipate the subject property to produce. We believe this is
reasonable in light of overall vacancy in this subject's market area as well as
the current leasing structure at the subject.
Effective Gross Income
In the initial full year of the investment, FY 1997, effective gross
revenues ("Total Income" line on cash flow) are forecasted to amount to
approximately $16,883,665, equivalent to $51.66 per square foot of total owned
GLA.
Effective Gross Revenue Summary - Retail Component
Initial Year of Investment - Fiscal Year 1997
Aggregate Sum Unit Rate Income Ratio
================================================================================
Potential Gross Income $17,084,525 $52.28 100.0%
--------------------------------------------------------------------------------
Less: Vacancy and Credit Loss ($ 200,860) ($ 0.61) 1.2%
Effective Gross Income $16,883,665 $51.66 98.8%
Expenses
Total expenses incurred in the production of income from the subject
property are divided into two categories: reimbursable and non-reimbursable
items. The major expenses which are reimbursable include real estate taxes,
common area maintenance, water and sewer, central plant costs, HVAC, and common
seating charges. The non-reimbursable expenses associated with the subject
property include certain general and administrative expenses, ownership's
contribution to the merchants association/marketing fund, management charges,
and miscellaneous expenses. Other expenses include a reserve for the replacement
of short-lived capital components, alteration costs associated with bringing
space up to occupancy standards, leasing commissions, and a provision for
capital expenditures.
The various expenses incurred in the operation of the subject property
have been estimated from information provided by a number of sources. We have
reviewed the subject's component operating history for prior years as well as
the 1996 Budget. This information is provided in the Addenda. We have compared
this information to published data which are available, as well as comparable
expense information. Finally, this information has been tempered by our
experience with other regional shopping centers.
We have analyzed each item of expense individually and attempted to
project what the typical investor in a property like the subject would consider
reasonable, based upon informed opinion, judgment and experience. The following
is a detailed summary and discussion of the reimbursable operating expenses
incurred in the operation of the subject property during the initial year of the
investment holding period. These expense estimates are forecasted to grow by our
expense growth rate of 3.5 percent per year.
Common Area Maintenance - This expense category includes the annual cost
of miscellaneous building maintenance contracts, recoverable labor and
benefits, security, insurance, landscaping, snow removal, cleaning and
janitorial, exterminating, supplies, trash removal, exterior lighting,
common area energy, gas and fuel, equipment rental, interest and
depreciation, and other miscellaneous charges. In addition, ownership can
pass-through and administrative fee along with the billable expense. As
discussed, the standard lease agreement allows management to pass along
the CAM expense to tenants on the basis of gross leasable occupied area.
The following chart presents an itemized budget for CAM expenses in 1996
as well as the 1995 actual expense:
* Excludes exterior tenants and tenants > 15,000 SF
As can be seen, a total CAM cost of $3,024,360 is budgeted for 1996. This
reflects a CAM expense of about $9.25 per square foot of mall shop area.
Overall, we believe that CAM expenses at the subject are reasonable. Our
CAM expense advances to $3,069,115 in FY 1997.
Real Estate Taxes - The projected taxes to be incurred in 1996 are equal
to $2,672,000. As discussed, the standard recovery for this expense is
charged on the basis of gross leasable occupied area of non-anchor mall
tenant GLA. The tax expense increases to $2,738,800 for fiscal year 1997.
Food Court CAM (Common Seating) - The cost of maintaining the food court
is estimated at $344,958 in the initial year of the holding period.
Included here are such items as payroll for administration, maintenance
and security, supplies, and other miscellaneous expenses. As articulated,
food court tenants are assessed a separate charge for this expense.
Central Plant/Water and Sewer - This expense includes the repair and
maintenance of central plant facilities, electricity, and water/sewer
expenses at the subject. In 1995, these expenses totaled $1,592,561. For
1996, a budgeted expense of $1,519,146 is indicated. Our FY 1997 expense
amounts to $1,532,667.
Non-Reimbursable Expenses
Total non-reimbursable expenses at the subject property are projected
from accepted practices and industry standards. Again, we have analyzed each
item of expenditure in an attempt to project what the typical investor in a
property similar to the subject would consider reasonable, based upon actual
operations, informed opinion, and experience. The following is a detailed
summary and discussion of non-reimbursable expenses incurred in the operation of
the subject property for the initial year. Expenses are forecasted to increase
3.5 percent per annum through the remainder of the holding period.
General and Administrative - Expenses related to the administrative
aspects of the mall include costs particular to operation of the mall,
including salaries, travel and entertainment, and dues and subscriptions.
A provision is also made for professional services (legal and accounting
fees and other professional consulting services). In FY 1997, we reflect
general and administrative expenses of $263,792, or $0.81 per square
foot.
Marketing - These costs include expenses related to the temporary tenant
program, including payroll for the promotional and leasing staff. It also
contains ownership's contribution to the merchant association which is
net of tenant contributions. In order to assist in the lease-up of vacant
suites, in the initial year marketing cost is forecasted to amount to
$81,167, or $0.25 per square foot of mall shop GLA.
Miscellaneous - This catch-all category is provided for various
miscellaneous and sundry expenses that ownership will typically incur.
Such items as unrecovered repair costs, preparation of suites for
temporary tenants, certain non-recurring expenses, expenses associated
with maintaining vacant space, and bad debts in excess of our credit loss
provision would be included here. In the initial year, these
miscellaneous items are forecasted to amount to approximately $10,000,
which increases to $10,146 in FY 1997.
Management - The annual cost of managing the subject property is
projected to be 3.0 percent of minimum and percentage rent. In the
initial year of our analysis, this amount is shown to be $277,173.
Alternatively, this amount is equivalent to approximately 1.6 percent of
effective gross income. Our estimate is reflective of a typical
management agreement with a firm in the business of providing
professional management services. This amount is considered typical for a
retail complex of this size. Our investigation into the market for this
property type indicates an overall range of fees of 3.0 to 5.0 percent.
Since we have reflected a structure where ownership separately charges
leasing commissions, we have used the mid-point of the range as providing
for compensation for these services.
Alterations - The principal component of this expense is ownership's
estimated cost to prepare a vacant suite for tenant use. At the
expiration of a lease, we have made a provision for the likely
expenditure of some monies on ownership's part for tenant improvement
allowances. In this regard, we have forecasted a cost of $8.00 per square
foot for turnover space (initial cost growing at expense growth rate)
weighted by our turnover probability of 30.0 percent. We have forecasted
a rate of $1.00 per square foot for renewal (rollover) tenants, based on
a renewal probability of 70.0 percent. The blended rate based on our
70/30 turnover probability is therefore $3.10 per square foot. These
costs are forecasted to increase at our implied expense growth rate.
Leasing Commissions - Ownership has recently been charging leasing
commissions internally. A typical structure is $3.50 per square foot for
new tenants and $1.50 per square foot for renewal tenants. These rates
are increased by $0.50 and $0.25 per square foot, respectively, every
five years. This structure implies a payout up front at the start of a
lease. The cost is weighted by our 70/30 percent renewal/turnover
probability. Thus, upon lease expiration a leasing commission charge of
$2.10 per square foot would be incurred.
Capital Repairs - Regional malls are typically remodeled every five to
ten years. The last renovation of the subject was completed in 1993. In
view of the subject's condition, we have not made an additional allowance
for capital repairs/cosmetic remodeling. However, ownership has made
provisions for certain capital items over the next two years which we
have included in our analysis. In 1996, a cost of $256,000 has been
budgeted for service corridor, food court, lighting/electrical, and
escalator improvements. For 1997, a figure of $200,000 has been budgeted
for painting and plumbing work.
Replacement Reserves - It is customary and prudent to set aside an amount
annually for the replacement of short-lived capital items such as the
roof, parking lot and certain mechanical items. The repairs and
maintenance expense category has historically included some capital items
which have been passed through to the tenants. This appears to be a
fairly common practice among most malls. However, we feel that over a
holding period some repairs or replacements will be needed that will not
be passed on to the tenants. For purposes of this report, we have
estimated an expense of approximately $0.15 per square foot of owned GLA
during the first year ($50,000), thereafter increasing by our expense
growth rate.
Expense Growth Rates
Expense growth rates are generally forecasted to be more consistent with
inflationary trends than with competitive market forces. The Winter 1995 Cushman
& Wakefield survey of regional malls found the low and high mean from each
respondent to be 3.75 percent. The First Quarter 1996 Korpacz survey reports
that the range in expense growth rates runs from 3.0 percent to 4.5 percent with
an average of 3.92 percent, down 13 basis points from one year ago. Expenses are
forecasted to grow by 3.5 percent per annum over the remainder of the holding
period, except for taxes which are projected to grow by 6.0 percent in 1997, 5.0
percent in 1998, and 4.0 percent thereafter.
Net Income/Net Cash Flow
The total expenses of the subject property, including alterations,
commissions, capital expenditures, and reserves, are annually deducted from
total income, thereby leaving a residual net operating income or net cash flow
to the investors in each year of the holding period before debt service. The
following chart presents an overview of projected net operating income and net
income at the subject property for the first full year of investment.
Operating Summary
Initial Year of Investment - Fiscal Year 1997
Aggregate Sum Unit Rate* Operating Ratio
================================================================================
Effective Gross Income $16,883,665 $51.66 100.0%
Operating Expenses $8,317,818 $25.45 49.3%
Net Operating Income $8,565,847 $26.21 50.7%
Other Expenses $778,830 $2.38 4.6%
Cash Flow $7,787,017 $23.83 46.1%
================================================================================
* Based on total owned GLA of 326,813 square feet.
After projecting the income and expense components of the subject
property, investment parameters must be set in order to forecast property
performance over the holding period. These parameters include the selection of
capitalization rates (both initial and terminal) and application of the
appropriate discount or yield rate, also referred to as the internal rate of
return (IRR).
Selection of Capitalization Rates
Overall Capitalization Rate
The overall capitalization rate bears a direct relationship between net
operating income generated by the real estate in the initial year of investment
(or initial stabilized year) and the value of the asset in the marketplace.
Overall rates are also affected by the existing leasing schedule of the
property, the strength or weakness of the local rental market, the property's
position relative to competing properties, and the risk/return characteristics
associated with competitive investments. Our selection of rates utilizes rates
selected for each property component. These rates are then weighted for each
component's contribution to net operating income.
For retail properties, the trend has been for rising capitalization
rates. We feel that much of this has to do with the quality of the product that
has been selling. Sellers of the better performing dominant Class A malls have
been unwilling to waver on their pricing. Many of the malls which have sold over
the past 18 to 24 months are found in less desirable second or third tier
locations or represent turnaround situations with properties that are posed for
expansion or remerchandising. With fewer buyers for the top performing assets,
sales have been somewhat limited.
The data above shows that, with the exception of 1989, the average cap
rate has shown a rising trend each year. Between 1988 and 1989, the average rate
declined by 11 basis points. This was partly a result of dramatically fewer
transactions in 1989 as well as the sale of Woodfield Mall at a reported cap
rate of 4.58 percent. In 1990, the average cap rate jumped 28 basis points to
6.33 percent. Among the 16 transactions we surveyed that year, there was a
marked shift of investment criteria upward, with additional basis point risk
added due to the deteriorating economic climate for commercial real estate.
Furthermore, the problems with department store anchors added to the perceived
investment risk.
Much of the buying over the past 18 to 24 months has been opportunistic
acquisitions involving properties selling near or below replacement cost. Many
of these properties have languished due to lack of management focus or
expertise, as well as a limited ability to make the necessary capital
commitments for growth. As these opportunities become harder to find, we believe
that investors will again begin to focus on the stable returns of the dominant
Class A product.
The Cushman & Wakefield's Winter 1995 survey reveals that going-in cap
rates for regional shopping centers range between 7.0 and 9.0 percent with a low
average of 7.47 and high average of 8.25 percent, respectively; a spread of 78
basis points. Generally, the change in average capitalization rates over the
Spring 1995 survey shows that the low average decreased by 3 basis points, while
the upper average increased by 15 points. Terminal, or going-out rates are now
averaging 8.17 and 8.83 percent, representing a decrease of 22 basis points and
23 basis points, from Spring 1995 averages.
The First Quarter 1996 Peter F. Korpacz survey finds that cap rates have
remained relatively stable. They recognize that there is extreme competition for
the few premier malls that are offered for sale which should exert downward
pressure on rates. However, most of the available product is B or C quality
which are not attractive to most institutional investors. The survey did,
however, note a dramatic change for the top tier investment category of 20 to 30
true "trophy" assets in that investors think it is unrealistic to assume that
cap rates could fall below 7.0 percent.
=============================================================================================
NATIONAL REGIONAL MALL MARKET
FIRST QUARTER 1996
=============================================================================================
KEY INDICATORS CURRENT LAST
Free & Clear Equity IRR QUARTER QUARTER YEAR AGO
=============================================================================================
RANGE 10.00%-14.00% 10.00%-14.00% 10.00%-14.00%
AVERAGE 11.50% 11.55% 11.59%
---------------------------------------------------------------------------------------------
CHANGE (Basis Points) - - 5 - 9
---------------------------------------------------------------------------------------------
Free & Clear Going-In Cap Rate
---------------------------------------------------------------------------------------------
RANGE 6.25%-11.00% 6.25%-11.00% 6.25%-11.00%
AVERAGE 8.11% 7.86% 7.78%
---------------------------------------------------------------------------------------------
CHANGE (Basis Points) - + 25 + 33
---------------------------------------------------------------------------------------------
Residual Cap Rate
---------------------------------------------------------------------------------------------
RANGE 7.00%-11.00% 7.00%-11.00% 7.00%-11.00%
AVERAGE 8.56% 8.45% 8.38%
---------------------------------------------------------------------------------------------
CHANGE (Basis Points) - + 11 + 18
=============================================================================================
Source: Peter Korpacz Associates, Inc. - Real Estate Investor Survey First Quarter - 1996
As can be seen from the above, the average IRR has decreased by 5 basis
points to 11.50 percent from one year ago. However, it is noted that this
measure has been relatively stable over the past three months. The quarter's
average initial free and clear equity cap rate rose 33 basis points to 8.11
percent from a year earlier, while the residual cap rate increased 18 basis
points to 8.56 percent.
Most retail properties that are considered institutional grade are
existing, seasoned centers with good inflation protection that offer stability
in income and are strongly positioned to the extent that they are formidable
barriers to new competition. Equally important are centers which offer good
upside potential after face-lifting, renovations, or expansion. With new
construction down substantially, owners have accelerated renovation and
re-merchandising programs. Little competition from over-building is likely in
most mature markets within which these centers are located. Environmental
concerns and "no-growth" mentalities in communities are now serious impediments
to new retail development.
Finally, investors have recognized that the retail landscape has been
fundamentally altered by consumer lifestyles changes, industry consolidations
and bankruptcies. This trend was strongly in evidence as the economy enters 1996
in view of the wave of retail chains whose troublesome earnings are forcing
major restructures or even liquidations. (The reader is referred to the National
Retail Overview in the Addenda of this report). Trends toward more casual dress
at work and consumers growing pre-occupation with their leisure and home lives
have created the need for refocused leasing efforts to bring those tenants to
the mall that help differentiate them from the competition. As such,
entertainment, a loosely defined concept is one of the most common directions
malls have taken. A trend toward bringing in larger specialty and category
tenants to the mall is also in evidence. The risk from an owners standpoint is
finding that mix which works the best.
Nonetheless, the cumulative effect of these changes has been a rise in
rates as investors find it necessary to adjust their risk premiums in their
underwriting.
Based upon this discussion, we are inclined to group and characterize
regional malls into the general categories following:
Cap Rate Range Category
7.0% to 7.5% Top 20 to 25+/- malls in the country.
7.5% to 8.5% Dominant Class A investment grade property, high sales
levels, relatively good health ratios, excellent
demographics (top 50 markets), and considered to present
a significant barrier to entry within its trade area.
8.5% to 10.5% Somewhat broad characterization of investment quality
properties ranging from primary MSAs to second tier
cities. Properties at the higher end of the scale are
probably somewhat vulnerable to new competition in their
market.
10.5% to 12.0% Remaining product which has limited appeal or
significant risk which will attract only a smaller,
select group of investors.
Based upon this analysis, we can develop a going-in capitalization rate
for the subject based upon its tenancy, investment appeal, quality, and inherent
risks. As discussed, the subject performs above regional norms for sales
productivity, but has been impacted by The Westchester opening and generally
poor retail environment. Although there remains uncertainty with respect to the
full impact of The Westchester, we believe that the two properties have the
capability to co-exist within the market. However, an investor in the subject
property would be cognizant of this risk and factor additional basis points into
the going-in rate to account for this risk. On balance, we have looked toward a
going-in capitalization rate between 8.75 and 9.25 percent for the subject based
upon a stabilized operating basis.
Terminal Capitalization Rate
The residual cash flows generated annually by the subject property
comprise only the first part of the return which an investor will receive. The
second component of this investment return is the pre-tax cash proceeds from the
resale of the property at the end of a projected investment holding period.
Typically, investors will structure a provision in their analyses in the form of
a rate differential over a going-in capitalization rate in projecting a future
disposition price. The view is that the improvement is then older and the future
is harder to visualize; hence a slightly higher rate is warranted for added
risks in forecasting. On average, our rate survey shows a 38 basis point
differential.
Therefore, to the range of stabilized overall capitalization rates, we
have added 25 basis points to arrive at a projected terminal capitalization rate
ranging from 9.00 to 9.50 percent. This provision is made for the risk of
lease-up and maintaining a certain level of occupancy in the center, its level
of revenue collection, the prospects of future competition, as well as the
uncertainty of maintaining the forecasted growth rates over such a holding
period. In our opinion, this range of terminal rates would be appropriate for
the subject. Thus, this range of rates is applied to the following years net
operating income before reserves, capital expenditures, leasing commissions and
alterations as it would be the first received by a new purchaser of the subject
property. Applying a rate of say 9.25 percent for disposition, a current
investor would dispose of the subject property at the end of the investment
holding period for an amount of approximately $126.6 million based on fiscal
year 2007 net income of approximately $11.71 million.
From the projected reversionary value to an investor in the subject
property, we have made a deduction to account for the various transaction costs
associated with the sale of an asset of this type. These costs consist of 5.0
percent of the total disposition price of the subject property as an allowance
for transfer taxes, professional fees, the Cuomo tax, and other miscellaneous
expenses including an allowance for alteration costs that the seller pays at
final closing. Deducting these transaction costs from the computed reversion
renders pre-tax the net proceeds of sale to be received by an investor in the
subject property at the end of the holding period.
==================================================================================
Net Proceeds at Reversion
==================================================================================
Less Costs of Sale and
Net Income FY 2007 Gross Sale Price Miscellaneous Expenses @ 5.0% Net Proceeds
==================================================================================
$11,713,920 $126,636,973 ($6,331,849) $120,305,124
==================================================================================
The discounted cash flow analysis makes several assumptions which reflect
typical investor requirements for yield on real property. These assumptions are
difficult to directly extract from any given market sale or by comparison to
other investment vehicles. Instead, investor surveys of major real estate
investment funds and trends in bond yield rates are often cited to support such
analysis.
A yield or discount rate differs from an income rate, such as
cash-on-cash (equity dividend rate), in that it takes into consideration all
equity benefits, including the equity reversion at the time of resale and annual
cash flow from the property. The internal rate of return is the single-yield
rate that is used to discount all future equity benefits (cash flow and
reversion) into the initial equity investment. Thus, a current estimate of the
subject's present value may be derived by discounting the projected income
stream and reversion year sale at the property's yield rate.
Yield rates on long term real estate investments range widely between
property types. As cited in Cushman & Wakefield's Winter 1995 survey, investors
in regional malls are currently looking at broad rates of return between 10.0
and 12.00 percent, down slightly from our last two surveys. The indicated low
and high means are 10.72 and 11.33 percent, respectively. Peter F. Korpacz
reports an average internal rate of return of 11.50 percent for the First
Quarter 1996, down 9 basis points from the year ago level.
The yield rate on a long term real estate investment can also be compared
with yield rates offered by alternative financial investments since real estate
must compete in the open market for capital. In developing an appropriate risk
rate for the subject, consideration has been given to a number of different
investment opportunities. The following is a list of rates offered by other
types of securities.
===================================================
Market Rates and Bond Yields(%) June 6, 1996
===================================================
Reserve Bank Discount Rate 5.00
---------------------------------------------------
Prime Rate (Monthly Average) 8.25
---------------------------------------------------
3-Month Treasury Bills 5.07
---------------------------------------------------
U.S. 1O-Year Notes 6.80
---------------------------------------------------
U.S. 30-Year Bonds 6.95
---------------------------------------------------
Telephone Bonds 8.08
---------------------------------------------------
Municipal Bonds 6.12
===================================================
Source: New York Times
===================================================
This compilation of yield rates from alternative investments reflects
varying degrees of risk as perceived by the market. Therefore, a riskless level
of investment might be seen in a three month treasury bill at 5.07 percent. A
more risky investment, such as telephone bonds, would currently yield a much
higher rate of 8.08 percent. The prime rate is currently 8.25 percent, while the
discount rate is 5.00 percent. Ten year treasury notes are currently yielding
around 6.80 percent, while 30-year bonds are at 6.95 percent.
Real estate investment typically requires a higher rate of return (yield)
and is much influenced by the relative health of financial markets. A retail
center investment tends to incorporate a blend of risk and credit based on the
tenant mix, the anchors that are included (or excluded) in the transaction, and
the assumptions of growth incorporated within the cash flow analysis. An
appropriate discount rate selected for a retail center thus attempts to consider
the underlying credit and security of the income stream, and includes an
appropriate premium for liquidity issues relating to the asset.
There has historically been a consistent relationship between the spread
in rates of return for real estate and the 'safe' rate available through
long-term treasuries or high-grade corporate bonds. A wider gap between return
requirements for real estate and alternative investments has been created in
recent years due to illiquidity issues, the absence of third party financing,
and the decline in property values.
Investors have suggested that the regional mall market has become
increasingly "tiered" over the past two years. The country's premier malls are
considered to have the strongest trade areas, excellent anchor alignments, and
significant barriers of entry to future competitive supply. These and other
"dominant" malls will have average mall shop sales above $300 per square foot
and be attractive investment vehicles in the current market. It is our opinion
that the subject would attract high interest from institutional investors if
offered for sale in the current marketplace. There is not an abundance of
regional mall assets of comparable quality currently available, and many
regional malls have been included within REITs, rather than offered on an
individual property basis. However, we must further temper our analysis due to
the fact that there remains some risk that the inherent assumptions employed in
our model come to full fruition.
Finally, application of these rate parameters to the subject should
entail some sensitivity to the rate at which leases will be expiring over the
projection period. Provided below is a summary of the forecasted lease
expiration schedule for the subject. A complete expiration report is included in
the Addenda.
From the above, we see that a low percentage (21.2 percent) of retail GLA
will expire by 2000. Over the total projection period, the mall will turnover
about 72.1 percent of mall shop space. Overall, consideration is given to this
in our selection of an appropriate risk rate. We would also note that much of
the risk factored into such an analysis is reflected in the assumptions employed
within the cash flow model, including rent and sales growth, turnover, reserves,
and vacancy provisions.
We have briefly discussed the investment risks associated with the
subject. On balance, it is our opinion that an investor in the subject property
would require an internal rate of return between 11.00 and 11.50 percent for
the mall.
Present Value Analysis
Analysis by the discounted cash flow method is examined over a holding
period that allows the investment to mature, the investor to recognize a return
commensurate with the risk taken, and a recapture of the original investment.
Typical holding periods usually range from 10 to 20 years and are sufficient for
the majority of institutional grade real estate such as the subject to meet the
criteria noted above. In the instance of the subject, we have analyzed the cash
flows anticipated over a ten year period commencing on June 1, 1996 for the "As
Is" analysis.
A sale or reversion is deemed to occur at the end of the 10th year (May
31, 2006), based upon capitalization of the following year's net operating
income. This is based upon the premise that a purchaser in the 10th year is
buying the following year's net income. Therefore, our analysis reflects this
situation by capitalizing the first year of the next holding period.
The present value is formulated by discounting the property cash flows at
various yield rates. The yield rate utilized to discount the projected cash flow
and eventual property reversion has been based on an analysis of anticipated
yield rates of investors dealing in similar investments. The rates reflect
acceptable expectations of yield to be achieved by investors currently in the
marketplace shown in their current investment criteria and as extracted from
comparable property sales.
Cash Flow Assumptions
Our cash flows forecasted for the property have been presented. To
reiterate, the formulation of these cash flows incorporate the following general
assumptions in our computer model:
1. The pro forma is presented on a fiscal year basis commencing on
June 1, 1996. The present value analysis is based on a 10 year
holding period. This period reflects 10 years of operations and
follows an adequate time for the property to proceed through an
orderly lease-up and continue to benefit from any remerchandising.
In this regard, we have projected that the investment will be sold
at the year ending May 31, 2006.
2. Existing lease terms and conditions remain unmodified until their
expiration. At expiration, it has been assumed that there is a
70.0 percent probability that existing retail tenants will renew
their lease. Executed and high probability pending leases have
been assumed to be signed in accordance with negotiated terms as
of the date of valuation.
3. 1996 base date market rental rates for existing tenants have been
established according to tenant size with consideration given to
location, the specific merchandise category, as well as the
tenants sales history. Lease terms throughout the total complex
vary but for new in-line mall tenants are generally 5 to 12 years.
While some have been flat, others have one or two step-ups over
the course of the term. Upon renewal, it is assumed that new
retail leases are written for an average of 10 years with a rent
step of 10.0 percent in year 6.
4. Market rents have been established for 1996. Subsequently, it is
our assumption that market rental rates for mall tenants will
increase by 2.0 percent in 1998, 3.0 percent in 1999, and 3.5
percent per year thereafter.
5. Most retail tenants have percentage rent clauses providing for the
payment of overage rent. We have relied upon average sales data as
provided by management. In our analysis, we have forecasted that
sales will grow by 2.0 percent in 1997, 3.0 percent in 1998, and
3.5 percent per year throughout the balance of the holding period.
6. Expense recoveries are based upon terms specified in the various
lease contracts. The standard lease contract for real estate taxes
and common area maintenance billings for interior mall tenants is
based upon a tenants pro rata share of leased or occupied area.
Tenants also pay for utilities, water/sewer, and HVAC charges.
7. Income lost due to vacancy and non-payment of obligations has been
based upon our turnover probability assumption as well as a global
provision for credit loss. Our stabilized global vacancy provision
is 4.5 percent.
8. Specialty leasing and miscellaneous income consists of several
categories. Specialty leasing is generated by the mall's temporary
in-line tenant program which fill in during periods of downtime
between permanent in-line tenants. Miscellaneous income is
generated by chargebacks for tenant work, forfeited security
deposits, telephones, etc. We have grown all miscellaneous
revenues by 3.0 percent per annum.
9. Operating expenses have been developed with management's budget
from which we have recast certain expense items. Expenses have
also been compared to industry standards as well as our general
experience. Operating expenses are forecasted to increase by 3.5
per year except for management which is based upon a percentage of
income. Taxes are forecasted to grow by 6.0 percent in 1997, 5.0
percent in 1998, and 4.0 percent per year thereafter. Alteration
costs are assumed to escalate at our forecasted expense inflation
rate.
10. A provision for initial capital reserves has been reflected based
upon a rate of about $0.15 per square foot of owned GLA. An
alteration charge of $8.00 per square foot has been utilized for
new mall tenants. Renewal tenants have been given an allowance of
$1.00 per square foot. Leasing commissions reflect a rate
structure of $3.50 per square foot for new leases and $1.50 per
square foot for renewal leases. A contingency provision for other
capital expenditures has been made for the mall component.
For a property such as the subject, it is our opinion that an investor
would require an all cash discount rate in the range of 11.00 to 11.50 percent.
Accordingly, we have discounted the projected future pre-tax cash flows to be
received by an equity investor in the subject property to a present value so as
to yield 11.00 to 11.50 percent at 25 basis point intervals on equity capital
over the holding period. This range of rates reflects the risks associated with
the investment. Discounting these cash flows over the range of yield and
terminal rates now being required by participants in the market for this type of
real estate places additional perspective upon our analysis. A valuation matrix
for the subject appears on the Facing Page.
Through such a sensitivity analysis, it can be seen that the present
value of the subject property varies from approximately $95.0 to $103.1 million.
Giving consideration to all of the characteristics of the subject previously
discussed, we feel that a prudent investor would require a yield which falls
near the middle of the range outlined above for this property. Accordingly, we
believe that based upon all of the assumptions inherent in our cash flow
analysis, an investor would look toward as IRR around 11.25 percent and a
terminal rate around 9.25 percent as being most representative of the subject's
value in the market.
In view of the analysis presented here, it becomes our opinion that the
discounted cash flow analysis indicates a market value of $99,000,000 for the
subject property as of May 14, 1996.
We note that the computed equity yield is not necessarily the true rate
of return on equity capital. This analysis has been performed on a pre-tax
basis. The tax benefits created by real estate investment will serve to attract
investors to a pre-tax yield which is not the full measure of the return on
capital.
Application of the Sales Comparison and Income Approaches used in the
valuation of the subject property has produced results which fall within a
reasonably acceptable range. Restated, these are:
===============================================================
"As Is" Valuation
===============================================================
Methodology Market Value Conclusion
===============================================================
Sales Comparison Approach $101,000,000 to $103,000,000
---------------------------------------------------------------
Income Approach
Discounted Cash Flow $99,000,000
Direct Capitalization N/A
===============================================================
These value indications are considered to be a narrow range given the
magnitude of the value estimates. Both approaches are well supported by data
extracted from the market. There are, however, strengths and weaknesses in each
of these two approaches which require reconciliation before a final conclusion
of value can be rendered.
Sales Comparison Approach
The Sales Comparison Approach arrived at a value indicted for the
property by analyzing historical arms-length transaction, reducing the gathered
information to common units of comparison, adjusting the sale data for
differences with the subject and interpreting the results to yield a meaningful
value conclusion. The basis of these conclusions was the cash-on-cash return
based on net income and the adjusted price per square foot of gross leasable and
net rentable area sold. An analysis of the subject on the basis of its implicit
sales multiple was also utilized.
The process of comparing historical sales data to assess what purchasers
have been paying for similar type properties is weak in estimating future
expectations. Although the unit sale price yields comparable conclusions, it is
not the primary tool by which the investor market for a property like the
subject operates. In addition, no two properties are alike with respect to
quality of construction, location, market segmentation and income profile. As
such, subjective judgment necessarily becomes a part of the comparative process.
The usefulness of this approach is that it interprets specific investor
parameters established in their analysis and ultimate purchase of a property. In
light of the above, the writers are of the opinion that this methodology is best
suited as support for the conclusions of the Income Approach. It does provide
useful market extracted rates of return such as overall rates to simulate
investor behavior in the Income Approach.
Income Approach
Discounted Cash Flow Analysis
The subject property is highly suited to analysis by the discounted cash
flow method as it will be bought and sold in investment circles. The focus on
property value in relation to anticipated income is well founded since the basis
for investment is profit in the form of return or yield on invested capital. The
subject property, as an investment vehicle, is sensitive to all changes in the
economic climate and the economic expectations of investors. The discounted cash
flow analysis may easily reflect changes in the economic climate of investor
expectations
by adjusting the variables used to qualify the model. In the case of the subject
property, the Income Approach can analyze existing leases, the probabilities of
future rollovers and turnovers and reflect the expectations of overage rents.
Essentially, the Income Approach can model many of the dynamics of a complex
property. The writers have considered the results of the discounted cash flow
analysis because of the applicability of this method in accounting for the
particular characteristics of the property, as well as being the tool used by
many purchasers.
Capitalization
Direct capitalization has its basis in capitalization theory and uses the
premise that the relationship between income and sales price may be expressed as
a rate or its reciprocal, a multiplier. This process selects rates derived from
the marketplace, in much the same fashion as the Sales Comparison Approach, and
applies this to a projected net operating income to derive a sale price. The
weakness here is the idea of using one year of cash flow as the basis for
calculating a sale price. This is simplistic in its view of expectations and may
sometimes be misleading. If the year chosen for the analysis of the sale price
contains an income stream that is over or understated, this error is compounded
by the capitalization process. For this reason, Direct Capitalization has not
been used in the "As Is" analysis because the subject property is operating
below stabilized performance.
Conclusion
We have briefly discussed the applicability of each of the methods
presented. Because of certain vulnerable characteristics in the Sales Comparison
Approach, it has been used as supporting evidence and as a final check on the
value conclusion indicated by the Income Approach methodology. The value
exhibited by the Income Approach is consistent with the leasing profile of the
property. Overall, it indicates complimentary results with the Sales Comparison
Approach, the conclusions being supportive of each method employed, and neither
range being extremely high or low in terms of the other.
As a result of our analysis, we have formed an opinion that the market
value of the leased fee and leasehold estate in the referenced property, subject
to the assumptions, limiting conditions, certifications, and definitions, as of
May 14, 1996, was:
"Appraisal" means the appraisal report and opinion of value stated therein; or
the letter opinion of value, to which these Assumptions and Limiting Conditions
are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the
Appraisal.
This appraisal is made subject to the following assumptions and limiting
conditions:
1. This is a Complete Appraisal Report which is intended to comply with the
reporting requirements set forth under Standards Rule 2-2(b) of the
Uniform Standards of Professional Appraisal Practice for a Complete
Appraisal Report.
2. No opinion is intended to be expressed and no responsibility is assumed
for the legal description or for any matters which are legal in nature or
require legal expertise or specialized knowledge beyond that of a real
estate appraiser. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens
unless otherwise stated. No survey of the Property was undertaken.
3. The information contained in the Appraisal or upon which the Appraisal is
based has been gathered from sources the Appraiser assumes to be reliable
and accurate. Some of such information may have been provided by the
owner of the Property. Neither the Appraiser nor C&W shall be responsible
for the accuracy or completeness of such information, including the
correctness of estimates, opinions, dimensions, sketches, exhibits and
factual matters.
4. The opinion of value is only as of the date stated in the Appraisal.
Changes since that date in external and market factors or in the Property
itself can significantly affect property value.
5. The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal.
Publication of the Appraisal or any portion thereof without the prior
written consent of C&W is prohibited. Except as may be otherwise stated
in the letter of engagement, the Appraisal may not be used by any person
other than the party to whom it is addressed or for purposes other than
that for which it was prepared. No part of the Appraisal shall be
conveyed to the public through advertising, or used in any sales or
promotional material without C&Ws prior written consent. Reference to the
Appraisal Institute or to the MAI designation is prohibited.
6. Except as may be otherwise stated in the letter of engagement, the
Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
7. The Appraisal assumes (a) responsible ownership and competent management
of the Property; (b) there are no hidden or unapparent conditions of the
Property, subsoil or structures that render the Property more or less
valuable (no responsibility is assumed for such conditions or for
arranging for engineering studies that may be required to discover them);
(c) full compliance with all applicable federal, state and local zoning
and environmental regulations and laws, unless noncompliance is stated,
defined and considered in the Appraisal; and (d) all required licenses,
certificates of occupancy and other governmental consents have been or
can be obtained and renewed for any use on which the value estimate
contained in the Appraisal is based.
8. The forecasted potential gross income referred to in the Appraisal may be
based on lease summaries provided by the owner or third parties. The
Appraiser assumes no responsibility for the authenticity or completeness
of lease information provided by others. C&W recommends that legal advice
be obtained regarding the interpretation of lease provisions and the
contractual rights of parties.
9. The forecasts of income and expenses are not predictions of the future.
Rather, they are the Appraiser's best estimates of current market
thinking on future income and expenses. The Appraiser and C&W make no
warranty or representation that these forecasts will materialize. The
real estate market is constantly fluctuating and changing. It is not the
Appraiser's task to predict or in any way warrant the conditions of a
future real estate market; the Appraiser can only reflect what the
investment community, as of the date of the Appraisal, envisages for the
future in terms of rental rates, expenses, supply and demand.
10. Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance of the improvements or may be located at or about the
Property was not considered in arriving at the opinion of value. These
materials (such as formaldehyde foam insulation, asbestos insulation and
other potentially hazardous materials) may adversely affect the value of
the Property. The Appraisers are not qualified to detect such substances.
C&W recommends that an environmental expert be employed to determine the
impact of these matters on the opinion of value.
11. Unless otherwise stated in the Appraisal, compliance with the
requirements of the Americans With Disabilities Act of 1990 (ADA) has not
been considered in arriving at the opinion of value. Failure to comply
with the requirements of the ADA may adversely affect the value of the
property. C&W recommends that an expert in this field be employed.
We certify that, to the best of our Knowledge and belief:
1. Jay F. Booth inspected the property. Richard W. Latella, MAI did not
inspect the property for this assignment but has reviewed and approved
the report.
2. The statements of fact contained in this report are true and correct.
3. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
4. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
5. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event. The appraisal assignment was not
based on a requested minimum valuation, a specific valuation or the
approval of a loan.
6. No one provided significant professional assistance to the persons
signing this report.
7. Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation and the Code
of Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. As of the date of this report, Richard W. Latella has completed the
requirements of the continuing education program of the Appraisal
Institute.
/s/ Jay F. Booth
Jay F. Booth
Retail Valuation Group
/s/ Richard W. Latella, MAI
Richard W. Latella, MAI
Senior Director
Retail Valuation Group
CUSHMAN & WAKEFIELD, INC.
NATIONAL RETAIL OVERVIEW
Retail Valuation Group
Richard W. Latella, MAI
Senior Director
NATIONAL RETAIL MARKET OVERVIEW
Introduction
Shopping centers constitute the major form of retail activity in the
United States today. Approximately 55 percent of all non-automotive retail sales
occur in shopping centers. It is estimated that consumer spending accounts for
about two-thirds of all economic activity in the United States. As such, retail
sales patterns have become an important indicator of the country's economic
health.
During the period 1980 through 1995, total retail sales in the United
States increased at a compound annual rate of 6.16 percent. Data for the period
1990 through 1995 shows that sales growth has slowed to an annual average of
4.93 percent. This information is summarized on the following chart. The
Commerce Department reports that total retail sales fell three-tenths of a
percent in January 1996.
(1)1985 - 1995 data reflects recent revisions by the U.S. Department of
Commerce: Combined Annual and Revised Monthly Retail Trade.
Source: Monthly Retail Trade Reports Business Division, Current Business
Reports, Bureau of the Census, U.S. Department of Commerce
The early part of the 1990s was a time of economic stagnation and
uncertainty in the country. The gradual recovery, which began as the nation
crept out of the last recession, has shown some signs of weakness as corporate
downsizing has accelerated. But as the recovery period reaches into its fifth
year and the retail environment remains volatile, speculation regarding the
nation's economic future remains. It is this uncertainty which has shaped recent
consumer spending patterns.
Personal Income and Consumer Spending
Americans' personal income advanced by six-tenths of a percent in
December, which helped raise income for all of 1995 by 6.1 percent, the highest
gain since 6.7 percent in 1990. This growth far outpaced the 2.5 percent in 1994
and 4.7 percent in 1993. Reports for February 1996 however, reported that income
grew at an annual rate of eight-tenths of a percent, the biggest gain in
thirteen months, and substantially above January's anemic growth rate of
one-tenth of a percent.
-1-
National Retail Market Overview
Consumer spending is another closely watched indicator of economic
activity. The importance of consumer spending is that it represents two-thirds
of the nation's economic activity. Total consumer spending rose by 4.8 percent
in 1995, slightly off of the 5.5 percent rise in 1994 and 5.8 percent in 1993.
These increases followed a significant lowering on unemployment and bolstered
consumer confidence. The Commerce Department reported that spending rose at a
1.1 percent annual pace, the largest gain in two years, in February 1996, led by
a sharp increase in automobile sales.
Unemployment Trends
The Clinton Administration touts that its economic policy has
dramatically increased the number of citizens who have jobs. Correspondingly,
the nation's unemployment rate continues to decrease from its recent peak in
1992. Selected statistics released by the Bureau of Labor Statistics are
summarized as follows:
(1) Year ending December 31
Source: Bureau of Labor Statistics U.S. Department of Labor
During 1995, the labor force increased by 1,281,000 or approximately 1.0
percent. Correspondingly, the level of employment increased by 1,866,000 or 1.5
percent. As such, the year end unemployment rate dropped by five-tenths of a
percent to 5.6 percent. For 1995, monthly job growth averaged 144,000. On
balance, over 8.0 million jobs have been created since the recovery began.
Evidence of continued strengthening continues into 1996 with first quarter job
growth averaging 206,000. At the end of March 1996 the nation's unemployment
rate stood at 5.6 percent.
Housing Trends
Housing starts were down in 1995 by 7 percent from 1994 with 1.35 million
units started. This compared with 1.46 million units in 1994 and 1.29 million in
1993. Single-family starts totaled 1.07 million units in 1995, down 10 percent
from 1994. Multi-family starts, however, reversed this trend with their second
consecutive yearly increase to 277,000 units.
-2-
National Retail Market Overview
For 1995, sales of new homes slipped nine-tenths of a percent to 664,000
from 670,000 in 1994. This was the lowest level since 610,000 new homes were
sold in 1992. In a surprise to most analysts, new home sales rose by 4.2 percent
in January 1996 to a seasonally adjusted annual rate of 693,000. The 381,000
homes for sale represented a supply of six to seven months, the highest since
1980. The median new home price of new homes sold in the first nine months of
1995 was $132,000. The median was $130,000 for all of 1994. The Commerce
Department reported that construction spending rose 2.9 percent in October to an
annual rate of $207.7 billion, compared to $217.9 billion in all of 1994.
The home ownership rate seems to be rising, after remaining stagnant over
the last decade. For 1995, the share of households that own their homes was 64.8
percent, compared to 64.0 percent for a year earlier. Lower mortgage rates are
cited as a factor.
Gross Domestic Product
The report on the gross domestic product (GDP) showed that output for
goods and services expanded at an annual rate of just .9 percent in the fourth
quarter of 1995. Overall, the economy gained 2.0 percent in 1995. the weakest
showing in four years since the 1991 recession. The .5 percent rise in the
fourth quarter was much slower than the 1.7 percent expected by most analysts.
Revised first quarter 1996 data shows that the economy grew at an annual rate of
2.3 percent which was in line with most forecasts by private economists. The Fed
sees the U.S. economy expanding at a 2.0 to 2.25 percent pace during 1996 which
is in-line with White House forecasts.
The following chart cites the annual change in real GDP since 1990.
================================================================================
Real GDP
================================================================================
Year % Change
================================================================================
1990 1.2
--------------------------------------------------------------------------------
1991 -.6
--------------------------------------------------------------------------------
1992 2.3
--------------------------------------------------------------------------------
1993 3.1
--------------------------------------------------------------------------------
1994 4.1
--------------------------------------------------------------------------------
1995* 2.0
================================================================================
* Reflects new chain weighted system of measurement. Comparable 1994
measure would be 3.5 %
Source: Bureau of Economic Analysis
Consumer Prices
The Bureau of Labor Statistics has reported that consumer prices rose by
only 2.5 percent in 1995, the fifth consecutive year in which inflation was
under 3.0 percent. This was the lowest rate in nearly a decade when the overall
rate was 1.1 percent in 1986. All sectors were down substantially in 1995
including the volatile health care segment which recorded inflation of only 3.9
percent, the lowest rate in 23 years.
-3-
National Retail Market Overview
The following chart tracks the annual change in the CPl since 1990.
Source: Dept. of Labor, Bureau of Labor Statistics
Data through April 1996 shows the consumer prices are increasing in-line
with expectations. The index was up four-tenths of a percent in April due to
changes in energy prices. Excluding food and energy, the underlying inflation
rate was only one-tenth of a percent.
Other Indicators
The government's main economic forecasting gauge, the Index of Leading
Economic Indicators is intended to project economic growth over the next six
months. The Conference Board, an independent business group, reported that the
index increased two-tenths of a percent in March following the increase of 1.3
percent in February 1996, the biggest jump in 20 years. It has become apparent
that the Federal Reserve's conservative monetary policy has had an effect on the
economy and some economists are calling for a further reduction in short term
interest rates. In recent months, evidence has been mounting that the economy is
in the midst of a pick-up.
The Conference Board also reported that consumer confidence rebounded in
February 1996, following reports suggesting lower inflation. The board's index
of consumer confidence rose 9 points to 97 over January when consumers worried
about the government shutdown, the stalemate over the Federal budget and the
recent flurry of layoff announcements by big corporations.
In another sign of increasingly pinched household budgets, consumers
sharply curtailed new installment debt in September 1995, when installment
credit rose $5.4 billion, barely half as much as August. Credit card balances
increased by $2.8 billion, the slimmest rise of the year. For the twelve months
through September 1995, outstanding credit debt rose 13.9 percent, down from a
peak of 15.3 percent in May. Still, installment debt edged to a record 18.8
percent of disposable income, indicating that consumers may be reaching a point
of discomfort with new debt.
-4-
National Retail Market Overview
The employment cost index is a measure of overall compensation including
wages, salaries and benefits. In 1995 the index rose by only 2.9 percent, the
smallest increase since 1980. This was barely ahead of inflation and is a sign
of tighter consumer spending over the coming year. However, the productivity of
American workers grew 1.1 percent in 1995, the largest gain since a 3.2 percent
advance in 1992. Productivity is a key element in measuring the standard of
living since increased efficiency allows businesses to increase workers
compensation without having to raise prices.
Economic Outlook
The WEFA Group, an economic consulting company, opines that the current
state of the economy is a "central bankers" dream, with growth headed toward the
Fed's 2.5 percent target, accompanied by stable if not falling inflation. They
project that inflation will remain in the 2.5 to 3.0 percent range into the
foreseeable future. This will have a direct influence on consumption (consumer
expenditures) and overall inflation rates (CPI).
Potential GDP provides an indication of the expansion of output, real
incomes, real expenditures, and the general standard of living of the
population. WEFA estimates that real U.S. GDP will grow at an average annual
rate between 2.0 and 2.5 percent over the next year and at 2.3 percent through
2003 as the output gap is reduced between real GDP and potential GDP. After
2003, annual real GDP growth will moderate, tapering to 2.2 percent per annum.
Consumption expenditures are primarily predicated on the growth of real
permanent income, demographic influences, and changes in relative prices over
the long term. Changes in these key variables explain much of the consumer
spending patterns of the 1970s and mid-1980s, a period during which baby boomers
were reaching the asset acquisition stages of their lives; purchasing
automobiles and other consumer and household durables. Increases in real
disposable income supported this spending spurt with an average annual increase
of 2.9 percent per year over the past twenty years. Real consumption
expenditures increased at an average annual rate of 3.1 percent during the 1970s
and by an average of 4.0 percent from 1983 to 1988. WEFA projects that
consumption expenditure growth will slow to 2.0 percent per year by 2006 as a
result of slower population growth and aging. It is also projected that the
share of personal consumption expenditures relative to GDP will decline over the
next decade. Consumer spending as a share of GDP peaked in 1986 at 67.4 percent
after averaging about 63.0 percent over much of the post-war period. WEFA
estimates that consumption's share of aggregate output will decline to 64.5
percent by 2003 and 62.7 percent by 2018.
Retail Sales
In their publication, NRB/Shopping Centers Today 1995 Shopping Center
Census, the National Research Bureau reports that overall retail conditions
continued to improve in 1995. Total shopping center sales increased 5.0 percent
to $893.8 billion in 1995, up from $851.3 billion in 1994. Retail sales in
shopping centers (excluding automotive and gasoline service station sales) now
account for about 55.0 percent of total retail sales in the United States.
-5-
National Retail Market Overview
Total retail sales per square foot have shown positive increases over the
past several years, rising by 26.5 percent from approximately $161 per square
foot in 1990, to $180 per square foot in 1995. It is noted that the increase in
productivity has exceeded the increase in inventory which bodes well for the
industry in general. This data is summarized on the following table.
=============================================================================================================================
Selected Shopping Center Statistics
1990-1995
=============================================================================================================================
% Compound
Change Annual
1990 1991 1992 1993 1994 1995 1990-95 Growth
=============================================================================================================================
Retail Sales in Shopping Centers $706.40 $716.90 $768.20 $806.60 $851.30 $893.81 36.5% 4.8%
-----------------------------------------------------------------------------------------------------------------------------
Total Leasable Area** 4.39 4.56 4.68 4.77 4.86 4.97 13.2% 2.5%
-----------------------------------------------------------------------------------------------------------------------------
Unit Rate $160.89 $157.09 $164.20 $169.08 $175.13 $179.94 11.8% 2.3%
=============================================================================================================================
* Billions of Dollars
** Billions of Square Feet
=============================================================================================================================
Source: National Research Bureau
=============================================================================================================================
To put retail sales patterns into perspective, the following discussion
highlights key trends over the past few years.
o As a whole, 1993 was a good year for most of the nation's major
retailers. Sales for the month of December were up for most,
however, the increase ranged dramatically from 1.1 percent at
Kmart to 13.3 percent at Sears for stores open at least a year. It
is noted that the Sears turnaround after years of slippage was
unpredicted by most forecasters.
o With the reporting of December 1994 results, most retailers posted
same store gains between 2.0 and 6.0 percent. The Goldman Sachs
Retail Composite Comparable Store Sales Index, a weighted average
of monthly same store sales of 52 national retail companies rose
4.5 percent in December. The weakest sales were seen in women's
apparel, with the strongest sales reported for items such as
jewelry and hard goods. Most department store companies reported
moderate increases in same store sales, though largely as a result
of aggressive markdowns. Thus, profits were negatively impacted
for many companies.
o For 1995, specialty apparel sales were lackluster at best, with
only .4 percent comparable sales growth. This is of concern to
investors since approximately 30.0 percent of a mall's small shop
space is typically devoted to apparel tenants. Traditional
department stores experienced 3.4 percent same store growth in
1995, led by Dillard's 5.0 percent increase. Mass merchants' year-
to-year sales increased by 6.7 percent in 1994, driven by Sears'
7.9 percent increase. Mass merchants account for 35.0 to 55.0
percent of the anchors of regional malls and their resurgence
bodes well for increased traffic at these centers.
-6-
National Retail Market Overview
o Sales at the nation's largest retailer chains saw reasonably good
increases in May 1996, evidencing a pent up demand for soft goods.
Discounters such as Target, Wal-Mart and Kmart did particularly
well among department stores. Sears and May had a strong
performance while Federated and JC Penney were off. Appliance
sales were very good as evidenced by Best Buy with a 7 percent
increase in comparable store sales. The Goldman Sachs retail
composite index of same store sales rose 4.6 percent, well above
the 3.5 percent rise in May 1995.
Provided on the following chart is a summary of overall and same store
sales growth for selected national merchants for the most recent period.
Same Store Sales for the Month of May 1996
% Change: From Previous Year
Name of Retailer Overall Same Store Basis
================================================================================
Wal-Mart +12.0% + 5.0%
--------------------------------------------------------------------------------
Kmart + 3.0% + 5.4%
--------------------------------------------------------------------------------
Sears, Roebuck & Company +14.0% +10.2%
--------------------------------------------------------------------------------
J.C. Penney .0% - 0.8%
--------------------------------------------------------------------------------
Dayton Hudson Corporation +10.0% + 3.3%
--------------------------------------------------------------------------------
May Department Stores +14.0% + 7.2%
--------------------------------------------------------------------------------
Federated Department Stores +10.0% + 2.1%
--------------------------------------------------------------------------------
The Limited Inc. +14.0% + 4.0%
--------------------------------------------------------------------------------
Gap Inc. +27.0% + 8.0%
--------------------------------------------------------------------------------
Ann Taylor + 1.0% -11.2%
--------------------------------------------------------------------------------
Woolworths - 3.0% - 1.8%
--------------------------------------------------------------------------------
Best Buy +34.0% + 7.0%
================================================================================
Source: New York Times
================================================================================
The outlook for retail sales growth is one of cautious optimism. It
appears as if the low price department stores and off price apparel segment is
poised to continue to do well, as they tend to be representative of those
industry segments which have gone through mergers and are benefiting from fewer
competitors. Some analysts point to the fact that consumer confidence has
resulted in increases in personal debt which may be troublesome in the long run.
Consumer loans by banks continue to rise. But data gathered by the Federal
Reserve on monthly payments suggest that debt payments are not taking as big a
bite out of income as in the late 1980s, largely because of the record
refinancings at lower interest rates in recent years and the efforts by many
Americans to repay debts.
GAFO and Shopping Center Inclined Sales
In a true understanding of shopping center dynamics, it is important to
focus on both GAFO sales or the broader category of Shopping Center Inclined
Sales. These types of goods comprise the overwhelming bulk of goods and products
carried in shopping centers and department stores and consist of the following
categories:
-7-
National Retail Market Overview
o General merchandise stores including department and other stores;
o Apparel and accessory stores;
o Furniture and home furnishing stores; and
o Other miscellaneous shoppers goods stores.
Shopping Center Inclined Sales are somewhat broader and include such
classifications as home improvement and grocery stores.
Total retail sales grew by 7.8 percent in the United States in 1994 to
$2.237 trillion, an increase of $162 billion over 1993. This followed an
increase of $125 billion over 1992. Automobile dealers captured $69+/- billion
of total retail sales growth last year, while Shopping Center Inclined Sales
accounted for nearly 40.0 percent of the increase ($64 billion). GAFO sales
increased by $38.6 billion. This group was led by department stores which posted
an $18.0 billion increase in sales. The following chart summarizes the
performance for this most recent comparison period.
Retail Sales by Major Store Type
1993-1994 ($MIL.)
1993-1994
Store Type 1994 1993 % Change
GAFO:
General Merchandise $282,541 $264,617 6.8%
Apparel & Accessories 109,603 107,184 2.3%
Furniture & Furnishings 119,626 105,728 13.1%
Other GAFO 80,533 76,118 5.8%
--------------------------------------------------------------------------------
GAFO Subtotal $592,303 $553,647 7.0%
--------------------------------------------------------------------------------
Convenience Stores:
Grocery $376,330 $365,725 2.9%
Other Food 21,470 19,661 9.2%
--------------------------------------------------------------------------------
Subtotal $397,800 $385,386 3.2%
Drug 81,538 79,645 2.4%
--------------------------------------------------------------------------------
Convenience Subtotal $479,338 $465,031 3.1%
--------------------------------------------------------------------------------
Other:
Home Improvement &
Building Supplies Stores $122,533 $109,604 11.8%
Shopping Center-Inclined $1,194,174 $1,128,282 5.8%
Subtotal 526,319 456,890 15.2%
Automobile Dealers 142,193 138,299 2.8%
Gas Stations 228,351 213,663 6.9%
Eating and Drinking Places 145,929* 137,365* 6.2%
All Other
--------------------------------------------------------------------------------
Total Retail Sales $2,236,966 $2,074,499 7.8%
================================================================================
* Estimated sales
================================================================================
Source: U.S. Department of Commerce and Dougal M. Casey: Retail Sales and
Shopping Center Development Through The Year 2000 (ICSC White Paper)
-8-
National Retail Market Overview
GAFO sales grew by 7.0 percent in 1994 to $592.3 billion, led by
furniture and furnishings which grew by 13.1 percent. From the above it can be
calculated that GAFO sales accounted for 26.5 percent of total retail sales and
nearly 50.0 percent of all shopping center-inclined sales.
The International Council of Shopping Centers (ICSC) publishes a Monthly
Mall Merchandise Index which tracks sales by store type for more than 400
regional shopping centers. The index shows that sales per square foot rose by
1.8 percent to $256 per square foot in 1994. The following chart identified the
most recent year-end results.
-9-
National Retail Market Overview
Index Sales per Square Foot
1993-1994 Percent Change
Fast Food $365 $358 + 2.0%
Restaurants 250 245 + 2.2%
Other 300 301 - 0.4%
SUBTOTAL $304 $298 + 1.9%
--------------------------------------------------------------------------------
OTHER NON-GAFO:
Supermarkets $236 $291 -18.9%
Drug/HBA 254 230 +10.3%
Personal Services 264 253 + 4.1%
Automotive 149 133 +12.2%
Home Improvement 133 127 + 4.8%
Mall Entertainment 79 77 + 3.2%
Other Non-GAFO Miscellaneous 296 280 + 5.7%
SUBTOTAL $192 $188 + 2.4%
TOTAL NON-GAFO $233 $228 + 2.5%
TOTAL $256 $252 + 1.8%
================================================================================
Note: Sales per square foot numbers are rounded to whole dollars. Three
categories illustrated here have limited representation in the ICSC
sample: Automotive, +12.2%; Home Improvement, +4.8%; and Supermarkets,
-18.9%.
Source: U.S. Department of Commerce and Dougal M. Casey.
GAFO sales have risen relative to household income. In 1990 these sales
represented 13.9 percent of average household income. By 1994 they rose to 14.4
percent. Projections through 2000 show a continuation of this trend to 14.7
percent. On average, total sales were equal to nearly 55.0 percent of household
income in 1994.
-10-
National Retail Market Overview
====================================================================================
Determinants of Retail Sales Growth and U.S. Retail Sales by Key Store Type
====================================================================================
1990 1994 2000(P)
====================================================================================
Determinants
Population 248,700,000 260,000,000 276,200,000
Households 91,900,000 95,700,000 103,700,000
Average Household Income $37,400 $42,600 $51,600
Total Census Money Income $3.4 Tril. $4.1 Tril. $5.4 Tril.
------------------------------------------------------------------------------------
% Allocations of Income to Sales
GAFO Stores 13.9% 14.4% 14.7%
Convenience Stores 12.9% 11.7% 10.7%
Home Improvement Stores 2.8% 3.0% 3.3%
Total Shopping Center-Inclined Stores 29.6% 29.1% 28.8%
Total Retail Stores 54.3% 54.6% 52.8%
------------------------------------------------------------------------------------
Sales ($Billion)
GAF0 Stores $472 $592 $795
Convenience Stores 439 479 580
Home Improvement Stores 95 123 180
Total Shopping Center-Inclined Stores $1,005 $1,194 $1,555
TOTAL RETAIL SALES $1,845 $2,237 $2,850
====================================================================================
Note: Sales and income figures are for the full year, population and household
figures are as of April 1 in each respective year. P = Projected.
====================================================================================
Source: U.S. Census of Population, 1990; U.S. Bureau of the Census Current
Population Reports: Consumer Income P6-168, 174, 180, 184 and 188,
Berna Miller with Linda Jacobsen, "Household Futures", American
Demographics, March 1995; Retail Trade sources already cited; and
Dougal M. Casey: ICSC White Paper
====================================================================================
GAFO sales have risen at a compound annual rate of approximately 6.8
percent since 1991 based on the following annual change in sales.
According to a recent study by the ICSC, GAFO sales are expected to grow
by 5.0 percent per annum through the year 2000, which is well above the 4.1
percent growth for all retail sales. This information is presented in the
following chart.
-11-
National Retail Market Overview
=============================================================================================
Retail Sales in the United States, by Major Store Type
=============================================================================================
1994 2000(P) Percent Change
Compound
Store Type ($ Billions) ($ Billions) Total Annual
=============================================================================================
GAFO:
General Merchandise $283 $370 30.7% 4.6%
Apparel & Accessories 110 135 22.7% 3.5%
Furniture/Home Furnishings 120 180 50.0% 7.0%
Other Shoppers Goods 81 110 35.8% 5.2%
---------------------------------------------------------------------------------------------
GAFO Subtotal $592 $795 34.3% 5.0%
---------------------------------------------------------------------------------------------
CONVENIENCE GOODS:
Food Stores $398 $480 20.6% 3.2%
Drugstores 82 100 22.0% 3.4%
---------------------------------------------------------------------------------------------
Convenience Subtotal $479 $580 21.1% 3.2%
---------------------------------------------------------------------------------------------
Home Improvement 123 180 46.3% 6.6%
---------------------------------------------------------------------------------------------
Shopping Center-Inclined Subtotal $1,194 $1,555 30.2% 4.5%
---------------------------------------------------------------------------------------------
All Other 1,043 1,295 24.2% 3.7%
---------------------------------------------------------------------------------------------
Total $2,237 $2,850 27.4% 4.1%
=============================================================================================
Note: P = Projected. Some figures rounded.
=============================================================================================
Source: U.S. Department of Commerce, Bureau of the Census and Dougal M. Casey.
=============================================================================================
In considering the six-year period January 1995 through December 2000, it
may help to look at the six-year period extending from January 1989 through
December 1994 and then compare the two time spans.
Between January 1989 and December 1994, shopping center-inclined sales in
the United States increased by $297 billion, a compound growth rate of 4.9
percent. These shopping center-inclined sales are projected to increase by $361
billion between January 1995 and December 2000, a compound annual growth rate of
4.5 percent. GAFO sales, however, are forecasted to increase by 34.3 percent or
5.0 percent per annum.
Industry Trends
According to the National Research Bureau, there were a total of 41,235
shopping centers in the United States at the end of 1995. During this year, 867
new centers opened, an 18.0 percent increase over the 735 that opened in 1994.
This followed a 10 percent increase in 1994. The greatest growth came in the
small center category (less than 100,000 square feet) where 551 centers were
constructed. In terms of GLA added, new construction in 1995 was up 2.2 percent
resulting in an addition of 106.2 million square feet of GLA from approximately
4.86 billion to 4.97 billion square feet. In other important trends, the
development of regional and super-regional malls hit a three year high in 1995
with the opening of eight centers, twice as many as in 1994. This boosted the
nation's total of regionals to 301 and super-regionals to 380. Power and
community center development in 1995 was up 17.9 percent in terms of the number
of centers opening. The following chart highlights trends over the period 1987
through 1995.
-12-
National Retail Market Overview
====================================================================================================================================
Census Data: 9-Year Trends
====================================================================================================================================
Total Average Average % Change % Increase
No.of Total Sales GLA per Sales per in Sales New in Total
Year Centers GLA (Billions) Center Sq. Ft. per Sq. Ft. Centers Centers
====================================================================================================================================
1987 30,641 3,722,957,095 $602,294,426 121,502 $161.78 2.41% 2,145 7.53%
1988 32,563 3,947,025,194 $641,096,793 121,212 $162.43 0.40% 1,922 6.27%
1989 34,683 4,213,931,734 $682,752,628 121,498 $162.02 -0.25% 2,120 6.51%
1990 36,515 4,390,371,537 $706,380,618 120,235 $160.89 -0.70% 1,832 5.28%
1991 37,975 4,563,791.215 $716,913,157 120,179 $157.09 -2.37% 1,460 4.00%
1992 38,966 4,678,527,428 $768,220,248 120,067 $164.20 4.53% 991 2.61%
1993 39,633 4,770,760,559 $806,645,004 120,373 $169.08 2.97% 667 1.71%
1994 40,368 4,860,920,056 $851,282,088 120,415 $175.13 3.58% 735 1.85%
1995 41,235 4,967,160,331 $893,814,776 120,460 $179.94 2.75% 867 2.15%
Compound
Annual
Growth +3.78% +3.67% +5.06% -.11% +1.34% N/A N/A N/A
====================================================================================================================================
Source: National Research Bureau Shopping Center Database and Statistical Model
====================================================================================================================================
From the chart we see that both total GLA and total number of centers
have increased at a compound annual rate of approximately 3.7 percent since
1987. New construction was up 2.2 percent in 1995, a slight increase over 1994
but still well below the peak year 1987 when new construction increased by 7.5
percent. California was by far the most active state with 139 new centers
opening, followed by North Carolina (64) and Florida (53).
Among the 41,235 centers in 1995, the following breakdown by size can be
shown.
Source: National Research Bureau (some numbers slightly rounded).
According to the National Research Bureau, total sales in shopping
centers have grown at a compound rate of 5.06 percent since 1987. With sales
growth outpacing new construction, average sales per square foot have been
showing positive increases since the last recession. Aggregate sales were up 5.5
percent nationwide from $851.3 billion (1994) to $893.8 billion (1995). In 1995,
average sales were $179.94 per square foot, up nearly 2.7 percent over 1994 and
1.34 percent (compound growth) over the past several years. The biggest gain
came in the super-regional category (more than 1.0 million square feet) where
sales were up 4.10 percent to $201.05 per square foot.
-13-
National Retail Market Overview
The following chart tracks the change in average sales per square foot by
size category between 1993 and 1995.
=========================================================================================================================
Sales Trends by Size Category
1993-1995
=========================================================================================================================
Average Sales Per Square Foot % Change
===================================================================================
Category 1993 1994 1995 1994-95 1993-95*
=========================================================================================================================
Less than 100,000 SF $193.10 $199.70 $204.94 +2.6% +3.0%
-------------------------------------------------------------------------------------------------------------------------
100,001 to 200,000 SF $156.18 $161.52 $166.00 +2.8% +3.1%
-------------------------------------------------------------------------------------------------------------------------
200,001 to 400,000 SF $147.57 $151.27 $153.96 +1.8% +2.1%
-------------------------------------------------------------------------------------------------------------------------
400,001 to 800,000 SF $157.04 $163.43 $168.21 +2.9% +3.5%
-------------------------------------------------------------------------------------------------------------------------
800,001 to 1,000,000 SF $194.06 $203.20 $210.40 +3.5% +4.1
-------------------------------------------------------------------------------------------------------------------------
More than 1,000,000 SF $183.90 $193.13 $201.05 +4.1% +4.6
-------------------------------------------------------------------------------------------------------------------------
Total $169.08 $175.13 $179.94 +2.75% +3.2%
=========================================================================================================================
* Compound Annual Change
Source: National Research Bureau
=========================================================================================================================
Empirical data shows that the average GLA per capita is increasing. In
1995, the average for the nation was 18.9. This was up 17 percent from 16.1 in
1988 and more recently, 18.7 square feet per capita in 1994. Among states,
Arizona surpassed Florida and now has the highest GLA per capita with 28.1
square feet. South Dakota has the lowest at 9.08 square feet. Per capita GLA for
regional malls (defined as all centers in excess of 400,000 square feet) has
also been rising from 5.0 in 1988 to 5.5 in 1995. This information is presented
on the following chart.
Source: International Council of Shopping Center: The Scope of The Shopping
Center Industry and NationalResearch Bureau
The Urban Land Institute, in the 1995 edition of Dollars and Cents of
Shopping Centers, reports that vacancy rates range from a low of 2.0 percent in
neighborhood centers to 14.0 percent for regional malls. Super-regional malls
reported a vacancy rate of 7.0 percent and community centers were 4.0 percent
based upon their latest survey.
-14-
National Retail Market Overview
The retail industry's importance to the national economy can also be seen
in the level of direct employment. According to F.W. Dodge, the construction
information division of McGraw-Hill, new projects in 1994 generated $2.6 billion
in construction contract awards and supported 41,600 jobs in construction trade
and related industries. This is nearly half of the construction employment level
of 95,360 for new shopping center development in 1990. It is estimated that
10.18 million people are now employed in shopping centers, equal to about one of
every nine non-farm workers in the country. This is up 2.9 percent over 1991.
Market Shifts - Contemporary Trends in the Retail Industry
During the 1980s, the department store and specialty apparel store
industries competed in a tug of war for consumer dollars. Specialty stores
emerged largely victorious as department store sales steadily declined as a
percentage of total GAFO sales during the decade, slipping from 47.0 percent in
1979 to 44.0 percent in 1989. During this period, many anchor tenants teetered
from high debt levels incurred during speculative takeovers and leveraged
buyouts of the 1980s. Bankruptcies and restructuring, however, have forced major
chains to refocus on their customer and shed unproductive stores and product
lines. At year end 1994, department store sales, as a percentage of GAFO sales,
were approximately 37.5 percent.
The continued strengthening of some of the major department store chains,
including Sears, Federated/Macy's, May and Dayton Hudson, is in direct contrast
to the dire predictions made by analysts about the demise of the traditional
department store industry. This has undoubtedly been brought about by the
heightened level of merger and acquisition activity in the 1980s which produced
a burdensome debt structure among many of these entities. When coupled with
reduced sales and cash flow brought on by the recession, department stores were
unable to meet their debt service requirements.
Following a round of bankruptcies and restructurings, the industry has
responded with aggressive cost-cutting measures and a focused merchandising
program that is decidedly more responsive to consumer buying patterns. The
importance of department stores to mall properties is tantamount to a successful
project since the department store is still the principal attraction that brings
patrons to the center.
On balance, 1994/95 was a continued period of transition for the retail
industry. Major retailers achieved varying degrees of success in meeting the
demands of increasingly value conscious shoppers. Since the onset of the
national economic recession in mid-1990, the retail market has been
characterized by intense price competition and continued pressure on profit
margins. Many national and regional retail chains have consolidated operations,
closed underperforming stores, and/or scaled back on expansion plans due to the
uncertain spending patterns of consumers. Consolidations and mergers have
produced a more limited number of retail operators, which have responded to
changing spending patterns by aggressively repositioning themselves within this
evolving market. Much of the recent retail construction activity has involved
the conversion of existing older retail centers into power center formats,
either by retenanting or through expansion. An additional area of growth in the
retail sector is in the "supercenter" category, which consists of the combined
grocery and department stores being developed by such companies as Wal-Mart and
Kmart. These formats require approximately 150,000 to 180,000 square feet in
order to carry the depth of merchandise necessary for such economies of scale
and market penetration.
-15-
National Retail Market Overview
Some of the important developments in the industry over the past year can
be summarized as follows:
o The discount department store industry emerged as arguably the most
volatile retail sector, lead by regional chains in the northeast.
Jamesway, Caldor and Bradlees each filed for Chapter 11 within six
months and Hills Stores is on the block. Jamesway is now in the
process of liquidating all of its stores. Filene's Basement was
granted relief from some covenant restrictions and its stock price
plummeted. Ames, based in Rocky Hill, Connecticut, will close 17 of
its 307 stores. Kmart continues to be of serious concern. Its debt has
been downgraded to junk bond status. Even Wal- Mart, accustomed to
double digit sales growth, has seen some meager comparable sales
increases. These trends are particularly troubling for strips since
these tenants are typical anchors.
o The attraction of regional malls as an investment has diminished in
view of the wave of consolidations and bankruptcies affecting in-line
tenants. Some of the larger restructurings include Melville with plans
to close up to 330 stores, sell Marshalls to TJX Companies, split into
three publicly traded companies, and sell Wilsons and This End Up;
Petrie Retail, which operates such chains as M.J. Carroll, G&G, Jean
Nicole, Marianne and Stuarts, has filed for bankruptcy protection;
Edison Brothers (Jeans West, J. Riggins, Oak Tree, 5-7-9 Shops, etc.)
announced plans to close up to 500 stores while in Chapter 11, J.
Baker intends to liquidate Fayva Shoe division (357 low-price family
footwear stores); The Limited announced a major restructuring,
including the sale of partial interests in certain divisions; Charming
Shoppes will close 290 Fashion Bug and Fashion Bug Plus stores; Trans
World Entertainment (Record Town) has closed 115 of its 600 mall shop
locations. Other chains having trouble include Rickel Home Centers
which filed Chapter 11; Today's Man, a 35 store Philadelphia based
discount menswear chain has filed; nine subsidiaries of Fretta,
including Dixon's, U.S. Holdings and Silo, filed Chapter 11; and
Clothestime, also in bankruptcy will close up to 140 of its 540
stores. Merry-Go-Round, a chain that operates 560 stores under the
names Merry-Go-Round, Dejaiz and Cignal is giving up since having
filed in January 1994 and will liquidate its assets. Toys "R" Us has
announced a global reorganization that will close 25 stores and cut
the number of items it carries to 11,000 from 15,000. Handy Andy, a 50
year old chain of 74 home improvement centers which had been in
Chapter 11, has decided to liquidate, laying off 2,500 people.
o Overall, analysts estimate that 4,000 stores closed in 1995 and as
many as 7,000 more will close in 1996. Mom-and-Pop stores, where 75
percent of U.S. retailers employ fewer than 10 people have been
declining for the past decade. Dun and Bradstreet reports that retail
failures are up 1.4 percent over Last year - most of them small stores
who don't have the financial flexibility to renegotiate payment
schedule.
-16-
National Retail Market Overview
o With sales down, occupancy costs continue to be a major issue facing
many tenants. As such, expansion oriented retailers like The Limited,
Ann Taylor and The Gap, are increasingly shunning mall locations for
strip centers. This has put further pressure on mall operators to be
aggressive with their rent forecasts or in finding replacement
tenants.
o While the full service department store industry led by Sears has seen
a profound turnaround, further consolidation and restructuring
continues. Woodward & Lothrop was acquired by The May Department
Stores Company and JC Penney; Broadway Stores was acquired by
Federated Department Stores; Elder Beerman has filed Chapter 11 and
will close 102 stores; Steinbach Stores will be acquired by Crowley,
Milner & Co.; Younkers will merge with Proffitts; and Strawbridge and
Clothier has hired a financial advisor to explore strategic
alternatives for this Philadelphia based chain.
o Aside from the changes in the department store arena, the most notable
transaction in 1995 involved General Growth Properties' acquisition of
the Homart Development Company in a $1.85 billion year-end deal.
Included were 25 regional malls, two current projects and several
development sites. In November, General Growth arranged for the sale
of the community center division to Developers Diversified for
approximately $505 million. Another notable deal involved Rite Aid
Corporation's announcement that it will acquire Revco Drug Stores in a
$1.8 billion merger to form the nation's largest drug store company
with sales of $11 billion and 4,500+/- stores.
o As of January 1, 1995 there were 311 outlet centers with 44.4 million
square feet of space. Outlet GLA has grown at a compound annual rate
of 18.1 percent since 1989. Concerns of over-building, tenant
bankruptcies, and consolidations have now negatively impacted this
industry as evidenced by the hit the outlet REIT stocks have taken.
Outlet tenants have not been immune to the global troubles impacting
retail sales as comparable store sales were down 3.1 percent through
November 1995.
o Category Killers and discount retailers have continued to drive the
demand for additional space. In 1995, new contracts were awarded for
the construction or renovation of 260 million square feet of stores
and shopping centers, up from 173 million square feet in 1991
according to F.W. Dodge, matching the highest levels over the past two
decades. It is estimated that between 1992 and 1994, approximately
55.0 percent of new retail square footage was built by big box
retailers. In 1994, it is estimated that they accounted for 80.0
percent of all new stores. Most experts agree that the country is
over-stored. Ultimately, it will lead to higher vacancy rates and
place severe pressure on aging, capital intensive centers. Many
analysts predict that consolidation will occur soon in the office
products superstores category where three companies are battling for
market share - OfficeMax, Office Depot and Staples.
-17-
National Retail Market Overview
o Entertainment is clearly the new operational requisite for property
owners and developers who are incorporating some form of entertainment
into their designs. With a myriad of concepts available, ranging from
mini-amusement parks to multiplex theater and restaurant themes, to
interactive high-tech applications, choosing the right formula is a
difficult task.
Investment Criteria and Institutional Investment Performance
Investment criteria for mall properties range widely. Many firms and
organizations survey individuals active in this industry segment in order to
gauge their current investment criteria. These criteria can be measured against
traditional units of comparison such as price (or value) per square foot of GLA
and overall capitalization rates.
The price that an investor is willing to pay represents the current or
present value of all the benefits of ownership. Of fundamental importance is
their expectation of increases in cash flow and the appreciation of the
investment. Investors have shown a shift in preference to initial return,
placing probably less emphasis on the discounted cash flow analysis (DCF). A DCF
is defined as a set of procedures in which the quantity, variability, timing,
and duration of periodic income, as well as the quantity and timing of
reversions, are specified and discounted to a present value at a specified yield
rate. Understandably, market thinking has evolved after a few hard years of
reality where optimistic cash flow projections did not materialize. The DCF is
still, in our opinion, a valid valuation technique that when properly supported,
can present a realistic forecast of a property's performance and its current
value in the marketplace.
Equitable Real Estate Investment Management, Inc. reports in their Emerging
Trends in Real Estate - 1996 that their respondents give retail investments
generally poor performance forecasts in their latest survey due to the
protracted merchant shakeout which will continue into 1996. While dominant,
Class A malls are still considered to be one of the best real estate investments
anywhere, only 13.0 percent of the respondents recommended buying malls. Rents
and values are expected to remain flat (in real terms) and no one disputes their
contention that 15 to 20 percent of the existing malls nationwide will be out of
business by the end of the decade. For those centers that will continue to
reposition themselves, entertainment will be an increasingly important part of
their mix.
Investors do cite that, after having been written off, department stores
have emerged from the shake-out period as powerful as ever. The larger chains
such as Federated, May and Dillard's, continue to acquire the troubled regional
chains who find it increasingly difficult to compete against the category
killers. Many of the nations largest chains are reporting impressive profit
levels, part of which has come about from their ability to halt the double digit
sales growth of the national discount chains. Mall department stores are
aggressively reacting to power and outlet centers to protect their market share.
Department stores are frequently meeting discounters on price.
While power centers are considered one retail property type currently in a
growth mode, most respondents feel that the country is over-stored and value
gains with these types of centers will lag other property types, including
malls, over five and ten year time frames.
-18-
National Retail Market Overview
The following chart summarizes the results of their current survey.
=========================================================================================
Retail Property Rankings and Forecasts
=========================================================================================
Investment Potential Predicted Value Gains
-------------------- ---------------------
Property Type 1996
Rating(1) Ranking(2) Rent increase 1 Yr. 5 Yrs. 10 Yrs.
=========================================================================================
Regional Malls 4.9 8th 2.0% 2% 20% 40%
-----------------------------------------------------------------------------------------
Power Centers 5.3 6th 2.3% 1% 17% 32%
-----------------------------------------------------------------------------------------
Community Centers 5.4 5th 2.4% 2% 17% 33%
=========================================================================================
(1) Scale of 1 to 10
(2) Based on 9 property types
1=========================================================================================
The NCREIF Property Index represents data collected from the Voting Members
of the National Council of Real Estate Investment Fiduciaries. As shown in the
following table, data through the third quarter of 1995 shows that the retail
index posted a positive 1.23 percent increase in total return. Increased
competition in the retail sector from new and expanding formats and changing
locational references has caused the retail index to trail all other property
types. As such, the -2.01 percent decline in value reported by the retail
subindex for the year were in line with investors' expectations.
================================================================================
Retail Property Returns
NCREIF Index
Third Quarter 1995(%)
================================================================================
Period Income Appreciation Total Change in CPI
================================================================================
3rd Qtr 1995 1.95 -.72 1.23 .46
--------------------------------------------------------------------------------
One Year 8.05 -2.01 5.92 2.55
--------------------------------------------------------------------------------
Three Years 7.54 -3.02 4.35 2.73
--------------------------------------------------------------------------------
Five Years 7.09 -4.61 2.23 2.92
--------------------------------------------------------------------------------
Ten Years 6.95 .54 7.52 3.53
================================================================================
Source: Real Estate Performance Report
National Council of Real Estate Investment Fiduciaries
It is noted that the positive total return continues to be affected by the
capital return component which has been negative for the last five years.
However, as compared to the CPI, the total index has performed relatively well.
Real Estate Investment Trust Market (REITs)
To date, the impact of REITs on the retail investment market has been
significant, although the majority of Initial Property Offerings (IPOs)
involving regional malls, shopping centers, and outlet centers did not enter the
market until the latter part of 1993 and early 1994. It is noted that REITs have
dominated the investment market for apartment properties and have evolved into a
major role for retail properties as well.
-19-
National Retail Market Overview
As of November 30, 1995, there were 297 REITs in the United States, about
79.0 percent (236) which are publicly traded. The advantages provided by REITs,
in comparison to more traditional real estate investment opportunities, include
the diversification of property types and location, increased liquidity due to
shares being traded on major exchanges, and the exemption from corporate taxes
when 95.0 percent of taxable income is distributed.
There are essentially three kinds of REITs which can either be
"open-ended", or Finite-life (REITs) which have specified liquidation dates,
typically ranging from eight to fifteen years.
o Equity REITs center around the ownership of properties where ownership
interests (shareholders) receive the benefit of returns from the
operating income as well as the anticipated appreciation of property
value. Equity REITs typically provide lower yields than other types of
REITs, although this lower yield is theoretically offset by property
appreciation.
o Mortgage REITs invest in real estate through loans. The return to
shareholders is related to the interest rate for mortgages placed by
the REIT.
o Hybrid REITs combine the investment strategies of both the equity and
mortgage REITs in order to diversify risk.
The influx of capital into REITs has provided property owners with an
significant alternative marketplace of investment capital and resulted in a
considerably more liquid market for real estate. A number of "non-traditional"
REIT buyers, such as utility funds and equity/income funds, established a major
presence in the market during 1993/94.
1995 was not viewed as a great year for REITs relative to the advances seen
in the broader market. Through the end of November, equity REITs posted a 9.3
percent total return according to the National Association of Real Estate
Investment Trusts (NAREIT). The best performer among equity REITs was the office
sector with a 29.4 percent total return. This was followed by self-storage
(27.3%), hotels (26.7%), triple-net lease (20.6%), and health care (18.8%). Two
equity REIT sectors were in the red - outlet centers and regional malls.
Retail REITs
As of November 30, 1995, there were a total of 47 REITs specializing in
retail, making up approximately 16 percent of the securities in the REIT market.
Depending upon the property type in which they specialize, retail REITs are
divided into three categories: shopping centers, regional malls, and outlet
centers. The REIT performance indices chart shown as Table A on the following
page, shows a two-year summary of the total retail REIT market as well as the
performance of the three composite categories.
-20-
National Retail Market Overview
Table A - REIT Performance Indicies
Y-T-D Total Dividend No. of REIT Market
Return Yield Securities Capitalization*
================================================================================
As of November 30,1995
--------------------------------------------------------------------------------
TOTAL RETAIL 0.49% 8.36% 47 $14,389.1
Strip Centers 2.87% 8.14% 29 $ 8,083.3
Regional Malls -2.47% 9.06% 11 $ 4,886.1
Outlet Centers -2.53% 9.24% 6 $ 1,108.7
--------------------------------------------------------------------------------
As of November 30, 19 94
--------------------------------------------------------------------------------
TOTAL RETAIL -3.29% 8.35% 46 $12,913.1
Strip Centers -4.36% 7.98% 28 $ 7,402.7
Regional Malls 2.84% 8.86% 11 $ 4,459.1
Outlet Centers -16.58% 8.74% 7 $ 1,051.4
--------------------------------------------------------------------------------
* Number reported in thousands.
Source: Realty Stock Review
As can be seen, the 47 REIT securities have a market capitalization of
approximately $14.4 billion, up 11.5 percent from the previous year. Total
returns were positive through November 1995, reversing the negative return for
the comparable period 12 months earlier. It is noted that the positive return
was the result of the strength of the shopping center REITS which constitute
nearly 60 percent of the market capitalization. Total retail REITS dividend
yields have remained constant over the last year at approximately 8.36 percent.
Regional mail and shopping center REITS dominate the total market, making up
approximately 85 percent of the 47 retail REITs.
While many of the country's best quality malls and shopping centers have
recently been offered in the public market, this heavily capitalized marketplace
has provided sellers with an attractive alternative to the more traditional
market for large retail properties.
Regional Mall REITs
The accompanying exhibit Table B summarizes the basic characteristics of
eight REITS and one publicly traded real estate operating company (Rouse
Company) comprised exclusively or predominantly of regional mail properties.
Excluding the Rouse Company (ROUS), the 1POs have all been completed since
November 1992. The nine public offerings with available information have a total
of 281 regional or super regional malls with a combined leasable area of
approximately 229 million square feet. This figure represents more than 14.0
percent of the total national supply of this product type.
-21-
National Retail Market Overview
The nine companies are among the largest and best capitalized domestic real
estate equity securities, and are considerably more liquid than more traditional
real estate related investments. Excluding the Rouse Company, however, these
companies have been publicly traded for only a short period, and there is not an
established track record. General Growth was the star performer in 1995 with a
15 percent increase in its stock price following the acquisition of the Homart
retail portfolio from Sears for $1.85 billion - the biggest real estate
acquisition of the decade.
Source: Salomon Bothers and Realty Stock Review, Annual Reports
* Super Regional Center(> = 800,000 Sq. Ft)
** Numbers in thousands (000) includes malls only
*** Numbers in millions
**** Funds From Operations is defined as net income (loss) before
depreciation, amortization, other non-cash items, extraordinary items,
gains or losses on sales of assests and before minority interests in
the Operating Partnership.
-22-
National Retail Market Overview
Shopping Center REITs
Shopping center REITs comprise the largest sector of the retail REIT market
accounting for 29 out of the total 47 securities. General characteristics of
eight of the largest shopping center REITs are summarized on Table C. The public
equity market capitalization of the eight companies totaled $6.1 billion as of
December 15, 1995. The two largest, Kimco Realty Corp. and New Plan Realty Trust
have a market capitalization equal to approximately 34.5 percent of the group
total.
While the regional mail and outlet center REIT markets struggled through
1995, shopping center REITs showed a positive November 30, 1995 year-to-date
return of 2.87%. Through 1995, transaction activity in the national shopping
center market has been moderate. Most of the action in this market is in the
power center segment. As an investment, power centers appeal to investors and
REITs because of the high current cash returns and long-term leases. However,
with their popularity, the potential for overbuilding is high. Also creating
skepticism within this market is the stability of several large discount
retailers such as Kmart, and other discount department stores which typically
anchor power centers. Shopping center REITs which hold numerous properties where
struggling retailers are located are currently keeping close watch over these
centers in the event of these anchor tenants vacating their space.
Similar to the regional mall REITs, shopping center REITs have been
publicly traded for only a short period and do not have a defined track record.
While the REITs have been in existence for a relatively short period, the growth
requirements of the companies should place upward pressure on values due to
continued demand for new product.
-23-
National Retail Market Overview
------------------------------------------------------------------------------------------------------------------------------------
Table C - SHOPPING CENTER REIT ANALYSIS
Cushman & Wakefield, Inc.
------------------------------------------------------------------------------------------------------------------------------------
REIT PORTFOLIO DDR FRT GRT JPR KIM NPR VNO WRI
Devel. Federal Glimcher JP Kimco New Plan Vornado Weingarten
Diversified Realty Inv Realty Realty Inc Realty Corp Realty Realty Realty
====================================================================================================================================
Company 0verview
Total Properties 111 53 84 46 193 123 65 161
Total Retail Centers 104 53 84 40 193 102 56 141
Total Retail GLA* 23,600 11,200 12,300 6,895 26,001 14,500 9,501 13,293
Avg. Total GLA/Center* 227 211 146 172 135 142 170 94
------------------------------------------------------------------------------------------------------------------------------------
Mall Operations
Reporting Year -- -- 1994 -- 1994 -- -- 1994
Total Rental income -- -- $71,101 -- $125,272 -- -- $112,233
Average Rent/Square Foot $6.04 -- $5.78 -- $4.82 -- -- $8.44
Total Operating Expenses -- -- $45,746 -- $80,563 -- -- $76,771
Operating Expenses/Square Foot -- -- $3.72 -- $3.10 -- -- $5.78
Operating Expense Ratio -- -- 64.3% -- 64.3% -- -- 68.4%
Total Occupancy Level 96.6% 95.1% 96.3% 94.0% 94.7% 95.4% 94.0% 92.0%
------------------------------------------------------------------------------------------------------------------------------------
Share Prices
IPO Date 1992 1993 1994 1994 1991 1973 1993 1985
IPO Price $19.50 $17.25 $14.75 $22.00 $19.00 -- $22.25 --
Current Price (12/15/97) $29.88 $23.38 $17.75 $20.63 $42.25 $21.63 $36.13 $36.13
52 -Week High $32.00 $23.75 $22.38 $21.38 $42.25 $23.00 $38.13 $38.13
52 - Week Low $26.13 $19.75 $16 63 $17 38 $35.00 $18.75 $32.75 $32.75
------------------------------------------------------------------------------------------------------------------------------------
Capitalization & Yields
Outstanding Shares** 18.96 32.22 24.48 19.72 22.43 53.26 24.20 26.53
Market Capitalization** $567 $753 $435 $407 $948 $1,152 $874 $959
Annual Dividend $2.40 $1.64 $1.92 $1.68 $2.16 $1.39 $2.24 $2.40
Dividend Yield (12/15/95) 8.03% 7.01% 10.82% 8.14% 5.11% 6.43% 6.20% 6.64%
FF0 1995*** $2.65 $1.78 $2.25 $1.83 $3.15 $1.44 $2.67 $2.80
FFO Yield (12/15/95) 8.87% 7.61% 12.68% 8.87% 7.46% 6.66% 7.39% 7.75%
------------------------------------------------------------------------------------------------------------------------------------
Source Salomon Bothers and Realty Stock Review, Annual Reports
* Numbers in thousands (000) includes retail properties only.
** Numbers in millions.
*** Funds From Operations is defined as net income (loss) before
depreciation, amortization, other non-cash items, extraordinary items,
gains or losses on sales of assests and before minority interests in
the Operating Partnership
------------------------------------------------------------------------------------------------------------------------------------
-24-
National Retail Market Overview
Outlook
A review of various data sources reveals the intensity of the development
community's efforts to serve a U.S. retail market that is still growing,
shifting and evolving. It is estimated 25-30 power centers appear to be capable
of opening annually, generating more than 12 million square feet of new space
per year. That activity is fueled by the locational needs of key power center
tenants, 27 of which indicated in recent year-end reports to shareholders an
appetite for 900 new stores annually, an average of 30 new stores per firm.
With a per capita GLA figure of 19 square feet, most analysts are in
agreement that the country is already over-stored. As such, new centers will
become feasible through the following demand generators:
o The gradual obsolescence of some existing retail locations and retail
facilities;
o The evolution of the locational needs and format preferences of
various anchor tenants; and
o Rising retail sales generated by increasing population and household
levels.
By the year 2000, total retail sales are projected to rise from $2.237
trillion in 1994 to almost $2.9 trillion; shopping center-inclined sales are
projected to rise by $361 billion, from $1.194 trillion in 1994 to nearly $1.6
trillion in the year 2000. Those increases reflect annual compound growth rates
of 4.1 percent and 4.5 percent, respectively, for the six-year period.
On balance, we conclude that the outlook for the retail industry is one of
cautious optimism. Because of the importance of consumer spending to the
economy, the retail industry is one of the most studied and analyzed segments of
the economy. One obvious benefactor of the aggressive expansion and promotional
pricing which has characterized the industry is the consumer There will continue
to be an increasing focus on choosing the right format and merchandising mix to
differentiate the product from the competition and meet the needs of the
consumer. Quite obviously, many of the nations' existing retail developments
will find it difficult if not impossible to compete. Tantamount to the success
of these older centers must be a proper merchandising or repositioning strategy
that adequately considers the feasibility of the capital intensive needs of such
an undertaking. Coincident with all of the change which will continue to
influence the industry is a general softening of investor bullishness. This will
lead to a realization that the collective interaction of the fundamentals of
risk and reward now require higher capitalization rates and long term yield
expectations in order to attract investment capital.
-25-
[GRAPHIC OMITTED]
FLOOR PLAN OF THE GALLERIA
MAIN STREET LEVEL
[GRAPHIC OMITTED]
FLOOR PLAN OF THE GALLERIA
GARDEN LEVEL
[GRAPHIC OMITTED]
FLOOR PLAN OF THE GALLERIA
FASHION LEVEL LEVEL 1
[GRAPHIC OMITTED]
FLOOR PLAN OF THE GALLERIA
FASHION LEVEL LEVEL 2
THE GALLERIA AT WHITE PLAINS
PROPERTY NO. 9130
1/1/96 - 12/31/96
OPERATING BUDGET
REVISION DATE: SEPTEMBER 1,1995
RETAIL BUDGET - 1996
INDEX PAGE
SECTION PAGE
1 GENERAL INFORMATION
---------------------------------------------------------------------
SUMMARY NARRATIVE 3
FACT SHEET 6
2 BUDGET SUMMARY
---------------------------------------------------------------------
YEAR-TO-YEAR BUDGET COMPARISON (Budget page B1) 8
VARIANCE ANALYSIS 9
TWELVE MONTH SPREADSHEET (Budget page B2) 22
SUMMARY BY MINOR CODE 3
3 RECOVERABLE EXPENSE DETAIL 24
---------------------------------------------------------------------
4 INCOME DETAIL 31
---------------------------------------------------------------------
5 EXPENSE DETAIL 92
---------------------------------------------------------------------
6 MARKETING FUND (If Applicable) N/A
---------------------------------------------------------------------
SUMMARY OF CONTRACT EXPENSES 107
THE GALLERIA AT WHITE PLAINS
1996 COMMERCIAL OPERATING BUDGET
SUMMARY NARRATIVE
The Galleria at White Plains has a GLA of 326,449 square feet and two department
store anchors totaling 555,915 square feet, for a combined total for the center
of 882,363 square feet. The two department stores are Stern's formally Abraham &
Straus) and JCPenney, both middle-market stores. Filene's Basement, the
Massachusettes based discounter, opened a 26,100 square foot store on the Main
Street level of the mail in November 1992. In addition, there are 144 small
stores including a 13 unit food court. The four-level enclosed mall has an
attached 2,416 space parking garage which is owned and operated by the City of
White Plains.
The mall was built in 1990 as the centerpiece of an ambitious downtown urban
renewal project. Since that time the entire downtown White Plains area has
developed into a vital commercial and retail center for Westchester County. The
daytime population of the City of White Plains is 250,000 with a resident
population of approximately 47,000. White Plains is the county seat of
Westchester County, with a relatively strong economy and low unemployment. The
Galleria benefits from a dual urban/suburban customer base. Located within
walking distance of almost 6 million square feet of office space, The Galleria's
food court is an excellent noontime attraction for the local office worker
trade. This additional benefit of excellent highway access and close proximity
to public transportation also contributed to The Galleria's high sales volume of
$390 per square foot for the rolling twelve month period ended December 1994.
The trade area for The Galleria covers an extensive geographic area with a
population of approximately 1.5 million. Over 50% of The Galleria's shoppers
originate in White Plains and Southern Westchester. The estimated 1994 average
household income in the primary trade area was $55,479. The median household
income in Westchester County ranks within the top 1% of the nation.
For the past ten years, The Galleria has enjoyed tremendous success due
primarily to the lack of direct competition in the immediate market area
However, in March 1995, "The Westchester", an upscale regional mall developed by
the O'Connor Group of New York City, opened within one mile from The Galleria.
The 850,000 square foot mall is anchored by Nordstrom and Neiman Marcus with
tenants including Tiffany, Gucci, Brooks Brothers and William Sonoma.
Although The Galleria is anticipated to experience a negative sales impact
initially due to the opening of "The Westchester", this is expected to dissipate
over the long term. The two malls are positioned very differently with respect
to tenant mix and customer base, with each property focusing on a distinct
portion of the retail market.
To further establish and secure its place in the market, The Galleria completed
a major $12 million renovation in 1993. The renovation included new mall street
entrances and signage, new interior floor finishes, lighting, skylight
reglazing, landscaping, interior graphics, and additional food court seating.
The dramatic improvements to the appearance of The Galleria have reinforced
retailer confidence and customer perceptions, and will help ensure that The
Galleria maintains its market niche and continues to be as successful throughout
the 90s as it was in the previous decade.
THE GALLERIA AT WHITE PLAINS (#9130)
1996 COMMERCIAL OPERATING BUDGET
BUDGET OVERVIEW
Total income for the 1996 budget period is projected at $17,534,098.
Occupancy in January 1996 is anticipated to be 92.4% and is projected to
decrease to 83.5% by the end of the year with the average occupancy at 82.0%
for the budget period. The lower occupancy results in a decrease in base rent
for 1996, and similarly impacts percentage rent, common area, real estate tax,
and utility income for the period.
The total expenses for 1996 am projected at $8,265,686 representing a decrease
of 0.5% from the 1995 projected actual expenses. 1995 was the final year that
the $100,000 payment towards the parking garage deficit was required under the
terms of the Reciprocal Operating Agreement with the City, which favorably
impacts expenses for 1996.
Capital improvements budgeted for 1996 include tiling of the five garage
elevator vestibules and food court neutral piers at a cost of $85,000;
replacement of badly deteriorated exterior service doors at a cost of $50,000;
installation of additional closed circuit security cameras for the exterior
entrances and roof areas at a cost of $36,000 and a lighting retrofit of the
common areas at the 3 West entrance and public restroom hallway at a cost of
S45,000. In addition, a complete retrofit and upgrade of the mall's central
plant HVAC system has been budgeted at a cost of $750,000, along with the
installation of a new natural gas line and gas conversion of the boilers at a
cost of $140,000 and the in-place closure of the two underground oil tanks at a
cost of $30,000.
(CONTINUED) ..........
Page 2
Budget Overview
Continued
1996 BILLING RATES ARE AS FOLLOWS:
1996 1995
---- ----
CHARGE PER SQUARE FOOT CHARGE PER SQUARE FOOT
---------------------- ----------------------
Mall Tenants Food Court Mall Tenants Food Court
------------ ---------- ------------ ----------
Common Area Maintenance $ 14.30 $ 14.30 $ 13.48 $ 13.48
Real Estate Taxes 9.78 9.78 8.12 8.12
Mall HVAC 1.66 1.66 1.66 1.66
Marketing Fund 1.75 1.75 1.75 1.75
Water/Serer* 0.10 0.10 0.10 0.10
Food Court 34.81 34.81
--------- --------- --------- ---------
TOTAL EXTRA CHARGES- $ 27.59 $ 62.40 $ 25.11 $ 59.92
*NOTE: Food court tenants are billed at $4.87 psf for water.
Cash flow for the 1996 budget period is projected to be $3,038,956.
CENTER: The Galleria at White Plains CO. #:9130
OWNERSHIP: C.F. White Plains Associates
% INTEREST
PARTNERSHIP: CFSCP (New York) 99.66%
C.F. Properties (Shannon) 5.34%
MAILING ADDRESS: 100 Main Street
White Plains, NY 10601
MANAGEMENT COMPANY: Cadillac Fairview Shopping Centers (US) Limited
LOCATION: Downtown White Plains, New York
MAJOR ACCESS HIGHWAYS: Cross Westchester Expressway (Rte. 287)
Interstate 684
OPENING DATE: August 1, 1980
RENOVATION DATE(S): June 1992-October 1993
DEVELOPER: Cadillac Fairview Shopping Centers (US) Limited
DATE PURCHASED: January 1,1988
ACQUISITION PURCHASE PRICE: N/A
MORTGAGE AMOUNT OUTSTANDING: 37,599,392 AS OF: 8/1/95
WHEN IS LOAN DUE: July 1, 2016
LENDER: Teachers Insurance and Annuity Association
DESCRIPTION: Urban, four-level enclosed mall
SITE ACRES: 9.9
MAJOR STORES: NAME SQUARE FOOTAGE NON-OWNED/OWNED
---- -------------- ---------------
Stern's 328,599 Non-Owned
JC Penney 227,316 Ground Lease
-------- Owned
(Owned-Owned by shopping ctr.)
Total 555,915
-------
(Non-Owned=Owned by major)
SMALL SHOP GLA: 326,448
PAD TENANTS: N/A
GROSS LEASABLE AREA: 882,363
WITH MAJOR STORES
GROSS LEASABLE AREA: 326,448
OWNED BY SHOPPING CENTER
NUMBER OF SMALL SHOPS: 144
SMALL SHOP OCCUPANCY AS OF 8/1/95: 91.60%
PARKING SPACES: 2,416 (Municipal Garage)
PARKING RATIO: 2.7 per 1,000 sq. ft. 99.66%
SALES HISTORY: YEAR $SF
---- ---
1993 $388
1994 $390
Projected 1995 $351
PRIMARY TRADE AREA: North twelve miles to town of Ossining in Westchester
County; East five miles bounded by NY/CT state line; West
seven miles to the Hudson River; and south Fifteen miles
into the Bronx.
PRIMARY TRADE AREA
POPULATION: 1.5%
% OF EXPECTED INCREASE
NEXT 5 YEARS: 1.5%
PRIMARY TRADE AREA
AVERAGE HOUSEHOLD INCOME: $55,478.00
COMPETITION:
CENTER Stamford Town Center
LOCATION Downtown Stamford, CT
DISTANCE FROM MALL 15 miles
GLA 900,000 SF
NUMBER OF MALL SHOPS 170
NUMBER OF ANCHORS 3
ANCHORS Macy's, Filene's, Saks
OPENING DATE 1982
CENTER The Westchester
LOCATION White Plains, NY
DISTANCE FROM MALL 1/2 mile
GLA 850,000 SF
NUMBER OF MALL SHOPS 150
NUMBER OF ANCHORS 2
ANCHORS Nordstrom, Neiman Marcus
OPENING DATE 1995
CENTER Danbury Fair Mall
LOCATION Danbury, CT
DISTANCE FROM MALL 25 miles
GLA 1,200,000 SF
NUMBER OF MALL SHOPS 215
NUMBER OF ANCHORS 5
ANCHORS Macy's Sears, JC Penney, Lord & Taylor, Filene's
OPENING DATE 1986
DATE PREPARED: August 10,1995
URBAN RETAIL PROPERTIES CO.
PAGE B-1
1996 COMMERCIAL OPERATIG BUDGET
Property: THE GALLERIA AT WHITE PLAINS DATE: 09/01/95
Company #: 9130 TIME: 05:06PM
GLA - Small Shop: 326,448
GLA With All Department Stores = 882,363
GLA With Owned Dept. Stores = 326,448
DEPARTMENT STORES SQUARE FT/
----------------- ----------
1. J.C. PENNY 277,316 (NONALLOWED)
2. STERN'S 328,599 (NONALLOWED)
3. ( )
4. ( )
5. ( )
6. ( )
---------------------------- ---------
DEPT. STORE TOTAL 555,915
Date of Purchase: 01-Jan-80
Purchase Price: N/A
Ownership: CF WHITE PLAINS ASSOC.
Cash Invested: N/A
Sales PSF (Rolling 12 Months): $382.55 /psf
1996 STANDARD
PRO RATA TENANT CHARGES
$/PSF
------
CAM $14.30
NW 0.00
Escalations 0.00
RET 9.78
Utilities 1.66
Marketing 1.75
Other 0.10
--------------------------
Sub Total $27.59
--------------------------
Food Court 34.81
--------------------------
1996 Total $62.40
==========================
1995 Total $59.92
PAYROLL NOTES
1995 Budgeted Payroll : 265,602
/Sq. Ft. : $0.81
1995 Projected Actual Payroll : 228,380
/Sq. Ft. : $0.70
1996 Budget Payroll : 235,672
/Sq. Ft. : $0.72
Variance - 1996 Budget vs 1995 Proj Act : 7,292
% Difference : 3.19%
MARKETING FUND NOTES
Marketing Fund Income : 341,055
Owner's Contribution & Subsidies : 85,264
Media Fund Income : 457,800
----------------------------------------------------------------
TOTAL INCOME : 884,119
----------------------------------------------------------------
Marketing & Media Express : 884,119
----------------------------------------------------------------
Net Marketing & Media Funds : 0
================================================================
PAGE B-3 Co#: 9130 DATE: 01-Sep-95 1996 COMMERCIAL OPERATING BUDGET
-----------------------------------------------------------------------------------------------------------------------------
Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96
=============================================================================================================================
OCCUPANCY
% Occupancy 92,36% 79.96% 79.96% 80.48% 81.08% 81.08% 80.32%
Sq. Ft. GLA Occupied 301,498 261,033 261,033 262,725 264,688 264,688 262,190
Sq. Ft. GLA Vacant 24,950 65,415 65,415 63,723 61,760 61,760 64,258
=============================================================================================================================
INCOME:
Base Rent (4001) 769,414 734,847 734,847 741,146 750,454 750,454 744,209
CPI Income (4021) 0 0 0 0 0 0 0
Temporary Kiosk Income (4006) 13,950 13,950 13,950 13,950 13,950 13,950 13,950
Lease Termination Charges (4078) 0 251,266 0 0 0 0 0
Storage Charges (4008) 650 250 250 250 250 250 250
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RENT 784,014 1,000,313 749,047 755,346 764,654 764,654 758,409
=============================================================================================================================
Property: THE GALLERIA AT WHITE PL Sq. Ft.: 326,448 05:06 PM
-----------------------------------------------------------------------------------------------------------------------------
Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 TOTAL 1995 PROJ
=============================================================================================================================
OCCUPANCY
% Occupancy 80.08% 80.94% 80.94% 83.45% 83.45% 82.01% 91.98%
Sq. Ft. GLA Occupied 261,432 264,237 264,237 272,414 272,414 300,488
Sq. Ft. GLA Vacant 65,016 62,211 62,211 54,034 54,034
=============================================================================================================================
INCOME:
Base Rent (4001) 747,107 753,382 755,219 774,553 775,267 9,030,899 9,155,440
CPI Income (4021) 0 0 0 0 0 0 0
Temporary Kiosk Income (4006) 13,950 13,950 13,950 42,800 42,80 225,100 262,700
Lease Termination Charges (4078) 0 0 0 0 0 251,266 0
Storage Charges (4008) 250 250 250 250 250 3,400 7,800
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RENT 761,307 767,582 769,419 817,603 818,317 9,510,665 9,425,940
=============================================================================================================================
NOTES: (4001) BASED UPON LEASING PROJECTIONS.
(4006) SEVEN TEMPORARY PUSHCARTS AT $1,000/MONTH EACH FOR JAN THRU OCT AND $10,000-$12,000
EACH DURING HOLIDAY SEASON. ALSO, INCLUDES TWO TEMPORARY TENANTS $6950 PER
MONTH/$15,600 DURING HOLIDAY SEASON.
(4008) TENANT STORAGE INCOME FROM SBARRO (JAN) AND THINGS REMMBERED.
(4078) TERMINATION FEE TO BE PAID BY MELVILLE FOR "GARAGE" SPACE $251,266/FEBRUARY.
Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96
=============================================================================================================================
=============================================================================================================================
Percentage Rental Income (4002) 15,717 20,188 46,657 81,132 13,339 13,339 16,604
=============================================================================================================================
Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 TOTAL 1995 PROJ
=============================================================================================================================
Percentage Rental Income (4002) 22,536 11,610 11,740 11,740 11,790 276,392 394,100
=============================================================================================================================
NOTES: (4002) LEASE YEAR ENDED JANUARY 1996 COLLECTED IN APRIL 1996.
Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96
=============================================================================================================================
=============================================================================================================================
Common Area Maintenance (4022) 318,371 281,496 281,496 283,513 275,272 274,886 283,167
Mall Area Maintenance (4023) 0 0 0 0 0 0 0
Escalation Charges (4020) 0 0 0 0 0 0 0
Food Court Charges (4024) 29,110 25,377 25,377 25,377 7,942 7,942 31,287
-----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON AREA INCOME 347,481 306,873 306,873 308,890 283,214 282,828 314,454
=============================================================================================================================
Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 TOTAL 1995 PROJ
=============================================================================================================================
Common Area Maintenance (4022) 282,612 285,954 295,698 295,700 295,700 3,453,865 3,800,891
Mall Area Maintenance (4023) 0 0 0 0 0 0
Escalation Charges (4020) 0 0 0 0 0
Food Court Charges (4024) 31,287 31,287 31.287 31,287 31,287 308,847 280,594
-----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON AREA INCOME 313,899 317,241 326,985 326,987 326,987 3,762,712 4,081,485
=============================================================================================================================
NOTES: (4022) 1995 LUMP SUM CREDIT ADJUSTMENT OF $(21,421) BUDGETED 50% IN MAY AND 50% IN JUNE.
NEW MONTHLY CHARGES BUDGETED AS OF 1/1/96 BASED UPON 1996 BUDGETED EXPENSES.
(4024) 1995 LUMP SUM CREDIT ADJUSTMENT $(37,978) BUDGETED 50% IN MAY AND 50% IN JUNE.
NEW MONTHLY CHARGES BUDGETED AS OF 1/1/96 BASED UPON 1996 BUDGETED EXPENSES.
Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96
=============================================================================================================================
=============================================================================================================================
REAL ESTATE TAX INCOME (4040) 231,745 201,474 201,474 202,853 239,079 239,078 202,855
=============================================================================================================================
Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 TOTAL 1995 PROJ
=============================================================================================================================
REAL ESTATE TAX INCOME (4040) 202,873 205,158 211,822 211,821 211,822 2,562,054 2,631,151
=============================================================================================================================
NOTES: (4040) 1995 LUMP SUM ADJUSTMENT BILLING OF $68,721 BUDGETED 50% IN MAY AND 50% IN JUNE.
NEW MONTHLY CHARGES BUDGETED AS OF 1/1/96 BASED UPON 1996 BUDGETED EXPENSES.
PAGE 31
=============================================================================================================================
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 1
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
KOI-02 SILVER AND GOLD C 156 NOV 01, 94 39,999 NOV 01, 95 256.41 400,000 CAM 01 .0636
DEC 31, 97 42,000 NOV 01, 96 269.23 10.00 RET 02 .0524
(STEP-UP)
K02-02 SUNGLASS HUT 156 DEC 01, 94 39,999 DEC 01, 94 256.41 500,000 CAM 01 .0636
JAN 31, 00 42,999 DEC 01, 96 275.64 8.00 RET 02 .0524
STEP-UP)
K03-01 JEWEL HUT 156 MAY 01, 95 39,999 MAY 01, 95 256.41 400,000 CAM 84000 .0636
APR 30, 00 42,000 MAY 01, 98 269.23 10.00 RET 02 .0524
(STEP-UP)
K04-01 VALENTI FRAGRANCE 156 NOV 14, 90 42,000 DEC 01, 95 269.23 420,000 CAM 03 .0636
JUL 31, 96 10.00 RET 02 .0524
K05-01 QUINTEX MOBILE CO 163 NOV 01, 93 CAM 03 .0664
DEC 31, 95 RET 02 .0547
K06-01 ROSE JEWELRY 166 NOV 01, 89 39,999 NOV 01, 94 240.96 500,000 CAM 03 .0676
OCT 31, 99 42,999 NOV 01, 96 259.04 8.00 RET 02 .0558
(STEP-UP)
K07-04 THE VITAMIN WORKS 163 DEC 01, 95 39,999 DEC 01, 95 245.40
DEC 31, 00 42,000 DEC 01, 98 257.67
KO8-04 SUNGLASS SOURCE 166 JUL 01, 94 32,000 JUL 01, 94 192.77 320,000 CAM 04 .0558
DEC 31, 99 35,000 JAN 01, 97 210.84 10.00 RET 02 .0558
38,000 JAN 01, 98 228.92 (STEP-UP)
0101 VACANT UNIT 26,100
0106-02 LIBERTY TRAVEL 1,100 SEP 12, 80 CAM 04 .2603
JAN 31, 96 RET 02 .2603
0110 VACANT UNIT 15,451
0113-01 EMIGRANT SAVINGS 10,000 AUG 06, 80 279,999 AUG 01, 80 28.00 0 CAM 04 3.3587 3/5YR
JAN 31, 06 0.00 RET 02 3.3587
0201-01 SOFTWARE ETC. 1,808 JAN 27, 87 59,664 FEB 01, 92 33.00 1,193,280 CAM 03 .7367
JAN 31, 97 5.00 RET 02 .6073
0202-02 SAM GOODY 4,807 FEB 01, 91 177,858 FEB 01, 94 37.00 2,540,842 CAM 03 1.9588
JAN 31, 98 7.00 RET 05 1.6145
0205-02 RADIO SHACK 3,157 FEB 01, 93 78,924 FEB 01, 96 25.00 1,984,086 CAM 03 1.2791
JAN 31, 03 3.00 RET 02 1.0604
(STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 2
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0206-02 GENERAL NUTRITION 1,944 FEB 01, 91 69,999 FEB 01, 96 36.01 1,000,000 CAM 03 .7922
JAN 31, 00 7.00 RET 02 .6529
0209-04 MY FAVORITE MUFFI 750 DEC 01, 95 45,999 DEC 01, 95 61.33
NOV 30, 03 50,000 DEC 01, 97 66.67
54,000 DEC 01, 99 72.00
57,999 DEC 01, 01 77.33
0210-02 WALDENBOOKS #1340 4,833 FEB 01, 91 159,489 FEB 01, 96 33.00 2,658,150 CAM 03 1.9582
JAN 31, 01 6.00 RET 02 1.6233
0213-05 CLAIRE'S BOUTIQUE 717 NOV 01, 92 50,190 NOV 01, 95 70.00 627,375 CAM 03 .2196
DEC 31, 02 53,775 NOV 01, 99 75.00 8.00 RET 02 .2408
(STEP-UP)
0214-02 JEAN'S HALLMARK 2,829 AUG 22, 80 113,160 SEP 01, 95 40.00 1,414,500 CAM 03 1.1462
JAN 31, 99 8.00 RET 02 .9502
0218 VACANT UNIT 603
0221-02 CINNABON 925 NOV 15, 90 46,999 DEC 01, 95 50.81 587,500 CAM 03 .3769
NOV 30, 98 8.00 RET 02 .3107
0222 VACANT UNIT 2,036
0225-02 GREAT AMERICAN CO 675 SEP 01, 92 54,999 FEB 01, 96 81.48 550,000 CAM 04 .2267
JUN 30, 02 60,000 FEB 01, 99 88.89 10.00 RET 02 .2267
(STEP-UP)
0226-01 QUICK -N- NATURAL 331 OCT 01, 82 32,000 FEB 01, 90 96.68 260,000 CAM 03 .1349
JAN 31, 00 10.00 RET 02 .1112
0229-01 MR GREEN JEANS 6,500 OCT 07, 80 97,500 OCT 01, 80 15.00 CAM 03 2.3702 1/5YR
JAN 31, 01 RET 02 1.9904
0230-02 MANCHU WOK 845 DEC 01, 91 57,999 DEC 01, 94 68.64 828,571 CAM 06 .3111
JAN 31, 02 60,999 DEC 01, 98 72.19 7.00 RET 02 .2838
(STEP-UP)
0233 VACANT UNIT 1,747
0234-02 ARTHUR TREACHERS 561 FEB 28, 93 54,999 FEB 01, 93 98.04 750,000 CAM 03 .2286
MAR 31, 03 60,000 APR 01, 96 106.95 10.00 RET 02 .1884
65,000 APR 01, 00 115.86 (STEP-UP)
0237-01 GENROKU 1,323 MAY 23, 80 CAM 03 .5391
JAN 31, 96 RET 02 .4444
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 3
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0238-03 BIZZARRE PIZZERIA 607 OCT 01, 89 54,630 FEB 01, 96 90.00 546,300 CAM 03 .2473
SEP 30, 05 62,824 OCT 01, 98 103.50 10.00 RET 02 .2039
80,730 OCT 01, 00 133.00 (STEP-UP)
87,408 OCT 01, 02 144.00
0241-02 ACROPOLIS 519 FEB 01, 96 42,999 FEB 01, 96 82.85 430,000
JAN 31, 06 45,000 FEB 01, 99 86.71 10.00
47,000 FEB 01, 03 90.56 (STEP-UP)
0242-02 ROY ROGERS 1,200 OCT 01, 89 111,600 OCT 01, 95 93.00 1,860,000 CAM 03 .489
SEP 30, 05 123,600 OCT 01, 98 103.00 6.00 RET 02 .403
143,199 OCT 01, 00 119.33 (STEP-UP)
156,300 OCT 01, 02 130.25
0245-02 J.B.'S TEXAS GRIL 472 FEB 01, 96 42,999 FEB 01, 96 91.10 430,000
JAN 31, 06 45,000 FEB 01, 99 95.34 10.00
47,000 FEB 01, 03 95.58 (STEP-UP)
0249-03 BIG EASY CAJUN 414 NOV 21, 95 48,000 NOV 01, 95 115.94 600,000
JAN 31, 06 51,000 NOV 01, 98 123.19 8.00
54,000 NOV 01, 02 130.43 (STEP-UP)
0250-03 EVERYTHING YOGURT 455 OCT 01, 89 40,950 OCT 01, 95 90.00 409,500 CAM 03 .1854
SEP 30, 05 47,092 OCT 01, 98 103.50 10.00 RET 02 .1528
66,429 OCT 01, 00 146.00 (STEP-UP)
75,075 OCT 01, 02 165.00
0253-01 CHOWDER'S SEAFOOD 405 OCT 01, 86 38,000 OCT 01, 92 93.83 380,000 CAM 03 .165
SEP 30, 96 10.00 RET 02 .1360
0254-02 THE COMPLETE ATHL 1,100 SEP 15, 90 49,999 FEB 01, 96 45.45 714,285 CAM 03 .4482
JAN 31, 99 7.00 RET 02 .3695
0257-03 NATHAN'S 968 APR 01, 89 85,008 OCT 01, 93 87.82 944,444 CAM 03 .3945
MAR 31, 99 95,004 APR 01, 97 98.14 10.00 RET 02 .3251
(STEP-UP)
0265-01 MCDONALD'S #31-10 1,593 NOV 07, 85 63,720 NOV 01, 85 40.00 1,062,000 CAM 03 .6454
JAN 31, 01 6.00 RET 02 .535
0269-02 FRIENDLY RESTAURA 4,065 NOV 01, 88 75,202 NOV 01, 93 18.50 1,504,050 CAM 03 1.3831
OCT 31, 03 83,332 NOV 01, 98 20.50 5.00 RET 02 1.3653
(STEP-UP)
0300-01 SENA HANDBAGS 546 NOV 01, 80 15,287 NOV 01, 80 28.00 0 CAM 03 .2212
JAN 31, 06 0.00 RET 02 .1834
0301-02 CPI PHOTO FINISH 974 FEB 01, 91 CAM 03 .3969
JAN 31, 96 RET 02 .3271
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 3
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0302-01 LANE BRYANT 4,274 APR 25, 05 CAM 03 1.7317
JAN 31, 96 RET 02 1.4355
0305-01 LERNER STORES #75 9,955 AUG 06, 80 298,650 FEB 01, 96 30.00 5,973,000 CAM 06 3.6649 7.5%CAP
JAN 31, 03 5.00 RET 02 3.3436
0306-03 ART EXPO 1,820 MAY 01, 92
DEC 31, 49
0310-01 CHARADE FASHION 3,873 AUG 22, 80 CAM 03 1.5692
JAN 31, 96 RET 02 1.300
0313-02 THE DISNEY STORE 3,765 MAY 25, 93 94,125 JUN 01, 93 25.00 2,353,125 CAM 03 1.4452
MAY 30, 03 101,655 JUN 01, 98 27.00 4.00 RET 02 1.2646
(STEP-UP)
0314-02 VICTORIA'S SECRET 5,282 NOV 01, 92 184,869 NOV 01, 92 35.00 3,697,400 CAM 06 1.9445 7.5%CAP
JAN 31, 03 195,434 NOV 01, 97 37.00 5.00 RET 02 1.774
(STEP-UP)
0318-02 HARWYN 1,958 JAN 20, 89 44,055 JAN 01, 89 22.50 734,250 CAM 03 .7933
JAN 31, 01 6.00 RET 02 .6576
0319-01 PACIFIC SUNWEAR 0 2,215 MAY 01, 94 88,599 MAY 01, 94 40.00 1,495,333 CAM 84600 .7440
APR 30, 04 94,137 MAY 01, 97 42.50 6.00 RET 02 .7440
99,675 MAY 01, 01 45.00 (STEP-UP)
0320-02 GAME STOP 537 APR 15, 93 36,000 APR 01, 93 67.04 720,000 CAM 03 .2188
MAR 31, 03 40,999 APR 01, 96 76.35 5.00 RET 02 .1804
45,999 APR 01, 00 85.66 (STEP-UP)
0322-01 WILD PAIR 1,969 AUG 06, 80 CAM 03 .7978
JAN 31, 96 RET 02 .6613
0325-04 GATSBY AT GALLERI 3,116 OCT 25, 80 93,480 OCT 01, 94 30.00 1,558,000 CAM 03 1.2625
JAN 31, 01 109,059 OCT 01, 98 35.00 6.00 RET 02 1.0466
(STEP-UP)
0326-01 WILSON SUEDE & LE 1,810 OCT 15, 87 65,160 FEB 01, 96 36.00 1,086,000 CAM 03 .7334
JAN 31, 97 6.00 RET 02 .6079
0329-03 MAJOR JEWELERS 1,000 SEP 01, 94 69,999 SEP 01, 94 70.00 1,166,666 CAM 84000 .3681
AUG 31, 04 75,000 SEP 01, 99 75.00 6.00 RET 02 .3359
(STEP-UP)
0330-02 OVER THE COUNTER 1,196 OCT 16, 80 CAM 03 .4846
JAN 31, 96 RET 02 .4017
0333-03 PRECIS 2,121 NOV 27, 92 74,235 DEC 01, 92 35.00 1,237,250 CAM 04 .07124 7.5%CAP
NOV 30, 02 6.00 RET 02 .7124
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 5
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0334-02 THOM MCAN 3,011 FEB 01, 96 96,351 FEB 01, 96 32.00 1,605,866
JAN 31, 06 108,396 FEB 01, 01 36.00 6.00
(STEP-UP)
0337-02 COBBIE SHOP 1,247 AUG 01, 89 35,864 JAN 01, 96 28.76 1,143,083 CAM 03 .5081
JUL 31, 98 68,580 JUL 01, 96 55.00 6.00 RET 02 .4188
0338-01 PANTS PLACE PLUS 3,399 AUG 06, 80 108,768 JAN 01, 93 32.00 1,812,800 CAM 03 1.3772
JAN 31, 98 5.00 RET 02 1.1416
0341-02 PRINTS PLUS 1,392 NOV 24, 89 58,464 DEC 01, 92 42.00 974,400 CAM 03 .5672
NOV 30, 99 64,032 DEC 01, 96 46.00 6.00 RET 02 .4675
(STEP-UP)
0342-03 NATURE'S ELEMENTS 904 NOV 28, 92 45,200 DEC 01, 92 50.00 753,333 CAM PR-INS/AM .3036
JAN 31, 03 49,719 DEC 01, 97 55.00 6.00 RET 02 .3036
(STEP-UP)
0345-03 ATHLETE'S FOOT 1,451 JAN 01, 94 120,000 FEB 01, 94 82.70 1,714,285 CAM 84600 .4874
JAN 31, 02 125,000 FEB 01, 97 86.15 7.00 RET 02 .4874
(STEP-UP)
0346 VACANT UNIT 3,348
0349-01 JUST SHIRTS 886 DEC 11, 82 38,984 FEB 01, 95 44.00 649,733 CAM 03 .3590
JAN 31, 98 6.00 RET 02 .2976
0350-02 THIS END UP 2,242 FEB 01, 96 85,196 FEB 01, 96 38.00 1,703,920
JAN 31, 06 89,679 FEB 01, 99 40.00 5.00
94,164 FEB 01, 03 42.00 (STEP-UP)
0354 VACANT UNIT 1,794
0357-02 THE LIMITED 6,353 JUL 01, 93 222,354 JUL 01, 93 35.00 4,447,100 CAM 06 2.3388 7.5%CAP
JAN 31, 06 235,061 JUL 01, 99 37.00 5.00 RET 02 2.1338
(STEP-UP)
0358-02 THE CHILDREN'S PL 4,577 FEB 01, 95 114,425 FEB 01, 96 25.00 1,907,083
JAN 31, 05 128,156 FEB 01, 00 28.00 6.00
(STEP-UP)
0361-02 THE COFFEE BEANER 742 OCT 15, 91 42,999 NOV 01, 93 57.95 614,285 CAM 03 .3024
JAN 31, 02 45,000 NOV 01, 96 60.65 7.00 RET 02 .2492
48,000 NOV 01, 01 64.69 (STEP-UP)
0364-02 JEAN COUNTRY 2,664 NOV 15, 89 109,224 FEB 01, 96 41.00 1,820,400 CAM 03 1.0856
JAN 31, 00 114,552 FEB 01, 98 43.00 6.00 RET 02 .8948
(STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 6
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0365-01 THINGS REMEMBERED 682 SEP 02, 86 37,509 SEP 01, 86 55.00 468,875 CAM 03 .2779
AUG 31, 96 8.00 RET 02 .2291
0368-04 MERRY G0 ROUND 3,316 MAR 01, 91 109,428 MAR 01, 94 33.00 1,823,800 CAM 03 1.3435
FEB 28, 01 112,743 MAR 01, 98 34.00 6.00 RET 02 1.1138
(STEP-UP)
0369-03 SPENCER GIFTS 1,757 SEP 15, 94 66,765 SEP 01, 94 38.00 1,112,766 CAM 85000 .5901
JAN 31, O5 70,280 SEP 01, 97 40.00 6.00 RET 02 .5901
73,794 SEP 01, 01 42.00 (STEP-UP)
0370-02 TRU STRIDE 1,449 FEB 01, 96 52,164 FEB 01, 96 36.00 869,400
JAN 31, 06 55,062 FEB 01, 00 38.00 6.00
57,960 FEB 01, 02 40.00 (STEP-UP)
0373-03 LADY FOOT LOCKER 1,683 JAN 01, 90 82,467 JAN 01, 96 49.00 1,374,450 CAM 03 .6858
DEC 31, 98 6.00 RET 02 .5653
0374-02 NATURALIZER 1,227 FEB 01, 91 45,000 FEB 01, 91 36.67 CAM 03 .4971
JAN 31, 97 RET 02 .4121
0375-02 G & G 1,985 JUN 15, 92 59,550 JUN 01, 92 30.00 992,500 CAM 04 .6667
JAN 31, 03 79,400 FEB 01, 97 40.00 6.00 RET 02 .6667
1,323,333
6.00
0377-01 OAK TREE 2,642 AUG 06, 80 CAM 03 1.0705
JAN 31, 96 RET 02 .8874
0378-03 EXPRESSLY PORTRAI 1,261 OCT 01, 93 5O,439 OCT 01, 93 40.00 650,203 CAM 04 .4235
SEP 30, 03 56,745 OCT 01, 96 45.00 8.00 RET 02 .4235
63,O5O OCT 01, 00 5O.00 (STEP-UP)
0381-02 STRUCTURE 5,709 AUG 19, 94 182,688 AUG 01, 94 32.00 3,653,760 CAM 04 1.9175
JAN 31, 05 194,106 SEP 01, 97 34.00 5.00 RET 02 1.9175
205,524 SEP 01, 01 36.00 (STEP-UP)
0382-02 RALPH JOBEN 1,635 FEB 01, 92 65,400 FEB 01, 92 40.00 1,090,000 CAM 04 .5492
JAN 31, 97 6.00 RET 02 .5492
0387-01 OVERLAND TRADING 1,592 NOV 08, 80 44,576 FEB 01, 92 28.00 CAM 03 .6450
JAN 31, 98 RET 02 .5347
0389 VACANT UNIT 2,040
0391-03 HAIR STYLISTS 1,401 OCT 01, 91 42,030 OCT 01, 91 30.00 600,428 CAM 03 .5709
SEP 30, 01 47,634 OCT 01, 96 34.00 7.00 RET 02 .4706
(STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 7
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0393-04 TAILOR'S TOUCH 1,167 APR 01, 93 42,012 JAN 01, 96 36.00 583,500 CAM 04 .3920
MAR 31, 00 46,680 APR 01, 96 40.00 8.00 RET 02 .3920
0395-02 COHEN FASHION OPT 1,692 FEB 01, 93 71,064 FEB 01, 96 42.00 1,184,400 CAM 04 .5683
JAN 31, 03 74,448 FEB 01, 98 44.00 6.00 RET 02 .5683
77,832 FEB 01, 00 46.00 (STEP-UP)
81,216 FEB 01, 02 48.00
0401-02 IDEAL JEWELERS 760 JAN 01, 89 46,800 NOV 01, 95 60.00 780,000 CAM 03 .3178
DEC 31, 01 6.00 RET 02 .2620
0402 VACANT UNIT 1,654
0403-01 DIME BANK-ATM 150 OCT 01, 95
MAR 31, 96
0405 VACANT UNIT 3,412
0406-03 FAMILY PET CENTER 2,798 OCT 01, 94
DEC 31, 96
0409-01 HALLMARK PARTY BA 3,164 AUG 06, 80 63,279 AUG 01, 80 20.00 1,054,666 CAM 03 1.2819
JAN 31, 01 6.00 RET 02 1.0627
0410-03 MUSICLAND 3,159 FEB 01, 91 135,360 FEB 01, 94 42.85 1,933,714 CAM 03 1.2799
JAN 31, 01 142,086 FEB 01, 98 44.98 7.00 RET 02 1.0610
(STEP-UP)
0413 VACANT UNIT 6,624
0414-01 PETITE SOPHISTICA 2,182 AUG 29, 80 CAM 03 .8884
JAN 31, 96 RET 02 .7329
0417-01 CASUAL CORNER #47 4,898 AUG 06, 80 CAM 03 1.9845
JAN 31, 96 RET 02 1.6451
0418-01 LOTS TO LOVE 2,896 JUL 23, 84 72,399 JUL 01, 84 25.00 1,206,667 CAM 03 1.1734
JAN 31, 97 6.00 RET 02 .9727
0421-05 NORTHERN LIGHTS C 794 AUG 01, 95
APR 15, 96
0422 VACANT UNIT 1,342
0424-03 NAILS & MORE BY D 993 FEB 01, 96 30,000 FEB 01, 96 30.21 375,000
JAN 31, 06 35,000 FEB 01, 98 35.25 8.00
38,000 FEB 01, 02 38.27 (STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 8
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0425-02 FOOTLOCKER #7635 2,441 NOV 22, 94 120,000 NOV 01, 94 49.16 2,000,000 CAM 84700 .8199
AUG 31, 04 125,000 SEP 01, 97 51.21 6.00 RET 02 .8199
129,999 SEP 01, 01 53.26 (STEP-UP)
0426-02 ACCESSORY PLACE 1,086 NOV 20, 87 54,300 NOV 01, 92 50,00 678,750 CAM 03 .4400
NOV 30, 97 8.00 RET 02 .3648
0430-02 JOHN DAVID TOBACC 400 OCT 01, 91 33,999 OCT 01, 95 85.00 425,000 CAM 04 .1343
JAN 31, 00 36,000 OCT 01, 97 90.00 8.00 RET 02 .1343
(STEP-UP)
0433-04 AMERICAN EAGLE OU 3,935 NOV 25, 94 125,919 FEB 01, 95 32.00 2,098,666 CAM 84000 1.4487
AUG 31, 04 133,790 SEP 01, 97 34.00 6.00 RET 02 1.3217
141,660 SEP 01, 01 36.00 (STEP-UP)
0434-02 AUNTIE ANNE'S 596 MAY 01, 94 42,000 MAY 01, 94 70.47 525,000 CAM 84000 .2194
APR 30, 04 45,000 MAY 01, 97 75.50 8.00 RET 02 .200
48,000 MAY 01, 01 80.54 (STEP-UP)
0436-02 SUNCOAST PICTURES 2,692 JUN 01, 91 94,220 FEB 01, 94 35.00 1,884,400 CAM 03 1.0907
JAN 31, 02 99,604 FEB 01, 00 37.00 5.00 RET 02 .9042
(STEP-UP)
0440 VACANT UNIT 1,265
0441 VACANT UNIT 1,556
0446-03 LIMITED TOO 3,949 MAY 30, 95 126,368 JUN 01, 95 32.00 2,527,360 CAM 04
MAY 31, 05 134,265 JUN 01, 98 34.00 5.00 RET 02
142,165 JUN 01, 02 36.00 (STEP-UP)
0449-02 THE BOMBAY COMPAN 4,052 OCT 01, 93 101,300 OCT 01, 95 25.00 1,730,541 CAM 03 1.6511
SEP 30, 03 111,429 OCT 01, 96 27.50 6.00 RET 02 1.361
121,560 OCT 01, 00 30.00 (STEP-UP)
0450-01 AUGUST MAX WOMAN 3,226 OCT 07, 80 CAM 03 1.307
JAN 31, 96 RET 02 1.0835
0453-01 CIGNAL 2,632 JUL 31, 86 78,960 JUL 01, 86 30.00 1,579,200 CAM 03 .8955
JUL 31, 96 5.00 RET 02 .8840
0454 VACANT UNIT 960
0457-02 KAY BEE TOYS 3,322 JUN 01, 93 119,592 JUN 01, 93 36.00 1,993,200 CAM 03 1.346
MAY 30, 03 126,236 MAY 01, 96 38.00 6.00 RET 02 1.1158
132,878 MAY 01, 00 40.00 (STEP-UP)
0458-02 CONTEMPO CAUSALS 3,677 APR 01, 92 139,725 APR 01, 92 38.00 2,794,520 CAM 04 1.235
MAR 31, 02 147,080 APR 01, 97 40.00 5.00 RET 02 1.235
(STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 9
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0461-05 AFTERTHOUGHTS BOU 586 APR 19, 92 39,999 AUG 01, 94 68.26 500,000 CAM PR-INS/AM .2157
APR 30, 02 42,000 AUG 01, 98 71.67 8.00 RET 02 .1968
(STEP-UP)
0462-01 ASPASIA 750 AUG 06, 80 CAM 03 .3039 2/5YR.
JAN 31, 96 RET 02 .2519
0464-01 MOTHERTIME 2,805 AUG 06, 80 CAM 03 1.1365
JAN 31, 96 RET 02 .9421
0465-01 D.J.'S FASHION CE 2,498 JUN 20, 86 74,940 JUN 01, 86 30.00 1,249,000 CAM 03 .8499
JUN 30, 96 6.00 RET 02 .8390
0468-02 LECHTER'S 3,234 AUG 06, 80 CAM 03 1.3103
JAN 31, 96 RET 02 1.0862
0472-01 KAPPA SPORT 781 JUL 01, 84 CAM 15100-STL .2989
JAN 31, 91 RET 02 .2551
0473-04 EXPRESS AND BATH 9,259 OCT 15, 92 296,288 NOV 01, 92 32.00 5,925,760 CAM 06 3.4087 7.5%CAP
JAN 31, 05 314,805 NOV 01, 96 34.00 5.00 RET 02 3.1099
333,324 NOV 01, 00 36.00 (STEP-UP)
0474-02 THE GAP #751 7,511 NOV 01, 91 322,973 JUN 01, 94 43.00 5,382,883 CAM 06 2.7651 6%CAP
MAY 31, 04 337,995 JUN 01, 97 45.00 6.00 RET 02 2.5227
360,528 JUN 01, 00 48.00 (STEP-UP)
0480-03 GYMBOREE 979 JAN 01, 95 51,000 JAN 01, 95 52.09 850,000 CAM 04 .3989
JUN 30, 00 6.00 RET 02 .3288
(STEP-UP)
0483-02 KINNEY SHOES #03 2,543 FEB 01, 92 64,638 FEB 01, 92 25.42 1,077,300 CAM PR-INS/AM .9362
JAN 31, 01 6.00 RET 02 .8541
0484-02 HEROES WORLD 1,054 SEP 01, 91 47,499 SEP 01, 93 45.07 593,750 CAM 03 .4295
AUG 31, 99 47,499 AUG 01, 96 45.07 8.00 RET 02 .354
52,500 SEP 01, 96 49.81 (STEP-UP)
0486-08 CELTIC IMPORTS 1,635 MAR 01, 93
DEC 31, 49
0489-03 AEROPOSTAL 3,690 MAY 01, 93 121,770 MAY 01, 95 33.00 2,435,400 CAM 04 1.2394
APR 30, 03 132,840 MAY 01, 98 36.00 5.00 RET 02 1.2394
140,220 MAY 01, 00 38.01 (STEP-UP)
0491 VACANT UNIY 2,042
0495-01 HAIR DESIGNERS SA 2,110 APR 04, 85 CAM 03 .8598
JAN 31, 96 RET 02 .7087
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 10
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0497-02 PILDES OPTICAL 884 FEB 01, 96 54,999 FEB 01, 96 62.22
JAN 31, 06
9001-01 JC PENNEY 227,316 MAR 22, 81 CAM 07 0 47003
JAN 31, 11 RET 07 0 0
9002-01 STERN'S 328,599 AUG 10, 81 CAM 07 0 15000
APR 21, 30 RET 07 0 0
K021-11 TREND SETTERS 0 FEB 01, 96
APR 30, 96
K022 VACANT UNIT 0
K023 VACANT UNIT 0
K024 VACANT UNIT 0
K025 VACANT UNIT 0
K026-09 ELEGANCE 0 APR 01, 95
MAR 31, 96
K027-06 MAGIC PENS 0 JAN 01, 96
MAR 31, 96
K026-05 MUGS & KISSES 0 JAN 17, 94
MAR 31, 96
K029-07 CAPTIONS.INC. 0 JUL 01, 95
MAR 31, 96
K030-08 CONNECT A BEEP 0 JUL 01, 95
MAR 31, 96
K031-01 DOLCE VITA CAFE 0 JUL 01, 95
FEB 29, 96
K032 VACANT UNIT 0
K033-04 T.TIME 0 MAY 01, 94
MAR 31, 96
-------
TOTAL SQUARE FEET 882,692
** EXPENSE TYPE LEGEND **
01 PRORATA +15%
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 11
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
02 PRORATA
03 PRORATA +15* NET OF MAJORS, THEATERS & STORES NOT FRONTING MALL
04 PRORATA +15% NET OF MAJORS
05 PRORATA NET OF MAJORS
06 PRORATA +15% NET OF MAJORS AND STORES OVER 20,000 SF
07 FIXED BILLING
PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 1
SALES ANALYSIS FOR PERIOD ENDING DEC. 95
9130: GALLERIA, THE
--------------- DECEMBER ---------------- --------------- YEAR TO DATE ---------------
AREA 1995 1994 +/-% AREA 1995 1994 +/-%
------- -------- -------- ------- ------- ------- -------- ------
ALL COMPARABLE TENANTS EXCLUDING ANCHORS ***
229,727 14,411,974 16,837.14 -14.4 215,349 74,134,501 85,571,109 -13.4
--------------------------------------------------------------------------------------------------------------------------------
ALL COMPARABLE TENANTS INCLUDING ANCHORS ***
229,727 14,411,974 16,837,143 -14.4 215,349 74,134.50 85,571,109 -13.4
--------------------------------------------------------------------------------------------------------------------------------
NON COMPARABLE TENANTS***
ACTIVE MALL SHOPS 37,378 77,477 1,874.64 -95.9 51,756 12,590,207 13,677,360 -7.9
ACTIVE MALL SHOPS 4,046 348,949 639,556 -45.4 4,046 1,850,310 4,547,594 -59.3
ACTIVE MAJORS 26,100 0 1,016,317 -130.0 26,100 4,420,988 5,865,289 -24.6
ACTIVE MAJORS 0 0 0 0.0 0 0 0 0.0
---------------- ROLLING 12 MONTHS THROUGH -----------------
AREA 12/95 PSF 12/94 PSF +/-%
------ ------- ------- ------- ------- -------
ALL COMPARABLE TENANTS EXCLUDING ANCHORS ***
215,349 74,134,501 344.25 85,571,109 397.36 -13.4
---------------------------------------------------------------------------------------------------------------
ALL COMPARABLE TENANTS INCLUDING ANCHORS ***
215,349 74,134,501 344.25 85,571,109 397.36 -13.4
NON COMPARABLE TENANTS
---------------------------------------------------------------------------------------------------------------
ACTIVE MALL SHOPS 51,756 12,590,207 243.26 13,677,360 264.27 -7.9
ACTIVE MALL SHOPS 4,046 1,850,310 457.32 4,547,594 1,123.97 -59.3
ACTIVE MAJORS 26,100 4,420,988 169.39 5,865,289 224.72 -24.6
ACTIVE MAJORS 0 0 0.00 0 0.00 0.0
FIVE NONCOMPARABLE TENANTS are tenants which DO NOT have sales reported for each
month of the reporting period (month, year-to-date, rolling-12) but which are
still operating the center. INACTIVE NONCOMPARABLE TENANTS are tenants which
have CLOSED in the last twenty four months.
TOTAL MALL SHOP SALES ***
LEASED SALES AREA 267,105 14,838,400 19,351,343 -23.3 267,105 88,575,097 103,796,062 -14.7
--------------------------------------------------------------------------------------------------------------------------------
LEASED SALES AREA uses area of open sales reporting tenants as the sales per
square foot divisor, and sales from all stores.
TOTAL SALES***
SALES REPORTING AREA 293,205 14,838,400 20,367,660 -27.1 293,205 92,996,085 109,661,351 -15.2
--------------------------------------------------------------------------------------------------------------------------------
SALES REPORTING AREA uses area of open sales reporting tenants INCLUDING MAJORS
as the sales per square foot division.
TOTAL SALES IN 1994: 109,661,351 COMPARABLE MALL SHOP SALES PER SQUARE FOOT
REPORTING SQUARE FOOTAGE: 31,900 CURENT YEAR PREVIOUS YEAR
LOSS LEASABLE ARES OF MALL: 303,051 MONTHLY: 62.73 73.29
PERCENTAGE OF MALL AREA WITH 12-MONTH COMPARABLE SHOPS 71.06 YEAR TO DATE: 344.25 397.36
PERCENTAGE OF SALES REPORTING TENANTS THAT ARE 12-MONTH COMPARABLE: 76.10 ROLLING YEAR: 344.25 397.36
NOTES: NOCMP denotes any TENANT which does NOT have sales reported for all
months in the period. SALES figures are for the PERIOD ending in DECEMBER
1995 SUBTOTALS are for COMPARABLE tenants only. Total sales are
summarized at the beginning of the report.
Notes: NOCMP denotes any TENANT which does NOT have sales reported for all
months in the period.
SALES figures are for the PERIOD ending in DECEMBER 1995
SUBTOTALS are for COMPARABLE tenants only. Total sales are summarized
at the beginning of the report.
Notes: NOCMP denotes any TENANT which does NOT have sales reported for all
months in the period.
SALES figures are for the PERIOD ending in DECEMBER 1995
SUBTOTALS are for COMPARABLE tenants only. Total sales are summarized
at the beginning of the report.
Notes: NOCMP denotes any TENANT which does NOT have sales reported for all
months in the period.
SALES figures are for the PERIOD ending in DECEMBER 1995
SUBTOTALS are for COMPARABLE tenants only. Total sales are summarized
at the beginning of the report.
Notes: NOCMP denotes any TENANT which does NOT have sales reported for all
months in the period.
SALES figures are for the PERIOD ending in DECEMBER 1995
SUBTOTALS are for COMPARABLE tenants only. Total sales are summarized
at the beginning of the report.
Notes: NOCMP denotes any TENANT which does NOT have sales reported for all
months in the period.
SALES figures are for the PERIOD ending in DECEMBER 1995
SUBTOTALS are for COMPARABLE tenants only. Total sales are
summarized at the beginning of the report.
Notes: NOCMP denotes any TENANT which does NOT have sales reported for all
months in the period.
SALES figures are for the PERIOD ending in DECEMBER 1995
SUBTOTALS are for COMPARABLE tenants only. Total sales are summarized
at the beginning of the report.
Notes: NOCMP denotes any TENANT which does NOT have sales reported for all
months in the period.
SALES figures are for the PERIOD ending in DECEMBER 1995
SUBTOTALS are for COMPARABLE tenants only. Total sales are summarized
at the beginning of the report.
FEB 1, 1996 03:20 PAGE 13
PROPERTY MANAGEMENT INFORMATION SYSTEM
SALES ANALYSIS FOR PERIOD ENDING DEC. 95
9130: GALLERIA, THE
OPEN SQ FT/ 1994 -----------DECEMBER------------ ----------YEAR TO DATE---------- ---------
TENANT DATE CLOSE SALES 1995 1994 +/- % 1995 1994 +/- % 12/95
------------------------ ----- ------ ------ ---------- --------- -------- -------- -------- ------- ---------
***FINANCIAL AND OTHER NON-REPORTING *** SIC CLASS: FINL
ANCHOR SAVINGS BANK 10/85 09/95 0 0 0 NOCMP 0 0 NOCMP 0
EMIGRANT SAVINGS BANK 08/80 10,000 0 0 0 0.0 0 0 0.0 0
------------------------ -------- ---------- -------- ---------- ----------- ------- -----------
COMPARABLE SUBTOTALS 0 0 0.0 0 0 0.0 0
AREA: 10,000 AREA: 10,000
*** ANCHORS *** SIC CLASS: ANCHOR
FILENE'S BASEMENT 09/92 26,100 5,865,289 0 1,016,317 NOCMP 4,420,988 5,865,289 NOCMP 4,420,988
------------------------ -------- ---------- -------- ---------- ----------- ------- -----------
COMPARABLE SUBTOTALS 0 0 0.0 0 0 0.0 0
AREA: 0 AREA: 0 AREA: 0
*** NON REPORTING TENANTS *** SIC CLASS: NONREP
ART EXPO 05/92 1,820 Does not report sales.
BONSAI DESIGNS 07/94 10/94 0 Closed
CELTIC IMPORTS 03/93 1,635 Does not report sales.
DIME BANK-ATM 10/95 150 Does not report sales.
XZ CASUALS 06/94 01/95 0 Closed
FAMILY PET CENTER 10/94 2,798 Does not report sales.
HICKORY FARMS 11/95 10/95 0 Closed
HICKORY FARMS 11/95 2,042 Does not report sales.
JEAN'S VILLAGE 10/95 603 Does not report sales.
JOHNNY ROCKETS 11/94 02/95 0 Closed
XABRIOLA FLORIST 11/95 817 Does not report sales.
NAILS & MORE BY DAWN 02/95 993 Does not report sales.
NORTHER LIGHTS CANDL 08/95 794 Does not report sales.
SAN FRANCISCO MUSIC B 10/93 01/94 0 Closed
THE CHILDREN'S PLACE 08/80 4,577 Does not report sales.
THE CHRISTMAS SHOPPE 10/95 3,412 Does not report sales.
----ROLLING 12 MONTHS SALES THROUGH---- ----BREAK POINT----
PSF 12/94 PSF +/- % AMOUNT % #
------------- --------- ------------- ---------- ------- ---------- ------
***FINANCIAL AND OTHER NON-REPORTING *** SIC CLASS: FINL
ANCHOR SAVINGS BANK 0.00 0 0.00 NOCMP 0 0.00 1
EMIGRANT SAVINGS BANK 0.00 0 0.00 0.0 0 0.00 1
------------------------ ------------- --------- ------------- ---------- ---------- ---------- -----
COMPARABLE SUBTOTALS 0.00 0 0.00 0.0
AREA: 10,000
*** ANCHORS *** SIC CLASS: ANCHOR
FILENE'S BASEMENT 169.38 5,865,289 224.72 NOCMP 15,660,000 2.50 1
------------------------ ------------- --------- ------------- ---------- ---------- ---------- -----
COMPARABLE SUBTOTALS 0.00 0 0.00 0.0
AREA: 0
Notes: NOCMP denotes any TENANT which does NOT have sales reported for all
months in the period.
SALES figures are for the PERIOD ending in DECEMBER 1995
SUBTOTALS are for COMPARABLE tenants only. Total sales are summarized
at the beginning of the report.
FEB 1, 1996 03:20 PAGE 14
PROPERTY MANAGEMENT INFORMATION SYSTEM
SALES ANALYSIS FOR PERIOD ENDING DEC. 95
9130, GALLERIA, THE
OPEN SQ FT/ 1994 -----------DECEMBER------------ ----------YEAR TO DATE---------- -----------
TENANT DATE CLOSE SALES 1995 1994 +/- % 1995 1994 +/- % 12/95
------------------------ ----- ------ ---------- --------- ---------- -------- ---------- ----------- ------- -----------
THE VITAMIN WORKS 12/95 163 Does not report sales.
THOM MCAN 02/95 3,011 Does not report sales.
-----------ROLLING 12 MONTHS SALES THROUGH--------- ---------BREAK POINT---------
TENANT PSF 12/94 PSF +/- % AMOUNT % #
------------------------ ------------- --------- ------------- ---------- ---------- ---------- ------
THE VITAMIN WORKS
THOM MCAN
FEB 1, 1996 03:20 PAGE 15
PROPERTY MANAGEMENT INFORMATION SYSTEM
SALES ANALYSIS FOR PERIOD ENDING DEC. 95
9130: GALLERIA, THE
---------------------------------1994-----------------------------
TENANT NAME SLSCAT Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
----------- ------ --- --- --- --- --- --- --- --- --- --- --- ---
XXROPOLIS CFC
XXI'S BARBEQUE CFC
ARTHUR TREACHERS FISH & CFC
BIG EASY CAJUN CFC
DESIGN'S BY LEVI STRAUS D11
FILENE'S BASEMENT AO1
GATSBY AT GALLERIA, INC. D08
XXNROKU CFC
HAIR DESIGNER'S SALON T01
REAL JEWELERS P03
KENNEY SHOES # 03960 E01
LADY FOOT LOCKER # 6153 E05
LIBERTY TRAVEL T10
XX GREEN JEANS C02
XXICK -N- NATURAL CFC
XXINTEX MOBILE COMMUNICA S07
RALPH JOBEN D02
XX HANDBAGS D01
XXILOR'S TOUCH T17
THE COFFEE BEANERY, LTD B06
THE COMPLETE ATHLETE D11
--------------------------1995----------------------------
TENANT NAME Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
----------- --- --- --- --- --- --- --- --- --- --- --- ---
XXROPOLIS X
XXI'S BARBEQUE X
ARTHUR TREACHERS FISH & X
BIG EASY CAJUN X X
DESIGN'S BY LEVI STRAUS X
FILENE'S BASEMENT X
GATSBY AT GALLERIA, INC. X
XXNROKU X
HAIR DESIGNER'S SALON X X
REAL JEWELERS X
KENNEY SHOES # 03960 X
LADY FOOT LOCKER # 6153 X
LIBERTY TRAVEL X
XX GREEN JEANS X
XXICK -N- NATURAL X
XXINTEX MOBILE COMMUNICA X
RALPH JOBEN X X
XX HANDBAGS X
XXILOR'S TOUCH X
THE COFFEE BEANERY, LTD X
THE COMPLETE ATHLETE X
GALLERIA AT WHITE PLAINS (NEW YORK)
LEASE ABSTRACT REPORT
FOR ALL TENANTS
6/18/96 & 16:38
GALLERIA AT WHITE PLAINS (NEW YORK)
PROJECT ASSUMPTIONS REPORT
EXCLUDING TENANTS
6/18/96 @ 16:39
BUILDING PROLOGUE
LEASEHOLD ANALYSIS OF GALLERIA AT WHITE PLAINS (NEW YORK) BEGINNING 6/1995
FOR 25 YEARS ON A FISCAL YEAR BASIS
AREA MEASURES
SGLA
DESCRIBED AS GROSS LEASABLE AREA; MALL SHOP TENANTS
1995 VALUE - 326,813
1996 VALUE - 326,813
THEREAFTER - CONSTANT
AGLA
DESCRIBED AS GROSS LEASABLE AREA; ANCHOR TENANTS
1995 VALUE - 555,915
1996 VALUE - 555,915
THEREAFTER - CONSTANT
CAM1
DESCRIBED AS GROSS OCCUPIED AREA; USED FOR CAM1 RECOVERY TYPE 1
(EXCLUDES SECONDARY CODE #7/MAJORS, #10/ANCHORS, #12/STREET)
1995 VALUE - 227,196
1996 VALUE - 227,196
1997 VALUE - 240,523
1998 VALUE - 259,503
1999 VALUE - 268,798
2000 VALUE - 272,154
2001 VALUE - 266,748
2002 VALUE - 271,565
2003 VALUE - 266,406
2004 VALUE - 271,150
2005 VALUE - 267,516
2006 VALUE - 266,274
2007 VALUE - 264,012
2008 VALUE - 270,888
2009 VALUE - 271,241
2010 VALUE - 272,400
2011 VALUE - 269,527
2012 VALUE - 272,210
2013 VALUE - 267,299
2014 VALUE - 269,967
2015 VALUE - 269,708
2016 VALUE - 269,234
2017 VALUE - 263,485
2018 VALUE - 270,771
2019 VALUE - 271,137
THEREAFTER - CONSTANT
CAM2
DESCRIBED AS GROSS OCCUPIED AREA; USED FOR CAM RECOVERY TYPE 2
(EXCLUDES SECONDARY CODE #7/MAJORS, #10/ANCHORS)
1995 VALUE - 238,296
1996 VALUE - 238,296
1997 VALUE - 251,623
1998 VALUE - 270,603
1999 VALUE - 279,898
2000 VALUE - 283,254
2001 VALUE - 277,848
2002 VALUE - 282,482
2003 VALUE - 277,506
2004 VALUE - 282,250
PAGE 2
2005 VALUE - 278,616
2006 VALUE - 275,707
2007 VALUE - 275,112
2008 VALUE - 281,988
2009 VALUE - 282,341
2010 VALUE - 283,500
2011 VALUE - 280,627
2012 VALUE - 283,126
2013 VALUE - 278,399
2014 VALUE - 281,067
2015 VALUE - 280,808
2016 VALUE - 278,667
2017 VALUE - 274,585
2018 VALUE - 281,871
2019 VALUE - 282,237
THEREAFTER - CONSTANT
CAM3
DESCRIBED AS GROSS OCCUPIED AREA,- USED FOR CAM RECOVERY TYPE 3
(EXCLUDES SECONDARY CODE #7/MAJORS, #10/ANCHORS, #12/STREET)
+100.0% OF CAM1
CAM4
DESCRIBED AS GROSS OCCUPIED AREA; USED FOR CAM RECOVERY TYPE 4
(EXCLUDES SECONDARY CODE #10/ANCHORS)
+100.0% OF CAM2
TAX1
DESCRIBED AS GROSS LEASABLE AREA; USED FOR TAX RECOVERY TYPE 1
(INCLUDES TOTAL MALL GLA)
1995 VALUE - 326,813
1996 VALUE - 326,813
THEREAFTER - CONSTANT
TAX2
DESCRIBED AS GROSS OCCUPIED AREA; USED FOR TAX RECOVERY TYPE 2
(EXCLUDES SECONDARY CODE #7/MAJORS, #10/ANCHORS)
+100.0% OF CAM2
UTLA
DESCRIBED AS GROSS OCCUPIED AREA; FOR UTILITY & WATER/SEWER RECOVERY
(EXCLUDES SECONDARY CODE #7/MAJORS, #10/ANCHORS)
+100.0% OF CAM2
FLOA
DESCRIBED AS GROSS OCCUPIED AREA; USED FOR FOOD COURT RECOVERY
(INCLUDES PRIMARY CODE #2/FOOD COURT)
1995 VALUE - 9,610
1996 VALUE - 9,610
1997 VALUE - 9,032
1998 VALUE - 9,693
1999 VALUE - 9,532
2000 VALUE - 9,638
2001 VALUE - 9,428
2002 VALUE - 9,552
2003 VALUE - 9,600
2004 VALUE - 9,693
2005 VALUE - 9,265
2006 VALUE - 9,240
2007 VALUE - 9,473
2008 VALUE - 9,693
2009 VALUE - 9,532
2010 VALUE - 9,638
2011 VALUE - 9,428
2012 VALUE - 9,552
2013 VALUE - 9,600
2014 VALUE - 9,693
2015 VALUE - 9,555
PAGE 3
2016 VALUE - 9,186
2017 VALUE - 9,439
2018 VALUE - 9,693
2019 VALUE - 9,532
THEREAFTER - CONSTANT
GROWTH RATES
------------
RENG
DESCRIBED AS GROWTH RATE FACTOR; MARKET RENTS
1995 VALUE - 0.00
1996 VALUE - 0.00
1997 VALUE - 2.00
1998 VALUE - 3.00
1999 VALUE - 3.50
THEREAFTER - CONSTANT
EXPG
DESCRIBED AS GROWTH RATE FACTOR; GENERAL EXPENSES
1995 VALUE - 3.50
1996 VALUE - 3.50
THEREAFTER - CONSTANT
SALM
DESCRIBED AS GROWTH RATE FACTOR; SALES
1995 VALUE - 0.00
1996 VALUE - 2.00
1997 VALUE - 3.00
1998 VALUE - 3.50
THEREAFTER - CONSTANT
MISG
DESCRIBED AS GROWTH RATE FACTOR; MISCELLANEOUS INCOME
1995 VALUE - 3.00
1996 VALUE - 3.00
THEREAFTER - CONSTANT
TAXG
DESCRIBED AS GROWTH RATE FACTOR; REAL ESTATE TAXES
1995 VALUE - 6.00
1996 VALUE - 6.00
1997 VALUE - 5.00
1998 VALUE - 4.00
THEREAFTER - CONSTANT
UTLG
DESCRIBED AS GROWTH RATE FACTOR; UTILITIES
1995 VALUE 2.00
1996 VALUE 2.00
THEREAFTER CONSTANT
MARKET RATES
------------
MKT1
DESCRIBED AS MARKET RENTAL RATE; TENANTS < 750 SQ/FT
1995 VALUE - 60.00
1996 VALUE - 60.00
THEREAFTER - GROWING AT GROWTH RATE RENG
MKT2
DESCRIBED AS MARKET RENTAL RATE; TENANTS 751-1200 SQ/FT
1995 VALUE - 48.00
1996 VALUE - 48.00
THEREAFTER - GROWING AT GROWTH RATE RENG
PAGE 4
MKT3
DESCRIBED AS MARKET RENTAL RATE; TENANTS 1201-2000 SQ/FT
1995 VALUE - 38.00
1996 VALUE - 38.00
THEREAFTER - GROWING AT GROWTH RATE RENG
MKT4
DESCRIBED AS MARKET RENTAL RATE; TENANTS 2001-3500 SQ/FT
1995 VALUE - 32.00
1996 VALUE - 32.00
THEREAFTER - GROWING AT GROWTH RATE RENG
MKT5
DESCRIBED AS MARKET RENTAL RATE; TENANTS 3501-5000 SQ/FT
1995 VALUE - 30.00
1996 VALUE - 30.00
THEREAFTER - GROWING AT GROWTH RATE RENG
MKT6
DESCRIBED AS MARKET RENTAL RATE; TENANTS 5001-15000 SQ/FT
1995 VALUE - 26.00
1996 VALUE - 26.00
THEREAFTER - GROWING AT GROWTH RATE RENG
MKT7
DESCRIBED AS MARKET RENTAL RATE; TENANTS > 15000 SQ/FT
1995 VALUE - 20.00
1996 VALUE - 20.00
THEREAFTER - GROWING AT GROWTH RATE RENG
MKTF
DESCRIBED AS MARKET RENTAL RATE; FOOD COURT TENANTS
1995 VALUE - 70.00
1996 VALUE - 70.00
THEREAFTER - GROWING AT GROWTH RATE RENG
MKTK
DESCRIBED AS MARKET RENTAL RATE; KIOSK TENANTS
1995 VALUE - 250
1996 VALUE - 250
THEREAFTER - GROWING AT GROWTH RATE RENG
RESR
DESCRIBED AS EXPENSE RATE; RESERVES FOR REPLACEMENT
1995 VALUE - 0.15
1996 VALUE - 0.15
THEREAFTER - GROWING AT GROWTH RATE EXPG
ATLN
DESCRIBED AS ALTERATION RATE; NEW TENANTS
1995 VALUE - 8.00
1996 VALUE - 8.00
THEREAFTER - GROWING AT GROWTH RATE EXPG
ALTR
DESCRIBED AS ALTERATION RATE; RENEWAL TENANTS
1995 VALUE - 1.00
1996 VALUE - 1.00
THEREAFTER - GROWING AT GROWTH RATE EXPG
ALTB
DESCRIBED AS ALTERATION RATE; BLENDED RATE BASED ON RENEWAL PROBABILITY
+30.0% OF ATLN +70.0% OF ALTR
SALR
DESCRIBED AS SALES RATE; AVERAGE FOR MALL SHOP TENANTS
1995 VALUE - 344
1996 VALUE - 344
PAGE 5
THEREAFTER - GROWING AT GROWTH RATE SALM
SALF
DESCRIBED AS SALES RATE; AVERAGE FOR FOOD COURT TENANTS
1995 VALUE - 718
1996 VALUE - 718
THEREAFTER - GROWING AT GROWTH RATE SALM
HVAR
DESCRIBED AS EXPENSE RECOVERY RATE; HVAC CHARGE
1995 VALUE - 1.66
1996 VALUE - 1.66
THEREAFTER - CONSTANT
UTLR
DESCRIBED AS EXPENSE RATE; UTILITIES
1995 VALUE - 5.01
1996 VALUE - 5.01
THEREAFTER - GROWING AT GROWTH RATE UTLG
COMN
DESCRIBED AS COMMISSION RATE; NEW TENANTS
1995 VALUE - 3.50
1996 VALUE - 3.50
1997 VALUE - 3.50
1998 VALUE - 3.50
1999 VALUE - 3.50
2000 VALUE - 3.50
2001 VALUE - 4.00
2002 VALUE - 4.00
2003 VALUE - 4.00
2004 VALUE - 4.00
2005 VALUE - 4.00
2006 VALUE - 4.50
THEREAFTER -CONSTANT
COMR
DESCRIBED AS COMMISSION RATE; RENEWAL TENANTS
1995 VALUE - 1.50
1996 VALUE - 1.50
1997 VALUE - 1.50
1998 VALUE - 1.50
1999 VALUE - 1.50
2000 VALUE - 1.50
2001 VALUE - 1.75
2002 VALUE - 1.75
2003 VALUE - 1.75
2004 VALUE - 1.75
2005 VALUE - 1.75
2006 VALUE - 2.00
THEREAFTER -CONSTANT
COMB
DESCRIBED AS COMMISSION RATE; BLENDED RATE BASED ON RENEWAL PROBABILITY
+30.0% OF COMN +70.0% OF COMR
FCT*
DESCRIBED AS FOOD COURT RECOVERY RATE; CALCULATION (INFORMATIONAL)
EXPENSE FCTR DIVIDED BY AREA MEASURE FLOA
CAM*
DESCRIBED AS CAM RECOVERY RATE; CALCULATION OF PASS-THROUGH (INFORMATIONAL)
EXPENSE CAM3 DIVIDED BY AREA MEASURE CAM3
TAX*
DESCRIBED AS TAX RECOVERY RATE; CALCULATION OF PASS-THROUGH (INFORMATIONAL)
EXPENSE TAX2 DIVIDED BY AREA MEASURE TAX2
PAGE 6
UTL*
DESCRIBED AS UTILITY/ENERGY RECOVERY RATE; CALCULATION (INFORMATIONAL)
EXPENSE UTLR DIVIDED BY AREA MEASURE UTLA
W/S*
DESCRIBED AS WATER RECOVERY RATE; CALCULATION OF PASS-THROUGH (INFORMATIONAL)
EXPENSE W/SR DIVIDED BY AREA MEASURE UTLA
MISCELLANEOUS INCOMES
TEMPORARY LEASING
1995 VALUE - 230,000
1996 VALUE - 230,000
THEREAFTER - GROWING AT GROWTH RATE MISG
MISCELLANEOUS
1995 VALUE - 70,000
1996 VALUE - 70,000
THEREAFTER - GROWING AT GROWTH RATE MISG
EXPENSES
COMMON AREA MAINT., REFERRED TO AS CAMX
DESCRIBED AS COMMON AREA MAINTENANCE; GENERAL EXPENSE
CHARGED AGAINST NET OPERATING INCOME
1995 VALUE - 3,025,000
1996 VALUE - 3,025,000
THEREAFTER - GROWING AT GROWTH RATE EXPG
CDEP-DEPRECIATION , REFERRED TO AS CDEP
DESCRIBED AS COMMON AREA MAINTENANCE; DEPRECIATION & INTEREST
AN INFORMATIONAL EXPENSE
1995 VALUE - 140,278
1996 VALUE - 140,278
THEREAFTER - CONSTANT
CANC-ANCHOR CONT. , REFERRED TO AS CANC
DESCRIBED AS COMMON AREA MAINTENANCE; ANCHOR/MAJOR CONTRIBUTION POOL
AN INFORMATIONAL EXPENSE
1995 VALUE - 230,643
1996 VALUE - 230,643
1997 VALUE - 227,553
1998 VALUE - 271,733
1999 VALUE - 413,752
2000 VALUE - 421,617
2001 VALUE - 455,578
2002 VALUE - 465,340
2003 VALUE - 486,874
2004 VALUE - 494,166
2005 VALUE - 512,874
2006 VALUE - 506,321
2007 VALUE - 547,521
2008 VALUE - 552,598
2009 VALUE - 567,950
2010 VALUE - 582,487
2011 VALUE - 549,573
2012 VALUE - 541,375
2013 VALUE - 521,638
2014 VALUE - 585,352
2015 VALUE - 605,369
2016 VALUE - 594,440
2017 VALUE - 659,733
2018 VALUE - 665,771
2019 VALUE - 687,471
PAGE 7
THEREAFTER - CONSTANT
CAMl-RECOVERY CAM1, REFERRED TO AS CAM1
DESCRIBED AS COMMON AREA MAINTENANCE; FOR RECOVERY TYPE 1
AN INFORMATIONAL EXPENSE
+115.0% OF CAMX+115.0% OF CDEP
-100.0% OF CANC
CAM2-RECOVERY CAM2, REFERRED TO AS CAM2
DESCRIBED AS COMMON AREA MAINTENANCE; FOR RECOVERY TYPE 2
AN INFORMATIONAL EXPENSE
+115.0% OF CAMX+115.0% OF CDEP
-100.0% OF CANC
CAM3-RECOVERY CAM3, REFERRED TO AS CAM3
DESCRIBED AS COMMON AREA MAINTENANCE; FOR RECOVERY TYPE 3
AN INFORMATIONAL EXPENSE
+115.0% OF CAMX+115.0% OF CDEP
-100.0~% OF CANC
CAM4-RECOVERY CAM4, REFERRED TO AS CAM4
DESCRIBED AS COMMON AREA MAINTENANCE; FOR RECOVERY TYPE 4
AN INFORMATIONAL EXPENSE
+115.0% OF CAMX+115.0% OF CDEP
-100.0% OF CANC
CAM6-RECOVERY CAM6, REFERRED TO AS CAM6
DESCRIBED AS COMMON AREA MAINTENANCE; FOR RECOVERY TYPE 6
AN INFORMATIONAL EXPENSE
+115.0% OF CAMX+115.0% OF CDEP
-100.0% OF CANC
REAL ESTATE TAXES , REFERRED TO AS TAXX
DESCRIBED AS REAL ESTATE TAXES; GENERAL EXPENSE
CHARGED AGAINST NET OPERATING INCOME
1995 VALUE - 2,672,000
1996 VALUE - 2,672,000
THEREAFTER GROWING AT GROWTH RATE TAXG
TANC-ANCHOR CONT. , REFERRED TO AS TANC
DESCRIBED AS REAL ESTATE TAXES; ANCHOR/MAJOR CONTRIBUTION POOL
AN INFORMATIONAL EXPENSE
1995 VALUE - 330,187
1996 VALUE - 330,187
THEREAFTER - GROWING AT GROWTH RATE TAXG
TAX1-RECOVERY TAX1, REFERRED TO AS TAX1
DESCRIBED AS REAL ESTATE TAXES; FOR RECOVERY TYPE 1
AN INFORMATIONAL EXPENSE
+100.0% OF TAXX
TAX2-RECOVERY TAX2, REFERRED TO AS TAX2
DESCRIBED AS REAL ESTATE TAXES; FOR RECOVERY TYPE 2
AN INFORMATIONAL EXPENSE
+100.0% OF TAXX-100.0% OF TANC
UTILITY EXPENSE , REFERRED TO AS UTLX
DESCRIBED AS UTILITY/ENERGY; GENERAL EXPENSE
CHARGED AGAINST NET OPERATING INCOME
1995 VALUE - 1,440,000
1996 VALUE - 1,440,000
THEREAFTER - GROWING AT GROWTH RATE UTLG
UTLC-REPAIR/MAINT., REFERRED TO AS UTLC
DESCRIBED AS UTILITY/ENERGY; CENTRAL PLANT CAPITAL IMPROVEMENT EXPENSE
AN INFORMATIONAL EXPENSE
1995 VALUE - 580,000
1996 VALUE - 580,000
PAGE 8
THEREAFTER - GROWING AT GROWTH RATE EXPG
UTLR-UTILITIES , REFERRED TO AS UTLR
DESCRIBED AS UTILITY/ENERGY; RECOVERY BASIS FOR PASS-THROUGH TO MALL TENANTS
AN INFORMATIONAL EXPENSE
+100.0% OF UTLX-100.0% OF UTLC
WATER & SEWER , REFERRED TO AS W/SX
DESCRIBED AS WATER & SEWER; GENERAL EXPENSE
CHARGED AGAINST NET OPERATING INCOME
1995 VALUE - 80,000
1996 VALUE - 80,000
THEREAFTER - GROWING AT GROWTH RATE UTLG
W/SR-WATER & SEWER, REFERRED TO AS W/SR
DESCRIBED AS WATER & SEWER: MALL SHOP PASS-THROUGH
AN INFORMATIONAL EXPENSE
+100.0% OF W/SX
FOOD COURT EXPENSE, REFERRED TO AS FCTX
DESCRIBED AS FOOD COURT; GENERAL EXPENSE
CHARGED AGAINST NET OPERATING INCOME
1995 VALUE - 340,000
1996 VALUE - 340,000
THEREAFTER - GROWING AT GROWTH RATE EXPG
FCTR-FOOD COURT , REFERRED TO AS FCTR
DESCRIBED AS FOOD COURT; FOOD COURT PASS-THROUGH
AN INFORMATIONAL EXPENSE
+115.0% OF FCTX
GENERAL & ADMIN. , REFERRED TO AS G&AX
DESCRIBED AS NON-RECOVERABLE EXPENSE; GENERAL & ADMINISTRATIVE
CHARGED AGAINST NET OPERATING INCOME
1995 VALUE - 260,000
1996 VALUE - 260,000
THEREAFTER - GROWING AT GROWTH RATE EXPG
MARKETING EXPENSE , REFERRED TO AS MKTX
DESCRIBED AS NON-RECOVERABLE EXPENSE; MARKETING
CHARGED AGAINST NET OPERATING INCOME
1995 VALUE - 80,000
1996 VALUE - 80,000
THEREAFTER - GROWING AT GROWTH RATE EXPG
MISCELLANEOUS , REFERRED TO AS MISX
DESCRIBED AS NON-RECOVERABLE EXPENSE; MISCELLANEOUS
CHARGED AGAINST NET OPERATING INCOME
1995 VALUE - 10,000
1996 VALUE - 10,000
THEREAFTER - GROWING AT GROWTH RATE EXPG
VACANCY ALLOWANCE
-----------------
PERCENTAGE OF POTENTIAL GROSS INCOME
FOR ALL TENANTS SUBJECT TO VACANCY
1995 VALUE - 1.00
1996 VALUE - 1.00
1997 VALUE - 1.50
1998 VALUE - 2.50
1999 VALUE - 3.50
2000 VALUE - 4.50
THEREAFTER - CONSTANT
PAGE 9
MANAGEMENT FEE
PERCENTAGE OF MINIMUM AND PERCENTAGE RENTS ONLY
FOR ALL TENANTS
NOT PASSED THROUGH TO TENANTS
1995 VALUE - 3.00
1996 VALUE - 3.00
THEREAFTER - CONSTANT
COMMISSION CALCULATIONS
STANDARD METHOD #1 - 0.000% OF TOTAL RENT
STANDARD METHOD #2 - 0.000% OF TOTAL RENT
STANDARD METHOD #3 - 0.000~% OF TOTAL RENT
STANDARD METHOD #4 - 0.000~% OF TOTAL RENT
STANDARD METHOD #5 - 0.000% OF TOTAL RENT
COMMISSION PAYOUTS
------------------
STANDARD METHOD #1 - AMORTIZED OVER LIFE OF LEASE
STANDARD METHOD #2 - CASHED OUT
STANDARD METHOD #3 - CASHED OUT
STANDARD METHOD #4 - CASHED OUT
STANDARD METHOD #5 - CASHED OUT
ALTERATION CALCULATION
NONE
ALTERATION PAYOUTS
STANDARD METHOD #1 - SPECIFIED BY MONTH:
ON MONTH 6 - 100.00%
STANDARD METHOD #2 - CASHED OUT
STANDARD METHOD #3 - CASHED OUT
STANDARD METHOD #4 - CASHED OUT
STANDARD METHOD #5 - CASHED OUT
COMMON AREA MAINTENANCE POOL
CONTRIBUTIONS CONTAINED IN EXPENSE CANC
BASED ON RECOVERIES ASSIGNED TO COST CENTER 2 - CAM-ANCHOR TENANTS
FOR THOSE TENANTS WITH THE FOLLOWING SECONDARY CLASSIFICATION CODE(S):
7 - MAJORS > 15000
10 - ANCHOR STORES
PAGE 10
12 - STREET LEVEL
CAPITAL EXPENDITURES
CAPITAL ITEMS
1995 VALUE - 0.00
1996 VALUE - 256,000
1997 VALUE - 200,000
1998 VALUE - 0.00
THEREAFTER - CONSTANT
STRUCTURAL RESERVE
MARKET RATE RESR MULTIPLIED BY AREA MEASURE SGLA
SALES VOLUME PROFILE
--------------------
PERCENT OF RELATIVE
MONTH ANNUAL SALES VOLUME
----- ------------ --------
JAN 8.33% 1.00
FEB 8.33% 1.00
MAR 8.33% 1.00
PAGE 11
APR 8.33% 1.00
MAY 8.33% 1.00
JUN 8.33% 1.00
JUL 8.33% 1.00
AUG 8.33% 1.00
SEP 8.33% 1.00
OCT 8.33% 1.00
NOV 9.33% 1.00
DEC 8.33% 1.00
------- -------
TOTALS 100.00% 12.00
GLOBAL RECOVERIES
TAX2-RECOVERY TAX2, REFERRED TO AS TAX2
DESCRIBED AS TAX RECOVERY; MALL SHOPS TYPE 2
ASSIGNED TO COST CENTER 3 - TAX-MALL SHOPS
PRO RATA SHARE RECOVERY OF EXPENSE TAX2
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE TAX2
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
W/SR-WATER & SEWER, REFERRED TO AS W/SG
DESCRIBED AS WATER/SEWER RECOVERY; MALL SHOPS
ASSIGNED TO COST CENTER 5 - UTL-UTILITY INCOME
PRO RATA SHARE RECOVERY OF EXPENSE W/SR
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE UTLA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A C0MPLETE PASSTHROUGH
FCTR-FOOD COURT , REFERRED TO AS FCTG
DESCRIBED AS FOOD COURT RECOVERY;
ASSIGNED TO COST CENTER 8 - FCT-FOOD COURT
PRO RATA SHARE RECOVERY OF EXPENSE FCTR
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE FLOA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
UTLR-UTILITIES , REFERRED TO AS UTLG
DESCRIBED AS UTILITIES/ENERGY; MALL SHOPS
ASSIGNED TO COST CENTER 5 - UTL-UTILITY INCOME
PRO RATA SHARE RECOVERY OF EXPENSE UTLR
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE UTLA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
CAM3-RECOVERY CAM3, REFERRED TO AS CAM3
DESCRIBED AS CAN RECOVERY; MALL SHOPS TYPE 3
ASSIGNED TO COST CENTER 1 - CAM-MALL SHOPS
PRO RATA SHARE RECOVERY OF EXPENSE CAM3
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE CAM3
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
CAMl-RECOVERY CAM1, REFERRED TO AS CAM1
DESCRIBED AS CAN RECOVERY; MALL SHOPS TYPE 1
ASSIGNED TO COST CENTER 1 - CAM-MALL SHOPS
PRO RATA SHARE RECOVERY OF EXPENSE CAM1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE CAM2
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
PAGE 12
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
GLBG
DESCRIBED AS GLOBAL GROUPING; STANDARD RECOVERY PACKAGE FOR MALL SHOP TENANTS
GLOBAL GROUPING
GLOBAL RECOVERY CAM3
GLOBAL RECOVERY TAX2
GLOBAL RECOVERY UTLG
GLOBAL RECOVERY W/SG
GLOBAL RECOVERY HVAC
CAM4-RECOVERY CAM4, REFERRED TO AS CAM4
DESCRIBED AS CAM RECOVERY; MALL SHOPS TYPE 4
ASSIGNED TO COST CENTER 1 - CAM-MALL SHOPS
PRO RATA SHARE RECOVERY OF EXPENSE CAM4
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE CAM4
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
CAM6-RECOVERY CAM6, REFERRED TO AS CAM6
DESCRIBED AS CAM RECOVERY; HALL SHOPS TYPE 6
ASSIGNED TO COST CENTER 1 - CAM-MALL SHOPS
PRO RATA SHARE RECOVERY OF EXPENSE CAM6
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE CAM3
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
FCTR-FOOD COURT , REFERRED TO AS FCT2
DESCRIBED AS FOOD COURT RECOVERY;
ASSIGNED TO COST CENTER 8 - FCT-FOOD COURT
PRO RATA SHARE RECOVERY OF EXPENSE FCTR
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE FLOA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
TAX1-RECOVERY TAX1, REFERRED TO AS TAX1
DESCRIBED AS TAX RECOVERY; MALL SHOPS TYPE 1
ASSIGNED TO COST CENTER 4 - TAX-ANCHOR TENANTS
PRO RATA SHARE RECOVERY OF EXPENSE TAX1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE TAX1
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
HVAR-HVAC CHARGE , REFERRED TO AS HVAC
DESCRIBED AS HVAC CHARGE; MALL SHOPS
ASSIGNED TO COST CENTER 5 - UTL-UTILITY INCOME
RECOVERY OF AMOUNTS OR RATES GROWING AT A RATE
YEAR I VALUE - MARKET RATE HVAR
YEAR 2 VALUE - MARKET RATE HVAR
THEREAFTER - GROWING AT 0.00%
CAP - NONE
TENANT PROLOGUE
MINIMUM RENTS:
SPECIFIED AMOUNTS INTERPRETED AS AMOUNTS/SQUARE FOOT/YEAR
MARKET RATES INTERPRETED AS AMOUNTS/SQUARE FOOT/YEAR
SALES VOLUMES AND BREAKPOINTS:
SPECIFIED AMOUNTS INTERPRETED AS AMOUNTS/SQUARE FOOT/YEAR
MARKET RATES INTERPRETED AS AMOUNTS/SQUARE FOOT/YEAR
GALLERIA AT WHITE PLAINS (NEW YORK)
TENANT REGISTER
6/18/96 @ 16:39
GALLERIA AT WHITE PLAINS (NEW YORK)
EXPIRATION REPORT
YEARS 1997 To 2006, ALL TENANTS,
INCLUDING OPTIONS, INCLUDING RENEWALS,
EXCLUDING BASE LEASES AND PRIOR OPTIONS,
BASE RENTS INCLUDING CPI ADJUSTMENTS,
INCLUDING PERCENTAGE RENTS
6/18/96 @ 16:39
Tue Apr 23, 1996 Page 1
CUSTOM SUMMARY REPORT
(POP 80-01, HH 80-01,INC 80-01)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
PRIMARY TRADE AREA COORD: 00:00.00 00:00.00
-------------------------------------------------------------------------
DESCRIPTION TOTALS
-------------------------------------------------------------------------
POP_80: TOTAL 381,329
POP_90: TOTAL 375,292
POP_96: TOTAL (EST.) 383,221
POP_01: TOTAL (PROJ.) 390,295
HH_80: TOTAL 138,623
HH_90: TOTAL 138,748
HH_96: TOTAL (EST.) 145,604
HH_01: TOTAL (PROJ.) 150,725
INC_80: PER CAPITA (EST.) $10,742
INC_90: PER CAPITA $26,885
INC_96: PER CAPITA (EST.) $35,057
INC_01: PER CAPITA (PROJ.) $49,853
HH_80_BY INCOME_79: MEDIAN $22,525
HH_90_BY INCOME_89: MEDIAN $47,938
HH_96_BY INCOME: MEDIAN (EST.) $67,806
HH_00_BY INCOME: MEDIAN $93,309
HH_80 BY INCOME_79: AVERAGE $29,548
HH 90 BY INCOME_ 89: AVERAGE $72,322
HH_96_BY INCOME AVERAGE (EST.) $90,118
HH_01_BY INCOME: AVERAGE $126,136
Wed May 8, 1996 Page 1
CUSTOM SUMMARY REPORT
(POP 80-01, HH 80-01,INC 80-01)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
GALLERIA AT WHITE PLAINS
SECONDARY TRADE AREA COORD: 00:00.00 00:00.00
-------------------------------------------------------------------------
DESCRIPTION TOTALS
-------------------------------------------------------------------------
POP_80: TOTAL 307,712
POP_90: TOTAL 306,153
POP_96: TOTAL (EST.) 312,445
POP_01: TOTAL (PROJ.) 318,529
HH_80: TOTAL 111,895
HH_90: TOTAL 114,153
HH_96: TOTAL (EST.) 120,269
HH_01: TOTAL (PROJ.) 124,833
INC_80: PER CAPITA (EST.) $9,642
INC_90: PER CAPITA $22,101
INC_96: PER CAPITA (EST.) $31,949
INC_Ol: PER CAPITA (PROJ.) $46,590
HH_80_BY INCOME_79: MEDIAN $21,462
HH_90_BY INCOME_89: MEDIAN $43,490
HH_96_BY INCOME: MEDIAN (EST.) $61,786
HH_00_BY INCOME: MEDIAN $84,689
HH_80_BY INCOME_79: AVERAGE $26,517
HH_90_BY INCOME_89: AVERAGE $58,145
HH_96_BY INCOME._ AVERAGE (EST.) $80,457
HH_01_BY INCOME: AVERAGE $115,359
Tue Apr 23, 1996 Page 1
CUSTOM SUMMARY REPORT
(POP 80-01, HH 80-01,INC 80-01)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
EFFECTIVE TRADE AREA COORD: 00:00.00 00:00.00
---------------------------------------------------------------------------
DESCRIPTION TOTALS
---------------------------------------------------------------------------
POP_80: TOTAL 691,774
POP_90: TOTAL 683,960
POP_96: TOTAL (EST.) 698,228
POP_Ol: TOTAL (PROJ.) 711,397
HH_80: TOTAL 251,545
HH_90: TOTAL 253,905
HH_96: TOTAL (EST.) 266,922
HH_Ol: TOTAL (PROJ.) 276,641
INC_80: PER CAPITA (EST.) $10,258
INC_90: PER CAPITA $24,742
INC_96: PER CAPITA (EST.) $33,678
INC_01: PER CAPITA (PROJ.) $48,409
HH_80_BY INCOME_79: MEDIAN $22,046
HH 90 BY INCOME_89: MEDIAN $45,871
HH_96_BY INCOME MEDIAN (EST.) $65,061
HH_00_BY INCOME: MEDIAN $89,337
HH_80_BY INCOME_79: AVERAGE $28,210
HH_90_BY INCOME_89: AVERAGE $65,917
HH 96 BY INCOME AVERAGE (EST.) $85,779
HH_01_BY INCOME: AVERAGE $121,286
Tue Apr 30, 1996 Page 1
CUSTOM SUMMARY REPORT
(POP 80-01, HH 80-01,INC 80-01)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
WESTCHESTER COUNTY, NY
COORD: 00:00.00 00:00.00
--------------------------------------------------------------------
DESCRIPTION TOTALS
--------------------------------------------------------------------
POP_80: TOTAL 866,599
POP_90: TOTAL 874,866
POP_96: TOTAL (EST.) 898,586
POP_O1: TOTAL (PROJ.) 915,143
HH_80: TOTAL 307,450
HH_90: TOTAL 320,030
HH_96: TOTAL (EST.) 338,365
HH_01: TOTAL (PROJ.) 351,924
INC 80: PER CAPITA (EST.) $10,603
INC_90: PER CAPITA $25,584
INC_96: PER CAPITA (EST.) $34,413
INC_O1: PER CAPITA (PROJ.) $49,270
HH_80_BY INCOME_79: MEDIAN $23,092
HH_90_BY INCOME_89: MEDIAN $48,727
HH_96_BY INCOME: MEDIAN (EST.) $68,211
HH_00 BY INCOME: MEDIAN $92,677
HH_80_BY INCOME_79: AVERAGE $29,619
HH_90_BY INCOME_89: AVERAGE $69,264
HH_96_BY INCOME: AVERAGE (EST.) $88,846
HH_01_By INCOME: AVERAGE $124,652
Tue Apr 30, 1996 Page 1
CUSTOM SUMMARY REPORT
(POP 80-01, HH 80-01,INC 80-01)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
NEW YORK METROPOLITAN AREA
COORD: 00:00.00 00:00.00
--------------------------------------------------------------------------
DESCRIPTION TOTALS
--------------------------------------------------------------------------
POP_80: TOTAL 8,274,963
POP_90: TOTAL 8,546,846
POP_96: TOTAL (EST.) 8,651,668
POP_01: TOTAL (PROJ.) 8,764,405
HH_80: TOTAL 3,198,254
HH_90: TOTAL 3,252,399
HH_96: TOTAL (EST.) 3,353,426
HH_01: TOTAL (PROJ.) 3,438,141
INC_80: PER CAPITA (EST.) $7,672
INC_90: PER CAPITA $17,396
INC_96: PER CAPITA (EST.) $23,634
INC_01: PER CAPITA (PROJ.) $34,398
HH_80_BY INCOME_79: MEDIAN $14,957
HH_90_BY INCOME_89: MEDIAN $32,077
HH_96_BY INCOME: MEDIAN (EST.) $42,582
HH_00_BY INCOME: MEDIAN $58,357
HH_80_BY INCOME_79: AVERAGE $19,624
HH_90_BY INCOME_89: AVERAGE $45,159
HH_96_BY INCOME AVERAGE (EST.) $59,659
HH_01_BY INCOME: AVERAGE $85,608
Tue Apr 23, 1996 Page
CUSTOM SUMMARY REPORT
(POP 80-01, HH 80-01,INC 80-01)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866~-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
NEW YORK
COORD: 00:00.00 00:00.00
--------------------------------------------------------------------------
DESCRIPTION TOTALS
--------------------------------------------------------------------------
POP_80: TOTAL 17,558,076
POP_90: TOTAL 17,990,456
POP_96: TOTAL (EST.) 18,293,436
POP_01: TOTAL (PROJ.) 18,493,734
HH_80: TOTAL 6,340,431
HH_90: TOTAL 6,639,322
HH_96: TOTAL (EST.) 6,885,111
HH_01: TOTAL (PROJ.) 7,041,230
INC_80: PER CAPITA (EST.) $7,498
INC_90: PER CAPITA $16,501
INC_96: PER CAPITA (EST.) $22,082
INC_01: PER CAPITA (PROJ.) $31,036
HH_80_BY INCOME 79: MEDIAN $16,899
HH_90_BY INCOME_89: MEDIAN $33,328
HH_96_BY INCOME MEDIAN (EST.) $42,735
HH_00_BY INCOME: MEDIAN $55,067
HH_80_BY INCOME 79: AVERAGE $20,527
HH_90_BY INCOME_89: AVERAGE $44,121
HH_96_BY INCOME AVERAGE (EST.) $57,348
HH_01_BY INCOME: AVERAGE $79,593
Tue Apr 16, 1996 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
PRIMARY TRADE AREA COORD: 00:00.00 00:00.00
--------------------------------------------------------------------------
DESCRIPTION TOTALS
--------------------------------------------------------------------------
POPULATION
2001 PROJECTION 390,295
1996 ESTIMATE 383,221
1990 CENSUS 375,292
1980 CENSUS 381,329
GROWTH 1980 - 1990 -1.58%
HOUSEHOLDS
2001 PROJECTION 150,725
1996 ESTIMATE 145,604
1990 CENSUS 138,748
1980 CENSUS 138 623
GROWTH 1980 - 1990 0.09%
1996 ESTIMATED POPULATION BY RACE 383,221
WHITE 69.05%
BLACK 22.81%
ASIAN & PACIFIC ISLANDER 4.81%
OTHER RACES 3.33%
1996 ESTIMATED POPULATION 383,221
HISPANIC ORIGIN 11.23%
OCCUPIED UNITS 138,748
OWNER OCCUPIED 56.29%
RENTER OCCUPIED 43.71%
1990 AVERAGE PERSONS PER HH 2.63
1996 EST. HOUSEHOLDS BY INCOME 145,604
$150,000 OR MORE 18.25%
$100,000 TO $149,999 13.20%
$ 75,000 TO $ 99,999 13.16%
$ 50,000 TO $ 74,999 18.76%
$ 35,000 TO $ 49,999 10.98%
$ 25,000 TO $ 34,999 7.76%
$ 15,000 TO $ 24,999 7.20%
$ 5,000 TO $ 15,000 8.35%
UNDER $ 5,000 2.35%
1996 EST. AVERAGE HOUSEHOLD INCOME $90,118
1996 EST. MEDIAN HOUSEHOLD INCOME $67,806
1996 EST. PER CAPITA INCOME $35,057
Tue Apr 16, 1996 CUSTOM SUMMARY REPORT Page 2
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
PRIMARY TRADE AREA COORD: 00:00.00 00:00.00
--------------------------------------------------------------------------
DESCRIPTION TOTALS
--------------------------------------------------------------------------
1996 ESTIMATED POPULATION BY SEX 383,221
MALE 47.02%
FEMALE 52.98%
MARITAL STATUS 308,913
SINGLE MALE 15.28%
SINGLE FEMALE 15.45%
MARRIED 52.19%
PREVIOUSLY MARRIED MALE 4.42%
PREVIOUSLY MARRIED FEMALE 12.66%
HOUSEHOLDS WITH CHILDREN 44,303
MARRIED COUPLE FAMILY 75.71%
OTHER FAMILY-MALE HEAD 3.90%
OTHER FAMILY-FEMALE HEAD 19.85%
NON FAMILY 0.53%
1996 ESTIMATED POPULATION BY AGE 383,221
UNDER 5 YEARS 6.96%
5 TO 9 YEARS 6.02%
10 TO 14 YEARS 5.64%
15 TO 17 YEARS 3.46%
18 TO 20 YEARS 3.09%
21 TO 24 YEARS 4.91%
25 TO 29 YEARS 7.17%
30 TO 34 YEARS 8.11%
35 TO 39 YEARS 7.75%
40 TO 49 YEARS 15.79%
50 TO 59 YEARS 11.16%
60 TO 64 YEARS 4.51%
65 TO 69 YEARS 4.24%
70 TO 74 YEARS 3.72%
75 + YEARS 7.47%
MEDIAN AGE 37.99
AVERAGE AGE 38.98
Tue Apr 16, 1996 Page 3
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN ~& WAKEFIELD
GALLERIA AT WHITE PLAINS
PRIMARY TRADE AREA COORD: 00:00.00 00:00.00
--------------------------------------------------------------------------
DESCRIPTION TOTALS
--------------------------------------------------------------------------
1996 ESTIMATED FEMALE POP. BY AGE 203,018
UNDER 5 YEARS 6.41%
5 TO 9 YEARS 5.54%
10 TO 14 YEARS 5.14%
15 TO 17 YEARS 3.18%
18 TO 20 YEARS 3.03%
21 TO 24 YEARS 4.89%
25 TO 29 YEARS 6.77%
30 TO 34 YEARS 7.84%
35 TO 39 YEARS 7.60%
40 TO 49 YEARS 15.92%
50 TO 59 YEARS 11.37%
60 TO 64 YEARS 4.58%
65 TO 69 YEARS 4.37%
70 TO 74 YEARS 4.14%
75 + YEARS 9.21%
FEMALE MEDIAN AGE 39.74
FEMALE AVERAGE AGE 40.67
POPULATION BY HOUSEHOLD TYPE 375,292
FAMILY HOUSEHOLDS 83.76%
NON-FAMILY HOUSEHOLDS 13.48%
GROUP QUARTERS 2.76%
HOUSEHOLDS BY TYPE 138,748
SINGLE MALE 9.09%
SINGLE FEMALE 17.02%
MARRIED COUPLE 53.76%
OTHER FAMILY-MALE HEAD 3.52%
OTHER FAMILY-FEMALE HEAD 12.31%
NON FAMILY-MALE HEAD 2.29%
NON FAMILY-FEMALE HEAD 2.00%
POPULATION BY URBAN VS. RURAL 375,322
URBAN 100.0%
RURAL 0.00%
Tue Apr 16, 1996 Page 4
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
PRIMARY TRADE AREA COORD: 00:00.00 00:00.00
--------------------------------------------------------------------------
DESCRIPTION TOTALS
--------------------------------------------------------------------------
FEMALES 16+ WITH CHILDREN 0 - 17: BASE 165,642
WORKING WITH CHILD 0 - 5 3.96%
NOT WORKING WITH CHILD 0 - 5 0.21%
NOT IN LABOR FORCE WITH CHILD 0 - 5 3.44%
WORKING WITH CHILD 6 - 17 9.29%
NOT WORKING WITH CHILD 6 - 17 0.35%
NOT IN LAB. FORCE WITH CHILD 6 - 17 3.50%
WORKING WITH CHILD 0 - 5 & 6 - 18 2.24%
NOT WORKING WITH CHILD 0 - 5 & 6 - 18 0.16%
NOT IN LAB. FORCE W/CHILD 0 - 5 & 6 - 18 2.31%
WORKING WITH NO CHILDREN 40.15%
NOT WORKING WITH NO CHILDREN 1.84%
NOT IN LAB. FORCE WITH NO CHILD. 32.56%
HH BY AGE BY POVERTY STATUS 138,339
ABOVE POVERTY UNDER AGE 65 70.35%
ABOVE POVERTY AGE 65 + 22.65%
BELOW POVERTY UNDER AGE 65 4.27%
BELOW POVERTY AGE 65 + 2.73%
POPULATION 16+ BY EMPLOYMENT STATUS 305,396
EMPLOYED IN ARMED FORCES 0.04%
EMPLOYED CIVILIANS 63.82%
UNEMPLOYED CIVILIANS 3.31%
NOT IN LABOR FORCE 32.83%
POPULATION 16+ BY OCCUPATION 194,897
EXECUTIVE AND MANAGERIAL 18.10%
PROFESSIONAL SPECIALTY 20.43%
TECHNICAL SUPPORT 3.07%
SALES 11.98%
ADMINISTRATIVE SUPPORT 16.59%
SERVICE: PRIVATE HOUSEHOLD 1.43%
SERVICE: PROTECTIVE 1. 90%
SERVICE: OTHER 10.22%
FARMING FORESTRY & FISHING 1.20%
PRECISION PRODUCTION & CRAFT 7.38%
MACHINE OPERATOR 2.74%
TRANS. AND MATERIAL MOVING 2.66%
LABORERS 2.30%
Tue Apr 16, 1996 Page 5
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
PRIMARY TRADE AREA COORD: 00:00.00 00:00.00
-----------------------------------------------------------------------
DESCRIPTION TOTALS
----------------------------------------------------------------------
FAMILIES BY NUMBER OF WORKERS 97,138
NO WORKERS 8.90%
ONE WORKER 28.48%
TWO WORKERS 44.70%
THREE + WORKERS 17.93%
HISPANIC POPULATION BY TYPE 375,292
NOT HISPANIC 89.61%
MEXICAN 1.65%
PUERTO RICAN 1.90%
CUBAN 0.69%
OTHER HISPANIC 6.16%
1996 HISPANIC RACE BASE 43,053
WHITE 60.57%
BLACK 10.84%
ASIAN 0.68%
OTHER 27.91%
POPULATION BY TRANSPORTATION TO WORK 191,271
DRIVE ALONE 57.44%
CAR POOL 10.31%
PUBLIC TRANSPORTATION 20.98%
DRIVE MOTORCYCLE 0.03%
WALKED ONLY 7.02%
OTHER MEANS 0.90%
WORKED AT HOME 3.32%
POPULATION BY TRAVEL TIME TO WORK 191,271
UNDER 10 MINUTES / WORK AT HOME 16.94%
10 TO 29 MINUTES 45.20%
30 TO 59 MINUTES 23.48%
60 TO 89 MINUTES 12.15%
90+ MINUTES 2.22%
AVERAGE TRAVEL TIME IN MINUTES 26.42
HOUSEHOLDS BY NO. OF VEHICLES 138,708
NO VEHICLES 16.43%
1 VEHICLE 36.48%
2 VEHICLES 33.21%
3+ VEHICLES 13.88%
ESTIMATED TOTAL VEHICLES 204,339
Tue Apr 16, 1996 Page 6
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA. AT WHITE PLAINS
PRIMARY TRADE AREA COORD: 00:00.00 00:00.00
---------------------------------------------------------------------------
DESCRIPTION TOTALS
---------------------------------------------------------------------------
POPULATION 25+ BY EDUCATION LEVEL 260,000
ELEMENTARY (0 - 8) 8.41%
SOME HIGH SCHOOL (9-11) 11.44%
HIGH SCHOOL GRADUATE (12) 24.05%
SOME COLLEGE (13-15) 14.40%
ASSOCIATES DEGREE ONLY 5.49%
BACHELORS DEGREE ONLY 18.64%
GRADUATE DEGREE 17.57%
POPULATION ENROLLED IN SCHOOL 91,621
PUBLIC PRE- PRIMARY 3.81%
PRIVATE PRE- PRIMARY 4.63%
PUBLIC ELEM/HIGH 48.89%
PRIVATE ELEM/HIGH 9.91%
ENROLLED IN COLLEGE 32.74%
HOUSING UNITS BY OCCUPANCY STATUS 145,101
OCCUPIED 95.62%
VACANT 4.38%
VACANT UNITS 6,353
FOR RENT 34.27%
FOR SALE ONLY 30.02%
SEASONAL 8.89%
OTHER 26.82%
OWNER OCCUPIED PROPERTY VALUES 52,005
UNDER $25,000 0.21%
$25,000 TO $49,999 0.27%
$50,000 TO $74,999 0.48%
$75,000 TO $99,999 1.16%
$100,000 TO $149,999 3.39%
$150,000 TO $199,999 8.27%
$200,000 TO $299,999 29.07%
$300,000 TO $399,999 23.16%
$400,000 TO $499,999 12.81%
$500,000 + 21.17%
MEDIAN PROPERTY VALUE $346,799
TOTAL RENTAL UNITS 58,549
MEDIAN RENT $564
Tue Apr 16, 1996 Page 7
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
PRIMARY TRADE AREA COORD: 00:00.00 00:00.00
-------------------------------------------------------------------------
DESCRIPTION TOTALS
-------------------------------------------------------------------------
PERSONS IN UNIT 138,748
1 PERSON UNITS 26.11%
2 PERSON UNITS 30.15%
3 PERSON UNITS 17.38%
4 PERSON UNITS 15.00%
5 PERSON UNITS 6.94%
6 PERSON UNITS 2.61%
7 + UNITS 1.81%
YEAR ROUND UNITS IN STRUCTURE 145,101
SINGLE UNITS DETACHED 40.70%
SINGLE UNITS ATTACHED 3.05%
DOUBLE UNITS 10.34%
3 TO 9 UNITS 14.26%
10 TO 19 UNITS 5.24%
20 TO 49 UNITS 9.49%
50 + UNITS 15.37%
MOBILE HOME OR TRAILER 0.03%
ALL OTHER 1.53%
SINGLE/MULTIPLE UNIT RATIO 0.80
HOUSING UNITS BY YEAR BUILT 138,708
BUILT 1989 TO MARCH 1990 0.58%
BUILT 1985 TO 1988 2.70%
BUILT 1980 TO 1984 3.27%
BUILT 1970 TO 1979 6.42%
BUILT 1960 TO 1969 11.98%
BUILT 1950 TO 1959 19.44%
BUILT 1940 TO 1949 12.31%
BUILT 1939 OR EARLIER 43.31%
Tue Apr 16, 1996 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
By EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
EFFECTIVE TRADE AREA COORD: 00:00.00 00:00.00
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DESCRIPTION TOTALS
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POPULATION
2001 PROJECTION 711,397
1996 ESTIMATE 698,228
1990 CENSUS 683,960
1980 CENSUS 691,774
GROWTH 1980 - 1990 -1.13%
HOUSEHOLDS
2001 PROJECTION 276,641
1996 ESTIMATE 266,922
1990 CENSUS 253,905
1980 CENSUS 251,545
GROWTH 1980 - 1990 0.94%
1996 ESTIMATED POPULATION BY RACE 698,228
WHITE 71.82%
BLACK 19.12%
ASIAN & PACIFIC ISLANDER 4.91%
OTHER RACES 4.15%
1996 ESTIMATED POPULATION 698,228
HISPANIC ORIGIN 12.20%
OCCUPIED UNITS 253,905
OWNER OCCUPIED 54.96%
RENTER OCCUPIED 45.04%
1990 AVERAGE PERSONS PER HH 2.61
1996 EST. HOUSEHOLDS BY INCOME 266,922
$150,000 OR MORE 16.11%
$100,000 TO $149,999 12.96%
$ 75,000 TO $ 99,999 13.32%
$ 50,000 TO $ 74,999 19.13%
$ 35,000 TO $ 49,999 11.46%
$ 25,000 TO $ 34,999 7.86%
$ 15,000 TO $ 24,999 7.64%
$ 5,000 TO $ 15,000 8.90%
UNDER $ 5,000 2.62%
1996 EST. AVERAGE HOUSEHOLD INCOME $85,779
1996 EST. MEDIAN HOUSEHOLD INCOME $65,061
1996 EST. PER CAPITA INCOME $33,678
Tue Apr 16, 1996 Page 2
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
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EFFECTIVE TRADE AREA COORD: 00:00.00 00:00.00
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DESCRIPTION TOTALS
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1996 ESTIMATED POPULATION BY SEX 698,228
MALE 47.33%
FEMALE 52.67%
MARITAL STATUS 562,461
SINGLE MALE 15.55%
SINGLE FEMALE 15.14%
MARRIED 52.15%
PREVIOUSLY MARRIED MALE 4.52%
PREVIOUSLY MARRIED FEMALE 12.65%
HOUSEHOLDS WITH CHILDREN 79,929
MARRIED COUPLE FAMILY 74.57%
OTHER FAMILY-MALE HEAD 3.83%
OTHER FAMILY-FEMALE HEAD 21.07%
NON FAMILY 0.52%
1996 ESTIMATED POPULATION BY AGE 698,228
UNDER 5 YEARS 7.08%
5 TO 9 YEARS 6.03%
10 TO 14 YEARS 5.66%
15 TO 17 YEARS 3.41%
18 TO 20 YEARS 3.06%
21 TO 24 YEARS 4.79%
25 TO 29 YEARS 7.32%
30 TO 34 YEARS 8.35%
35 TO 39 YEARS 7.81%
40 TO 49 YEARS 15.28%
50 TO 59 YEARS 11.04%
60 TO 64 YEARS 4.52%
65 TO 69 YEARS 4.32%
70 TO 74 YEARS 3.83%
75 + YEARS 7.51%
MEDIAN AGE 37.75
AVERAGE AGE 38.96
Tue Apr 16, 1996 Page 3
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
EFFECTIVE TRADE AREA COORD: 00:00.00 00:00.00
----------------------------------------------------------------------------
DESCRIPTION TOTALS
----------------------------------------------------------------------------
1996 ESTIMATED FEMALE POP. BY AGE 367,785
UNDER 5 YEARS 6.58%
5 TO 9 YEARS 5.61%
10 TO 14 YEARS 5.11%
15 TO 17 YEARS 3.12%
18 TO 20 YEARS 2.98%
21 TO 24 YEARS 4.79%
25 TO 29 YEARS 6.92%
30 TO 34 YEARS 7.98%
35 TO 39 YEARS 7.55%
40 TO 49 YEARS 15.42%
50 TO 59 YEARS 11.29%
60 TO 64 YEARS 4.60%
65 TO 69 YEARS 4.46%
70 TO 74 YEARS 4.27%
75 + YEARS 9.31%
FEMALE MEDIAN AGE 39.57
FEMALE AVERAGE AGE 40.67
POPULATION BY HOUSEHOLD TYPE 683,960
FAMILY HOUSEHOLDS 83.38%
NON-FAMILY HOUSEHOLDS 13.33%
GROUP QUARTERS 3.29%
HOUSEHOLDS BY TYPE 253,905
SINGLE MALE 9.26%
SINGLE FEMALE 17.07%
MARRIED COUPLE 53.57%
OTHER FAMILY-MALE HEAD 3.47%
OTHER FAMILY-FEMALE HEAD 12.58%
NON FAMILY-MALE HEAD 2.21%
NON FAMILY-FEMALE HEAD 1.84%
POPULATION BY URBAN VS. RURAL 684,003
URBAN 99.80%
RURAL 0.20%
Tue Apr 16, 1996 Page 4
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
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EFFECTIVE TRADE AREA COORD: 00:00.00 00:00.00
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DESCRIPTION TOTALS
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FEMALES 16+ WITH CHILDREN 0 - 17: BASE 299,291
WORKING WITH CHILD 0 - 5 3.81%
NOT WORKING WITH CHILD 0 - 5 0.25%
NOT IN LABOR FORCE WITH CHILD 0 - 5 3.65%
WORKING WITH CHILD 6 - 17 9.02%
NOT WORKING WITH CHILD 6 - 17 0.41%
NOT IN LAB. FORCE WITH CHILD 6 - 17 3.58%
WORKING WITH CHILD 0 - 5 & 6 - 18 2.24%
NOT WORKING WITH CHILD 0 - 5 & 6 - 18 0.15%
NOT IN LAB. FORCE W/CHILD 0 - 5 & 6 - 18 2.55%
WORKING WITH NO CHILDREN 39.51%
NOT WORKING WITH NO CHILDREN 1.83%
NOT IN LAB. FORCE WITH NO CHILD. 32.99%
HH BY AGE BY POVERTY STATUS 253,495
ABOVE POVERTY UNDER AGE 65 69.41%
ABOVE POVERTY AGE 65 + 22.94%
BELOW POVERTY UNDER AGE 65 5.02%
BELOW POVERTY AGE 65 + 2.62%
POPULATION 16+ BY EMPLOYMENT STATUS 555,794
EMPLOYED IN ARMED FORCES 0.04%
EMPLOYED CIVILIANS 62.27%
UNEMPLOYED CIVILIANS 3.42%
NOT IN LABOR FORCE 34.27%
POPULATION 16+ BY OCCUPATION 346,111
EXECUTIVE AND MANAGERIAL 17.87%
PROFESSIONAL SPECIALTY 19.68%
TECHNICAL SUPPORT 3.14%
SALES 11.87%
ADMINISTRATIVE SUPPORT 17.11%
SERVICE: PRIVATE HOUSEHOLD 1.09%
SERVICE: PROTECTIVE 2.19%
SERVICE: OTHER 9.99%
FARMING FORESTRY & FISHING 1.00%
PRECISION PRODUCTION & CRAFT 7.94%
MACHINE OPERATOR 3.01%
TRANS. AND MATERIAL MOVING 2.75%
LABORERS 2.36%
Tue Apr 16, 1996 Page 5
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
EFFECTIVE TRADE AREA COORD: 00:00.00 00:00.00
-----------------------------------------------------------------------------
DESCRIPTION TOTALS
-----------------------------------------------------------------------------
FAMILIES BY NUMBER OF WORKERS 178,054
NO WORKERS 10.47%
ONE WORKER 28.28%
TWO WORKERS 43.99%
THREE + WORKERS 17.26%
HISPANIC POPULATION BY TYPE 683,960
NOT HISPANIC 88.61%
MEXICAN 1.28%
PUERTO RICAN 3.54%
CUBAN 0.69%
OTHER HISPANIC 5.88%
1996 HISPANIC RACE BASE 85,199
WHITE 56.55%
BLACK 10.23%
ASIAN 0.66%
OTHER 32.56%
POPULATION BY TRANSPORTATION TO WORK 339,445
DRIVE ALONE 58.31%
CAR POOL 10.49%
PUBLIC TRANSPORTATION 21.39%
DRIVE MOTORCYCLE 0.04%
WALKED ONLY 6.15%
OTHER MEANS 0.70%
WORKED AT HOME 2.92%
POPULATION BY TRAVEL TIME TO WORK 339,445
UNDER 10 MINUTES / WORK AT HOME 14.88%
10 TO 29 MINUTES 44.69%
30 TO 59 MINUTES 25.75%
60 TO 89 MINUTES 12.17%
90+ MINUTES 2.52%
AVERAGE TRAVEL TIME IN MINUTES 27.49
HOUSEHOLDS BY NO. OF VEHICLES 253,908
NO VEHICLES 17.82%
1 VEHICLE 37.20%
2 VEHICLES 31.75%
3+ VEHICLES 13.23%
ESTIMATED TOTAL VEHICLES 363,165
Tue Apr 16, 1996 Page 6
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN &: WAKEFIELD
GALLERIA AT WHITE PLAINS
EFFECTIVE TRADE AREA COORD: 00:00.00 00:00.00
-----------------------------------------------------------------------------
DESCRIPTION TOTALS
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POPULATION 25+ BY EDUCATION LEVEL 474,959
ELEMENTARY (0-8) 8.75%
SOME HIGH SCHOOL (9-11) 11.93%
HIGH SCHOOL GRADUATE (12) 25.60%
SOME COLLEGE (13-15) 14.54%
ASSOCIATES DEGREE ONLY 5.55%
BACHELORS DEGREE ONLY 17.79%
GRADUATE DEGREE 15.83%
POPULATION ENROLLED IN SCHOOL 165,046
PUBLIC PRE- PRIMARY 3.52%
PRIVATE PRE- PRIMARY 4.63%
PUBLIC ELEM/HIGH 47.12%
PRIVATE ELEM/HIGH 11.77%
ENROLLED IN COLLEGE 32.96%
HOUSING UNITS BY OCCUPANCY STATUS 265,654
OCCUPIED 95.58%
VACANT 4.42%
VACANT UNITS 11,750
FOR RENT 35.91%
FOR SALE ONLY 30.39%
SEASONAL 8.22%
OTHER 25.49%
OWNER OCCUPIED PROPERTY VALUES 89,364
UNDER $25,000 0.24%
$25,000 TO $49,999 0.32%
$50,000 TO $74,999 0.58%
$75,000 TO $99,999 1.39%
$100,000 TO $149,999 4.19%
$150,000 TO $199,999 10.70%
$200,000 TO $299,999 34.60%
$300,000 TO $399,999 21.91%
$400,000 TO $499,999 10.32%
$500,000 + 15.74%
MEDIAN PROPERTY VALUE $318,671
TOTAL RENTAL UNITS 110,780
MEDIAN RENT $545
Tue Apr 16, 1996 Page 7
CUSTOM SUMMARY REPORT
(POP FACTS: FULL DATA REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
CUSHMAN & WAKEFIELD
GALLERIA AT WHITE PLAINS
EFFECTIVE TRADE AREA COORD: 00:00.00 00:00.00
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DESCRIPTION TOTALS
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PERSONS IN UNIT 253,905
1 PERSON UNITS 26.33%
2 PERSON UNITS 30.57%
3 PERSON UNITS 17.44%
4 PERSON UNITS 14.76%
5 PERSON UNITS 6.68%
6 PERSON UNITS 2.54%
7 + UNITS 1.68%
YEAR ROUND UNITS IN STRUCTURE 265,654
SINGLE UNITS DETACHED 37.20%
SINGLE UNITS ATTACHED 3.23%
DOUBLE UNITS 9.93%
3 TO 9 UNITS 15.94%
10 TO 19 UNITS 5.52%
20 TO 49 UNITS 9.15%
50 + UNITS 17.55%
MOBILE HOME OR TRAILER 0.03%
ALL OTHER 1.46%
SINGLE/MULTIPLE UNIT RATIO 0.70
HOUSING UNITS BY YEAR BUILT 253,908
BUILT 1989 TO MARCH 1990 0.52%
BUILT 1985 TO 1988 2.74%
BUILT 1980 TO 1984 3.11%
BUILT 1970 TO 1979 8.48%
BUILT 1960 TO 1969 14.23%
BUILT 1950 TO 1959 20.69%
BUILT 1940 TO 1949 11.56%
BUILT 1939 OR EARLIER 38.67%
(1) Includes 47,000 square feet of outparcel GLA.
(2) Adjusted to reflect 100% interest
(3) Price includes $13 million for expansion.
(4) Adjusted to reflect 100% interest; price includes strip center and
outparcels.
SURVEY OF RECENT CLOSED TRANSACTIONS
Net Rentable Area Sales Price Per Sq. Ft. Going-in Cap Rate
----------------------------- ----------------------------- ------------------------------
Property No. Sales No. Sales No. Sales
Type Reported Average Median Reported Average Median Reported Average Median
------------------------- ------------------------------ ------------------------------ ------------------------------
Offices, Urban 16 498,859 440,929 16 $130.66 $116.76 12 9.68% 9.13%
Offices, Suburban 66 230,760 191,893 66 $83.39 $78.78 57 9.97% 10.00%
Industrial 57 150,787 118,400 57 $37.75 $37.87 28 10.80% 10.61%
Retail (Other Than Malls) 29 136,429 121,552 29 $95.99 $91.67 27 10.05% 10.00%
Malls 9 615,102 649,130 9 $124.68 $96.00 9 9.29% 9.53%
Internal Rate of Return
---------------------------------
Property No. Sales
Type Reported Average Median
---------------------------------
Offices, Urban 9 12.42% 12.75%
Offices, Suburban 11 13.20% 12.25%
Industrial (Sample Not Large Enough to Report)
Retail (Other Than Malls) 8 11.59% 11.33%
Malls (Sample Not Large Enough to Report)
Number of Units Sales Price Per Unit Going-in Cap Rate
---------------------------- -------------------------------- -----------------------------
No. Sales No. Sales No. Sales
Reported Average Median Reported Average Median Reported Average Median
---------------------------- -------------------------------- -----------------------------
Apartments 50 201 190 50 $47,975 $46,458 41 9.19% 9.30%
QUALIFICATIONS OF RICHARD W. LATELLA
Professional Affiliations
Member, American Institute of Real Estate Appraisers
(MAI Designation #8346)
New York State Certified General Real Estate Appraiser #46000003892
Pennsylvania State Certified General Real Estate Appraiser #GA-001 053-R
State of Maryland Certified General Real Estate Appraiser #01462
Minnesota Certified General Real Estate Appraiser #20026517
Commonwealth of Virginia Certified General Real Estate Appraiser #4001-003348
State of Michigan Certified General Real Estate Appraiser #1201005216
New Jersey Real Estate Salesperson (License #NS-130101-A)
Certified Tax Assessor - State of New Jersey
Affiliate Member - International Council of Shopping Centers, ICSC
Real Estate Experience
Senior Director, Retail Valuation Group, Cushman & Wakefield Valuation Advisory
Services. Cushman & Wakefield is a national full service real estate
organization and a Rockefeller Group Company. While Mr. Latella's experience has
been in appraising a full array of property types, his principal focus is in the
appraisal and counseling for major retail properties and specialty centers on a
national basis. As Senior Director of Cushman & Wakefield's Retail Group his
responsibilities include the coordination of the firm's national group of
appraisers who specialize in the appraisal of regional malls, department stores
and other major retail property types. He has personally appraised and consulted
on in excess of 200 regional malls and specialty retail properties across the
country.
Senior Appraiser, Valuation Counselors, Princeton, New Jersey, specializing in
the appraisal of commercial and industrial real estate, condemnation analyses
and feasibility studies for both corporate and institutional clients from July
1980 to April 1983.
Supervisor, State of New Jersey, Division of Taxation, Local Property and Public
Utility Branch in Trenton, New Jersey, assisting and advising local municipal
and property tax assessors throughout the state from June 1977 to July 1980.
Associate, Warren W, Orpen & Associates, Trenton, New Jersey, assisting in the
preparation of appraisals of residential property and condemnation analyses
from July 1975 to April 1977.
Formal Education
Trenton State College, Trenton, New Jersey
Bachelor of Science, Business Administration - 1977
As of the date of this report, Richard W. Latella, MAI, has completed the
requirements under the continuing education program of the Appraisal Institute.
OUALIFICATIONS OF JAY F. BOOTH
General Experience
Jay F. Booth joined Cushman & Wakefield Valuation Advisory Services in
August 1993. As an associate appraiser, Mr. Booth is currently working with
Cushman & Wakefield's Retail Valuation Group, specializing in regional shopping
malls and all types of retail product. Cushman & Wakefield, Inc. is a national
full service real estate organization.
Mr. Booth previously worked at Appraisal Group, Inc. in Portland, Oregon
where he was an associate appraiser. At AGI, he assisted in the valuation of
numerous property types, including office buildings, apartments, industrials,
retail centers, vacant land, and special purpose properties.
Academic Education
Master of Science in Real Estate (MSRE) - New York University (1995)
Major: Real Estate Valuation & Analysis New York, New York
Bachelor of Science (BS) - Willamette University (1991)
Majors: Business-Economics, Art Salem, Oregon
Study Overseas (Fall 1988) - Xiamen University, Xiamen, China;
Kookmin University, Seoul, South
Korea;
Tokyo International, Tokyo, Japan
Appraisal Education
As of the date of this report, Jay F. Booth has successfully completed all
of the continuing education requirements of the Appraisal Institute.
Professional Affiliation
Certified General Appraiser, State of New York No. 46000026796
Associate Member, Candidate MAI, Appraisal Institute No. M930181
YAC, Young Advisory Council, Appraisal Institute
This CD ROM contains an electronic version of appraisals for the Mortgaged
Properties in PDF format and forms part of the paper version of the Prospectus
Supplement. The information contained in this CD ROM does not appear elsewhere
in paper form in this Prospectus Supplement and must be considered as part of,
and together with, the information contained elsewhere in this Prospectus
Supplement and the Prospectus. The information contained in this CD ROM has
been filed by the Seller with the Securities and Exchange Commission as part
of a Current Report on Form 8-K, which is incorporated by reference in this
Prospectus Supplement, and is also available through the public reference
branch of the Securities and Exchange Commission. Defined terms used in this CD
ROM but not otherwise defined therein shall have the respective meanings
assigned to them in the paper portion of the Prospectus Supplement and the
Prospectus. All of the information contained in this CD ROM is subject to the
same limitations and qualifications contained in this Prospectus Supplement and
the Prospectus. Prospective investors are strongly urged to read the paper
portion of this Prospectus Supplement and the Prospectus in its entirety prior
to accessing this CD ROM. If this CD ROM was not received in a sealed package,
there can be no assurances that it remains in its original format and should
not be relied upon for any purpose. Prospective investors may contact J.
Theodore Borter of Goldman, Sachs Co. at (212)902-3857 to receive an original
copy of the CD ROM.
COMPLETE APPRAISAL
OF REAL PROPERTY
Greenwood Corporate Center
12015 Lee Jackson Memorial Highway
Fairfax, Fairfax County, VA
IN A SELF-CONTAINED REPORT
As of July 1, 1997
Prepared For:
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
Prepared By:
Cushman & Wakefield of Washington, D.C., Inc.
Valuation Advisory Services
1875 Eye Street, N.W., Suite 700
Washington, D.C. 20006
June 20, 1997
Mr. Sheridan Schechner
Managing Partner
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
Re: Complete Appraisal of Real Property
Greenwood Corporate Center
12015 Lee Jackson Memorial Highway
Fairfax, Fairfax County, Virginia
Dear Mr. Schechner
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield, of Washington, D.C. Inc. is pleased to transmit our
self-contained appraisal report estimating the prospective market value of the
leased fee estate in the subject property.
The value opinion reported below is qualified by certain assumptions,
limiting conditions, certifications, and definitions, which are set forth in the
report. We particularly call to your attention to the following special
assumption.
1. Pursuant to your request, the date of value is July 1, 1997. We
specifically assumed that no value affecting changes occur between the
date of inspection, which was June 13, 1997, and the prospective date
of value.
2. At the time of our property inspection, some of the space currently
being leased by Mantech under a June 1997 commencement date was still
under construction. We have not received a cost estimate as to the
tenant improvement allowances that would still be payable by the
landlord as of July 1, 1997, the effective date of the appraisal. We
have explicitly assumed that the costs will have been paid in full.
Should this not be the case, the value conclusion would be lower.
This report was prepared for Goldman Sachs Mortgage Company and is intended
only for its specified use. It may not be distributed to or relied upon by other
persons or entities without written permission of Cushman & Wakefield, Inc.
This appraisal report has been prepared in accordance with our
interpretation of your institution's guidelines, the regulations of OCC and the
Uniform Standards of Professional Appraisal Practice, including the Competency
Provision and The Financial Institutions Reform, Recovery and Enforcement Act
(FIRREA) and the guidelines of federal regulatory agencies.
The property was inspected by and the report was prepared by Steven A.
Studabaker, MAI, under the supervision of Donald R. Morris, MAI.
Mr. Sheridan Schechner [MARKED AS DRAFT]
Goldman Sachs Mortgage Company Page 2 June 20, 1997
Based on our complete appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have formed an opinion that the prospective
market value of the leased fee estate in the referenced property, subject to the
assumptions, limiting conditions, certifications, and definitions, as of July 1,
1997, was:
EIGHTEEN MILLION EIGHT HUNDRED THOUSAND DOLLARS
$18,800,000
This letter is invalid as an opinion opaque if detached from the report,
which contains the text, exhibits, and an Addenda.
Respectfully submitted,
Cushman & Wakefield of Washington, D.C., Inc.
Steven A. Studabaker, MAI
Associate Director
Virginia Commercial General Real Property Appraiser No. 4001-001111
Donald R. Morris, MAI
Manager, Director
Valuation Advisory Services
Virginia Commercial General Real Property Appraiser No. 4001-002465
SUMMARY OF SALIENT AND CONCLUSIONS
Property Name: Greenwood Corporate Center
(also known as Greenwood Plaza)
Location: 12015 Lee Jackson Memorial Highway
(also known sometimes as 12015
Legato Road)
General Overview: This is modern eight-story office
building built in 1985 on a 5.14 acre
site. The building contains 150,961
rentable square feet of office space,
plus a first floor auditorium and lunch
room containing another 3,471 square
feet of net rentable area. Parking is
provided on surface parking lots. The
building, with structural steel frame
and a facade of precast masonry and
glass panels, is modern in appearance
and functional in design.
On the effective date of appraisal,
leasing stood at 74 percent including
one June lease for 43,848 square feet
(Mantech) and two July 1997 leases
totaling 28,905 square feet.
Additionally, another signed lease is
due to commence in August for 19,596
square feet (Aerotek) that will bring
occupancy to 87 percent. In total, these
recent leases encompass 61 percent of
the building's net rentable area.
Interest Appraised: Leased Fee
Date of Value: July 1,1997
Date of Inspection: June 13,1997
Ownership: RF&P Land No. II, Inc.
Highest and Best Use:
If Vacant: For office development
As Improved: Continued use as an office building
Value Indicators
Sales Comparison Approach: $18,900,000 to $19,600,000
Value Per Square Foot: $125.20 to $129.83
Indicated Value: $18,900,000 to $19,600,000
Income Capitalization Approach
Estimated Market Rental Rate: $21.0/SF
Stabilized Vacancy Rate: 95%
Effective Gross Income: $16.93/SF (During first year of
holding period)
Operating Expenses $5.50/SF(During first year of
holding period)
Summary of Salient and Conclusions
================================================================================
Real Estate Taxes: $1.35/SF(During first year of
holding period)
Net Operating Income: $9.88
Estimated Vacancy Between Tenants 9 months
Free Rent: 0 months
Probability of Renewal: 60%
Tenant Improvement Allowance
New Tenants in Previously
Occupied Space $8.00 per square foot
Renewal Tenants in Same Space: $4.00 per square foot
Estimated Market Rental Growth Rate 3.5%
Estimated Expense Growth Rate: 1.75% at the end of 1997,
3.5% thereafter
Estimated Real Estate Tax
Growth Rate: 3.5% after bump in 1998
Reversion Year Capitalization Rate 9.25%
Transaction Costs in Reversion Sale: 2.5%
Discount Rate: 11.50%
Indicated Value: $18,800,000
Value Conclusion: $18,800,000
Value Per Square Foot: $124.54 (Net Rentable Area)
Implicit Capitalization Rate: 7.9%
Marketing Time: Six to nine months
Special Assumptions Affecting Valuation:
1. Pursuant to your request, the date of value is July 1, 1997. We
specifically assumed that no value affecting changes occur between the date
of inspection, which was June 13, 1997, and the prospective date of value.
2. At the time of our inspection of the property, some of the space currently
being leased by Mantech under a June 1997 commencement date was still under
construction. We have not received a cost estimate as to the tenant
improvement allowances that would be yet to be paid by the landlord as of
July 1, 1997, the effective date of the appraisal. We have explicitly
assumed that the costs will have been paid in full. Should this not be the
case, the value conclusion would be lower.
3. Please refer to the complete list of assumptions and limiting conditions
included at the end of this report.
TABLE OF CONTENTS
Page
INTRODUCTION .............................................................. 1
Identification of Property .............................................. 1
Property Ownership and Recent History ................................... 1
Purpose and Intended Use of the Appraisal ............................... 1
Extent of the Appraisal Process ......................................... 1
Prospective Date of Value and Property Inspection ....................... 2
Property Rights Appraised ............................................... 2
Definitions of Value, Interest Appraised, and Other Pertinent Terms ..... 2
Legal Description ....................................................... 4
REGIONAL ANALYSIS ......................................................... 5
OFFICE MARKET ANALYSIS .................................................... 21
PROPERTY DESCRIPTION ...................................................... 35
Site Description ........................................................ 35
Improvements Description ................................................ 36
REAL PROPERTY TAXES AND ASSESSMENTS ....................................... 39
ZONING .................................................................... 41
HIGHEST AND BEST USE ...................................................... 43
VALUATION PROCESS ......................................................... 45
SALES COMPARISON APPROACH ................................................. 47
INCOME CAPITALIZATION APPROACH ............................................ 53
RECONCILIATION AND FINAL VALUE ESTIMATE ................................... 68
ASSUMPTIONS AND LIMITING CONDITIONS ....................................... 70
CERTIFICATION OF APPRAISAL ................................................ 72
ADDENDA ................................................................... 73
PHOTOGRAPHS OF SUBJECT PROPERTY
================================================================================
[PHOTO OMITTED]
View of Greenwood Corporate center as seen looking
south from the ring road that circles Fairoaks Mall.
[PHOTO OMITTED]
View of the property as seen looking west from the adjacent parking area.
Photographs of Subject Property
[PHOTO OMITTED]
View of the main entry lobby.
[PHOTO OMITTED]
Sample view of an upper level elevator lobby.
Photographs of Subject Property
[PHOTO OMITTED]
View of the ring road and adjacent improvements as seen
looking east from a point near the entrance to
the property.
[PHOTO OMITTED]
View of the property as seen looking west
from the adjacent parking area
INTRODUCTION
Identification Property
This is an eight-story office building called Greenwood Corporate Center
(sometimes also known as Greenwood Plaza) located in the neighborhood of
Fairfax, Fairfax County, Virginia. It is a competitive, Class B+ office building
located on the ring road surrounding Fairoaks Regional Mall, near the
interchange between U.S. Route 50 (Lee Jackson Memorial Highway) and Interstate
66. The street address is 12015 Lee Jackson Memorial Highway, Fairfax, Virginia.
It is shown on the county's assessment rolls with an address of 12015 Legato
Road.
This is a modern eight-story building built in 1985 and located on a 5.14
acre site. The building contains 150,961 net rentable square feet. Parking is
provided on an asphalt surface parking lot. The building is modern in appearance
and functional in design. On the effective date of appraisal, occupancy stood at
74 percent, including one June lease for 43,848 square feet (Mantech) and two
July 1997 leases totaling 28,905 square feet. Additionally, another signed lease
is due to commence in August for 19,596 square feet (Aerotek) that will bring
occupancy to 87 percent. In total, these recent leases encompass 61 percent of
the building's net rentable area.
Property Ownership and Recent History
The property was acquired by the present owner, RF&P Land No. II, Inc.,
from State of California Public Employees Retirement System in November 1995 for
a recorded price of $10,966,700. This was an all cash transaction after adequate
market exposure and one of two buildings acquired in a single acquisition,
therefore the recorded consideration is an allocation of the total price. Since
the acquisition, the market has improved significantly and more than was
projected at the time of sale. For example market rents were $15.00 to $16.50
per square foot at the time of sale and were projected to increase to $15.75 to
$17.33 per square foot by 1997, or several dollars less than is currently being
achieved. Therefore, the estimated market value as concluded in this report
reflects a sharper picture of the market than was projected in 1995.
Additionally, we have reason to believe that the property may now be under
contract of sale. However, after discussing the matter with the owner, we have
been unable to obtain any details of the pending transaction. The present owner
considers this information to be confidential and was not willing to provide
details for our analysis.
Purpose and Intended Use of the Appraisal
The purpose of this appraisal is to estimate the prospective market value
of a leased fee estate on July 1, 1997. The appraisal is to be used to monitor
the performance of a portfolio asset.
Extent of the Appraisal Process
In the process of preparing this appraisal, we:
o Inspected the exterior of the building and the site improvements and a
representative sample of tenant spaces with Bernard Grace, the
manager.
-1-
Introduction
o Interviewed Bernard Grace of the property management company, CB
Commercial.
o Reviewed leasing policy, concessions, tenant build-out allowances, and
history of recent rental rates and occupancy with the building and
leasing managers.
o Reviewed a detailed history of income and expense and a budget
forecast for 1997.
o Conducted market research of occupancies, asking rents, concessions
and operating expenses at competing buildings which involved
interviews with on site managers and a review of our own data base
from previous appraisal files.
o Prepared an estimate of stabilized income and expense (for
capitalization purposes).
o Conducted market inquiries into recent sales of similar buildings to
ascertain sales price per square foot, effective gross income
multipliers and capitalization rates. This process involved telephone
interviews with sellers, buyers and/or participating brokers. (See
detailed sales write-ups in Addenda for more complete information on
the verification process.)
o Prepared Sales Comparison and Income Capitalization Approaches to
value.
Prospective Date of Value and Property Inspection
The prospective date of value is July 1, 1997. We inspected the property on
June 13, 1997.
Property Rights Appraised
Leased fee estate.
Definitions of Value, Interest Appraised, and Other Pertinent Terms
The definition of market value taken from the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation, is as follows:
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller, each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
-2-
Introduction
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
Exposure Time
Under Paragraph 3 of the Definition of Market Value, the value estimate
presumes that "A reasonable time is allowed for exposure in the open
market". Exposure time is defined as the estimated length of time the
property interest being appraised would have been offered on the market
prior to the hypothetical consummation of a sale at the market value on the
effective date of the appraisal. Exposure time is presumed to precede the
effective date of the appraisal.
Based on an analysis of recent sales transactions in the market, exposure
time is estimated to have been between six and nine months.
The following definitions of pertinent terms are taken from the Dictionary
of Real Estate Appraisal, Third Edition (1993), published by the Appraisal
Institute.
Leased Fee Estate
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the leased
fee owner) and the leased fee are specified by contract terms contained
within the lease.
Value As Is
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; relates to what
physically exists and is legally permissible and excludes all assumptions
concerning hypothetical market conditions or possible rezoning.
Market Rent
The rental income that a property would most probably command on the open
market; indicated by the current rents paid and asked for comparable space
as of the date of the appraisal.
Cash Equivalent
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities
that cannot be sold at their face amounts.
Discounted Cash Flow (DCF) Analysis
The procedure in which a discount rate is applied to a set of projected
income streams and a reversion. The analyst specifies the quantity,
variability, timing, and duration of the income streams as well as the
quantity and timing of the reversion and discounts each to its present
value at a specified yield rate. DCF analysis can
-3-
Introduction
be applied with any yield capitalization technique and may be performed on
either a lease-by-lease or aggregate basis.
Legal Description
The property is legally described by metes and bounds measures as recorded
among the land records of Fairfax County, Virginia. A copy of the legal
description is included in the Addenda to the report.
-4-
REGIONAL ANALYSIS
Introduction
The real estate market is affected by a range of supply and demand factors.
As examples, the growth trends in population and the number of households affect
the general demand for housing, offices, shopping centers, warehouses; the
employment opportunities and unemployment levels influence the ability or desire
to buy or rent and the quality/cost of the facilities sought; demographics
influence the types of units demanded; and general economic conditions affect
the attitudes of the populace towards the future.
The following analysis will review each of the major factors affecting the
supply and demand for real estate in the metropolitan area. The discussion is
organized to provide the reader with an overview of the area's geographic scope
and facilities infrastructure, followed by discussions of the key economic
factors affecting supply and demand under the following headings:
o Background
o Area Definition
o Infrastructure
o Population
o Employment and The Economy
o Household Demographics
o Recent Trends
Background
Washington, D.C. is unique among American cities. As our nation's capital,
it serves as a focal point for our country both politically and economically. In
the role as host city for a major world power, it attracts people from all over
the world. Washington has been dubbed a "recession proof" city in that it is
insulated, as some have argued, from the full effects of economic ups and downs
by the stabilizing influence of the federal government as the area's biggest
employer. From the 1950s through the 1980s, the size of government continually
increased, which brought about an increase in government employment and
population in the Washington area.
Area Definition
The metropolitan Washington area is all of the Washington Metropolitan
Statistical Area (MSA) as defined by the U.S. Department of Commerce, Bureau of
the Census, as of June 1983. The Washington MSA includes: District of Columbia;
the Maryland Counties of Calvert, Charles, Frederick, Montgomery and Prince
George's; the Virginia Counties of Arlington, Fairfax, Loudoun, Prince William
and Stafford; and the Virginia independent Cities of Alexandria, Fairfax, Falls
Church, Manassas, and Manassas Park. Prior to the 1983 redefinition of the
Washington MSA, the Maryland counties of Calvert and Frederick and the Virginia
county of Stafford were excluded. The addition of these counties enlarged the
metropolitan area from approximately 2,800 square miles to 3,956 square miles.
Please refer to the Washington MSA map on the following page.
-5-
WASHINGTON METROPOLITAN STATISTICAL AREA
[GRAPHIC OMITTED -- MAP SHOWING COUNTIES
SURROUNDING WASHINGTON D.C. AREA]
Regional Analysis
Effective December 31, 1992, the Department of Commerce created a new
Washington Baltimore-D.C.-MD-VA-WVa CMSA (consolidated metropolitan statistical
area) that includes the primary Washington, D.C. and Baltimore MSAs, plus a new
Hagerstown MSA and nine additional counties in Virginia and West Virginia. The
expanded market was created to reflect the area's household and employment
patterns and is highly touted by economic development agencies. The current
Washington, D.C. metropolitan area is the appropriate focus for this analysis,
however, since the pertinent market is more localized.
The population, housing and employment characteristics of the region are
best defined by starting at the area's central jurisdictions: the District of
Columbia, Arlington County, and the City of Alexandria; then moving outward to
the first suburban tier of counties: Fairfax County, City of Fairfax, City of
Falls Church, Prince George's County, and Montgomery County; and thence to the
outer tier of suburbs: Loudoun County, Prince William County, Manassas and
Manassas Park, Frederick County, Calvert County, Charles County, and Stafford
County.
Infrastructure
Transportation
The Capital Beltway (I-495) is one of the most important factors driving
development in the Washington area. It has tied the Maryland and Virginia
suburbs together and significantly influenced real estate investment patterns.
One of the primary results has been a steady rise in land prices in the vicinity
of the Beltway. Apartments, light industrial facilities, distribution
warehouses, and shopping centers have gone up wherever the Beltway crosses other
major highways. Interestingly, closer-in sites have often been by-passed in
favor of locations adjacent to the Beltway.
In addition to the Beltway, Washington is connected to I-95, the major
north-south interstate highway that extends most of the length of the Atlantic
coast, and I-66, an east-west highway that begins in Washington, D.C. and
connects westward to other interstate highways in Virginia and West Virginia.
The Washington Metropolitan Area Transit Authority (WMATA) provides transit
service in Maryland, the District of Columbia, and Virginia, including both
rapid rail and bus transportation. The rapid rail network, referred to as
Metrorail, will cover 103 miles with 86 stations in D.C., suburban Maryland and
Virginia when completed in the late 1990s. The construction of Metrorail has had
a major impact on land values around the stations and has spurred dramatic new
development, both in downtown Washington and in suburban areas. Major new office
and mixed use projects have been built around the Metro stops. In particular,
portions of downtown Washington and Arlington County have experienced an
economic revitalization due to the opening of Metrorail. Apartment projects
often market themselves as being close to Metrorail stations and typically
command rents at the high end of the market and achieve higher occupancies as a
result. The same could be said for various primary employment centers and major
retail facilities.
In terms of air transportation, the Washington area is served by three
major airports: Washington National, Baltimore/Washington International and
Washington Dulles International. Washington National, located in Arlington
County, is located four and one-half miles from the U.S. Capitol, and transports
over 16 million passengers per year. The airport was built in the
1940s and is currently undergoing major renovations and expansion, which
primarily includes a new terminal building and improved parking.
Washington Dulles International Airport is bisected by the Loudoun County,
Fairfax County line and lies in the western part of the MSA. The Dulles Access
Road provides quick access to the airport, along with the Capital Beltway
(I-495) which connects Fairfax County to the Washington metropolitan area. The
Dulles Toll Road is a commuter road bordering the Dulles Access Road that is
being studied for expansion and extension to Leesburg (Route 15) and past Dulles
Airport.
Opened in 1962, Dulles Airport has been an important factor in the growth
of the regional economy of Northem Virginia. In 1985, it became the fastest
growing airport in the United States. Currently 19 airlines service the airport
with 500 daily departures serving 30,000 passengers. Three major airlines have
established regional hubs here including United Airlines, Continental, and Delta
Airlines. Further, international carriers including Air France, British Airways,
All Nippon Airways, TWA, Lufthansa and Swiss Air.
The Baltimore/Washington International Airport (BWI) is located in the
southern portion of the Baltimore MSA in Anne Arundel County, ten miles from
downtown Baltimore, and 30 miles from Washington, D.C. This airport hosts 18
passenger airlines that provide direct air service to 135 cities in the United
States and Canada. BWI also provides service to air-freight carriers with its
110,000 square foot air cargo complex. When compared with Dulles and Washington
National Airport, BWI services 28 percent of commercial passengers, 38 percent
of commercial operations and 57 percent of freight customers. BWI has spawned
the development of 15 new business parks and several hotels, has created nearly
10,000 jobs, and has generated a statewide economic impact of $1.7 billion in
the form of business sales made, goods and services purchased, and wages and
taxes paid.
Government Services and Structures
The Washington, D.C. metropolitan area contains fourteen different
municipal jurisdictions, including the District of Columbia, ten counties and
three cities in two states. Local governments provide typical municipal services
found in a major metropolitan area, including welfare and social services,
refuse collection, emergency services, public education, and a variety of
regulatory functions. Each municipality has its own zoning ordinance and
governmental structure.
In addition to the local governments, the District of Columbia is the
headquarters for the federal government. Major federal agencies are located
throughout the District of Columbia and many of the surrounding suburbs. The
support functions for many agencies have been relocated to the less expensive
suburbs.
The area is also served by several cross-jurisdictional agencies. These
include the Maryland National-Capital Park and Planning Commission (MNCPPC)
which provides planning and zoning coordination to the Maryland suburbs. The
Washington Metropolitan Area Transit Authority (WMATA), which was referred to
earlier, is the regional public transit authority. The Metropolitan Washington
Council of Governments performs studies on metropolitan economic and business
issues and promotes the region to outsiders.
-8-
Regional Analysis
Public and Private Amenities
As the nation's capital, the District of Columbia houses many national
museums, monuments, and institutions that attract visitors to the area from
around the world. Washington, D.C. is one of the leading tourist destinations
for domestic travelers and foreign visitors to the United States.
In addition, the metropolitan area is a strong supporter of the performing
arts. The Kennedy Center is the area's main stage for plays, opera, and symphony
presentations, but there are indoor and outdoor stages and theaters in all of
the adjacent jurisdictions. Professional athletics are played at RFK Stadium
(football) in southeast Washington, D.C. and the U.S. Air Arena (basketball and
hockey) in Landover, Maryland. Baseball is played at Oriole Park at Camden Yard
in Baltimore.
The region also offers numerous private and public golf courses, municipal
parks, and bicycle and jogging trails. One unique feature of the region's
outdoor attractions is the C&O Canal. The canal is maintained as a national park
and follows the Maryland side of the Potomac River between Georgetown in
northwest Washington, D.C. and Cumberland, Maryland. The Potomac River is an
active recreational area for fishing and various kinds of boating.
The public and private primary schools in the region include many with
national standing. The school districts face the typical challenges encountered
in urban centers with mixes of high and low income neighborhoods and growing
immigrant populations without English language skills. On average, the suburban
school districts tend to be better funded than those in the District of
Columbia.
With respect to higher education, the region has a network of nationally
recognized universities and regional and community colleges, including George
Washington University, Georgetown University, American University, the
University of Maryland, Howard University, Catholic University, The University
of the District of Columbia, Catholic University, George Mason University, and
Trinity College.
In review, the metropolitan area has a well established infrastructure of
roadways, light rail and bus systems, airports, attractive business and
residential neighborhoods, and many quality of life features that continue to
make Washington, D.C. a desirable place to work and live. There are continuing
efforts by municipal agencies to improve public transportation, especially the
commuter rail system, so as to ease road congestion and lessen air pollution.
The District of Columbia and nearby suburban office concentrations remain the
area's primary business destinations. Thus, improvement of the public
transportation system to facilitate wider access to the District and, more
importantly, connecting the suburban business centers is essential for long-term
growth.
Population
This section will examine the population size and age trends for the
metropolitan area. Employment, income, and household related demographics will
be reviewed separately.
-9-
Regional Analysis
According to Market Statistics' 1995 Demographics USA, the Washington, D.C.
MSA ranks fifth in the nation in terms of total population. The Washington area
increased in population by 20.7 percent between 1980 and 1990, or an average
annual rate of 2.1 percent. The rate of growth has slowed somewhat with the
population change between 1990 and 1994 having decreased to 1.4 percent.
Nonetheless, population growth in the region during the 1980s far exceeded the
growth during the 1970s, when the region grew by an average of only 21,000
persons per year. During the 1980s, the region had an average growth of roughly
67,000 persons per year.
Interestingly, however, while there was an overall increase in population,
this increase was by no means uniform within the component jurisdictions of the
Washington MSA. The 1980s saw a shift in population from the inner-city and
close-in suburbs to the more remote suburban areas. The District of Columbia was
the big loser during this period with an average annual decline of 0.5 percent.
The annual rate of decline grew to 1.5 percent by 1994.
In contrast, the inner suburbs had an annual average growth rate of 2.5
percent during the 1980s, with both Fairfax County, Virginia, and Montgomery
County, Maryland having growth rates of 3.7 percent and 3.1 percent,
respectively. Both counties were the main suburban benefactors of commercial
office and retail development for this period and population increases were
primarily concentrated in the outer portions of the counties. The growth in
these areas has decreased in the 1990s to an annual growth rate of 1.8 percent.
The largest population increases occurred in the outer suburbs, the areas
beyond the first tier communities surrounding the District. The average annual
rate of increase in these areas was 4.4 percent. However, the rate of increase
has fallen off since 1990 to 3.2 percent, a phenomena concurrent with the slow
down in the economy. The chart on the next page presents population data and the
average growth rates for the various jurisdictions in the MSA:
-10-
Regional Analysis
====================================================================================================================================
Population Changes
1990 Census Estimates Versus 1980 Census
====================================================================================================================================
Annual Average
Jurisdiction Population (thousands) Growth Rate (%)
=============================================================================================
1980 1990 1994 Est 1980-1990 1990-1994 Est
====================================================================================================================================
District of Columbia 638.3 606.9 570.2 -0.4919 -2.0157
------------------------------------------------------------------------------------------------------------------------------------
Arlington County 152.6 170.91 171.4 1.1992 0.0975
------------------------------------------------------------------------------------------------------------------------------------
City of Alexandria 103.2 111.2 114.3 0.7752 0.9293
====================================================================================================================================
Central Jurisdictions 894.1 889 855.9 -0.0570 -1.2411
====================================================================================================================================
Fairfax County 596.9 818.6 910.1 3.7142 3.7259
------------------------------------------------------------------------------------------------------------------------------------
City of Fairfax 19.4 19.6 19.6 0.1031 0.0000
------------------------------------------------------------------------------------------------------------------------------------
City of Falls Church 9.5 9.6 9.6 0.1053 0.0000
------------------------------------------------------------------------------------------------------------------------------------
Montgomery County 579.1 757 797.4 3.0720 1.7790
------------------------------------------------------------------------------------------------------------------------------------
Prince George's County 665.1 729.3 764.7 0.9653 1.6180
====================================================================================================================================
Inner Suburban Area 1870 2334.1 2501.4 2.4818 2.3892
====================================================================================================================================
Loudoun County 57.4 86.1 96.1 5.0000 3.8715
------------------------------------------------------------------------------------------------------------------------------------
Prince William County 144.7 215.7 246.3 4.9067 4.7288
------------------------------------------------------------------------------------------------------------------------------------
Cities of Manassas 22 34.7 40.6 5.7727 5.6676
Manassas Park
------------------------------------------------------------------------------------------------------------------------------------
Fredenck County 114.8 150.2 164.2 3.0836 3.1070
------------------------------------------------------------------------------------------------------------------------------------
Calvert County 34.6 51.4 60 4.8555 5.5772
------------------------------------------------------------------------------------------------------------------------------------
Charles County 72.7 101.2 109.7 3.9202 2.7997
------------------------------------------------------------------------------------------------------------------------------------
Stafford County 40.5 61.2 74.2 5.1111 7.0806
====================================================================================================================================
Outer Suburban Area 486.7 700.5 791.1 4.3929 4.3112
====================================================================================================================================
METRO AREA TOTAL 3250.8 3923.6 4148.4 2.0696 1.9098
====================================================================================================================================
Source: U.S. Census Data and 1994 Estimate Provided By Equifax National Decision Systems, Inc.
Note: The list of municipalities corresponds to the DC-VA-MD MSA prior to the December 31, 1992 expansion.
We noted earlier that the District of Columbia actually lost population
over the past ten years while the suburban areas actually grew. It is important
to note, however, that this phenomenon is being seen in most major metropolitan
areas in the United States. Nevertheless, in relative terms, the population
decreases in Washington, D.C. versus population increases in suburban areas are
significantly less than that seen in other parts of the country, thus attesting
to the continuing strength and viability, albeit somewhat lessened given the
more recent recessionary trends, of the metropolitan area's inner city.
Age Distribution
As can be seen in the following chart, the percentage of the region's
infant and elderly populations increased between 1980 and 1990. Interestingly,
however, the number of working aged residents increased the most in absolute
numbers. The number of youths and teenagers shrank. The table on the following
page displays the data.
-11-
Regional Analysis
====================================================================
Population Trends By Age
(Council of Governments Members)
====================================================================
1980 1990 % Change
====================================================================
0 to 4 Years 192,372 262,578 +36.5%
-------------------------------------------------------------------
5 to 17 Years 636,733 585,949 -7.2%
-------------------------------------------------------------------
18 to 64 Years 2,020,989 2,509,056 +24.1%
-------------------------------------------------------------------
Over 65 Years 235,875 317,538 +34.6%
====================================================================
Source: 1980 and 1990 Census Data; Metropolitan Washington Council of
Governments: Where We Live; Housing and Household Characteristics
in the Washington Metropolitan Region. April, 1993.
The District of Columbia was the only major jurisdiction to lose working
age adults (down 1.9 percent). The largest gains among working age adults were
in the inner suburbs of Montgomery and Prince George's County in Maryland and
Arlington, Fairfax, and Loudoun Counties in Virginia. The increases in the
elderly population were spread across all municipalities.
As of the 1990 Census, the population was distributed with 21 percent under
30 years, 39 percent between the ages of 30 and 49 years, and 12 percent between
50 and 64 years of age. These are the key working age groupings.
Employment and The Economy
The employment picture has a very significant effect on the demand for real
estate. High unemployment rates and business downsizing, for example, reduce the
number of households able to buy homes. Similarly, a growth economy creates
increasing demand for goods and services. This section will review the recent
trends and the outlook for employment in the Washington, D.C. region.
Employment Characteristics
The table on the next page shows the area's total employment as a percent
of total employment for each industry group for the past eight years, and the
year-to-year growth rates in total employment.
-12-
Regional Analysis
====================================================================================================================================
Non-Agricultural Employment
Percent Share of Total Employment (%)
====================================================================================================================================
Industry 1988 1989 1990 1991 1992 1993 1994 1995 Annual
(Dec) Growth %
====================================================================================================================================
Manufacturing 4.1 4.0 3.9 3.8 3.6 4.0 3.9 4.9 2.4
------------------------------------------------------------------------------------------------------------------------------------
Construction 6.6 6.6 6.0 4.8 4.4 4.4 4.8 4.0 -4.9
------------------------------------------------------------------------------------------------------------------------------------
T.C.U. (1) 4.9 4.9 4.8 4.8 4.7 4.5 4.6 4.5 -1.0
------------------------------------------------------------------------------------------------------------------------------------
Wholesale Trade 3.6 3.5 3.5 3.4 3.3 3.3 3.3 3.2 -1.4
------------------------------------------------------------------------------------------------------------------------------------
Retail Trade 16.2 16.1 15.9 15.6 15.4 15.6 15.7 16.6 0.3
------------------------------------------------------------------------------------------------------------------------------------
F.l.R.E (2) 5.9 5.8 5.9 5.9 5.8 5.7 5.9 5.5 -0.8
------------------------------------------------------------------------------------------------------------------------------------
Services 32.4 33.0 33.7 34.3 34.9 35.1 35.4 36.3 1.5
------------------------------------------------------------------------------------------------------------------------------------
State Government 3.7 3.6 3.6 3.6 3.6 3.7 3.6 3.4 -1.0
------------------------------------------------------------------------------------------------------------------------------------
Local Government 6.0 6.1 6.4 6.7 6.7 6.9 6.9 7.3 2.7
------------------------------------------------------------------------------------------------------------------------------------
Federal Government 16.6 16.4 16.3 17.1 17.5 16.8 15.9 14.4 -1.7
====================================================================================================================================
Total Employment 2,167 2,226 2,242 2,190 2,186 2,317 2,373 2,425 1.5
(Thousands)
====================================================================================================================================
Yr-to-Yr Growth (%) N/A +2.7 +0.7 -2.3 -0.2 +5.6 +2.4 +2.2 N/A
====================================================================================================================================
(1) Transportation, Communications, Utilities
(2) Finance, Insurance, Real Estate
Source: U.S. Department of Labor, Bureau of Labor Statistics, Wage and Salary Employment, 1988 1993; Obtained From the
District of Columbia Department of Employment Services
The region enjoyed a period of unusual growth during the 1980s. The peak
year for job growth in the region was 1984, when growth reached 107,000 jobs.
The growth fell to 100,000 in 1985, and to 82,000 jobs in 1986. From 1986 to
1988, job growth settled at around 80,000 to 90,000 jobs per year, or in the
four percent range. Job growth dropped to 59,500 jobs (2.9 percent) in 1989, and
declined by another two percent to only 15,900 jobs in 1990. By this time, the
economy was being affected by the national recession with the area's total
employment declining by 52,100 jobs (minus 2.3 percent) in 1991 and remaining
relatively flat in 1992. From 1992 to 1993, however, the area experienced 5.6
percent growth. This growth was found in the suburban areas as opposed to the
District of Columbia and was evenly distributed through all industry types. The
average growth rate for the 1988 to 1995 period reflects a 1.5 percent per year
average.
During 1994, employment in Northern Virginia grew by a strong 3.5 percent
but in the Maryland suburbs, the figure was only 2.1 percent while for the
District of Columbia it was less than 1 percent. Job growth in the region fell
below the average for the nation of 2.5 percent.
Although the federal government has historically been the major employer in
the region, its share of employment has remained around 15 to 17 percent. The
aggregate federal employment grew at an average annual rate of 1.7 percent
between 1988 and 1995 and was 14.4 percent of total civilian employment in 1995.
The most dramatic change in employment in the Washington area has been in
the private sector, particularly the emergence of the service industry as the
fastest growing and now largest employment opportunity. In 1960, the services
industry employed 18 percent of all non-agricultural workers and has grown to
36.3 percent by 1995. Retail and wholesale trades have
-13-
Regional Analysis
maintained a steady portion of total employment, thus indicating that employment
in these sectors expands and contracts with the economy.
Construction employment fell dramatically in 1991. The construction boom of
the late 1980s came to an abrupt halt by late 1990, and the percent share of
employment held by the construction sector fell from 6.6 percent in 1988 and
1989 to 4.0 percent in 1995. The average annual rate of decline over the period
was 4.9 percent.
We noted earlier a growing diversification of the area's employment base.
The following list of major employers in the Washington area reflects the
growing diversity of the local economy, the continuing influence of educational
institutions, and the emergence of service oriented firms.
Largest Private Employers
Ranked by Total Employees in Metro Area
Metro Area
Rank Company Name Employees
======================================================================
1 Inova Health Systems 9,500
----------------------------------------------------------------------
2 Hechts 8,000
----------------------------------------------------------------------
3 Medlantic Healthcare Group 6 000
----------------------------------------------------------------------
4 Long & Foster Real Estate 5 300
----------------------------------------------------------------------
5 Shoppers Food Warehouse 3,800
----------------------------------------------------------------------
6 Booz Allen & Hamilton 3,100
----------------------------------------------------------------------
7 Dyncorp 3,000
----------------------------------------------------------------------
8 Holy Cross Hospital 2,300
----------------------------------------------------------------------
9 Providence Hospital 2,000
----------------------------------------------------------------------
10 Alexandria Hospital 1,742
======================================================================
Source: Washington Business Journal, November 17-23, 1995
If the federal government were included in the above list, the Department
of Defense would be the largest local employer, with over 86,000 employees. The
next closest is the Department of Health and Human Services with over 30,000
employees. The Treasury, Justice, Postal Service, and Commerce Departments all
have over 20,000 employees, and are larger individual employers than any other
local private firm.
The local governments are also major employers in the region. For example,
the City of Alexandria had over 5,100 employees between the city government,
Alexandria Hospital, and the public school system. Arlington, Fairfax, and
Loudoun Counties have, respectively, over 6,800, 25,500, and 3,900 employees for
the same functions. Montgomery County and Prince George's Counties are similarly
large local employers.
Unemployment Rates
According to the Census reports, the Washington region has one of the
highest labor force participation rates in the country, with more than 75
percent of the population between the ages of 16 and 65 being part of the labor
pool. This is ten percent higher than the national average.
-14-
Regional Analysis
For most of the 1980s, the demand for workers was increasing at a faster
rate than the number of workers in the area, causing a labor shortage. The 1991
through 1993 recession, however, halted job growth in the area and drove up
unemployment rates. The related statistics are summarized below.
================================================================================
Unemployment Rates
================================================================================
Year 1988 1989 1990 1991 1992 1993 1994 1995
(Nov)
================================================================================
Washington MSA 2.9% 2.7% 3.4% 4.5% 5.0% 4.5% 4.1% 3.9%
--------------------------------------------------------------------------------
United States 5.5% 5.3% 5.5% 6.7% 7.4% 6.8% 6.1% 5.3%
================================================================================
Source: Metropolitan Council of Governments: Economic Trends in Metropolitan
Washington. 1988-1991 (The unemployment rates are not seasonally
adjusted.) Updated figures including 1992 through year-to-date 1995
obtained from the District of Columbia Department of Employment
Services.
The outlook for employment in the region continues to be strong despite the
recent recession. Obviously, federal and local government employment is a major
contributor to the region's stability. Most of the swings in employment have
been experienced in the construction trades and retail employment. These last
two sectors are expected to remain soft for the next few years with slow gains
made as the economy stabilizes and demand for new housing and commercial
construction increases.
Employment Outlook
The Greater Washington Research Center reported that growth in the
Washington area economy finally resumed during the latter part of 1993 after
staggering through the previous six years. In early 1994, most of the nine
indicators that the research group uses to track the health of the economy and
to predict its direction were up, the only exception being the employment index
which showed the number of jobs increasing at a pace somewhat slower than the
seasonal norm. On the positive side, however, the number of jobs increased by
the largest margin since mid-1993. Job gains in the private sector seem to be
leading those in the government.
The indicators utilized by the Research Center seem to suggest that the
economy is continuing to gain strength. However, the level of improvement still
falls short of generating the number of jobs the Washington area produced during
the boom of the 1980s. The number of jobs in the area increased by 18,900 in
March but the total number of jobs so far this year is still short of
pre-recession peak employment.
Job gains have been concentrated in the government and service sector, with
employment in retailing and construction still relatively depressed. The new
jobs numbers may be understated because they don't include self-employment. In
addition to employment, other guideposts to the state of the region's economic
health - airport boardings, classified advertising lineage and the national
consumer confidence index - all improved in 1994.
Even though the recovery in the Washington area may be slow, the region is
strong economically. The office vacancy rate in the Washington area is below
that in most
-15-
Regional Analysis
metropolitan areas and unemployment is lower than the national average. The
indicators that the Greater Washington Research Center uses to forecast economic
growth six to nine months from now were up as well, albeit less strongly.
Increases in the sales of durable goods, in the number of business
telephone lines installed, in housing sales, in the Johnston, Lemon Index of
local stocks and in the national leading index, produced a modest gain of 0.09
percent in March.
Overall, the region's 1993 performance was described as a year of recovery
as evidenced by the net increase in wage and salary jobs, with the services and
government sectors adding the most positions. For 1994 through 1996, we
witnessed further employment gains for the region and a strengthening economy,
as the recovery broadened and deepened.
Household Demographics
One of the more important demographic factors influencing the demand for
goods and services is the household. The household is the basic consuming unit
in the housing market. It is defined by the U.S. Census as a person or group of
people who jointly occupy a dwelling unit and who constitute a single economic
unit for the purposes of meeting housing expenses. The household unit can be a
family, two or more individuals living together, or a single person.
The historical household growth patterns help define the region and are
shown in the following table. The forecasts were published by Equifax National
Decision Systems and were tabulated for them by an econometric modeling service
associated with a major university.
The figures show that the number of households in the region grew at an
average annual rate of 2.4 percent during the 1980s. The rate has slowed to
about 2.1 percent per year for 1990 through 1994, and is projected to slow to
about 1.5 percent for the next five years. As with the population figures
presented earlier, household formation has become negative in the District of
Columbia. However, the inner suburbs have showed continued growth with the
strongest counties being Fairfax and Prince George's. The outer suburbs had the
strongest 1980s and early 1990s growth rates, but are projected to slow to an
average annual rate of 2.6 percent.
-16-
Regional Analysis
====================================================================================================================================
Household Changes
1990 Census Estimates Versus 1980 Census
====================================================================================================================================
Households Annual Average
Jurisdiction (Thousands) Growth Rate(%)
============================================================================================
1990- 1993-1999
1980 1990 1994 1999 1980- 1994 Est Fcst
Est. Fcst 1990
====================================================================================================================================
District of Columbia 253.1 249.6 240.8 231.1 -0.1 -0.9 -0.8
------------------------------------------------------------------------------------------------------------------------------------
Arlington County 71.6 78.5 79.2 80.0 1.0 0.2 0.2
------------------------------------------------------------------------------------------------------------------------------------
City of Alexandria 49.0 53.3 56.1 58.2 0.9 1.3 0.7
====================================================================================================================================
Central Jurisdictions 373.7 381.4 376.1 369.3 0.2 -0.3 -0.4
====================================================================================================================================
Fairfax County 205.2 292.3 331.3 373.7 4.3 3.3 2.6
------------------------------------------------------------------------------------------------------------------------------------
City of Fairfax 6.9 7.4 7.8 8.1 0.7 1.4 0.8
------------------------------------------------------------------------------------------------------------------------------------
City of Falls Church 4.3 4.2 4.3 4.4 -0.2 0.6 0.5
------------------------------------------------------------------------------------------------------------------------------------
Montgomery County 207.2 282.2 304.6 326.5 3.6 2.0 1.4
------------------------------------------------------------------------------------------------------------------------------------
Prince George's Cnty 224.8 258.0 281.7 308.1 1.5 2.3 1.9
====================================================================================================================================
Inner Suburban Area 648.4 844.1 929.7 1,020.8 3.0 2.5 2.0
====================================================================================================================================
Loudoun County 18.7 30.5 35.3 39.1 6.3 3.9 2.2
------------------------------------------------------------------------------------------------------------------------------------
Prince William Cnty 43.8 69.7 81.7 93.8 5.9 4.3 2.9
------------------------------------------------------------------------------------------------------------------------------------
Cities of Manassas/ 6.9 11.7 14.3 17.0 7.0 5.6 3.8
Manassas Park
------------------------------------------------------------------------------------------------------------------------------------
Frederick County 37.5 52.6 59.8 66.0 4.0 3.4 2.1
------------------------------------------------------------------------------------------------------------------------------------
Calvert County 10.7 17.0 20.6 23.4 5.9 5.3 2.7
------------------------------------------------------------------------------------------------------------------------------------
Charles County 21.4 32.9 37.6 42.0 5.4 3.6 2.3
------------------------------------------------------------------------------------------------------------------------------------
Stafford County 12.2 19.4 24.3 27.9 5.9 6.3 2.0
====================================================================================================================================
Outer Suburban Area 151.2 233.8 273.6 309.2 5.5 4.3 2.6
====================================================================================================================================
REGION TOTAL 1173.3 1459.3 1579.4 1699.3 2.4 2.1 1.5
====================================================================================================================================
Source: U.S. Census Data Provided By National Decision Systems, Inc.
Note: The list of municipalities corresponds to the DGVAMD MSA prior to the December 31, 1992 expansion.
-17-
Regional Analysis
The key items relating to Household (HH) Income and Statistics relating to
persons per dwelling unit (DU) are summarized below.
==============================================================================================================================
Selected Household Demographics for the Metropolitan Area
==============================================================================================================================
Category 1990 1995 2000 % Change % Change
Estimate Forecast 1990-1995 1995-2000
==============================================================================================================================
Average HH Income $55,693 $67,747 $89,806 21.6% 32.6%
------------------------------------------------------------------------------------------------------------------------------
Median HH income $46,196 $55,684 $68,889 20.5% 23.7%
==============================================================================================================================
Population by HH % Family HH 81.1% (degree) % Non- 16.4%
Type (1990) Family HH
==============================================================================================================================
No. Of Persons One Two Three Four Five or More
==============================================================================================================================
Persons Per DU 24.9% 30.8% 18.5% 15.3% 10.5%
(% of Total)
==============================================================================================================================
Characteristics: Single Male Single Married Other Family Non-Family
Female Couple Head Head
==============================================================================================================================
HH Type (% of
Total) 10.5% 14.4% 51.7% 15.4% 8.0%
==============================================================================================================================
Source: U.S. Census Data and Projections Provided by Equifax National Decision Systems, Inc.
Since 1980 there has been a drop in household size and, correspondingly, a
growth in the number of non-family households. Married couples continue to
represent over 50 percent of the total households. Single person households grew
at an annual rate of 2.5 percent and non-family households grew at an annual
rate of 6.1 percent during the last decade while single parent households grew
at an annual rate of 3.0 percent during the 1980s. The growth in the single
person and non-family household categories of households contributes to housing
demand, which generates demand across the economy.
Another important issue affecting the demand for real estate is household
income. The following table shows the percent distribution of income within the
different jurisdictions.
-18-
Regional Analysis
===========================================================================================================================
1994 Percent Distribution of Household Income
===========================================================================================================================
Jurisdiction Less Than $25- $35- $50- Over No. Of
$25K 34.9K 49.9K 74.9K $75K Household
===========================================================================================================================
District of Columbia 33.4 13.3 15.6 16.5 21.2 240,777
---------------------------------------------------------------------------------------------------------------------------
Arlington County 17.0 11.2 17.2 22.3 32.3 79,254
---------------------------------------------------------------------------------------------------------------------------
City of Alexandria 17.4 13.4 21.0 22.0 26.3 56,113
===========================================================================================================================
Central Jurisdictions 27.9 12.8 16.7 18.4 24.2 378,144
===========================================================================================================================
Fairfax County 8.5 6.6 12.5 26.2 46.1 331,334
---------------------------------------------------------------------------------------------------------------------------
City of Fairfax 13.4 10.2 15.3 30.7 30.4 7,775
---------------------------------------------------------------------------------------------------------------------------
City of Falls Church 15.5 8.7 15.0 23.8 37.0 4,284
---------------------------------------------------------------------------------------------------------------------------
Montgomery 13.0 8.7 14.6 22.8 40.9 304,627
---------------------------------------------------------------------------------------------------------------------------
Prince George's 18.2 13.2 20.0 26.4 22.6 281,732
===========================================================================================================================
Inner Suburban Area 12.9 9.3 15.5 25.2 37.1 929,752
===========================================================================================================================
Loudoun County 10.8 8.0 17.0 32.6 31.5 35,267
---------------------------------------------------------------------------------------------------------------------------
Prince William County 10.4 9.2 19.8 33.6 27.1 81,669
---------------------------------------------------------------------------------------------------------------------------
Cities of Manassas/ 27.5 28.4 53.3 57.4 33.5 14,340
Manassas Park
---------------------------------------------------------------------------------------------------------------------------
Frederick County 20.4 13.0 22.6 26.6 17.4 59,763
---------------------------------------------------------------------------------------------------------------------------
Calvert County 15.7 10.5 18.4 29.3 26.2 20,596
---------------------------------------------------------------------------------------------------------------------------
Charles County 17.0 9.9 20.1 28.5 24.4 37,600
---------------------------------------------------------------------------------------------------------------------------
Stafford County 15.1 11.4 22.3 29.7 21.5 24,312
===========================================================================================================================
Outer Suburban Area 15.3 11.0 20.0 30.8 22.9 273,547
===========================================================================================================================
Totals 16.8 10.5 16.1 24.7 31.9 1,581,443
===========================================================================================================================
Source: Equifax National Decision Systems, Inc.
The metropolitan area as a whole shows a heavy distribution of households
with incomes on the high end of the range. Over 55 percent of the households
have an annual income over $50,000 per year and the highest grouping is those at
$75,000 per year or higher (31.9 percent).
This relationship is not true of the central jurisdictions and the outer
suburban areas where the highest concentration of households is in the $50,000
to $75,000 per year range. The inner suburban areas, however have an
overwhelming percentage of households - 37.1 percent in the over $75,000 per
year range.
Summary
The long-term outlook for the metropolitan Washington area continues to be
good. The expanding population of the area indicates an increase in demand for
goods and services. The trend toward smaller household sizes provides additional
demand pressures for new housing. The major factors affecting real property
values are sound, and future trends appear to point toward continued economic
vitality for the region.
In the short term, the region has experienced the effects of the recent
recession. Total employment in the region declined during the recent recession.
However, unemployment levels were moderated by the influence of federal and
local government employment and contracts for
-19-
Regional Analysis
services. The Washington region continues to have one of the lowest unemployment
levels in the United States.
Overall, we believe that 1997 will be a period of continued moderate growth
and steady improvement in the underlying factors affecting the real estate
markets. More importantly, we do not anticipate any further downturn in the
local economy on the scale of what has occurred in other regions of the country.
Many local economists and developers are signaling their belief that the real
estate market is strengthening.
Real estate values are volatile in this climate, with some property values
on the increase while other areas remain stable. For the short-term, we expect
that real estate values will show improvement in value in certain sectors. For
the long-term, the market appears to be sound, with strong demographics and
reasonable prospects for increasing values in the future.
-20-
OFFICE MARKET ANALYSIS
Investment Market
The investment market in the metropolitan Washington area has been active
as 21 office buildings sold for more than $10 million in 1996 following 25
buildings during 1995. Within Washington, D.C. itself, seven buildings sold for
over $10 million at an average price of $202 per square foot. The composition of
investors in the metropolitan Washington area is largely institutional,
consisting mainly of insurance companies, pension funds and fund advisors. In
addition, the market has seen increased investment activity from offshore
capital sources and individual syndicates.
With a higher concentration of available capital, the metropolitan market
has experienced rising prices on average. For example, most recently, a true
trophy property developed by Copley and Prentiss Properties (1301 K Street) sold
for $306 per square foot. Another similar quality building built by Manulife
(1350 Eye Street) was purchased for almost $350 per square foot. In 1994, the
Government of Singapore Investment Corporation purchased the 242,000 square foot
office building at 901 E Street, NW, for $66 million, or $272 per square foot.
These sales provide evidence that the metropolitan Washington office market
continues to be among the more desirable markets in the nation for institutional
investment.
Metropolitan Office Market
Supply and Demand Factors
In order to report on the state of the office market and to project future
trends, we have collected information on the metropolitan Washington Office
Market, the relevant submarket and the ounce projects that compete directly with
the subject. Cushman & Wakefield of Washington, D.C., maintains a database
comprised of multi-tenant office buildings of at least 20,000 square feet. The
following categories of buildings are specifically not included in our survey:
medical and professional buildings, government buildings, owner-occupied
projects and office/ showroom/ warehouse complexes. Cushman & Wakefield also
produces a quarterly Office Market Survey entitled Metropolitan Washington, D.C.
Office Market Report. Additional information was obtained through conversations
with knowledgeable market participants.
The metropolitan Washington, D.C. office market includes the following
jurisdictions: the District of Columbia, Arlington and Fairfax Counties and the
City of Alexandria in Northern Virginia and Montgomery and Prince George's
Counties in Suburban Maryland. The market contains over 200 million square feet
of privately owned office space distributed among 31 submarkets within the seven
jurisdictions. The District of Columbia contains 39 percent of the metro area's
total square footage. The following table presents the geographic distribution
of the office inventory in the metropolitan area, along with other statistical
data:
-21-
Office Market Analysis
Geographic Distribution of Inventory
Metropolitan Washington Office Market
First Quarter 1997
================================================================================
Jurisdiction Inventory Overall SF Under Weighed Avg. Y-T-D Net
SF (000) Vacancy Construction Class A Absorption
Rental Rate
================================================================================
Washington, D.C. 80,523 12.7% 1,983,260 $35.09 55,852
Arlington County 24,995 6.3% 153,000 $26.34 239,351
Alexandria 12,120 5.4% 0 $22.49 1,791
Fairfax County 48,090 6.4% 510,000 $23.15 512.052
Loudoun County 2,355 4.9% 73,500 $17.75 (3,120)
Montgomery County 32,140 10.2% 0 $19.80 512,059
Prince George's County 10,128 18.2% 0 $18.85 73,603
--------------------------------------------------------------------------------
Total 204,350 10.0% 1,983,260 $27.69 1,391,588
================================================================================
As of the end of 1996, the overall vacancy rate stood at 10.8 percent,
reflecting both direct vacancies and sublet space, continuing a slow recovery
from the end of year 1992 vacancy of 14.7 percent. Although the Washington
region is now and has over the past experienced generally higher overall
occupancies levels than most major metropolitan areas in the United States, the
current statistics, as presented in this section, reflect recent trends which in
general, support only limited optimism for an overall improving market as a
whole. Specifically, the Class A market appears sound, but there are unsettling
currents affecting older buildings throughout the city.
Furthermore, build-to-suit activity on the part of the World Bank and the
International Monetary Fund (IMP) will likely prove problematic over the next
couple of years, particularly in the Class B and C properties in the city's
Central Business District office submarket (submarket boundaries will be defined
later in this section). Also, the issue of government downsizing, both locally
and nationally, cannot be dismissed lightly. The 1994 Congressional election
brought the first change in the control of both Houses of Congress in 40 years.
Thus, it is difficult to reliably predict the upshot. Accordingly, at the very
least, caution is in order as we are traveling uncharted territory. These issues
are discussed in greater detail later in this section.
As noted above, there are positives in the market. We do expect Class A
properties to fair well over the near term. As will be repeatedly indicated in
the following discussion, there appears to be a continuing shortage of Class A
office space and a plethora of Class B and C space.
The following table presents the historical vacancy, rental rate and
absorption data, showing a steadily declining vacancy rate and a possible
increase in rents:
-22-
Office Market Analysis
Historical Data
Metropolitan Washington Office Market
1992 - 1996
================================================================================
Year Inventor SF (000) Vacancy SF Under Rental Rate Net Absorption SF
Construction
================================================================================
1992 204,427 14.7% 2,301,986 $22.80 2,833,422
1993 205,629 13.5% 874,631 $21.38 3,763,144
1994 206,337 12.7% 2,124,631 $21.44 2,319,175
1995 206,794 12.3% 1,004,272 $21.75 2,642,126
1996 212,389 10.8% 1,878,016 Class A 2,921,573
$27.35
================================================================================
Annual Averages 1,636,707 2,895,888
================================================================================
The above table presents several important changes: the inventory increased
by the inclusion of Loudoun County in the first quarter 1996; the square footage
under construction jumped dramatically as new build to suits commenced. As the
economy continues to improve, we anticipate a slow return to development.
Demand for Office Space
As shown above, the overall vacancy has been gradually declining. The
office market is demonstrating improvement, although it varies from market to
market. Northern Virginia and Fairfax County specifically continue to be the
strongest submarkets with low vacancies and strong absorption. In contrast,
Washington, D.C. has demonstrated weak absorption and stable vacancy rates.
Traditionally, the office market's vigorous leasing activity has been
supported by the growth of the white collar employment base. Additionally, one
of the major players in the local market is the federal government (largely the
General Services Administration or GSA) which leases just over 20 percent of the
office space in the metropolitan area. Government leasing has historically
accounted for about 40 percent of gross leasing activity, but dropped to the 25
percent range in 1993 before falling to less than ten percent in 1994 and 1995
and then rising above ten percent in 1996. Furthermore, due to the new political
climate in Washington and continuing efforts to cut the size of the federal
government, future absorption projections are uncertain.
In July 1996, GSA announced that government agencies will be allowed to
control their own leasing using outside third party vendors, if they prefer. It
is too early to tell what effect this will have on overall government leasing,
but the change in the status quo is worth noting.
Government activity notwithstanding, the primary influence on net office
absorption is job formation, in particular, white collar employment. An
historical summary of office type employment is shown in the following table,
encompassing the categories of Government, Finance, Insurance, Real Estate
(FIRE), Transportation, Communications, Utilities (TCU) and Services. The
compound annual growth rate from 1984 to 1994 was 3.0 percent. However, real
growth occurred only in the 1984 to 1989 time frame with 5.0 percent compound
growth rate while there was very modest compounded job growth of 1.6 percent
from 1989 to 1994. In
-23-
Office Market Analysis
contrast, the future job growth over the next ten years is expected to be 6.6
percent for the Service sector, 1.3 percent for the Finance, Insurance & Real
Estate sector and 1.4 percent for the Government sector. Obviously, the
projection for growth in the Government sector merits caution as previously
addressed.
================================================================================
Metropolitan Washington
Office Related Employment*
1987-2004
================================================================================
Year Total New Jobs Created Office
Employment Previous Period Absorption
(000s) (000s) (000s Square Feet)
================================================================================
1987 1,500.6 N/A N/A
1988 1,545.5 44.9 N/A
1989 1,604.3 58.8 N/A
1990 1,639.1 34.8 N/A
1991 1,641.0 1.9 3,317
1992 1,661.0 20.0 2,733
1993 1,686.5 25.5 3,753
1994 1,739.8 53.5 2,319
1995 1,812.6 72.8 2,642
1999 2,155.3 342.7 or 68.5/yr
2004 2,688.6 533.3 or 106.7/yr
================================================================================
Source: The WEFA Group - Regional Economic Service, Spring 1994; Net
Absorption data from C&W
* Service, FIRE, TCU and Government sectors
For the years for which data is available, the table also shows the
historical relationship between job formation and office absorption in the
metropolitan area. Coinciding with the depths of the recession, the 1991 job
growth of only 1,900 jobs corresponded with a healthy absorption of 3.3 million
square feet. We would typically expect lower absorption in years with little job
growth. Possibly the low absorption was due in part to the high level of job
growth in the immediate preceding years. In the following years, net absorption
fluctuated between 2,319,000 to 3,753,000 square feet against a steadily growing
job formation trend.
Perhaps having some effect on the data is the national and local pattern of
corporate down-sizing and consolidation, leaving less office space per employee.
As one observer recently put it, "historically, 250 square feet per office
employee was the standard rule-of-thumb ratio. Today, this ratio is working
itself down to 160 feet per employee." A recent market example of this trend is
AT&T's current target of 180 square feet of net rentable area per employee, down
from 200 square feet a few years ago. Also, the federal government is now
targeting less than 150 feet per employee.
Although the above statistics produce unclear trends, the relationship
between white collar job formation and net office space absorption, while not
always obvious, is a key component of the demand side of the office space
equation. With regular job growth, net absorption will occur and gradually draw
down the supply of vacant office space, albeit probably at a slower pace than
history would suggest.
-24-
Office Market Analysis
The number of years' supply of available space is one method of evaluating
the relative health of a market. If one defines market equilibrium to be
occupancy in the 95 percent range, then about 5.0 percent of the total inventory
needs to be absorbed in order to achieve equilibrium (or about 10.2 million
square feet). This is calculated by subtracting from the overall vacancy rate
the defined 5.0 percent stabilized vacancy. Assuming a future absorption rate
equal to the past five year average annual net absorption of 2.9 million square
feet, an approximate 3.5 year supply of vacant office space (all classes) is
indicated. This issue is discussed in greater detail once we look at the more
distinct Washington, D.C., market versus the metropolitan area as a whole.
Until recently, an exodus of businesses from the District to the suburbs
compounded the recent downward absorption cycle. The exodus was attributable to
the continuing cost cutting in large regional and national firms which fled the
higher rates of the downtown market. Even so, the overall strength of the
Washington area, based primarily on the influence of the federal government,
should not be ignored. In addition, as occupancies increase and asking rental
rates in the preferred close-in suburbs rose dramatically, the cost spread
between downtown and the suburbs narrowed and seemingly stanched the outflow of
major tenants.
Nevertheless, within the Central Business District Submarket (CBD) of the
downtown office district in Washington, D.C., an ominous cloud threatens
prospective leasing for the next several years. This is particularly true for
Class B and C buildings. As previously alluded to, the World Bank and IMP will
have new headquarters buildings operational by 1997 and 1998. As these and other
related tenants leave their CBD space, most of which is Class B, an additional
1.5 million square feet will become available, just within the next 12 months.
While this is not expected to severely impact Class A buildings, it will
definitely prove problematic for the Class B sector and likely disastrous for
Class C and D buildings, over the short term at least.
In the final analysis, we anticipate a return to equilibrium in the
metropolitan Washington office market only after the turn of the century. We
have defined this equilibrium in terms of occupancy and market rents with
stabilized occupancy in the 95 percent range, and market rents at sufficient
levels to support new construction. We expect the phenomena of free rent and
above standard concessions to generally disappear over the next several years
with market rents and the overall level of economic growth again achieving some
sort of parity prior to the term of the century. The exception may be the older
Class C and D product, assuming it will rent at all.
Rental Rates
Based on Cushman & Wakefield's survey of market rents, the weighted average
asking rental rate drifted downward from 1991 to 1993 when it appears to have
reversed directions. The following chart demonstrates the trend in overall
rental rates since 1991. Note that Class A rates have been steadily rising as a
result of the shrinking inventory of available space.
-25-
Office Market Analysis
Overall Weighted Average Rental Rates
Washington Metropolitan Area Office Market
1991 - 1st Qtr 1997
Year Class A Rental Overall Rental
Rates per SF Rates Per SF
===================================================
1991 N/A $23.34
1992 N/A $22.80
1993 $21.88 $21.38
1994 $23.25 $21.44
1995 $25.07 $21.75
1996 $27.35 $23.07
1997 $27.69 N/A
===================================================
Recent rental trends show signs of improvement in many submarkets,
particularly in Northem Virginia. Further, an increasing portion of the
remaining available Class A and B space is commonly referred to as back space,
including inferior back office space with poor or no window lines, encumbered
space, and less desirable configurations. The encumbered space includes Class A
premises that are encumbered by existing tenants through expansion options.
Overall, this back space is less desirable, has lower asking rates, and tends to
be the last areas leased, all of which tends to skew the average asking rents
downward. The reality is that the better Class A space is likely achieving
higher rates than the statistics indicate.
The lack of significant new construction, coupled with positive, albeit
slower absorption, has led to a shortage of large blocks of Class A office space
in the preferred submarkets. The emergence of back space is one indicator of
this trend as is the recently completed speculative building at 1900 K Street in
the CBD and other build to suits in the downtown area. Given the lack of overall
speculative development, coupled with overall positive absorption, we do not
anticipate any further decline in rental rates.
Regarding the issue of rent spikes, we have recently observed above average
rent jumps in some Northern Virginia submarkets and may be seeing the start of a
similar occurrence in portions of Montgomery County, Maryland. Therefore, we
believe real increases in market rental rates are likely over the next two to
three years in selective markets as existing office inventory is absorbed and
before funds for new speculative development become available and new
construction begins. Again, due to the tight supply in some submarkets, there
may be rent spikes for newer space within the next twelve month period. However,
in only some instances has it been clear that investors were willing to pay for
prospective rent spikes.
Summary of Metropolitan Office Market
Although some submarkets remain soft, the overall vacancy rate continues to
decline, and the remaining available space tends to be less desirable. Northern
Virginia, in particular, is leading the region in net absorption, and has shown
above average increases in rental rates. We believe that over the next several
years, the metropolitan office market should reach a more stabilized position
both from an occupancy and lease rate standpoint. Until equilibrium is reached,
however, overall rental rates for all classes of space will probably not grow at
a compound rate that exceeds the rate of inflation.
-26-
Office Market Analysis
In contrast, Class A space has demonstrated strength in the overall market,
absorbing clearly more than its fair share of the total market absorption. While
some Class B product may mirror the growth rates for Class A space, the majority
will most likely only experience marginal growth given the excessive supply of
Class B space compared to the demand for it. Finally, most Class C and D
buildings will have difficulty renting at any rate.
Northern Virginia
The subject property is located in the Fairfax/Oakton/Vienna submarket of
Fairfax County in Northern Virginia. According to the First Quarter 1997
Metropolitan Washington, D.C. Office Market Report, published by Cushman and
Wakefield, Northern Virginia has about 87.5 million square feet of privately
owned office space distributed in four large submarkets, stretching from
Arlington to Dulles International Airport in Fairfax and Loudoun counties. The
following table presents the historical vacancy, rental rate and absorption data
for the Northern Virginia segment of the region. It illustrates steadily
declining vacancy rates and a gradual increase decrease in asking rents over the
past three years despite a reduction in concessions.
Historical Data
Northern Virginia Office Market
1992 to 1st Quarter 1997
=========================================================================
Year Inventory Overall Class A Average Net
SF (000) Vacancy Asking Asking Absorption
Rental Rate Rental Rate SF
=========================================================================
1992 82,082 15.6% $18.09 $17.48 480,448
1993 81,863 13.8% $17.81 $17.05 1,140,425
1994 81,944 11.0% $20.04 $17.27 1,877,617
1995 82,409 9.2% $21.32 $17.65 1,730,313
1996 87,251 7.5% $23.97 $20.68 1,882,407
1Q 1997 87,560 6.2% $24.64 $21.19 750,074
=========================================================================
It should be noted that the significant increase in inventory in 1996 is
attributed to the inclusion of Loudoun County to the survey. Taken as a whole,
the Northern Virginia office market exhibited an overall vacancy rate of 6.2
percent as of the first quarter 1997. This is down 1.3 percentage points from
year end 1996 when the vacancy rate was 7.5 percent and represents a continued
decrease in vacancy as the amount of available and desirable office space
dwindles.
Within the various jurisdictions, Fairfax County has the highest vacancy
rate at 6.4 percent, a more 20 basis points difference from Northern Virginia.
Loudoun County reports a 4.9 percent vacancy here, however, it should be noted
that they also have the lowest amount of inventory. Overall, each jurisdiction
is performing well and contributing to the area's strong performance.
Since 1994, average asking rental rates have been climbing and reached
$21.19 per square foot in the first quarter 1997, with Class A rents at $24.12
per square foot. Between 1994 and 1996, rents increased between $0.25 and $3.00
per square foot for the market as a whole, with the most significant rent spike
occurring between 1995 and 1996. Since year-end 1996, rents have increased an
additional $0.50 per square foot. Class A rents have spiked at a slightly higher
overall pace, with increases of $1.30 to $2.65 per square foot between 1994 and
1996. Again, the most significant increase occurred between 1995 and 1996. Since
year-end
-27-
Office Market Analysis
1996, Class A rents have increased an additional $0.70 per square foot. The
following table reiterates historical asking rents for the Northern Virginia
submarket.
===============================================
Historical Data
Northern Virginia Office Market
1992 - First Quarter 1997
===============================================
Year Class A Average
Asking Asking
Rental Rate Rental Rate
===============================================
1992 $18.09 $17.48
1993 $17.81 $17.05
1994 $20.04 $17.27
1995 $21.32 $17.65
1996 $23.97 $20.68
*1997 $24.64 $21.19
===============================================
The Fairfax/Oakton/Vienna office submarket is part of Fairfax County. The
county is the largest of the major market segments in Northern Virginia, with
48.1 million square feet of office space. Fairfax County represents 54.9 percent
of the Northern Virginia market.
Fairfax County has six submarkets: Springfield/Seven-Comers/Baileys, City
of Fairfax/Route 50, Fairtax/Oakton/Vienna, Tyson's Comer/McLean,
Reston/Herndon, and Route 28 Corridor/Dulles. Each of these submarkets competes
predominantly within its own boundaries. The following table presents the
geographic distribution of the office inventory in Fairfax County, along with
other statistical data.
================================================================================================================
Geographic Distribution of Inventory
Fairfax County Office Market
First Quarter 1997
================================================================================================================
Submarket Inventory Direct Overall Under Y-T-D Net
Vacancy Vacancy Construction Absorption
================================================================================================================
Springfield/7 Corners/Baileys 3,446,524 14.8% 15.4% 0 42,568
Merrifield/Route 50 4,163,635 4.4% 4.8% 150,000 37,290
Fairfax/Oakton/Vienna 8,705,680 6.2% 6.3% 0 195,130
Tyson's Corner/McLean 17,964,618 4.3% 5.2% 20,140 -71,478
Reston/Herndon 9,999,213 6.1% 6.7% 102,874 70,381
Route 28 Corridor/Dulles 3,810,532 4.1% 5.5% 300,000 238,161
----------------------------------------------------------------------------------------------------------------
Total 48,090,202 5.8% 6.4% 573,014 512,052
================================================================================================================
The Route 28/Dulles and Fairfax/Oakton/Vienna submarkets experienced the
largest gain in net absorption due to the signing of several large lease deals.
MCI Communications leased 154,000 square feet on Meadow Wood Lane in the Route
28/Dulles submarket, while Columbia Gas and Mantech leased 45,000 and 40,000
square feet, respectively, in the Fairfax/Oakton/Vienna submarket. There are
currently four office buildings which can accommodate a tenant looking for
100,000 square feet or greater in Fairfax County. These buildings are located in
Fairfax, Herndon, Falls Church, and Tysons Corner. Reportedly, many tenants are
already vying for these blocks of space and several large leases are out for
signature.
-28-
Office Market Analysis
The Fairfax/Oakton/Vienna submarket, with 8.7 million square feet of space,
has a 6.2 percent vacancy rate as of the first quarter 1997. This is
significantly below the level posted one year prior when the vacancy factor was
13.9 percent (first quarter 1996). Overall, the vacancy rate has been steadily
declining since the beginning of the decade. The submarket is typical of the
county as a whole and should remain competitive into the future.
The following chart presents historical vacancy, rental rates and
absorption data for the Fairfax/Oakton/Vienna submarket.
Historical Dam
Fairfax/Oakton/Vienna Office Submarket
As noted, the Fairfax/Oakton/Vienna submarket is one of the medium-sized
submarkets in Northern Virginia. It has been stable compared to the larger
markets and its access to the County offices makes it very attractive.
As can be seen, there have been significant rent spikes over the last two
years that are directly the result of strong absorption and diminishing
availabilities. Rental rates have risen to the point in other parts of Fairfax
County (Tysons Corner and Reston) that speculative office construction has
begun. The lack of availabilities in this area is likely to be accompanied by
similar construction efforts. As a result, we do not expect to see a
continuation of material rent spikes above normal inflationary trends.
Current Construction Activity
With continued tenant demand for quality office space and the desire of
many tenants to locate to northern Virginia, this area has already experienced
some speculative development. Fore example, in the Dulles Corridor submarket,
there is currently one project slated for speculative development which is a six
story, 135,000 square foot building scheduled to break ground in September of
this year. This project is adjacent to BDM's build-to-suit located at Reston
Parkway and Sunset Hills Road which is also scheduled to start construction
during September.
Micro Market Analysis
The subject consists of a 15-year old, seven-story office building located
near the interchange of I-66 and U.S. Route 50 in central Fairfax County. It has
good accessibility to the rest of the county and is rated as a Class B property.
On the following page, we have listed eight buildings, exclusive of the
subject, containing a total of 1.5 million square feet that are deemed to
compete for tenants within the same
-29-
Office Market Analysis
submarket. The buildings were selected based on age and non-owner occupied
status. The available space represents only 6.1 percent of this sample. Asking
rents range from $11.00 to $21.00 per square foot, full service.
-30-
Competing Office Buildings
Micro Market Survey
===============================================================================================================
Average
Rental Size Year Floor Quoted Rental Rates
No. Name/Address (SF) Built Occupancy Plate ($/SF, Full Service)
===============================================================================================================
1. Fair Oaks Plaza 177,789 1986 95% 22,224 $18.00 - $18.00
11350 Random Hills Road
Fairfax, Virginia
2. Headquarters Building 81,000 1986 100% 16,200 $19.75 - $19.75
11351 Random Hills Road
Fairfax, Virginia
3 Fair Oaks Commerce Center 135,961 1988 100% 22,660 $20.00 - $20.00
11320 Random Hills Road
Fairfax, Virginia
4 One Monument Place 202,608 1990 91% 25,326 $10.00 - $21.00
12150 E. Monument Drive (LL)
Fairfax, Virginia
5 Crown Ridge Plaza 188,600 1989 100% 23,575 N/A - N/A
4305 Ridgetop Road
Fairfax, Virginia
6 Center Pointe I & II 201,505 1988 100% 18,319 $21.50 - $21.50
4000 & 4050 Legato Road 204,000 1990 100% 18,545 $21.50 - $21.50
Fairfax, Virginia
7 One Fair Oaks 205,000 1987 100% 16,000 $21.00 - $22.00
4114 Legato Road
Fairfax, Virginia
8 Fifty West Corporate Center I 203,440 1990 100% 40,688 $22.50 - $22.50
3975 Fair Ridge Drive
Fairfax, Virginia
10. Fair Lakes Court South 117,500 1988 100% 22,800 $17.50 - $17.50
4300 Fair Lakes Court
Fairfax, Virginia
9 Oakwood Centre 128,353 1982 100% 18,336 $20.00 - $20.00
11781 Lee Jackson Hey
Fairfax, Virginia
Subject Greenwood Plaza 150,961 1985 87% 18,870 $20.00 - $25.00
12150 Lee Jackson Hwy
Fairfax, Virginia
----------- ----
Totals: 1,996,717 98%
Office Market Analysis
Neighborhood Analysis
The subject property is situated at the western quadrant of I-66 and Route
50 (Lee Jackson Memorial Parkway) in an area of Fairfax County generally
referred to as Fair Oaks / Fair Lakes, after the Fair Oaks Regional Mall and the
Fair Lakes planned community. The office building is a part of the complex of
retail, office, hotel, and residential properties surrounding the Fair Oaks
Regional Mall. Greenwood Corporate Center is located on the southwest side of
the mall on the drive that circulates traffic around the mall. The subject's
neighborhood can be defined as an east/west corridor along U.S. Route 50,
extending from I-495 to the east and Centreville Road (Route 28) to the west and
extends several miles on each side of the corridor.
Access/Linkage
The subject neighborhood is part of a rapidly growing area near Fair Oaks
Regional Mall. Access to the area is most easily achieved from U.S. Route 50
(east/west) and Legato Road (north/south). Regional access is available via
Interstate 66, which has its interchange with U.S. Route 50 a short distance
east of the subject. The subject is visible from Route 50.
The primary traffic carriers in the area include Lee Jackson Memorial
Highway (Route 50), West Ox Road, Fairfax County Parkway (north/south), Lee
Highway (Route 29, east/west), and Waples Mill Road. Waples Mill Road is a four
lane road in the vicinity of the subject, linking the neighborhood with Braddock
Road to the south and the Reston/Hemdon area to the north. U.S. Route 50 is a
four to six lane major arterial in the vicinity of the subject, running
east/west. It is one of the most heavily trafficked arterials in the Northern
Virginia area. West Ox Road is a six-lane divided arterial in the vicinity of
the subject.
Ingress and egress to the neighborhood is primarily via Route 50 and Waples
Mill Road, along with Routes 29 and the Fairfax County Parkway. All of the major
arteries are being or have been developed with major commercial projects. The
major collector artery in the subject neighborhood is I-66.
Surrounding Land Use Patterns
Predominant land uses in the subject neighborhood consist of a mixture of
commercial developments, including retail centers, office buildings, a regional
mall, single-family detached, single-family attached and multi-family
residential developments, the Fairfax County government center, and a wide
variety of highway commercial uses along the major roadways.
The Fair Oaks Regional Mall, until the reopening of Tyson's Corner Center
after its expansion and renovation in 1990, was the largest (1.4 million square
feet) regional mall in the Washington Metropolitan area. It is a two level mall
that opened in 1981 and has anchor tenants Hecht's, Lord & Taylor, J.C. Penney
and Sears. There are an additional 179 specialty stores and 14 restaurants in
the mall. This project has been one of the primary stimuli for the development
in the Fair Oaks area.
The Mall has several outparcels which are occupied with office buildings.
Two office buildings were built in 1982 and were leased on a multi-tenanted
basis. These buildings include The Fair Oaks Building located along Route 50 and
Greenwood Corporate Center located at the intersection of Route 50 and I-66. In
addition, the Fair Oaks Holiday Inn, also adjacent to
-32-
Office Market Analysis
the mall was enlarged to contain 301 rooms in 1986. The third office building
constructed as an outparcel was Oakwood Center.
Across Legato Road and to the west of Fair Oaks Mall, the Evans Company
constructed One Fair Oaks in 1987, a twelve-story, 214,000 square foot ounce
building leased in its entirety to Mobil Oil. Just north of One Fair Oaks, at
the intersection of West Ox Road and Legato Road, is the Center Pointe project
by Richmarr Construction Company. The phased development is improved with twin
ounce buildings (Centerpointe I and II) totaling 424,143 square feet of GBA. In
addition, a 180,176 square foot, 12-story, 240 unit residential building is
planned for the site.
Fair Lakes is a mixed-use development about two miles west of the Fair Oaks
development and is the largest along the I-66 corridor with a total potential
office development of 4.5 million square feet of space. Buildings already
completed include the 126,000 square foot Fair Lakes I which was delivered in
July 1986; the 44,000 square foot AFCEA Building which was delivered during the
summer of 1986 and is 100 percent leased; the 230,000 square foot TRW Building
which is 100 percent owner-occupied; the 65,000 square foot NVBIA Building; the
186,000 square foot Fair Lakes II Building; the 63,000 square foot Mohasco
Building which is 100 percent owner-occupied; the approximately 65,000 square
foot AAA building and the 75,000 square foot Datatel Building. A new ounce
project was recently delivered as a build-to-suit for AMS.
Additional projects within Fair Lakes include The Pentlands, mirror image
six-story 115,000 square foot office buildings, a Hyatt Hotel and the adjacent
11-story, 275,000 square foot Hyatt Plaza Office Building which is leased to
Aetna. The residential component of Fair Lakes includes three apartment projects
and several townhouse / condominium projects. A small strip retail plaza
(tenants such as Mobil Oil, a dry cleaner, beauty salon, restaurant, branch
bank) is located within the park. The Galleria At Fair Lakes, an upscale,
three-level mall in Fair Lakes was proposed on the site. However, due to changes
in the local market and the economy, the site was developed with a major retail
project that includes BJ's Wholesale Club, Walmart, and Hechingers as anchors.
Several restaurants have also been constructed on pad sites at the center.
The Centennial Gateway Center, slated to total 1.8 million square feet of
space upon completion, is a mixed-use development including residential,
commercial and office space. The Gateway project is located at the intersection
of Route 50 and West Ox Road. The first office building within Gateway, One
Monument Place, a 9-story office building containing 194,000 square feet, was
completed in 1989.
FairField, a $90 million proposed project by NVCommercial, is located at
the intersection of West Ox Road and I-66, just west of Fair Oaks Mall. The
project will include four office buildings with a total of 437,000 square feet
of space. The buildings will range in size from two- to seven-stories in height
and will be built over the next three to four years. Kaiser Permanante has
purchased one of the sites and completed a build-to-suit office building. The
road construction of FairField now extends Fair Lakes Parkway from West Ox Road
to Monument Drive, thereby connecting Fair Oaks Mall to the Fairfax County
Parkway (formerly known as the Springfield Bypass).
-33-
Office Market Analysis
Located diagonally across the intersection of Route 50 and I-66 from the
Fair Oaks Mall is the Fairfax Executive Park, the oldest of the office parks in
the area. Some brokers refer to it as the "brickyard", due to the abundance of
low-rise red brick buildings erected there in the early 1980s. This park is
located at Waples Mill Road north of Route 50, and is the least controlled
environment of the parks in the area. E Systems is the largest tenant, with
around 200,000 square feet (E Systems plans on vacating this building in the
near future). The park has a total of around 1.45 million square feet. Because
these buildings are older and stabilized, the occupancy is relatively high.
There are about two or three first-class structures in this park.
Directly across Route 50 from Waples Mill Road are a few ounce buildings
along Random Hills Road. This area is not really connected to any particular
ounce park, although the completion of Random Hills Road to the new Government
Center Parkway ties the above Fairfax Executive Park with these area. Due to the
very large wooded tract separating the government center and those buildings on
Random Hills Road at Route 50, most persons do not consider them one park, and
indeed Random Hills Road was somewhat of an orphan subdivision until the
government center was built there this year. Prominent buildings in this area
are Fair Oaks Commerce Center, Fair Oaks Plaza, and Crown Ridge Plaza.
The primary retail facility in the area is Fair Oaks Regional Mall, and
development extends along all sides of the intersection of Routes 50 and 29.
Strip shopping centers are common in this area, and include centers such as
Price Club Plaza, Fairfax Court, Greenbriar Towne Center, Fair Lakes Center,
Fairfax Center, Jermantown Square, K-Mart Plaza, Kamp Washington Shopping
Center, and Sully Place.
Summary
The subject property benefits from its location at an easily accessible
intersection in central Fairfax County. Based on the improvements in ounce
occupancy and anticipated increases in rental rates, along with the area's good
accessibility, it is clearly capable of capturing a fair share of the demand of
ounce space as the Fairfax County economy grows. The neighborhood has good
regional drawing power by virtue of the roadway network serving it. The
anticipated trend for the subject neighborhood is for continued growth and
stabilization into the foreseeable future.
-34-
PROPERTY DESCRIPTION
Site Description
Location: 12015 Lee Jackson Memorial Highway
(U.S. Route 50)
Fairfax, Fairfax County, Virginia
(The building is referred to on the county
tax rolls as 12015 Legato Road)
Southwest side of the ring road surrounding
Fairoaks Regional Mall
Shape: Irregular (See facing page)
Land Area: 5.1436 acres, 224,055 square feet
Frontage: 780 feet along ring road
506 feet along I-66
629 feet along Legato Road
Topography: Generally level and on-grade with the
ring road
Street Improvements: Curb and gutter, paved parking lot,
landscaping
Access: Access to the subject is direct via Legato
Road to the ring road, with West Ox Road,
U.S. Route 50 and I-66 being primary
collector arteries. Access to the site is
considered good.
Site Disclaimers
Soil Conditions: We did not receive nor review a soil report.
However, we assume that the soil's
load-bearing capacity is sufficient to
support the existing structures. We did not
observe any evidence to the contrary during
our physical inspection of the property. The
tract's drainage appears to be adequate.
Land Use Restrictions: We were not given a title report to review.
We do not know of any easements,
encroachments, or restrictions that would
adversely affect the site's use. However, we
recommend a title search to determine whether
any adverse conditions exist.
Flood Hazard: Drainage of the tract appears to be adequate
and ties into the overall Fair Oaks Mall
drainage system. According to the Fairfax
County Mapping Service, Base Property Mapping
Branch, Division of Communications, the
subject parcel does not lie in floodplain,
based on studies done of the County by the
U.S. Geological Survey.
-35-
Property Description
================================================================================
Wetlands: We were not given a Wetlands survey. If
subsequent engineering data reveal the
presence of regulated wetlands, it could
materially affect property value. We
recommend a wetlands survey by a competent
engineering firm.
Hazardous Substances: We observed no evidence of toxic or hazardous
substances during our inspection of the site.
However, we are not trained to perform
technical environmental inspections and
recommend the services of a professional
engineer for this purpose.
Improvements Description
The following description of improvements is based upon our physical
inspection of the improvements along with our discussions with the building
manager.
General Description
Year Built: 1985
Number of Floors: 8
Gross Building Area: 157,637 square feet
Net Rentable Area: 150,961 square feet (Excluding auditorium and
lunch room)
Typical Floor Plate: 19,872 square feet
Construction Detail:
Foundation: Reinforced concrete slab on grade over washed
gravel and polyethylene vapor barrier.
Framing: Structural steel
Floors: Reinforced concrete on metal decking
Exterior Walls: Pre-cast concrete panels and grey insulated
glass
Roof Cover: Membrane covered with gravel ballast on
insulated concrete slab.
Windows: Exterior windows have anodized black metal
frames with grey insulated glass.
Pedestrian Doors: Glass in metal frame
-36-
Property Description
================================================================================
Loading Doors Metal doors.
Mechanical Detail
Heating and Cooling: Water cooled, self contained VAV air
conditioning system; electric heat.
Elevator Service: 4 elevators, including one for freight use
Fire Protection: Fully sprinklered, fire alarm system and
smoke control system
Security: Electronic control cards for after hours
access
Interior Detail
Layout: The core area includes four elevators, one
men's and women's restroom, one telephone
closet, two staircases and two mechanical
closets.
Floor Covering: Commercial grade carpet and/or vinyl tiles.
The lobby area has marble based floors.
Walls: Drywall finished with paint or vinyl wall
coverings.
Ceilings Acoustic ceiling tiles in suspended metal
grid
Lighting: Recessed florescent and incandescent lighting
Restrooms: Ceramic tiled floors and vinyl covered walls
with Mylar counters around sinks. Ceramic
wall covering around the stalls.
Special Features: Security equipped offices in some SCIF
finishes. A 175 seat security rated
auditorium, and mid-sized sit down lunch
room.
Site Improvements
Parking: An asphalt paved and striped lot marked for
523 vehicles
On-Site Landscaping: Perimeter heavily landscaped with trees,
shrubs and grass.
Improvements Disclaimers
Americans With Disabilities Act: The Americans With Disabilities Act (ADA)
became effective January 26, 1992. We have
not made, nor are we qualified by training to
make, a specific compliance survey and
analysis of this property to determine
whether or not it is in conformity with the
various detailed requirements of the ADA. It
is possible that a compliance
-37-
Property Description
================================================================================
survey and a detailed analysis of the
requirements of the ADA could reveal that the
property is not in compliance with one or
more of the requirements of the Act. If so,
this fact could have a negative effect upon
the value of the property. Since we have not
been provided with the results of a survey,
we did not consider possible noncompliance
with the requirements of ADA in estimating
the value of the property.
Hazardous Substances: We are not aware of any potentially hazardous
materials (such as formaldehyde foam
insulation, asbestos insulation, radon gas
emitting materials, or other potentially
hazardous materials) which may have been used
in the construction of the improvements.
However, we are not qualified to detect such
materials and urge the client to employ an
expert in the field to determine if such
hazardous materials are thought to exist.
Design Features and Functionality: The building has a very functional floor
plate size and arrangement that accommodates
both single and multi tenant layouts.
Physical Condition: The premises appear to be in good condition
overall. The main lobby area is attractively
finished, though the upper level elevator
lobbies are small compared to Class A
buildings in the neighborhood.
We did not inspect the roof of the building
or make a detailed inspection of the
mechanical systems. The appraisers, however,
are not qualified to render an opinion as to
the adequacy or condition of these
components. The client is urged to retain an
expert in this field if detailed information
is needed about the adequacy and condition of
mechanical systems.
Personal Property Included None
In Value Estimate
-38-
REAL PROPERTY TAXES AND ASSESSMENTS
The subject property is in the taxable jurisdiction of Fairfax County,
which assesses real property at a ratio of 100 percent of ad valorem value on a
calendar year basis. The 1997 calendar year is the most recent year for which
assessed valuation and property tax information is available. The 1998
assessments and tax rates will be available in March or April of that year. For
tax assessment purposes, the subject property is identified as Tax Parcels
056-1-12-19 and 046-3-8-12.
Tax Rates
The 1997 tax rate for Fairfax County, along with a five year prior history,
is presented in the following table.
As can be seen, the tax rates were relatively flat through 1995. In 1996,
however, the rate increased by six percent over the 1995 rate, with little
change going into 1997.
It is difficult, at best to judge the likelihood of future tax rate
increases when viewing only a short history. Tax rates tend to increase or
decrease based upon the combined influences of changes in property values and
increasing governmental budgetary needs as the jurisdiction tries to maintain a
pace with inflationary pressures. Nonetheless, over the long term the county tax
rates show an upward trend and we would expect tax rates to increase in
incremental bumps.
Tax Assessment
The subject's current assessment is presented in the following table.
Greenwood Corporate Center: 1997 Assessments
Assessment 056-1-12-19 046-3-8-12 Total
---------------------------------------------------------------------
Land $ 1,833,695 548,030 $ 2,381,725
Improvements $12,732,175 $ -- 12,732,175
-----------------------------------------
Total $14,565,870 $ 548,030 $15,113,900
Tax Rate x 0.0123
-----------
Tax Liability $ 185,901
S/SF NRA $ 1.23
=====================================================================
The current assessment of $15,113,900 is 19.6 percent less than the value
conclusion reached in the report. The 1997 assessment reflects a significant
increase over the 1995 assessment of $9.8 million and is following the upward
trend in Fairfax County property values. With rental rates and selling prices
increasing in Fairfax County, it is likely that the Assessor's Office will
continue to seek increases in assessments. Accordingly, we have assumed a step
-39-
Real Property Taxes And Assessments
increase to the value conclusion reached in the report, or about $18.8 million,
in the first year of the analysis, followed by a general inflationary trend.
Ad Valorem Tax Conclusions
As discussed above, the current tax associated with the property is
$185,901 for the tax year ending December 31, 1997. The taxes are current.
Taking into consideration future tax rate increases as well as the potential
increases in the subject's assessed value, we have projected that taxes will
increase to $231,240 in 1998, and then increase at a rate consistent with
inflation, or 3.5 percent annually. We have assumed that most of the increase in
the tax liability can be "contractually" passed through to the tenants. There is
risk in this assumption, however, as some tenants may strenuously object, thus
ownership is required to make a "business decision", if you will, regarding the
pass through. In other words, the landlord may waive part or all of the pass
through in some cases to strengthen the chance of retaining particular tenants.
In our analysis, we have attempted to account for the increased risk in the
selection of rates. Overall, the increase is in keeping with historical trends
in Fairfax County, in general and the subject property, in particular.
-40-
ZONING
The governing for zoning is the Fairfax County Planning and Zoning
Commission. The zoning designation of the subject property is C-7, Regional
Retail Commercial District. The C-7 zoning category has been established to
provide locations for a full range of retail commercial and service uses which
are oriented to serve a regional market area containing 100,000 or more persons.
The district should be located adjacent to major transportation facilities and
development within the district should be encouraged in centers that are planned
as a unit. (Source: Fairfax County Zoning Ordinance Chapter 112, as of August,
1988, Article 4 Part 7 Section 4-701, Page 4-29.)
Uses permitted under the C-7 zoning include amusement arcades, churches,
drive-in banks, eating establishments, funeral homes, health clubs, hotels,
motels, offices, retail sales establishments, theatres, veterinary hospitals,
etc.
Uses permitted by a special permit include child care centers and nursery
schools with less than 100 students daily, commercial recreation uses limited to
billiard and pool halls, bowling alleys, commercial recreation parks, commercial
swimming pools, tennis courts, miniature golf courses, outdoor recreational uses
limited to baseball hitting and archery ranges and golf courses, etc. In
addition, there are also special exception uses which are permitted which are
further detailed in the zoning regulations.
Under the original C-7, Regional Retail zoning, the following restrictions
apply:
Minimum Lot Area: 40,000 s.f.
Minimum Lot Width: 200 feet
Building Height: 90 feet(1)
Front Setback: 45 degree angle
of bulk plane, not
less than 40'
Side Setbacks: None
Rear Setback: 20 feet
Maximum FAR: 0.802
Green Area: 15% of site
Parking: 4.5 spaces / 1000 SF NRA, or 577
spaces
1. The maximum building height restriction is often waived during the
site plan approval process.
2. An increase to 1.00 FAR may be permitted by the Board
We are not experts in the interpretation of complex zoning ordinances.
Based on a gross building area of approximately 157,637 square feet, the
property is improved to about a 0.68 FAR density. As the building went through
the approval process at the time of construction, we assume that its height
variance was approved and that it is a legal, non-conforming structure. The
formal determination of compliance is beyond the scope of a real estate
appraisal.
To the best of our knowledge, there are no known deed restrictions (private
or public) which would further limit the use of the subject property. This
statement should not be taken as a guarantee or warranty that no such
restrictions exist. Deed restrictions are a legal matter and
-41-
Zoning
only a title examination by an attorney would normally uncover such
restrictive covenants. Thus, an examination by a title attorney is recommended
on the subject property if any questions regarding such restrictions arise.
-42-
Zoning
Highest and Best Use of Site as Though Vacant
According to the Dictionary of Real Estate Appraisal, Third Edition
(1993), a publication of the Appraisal Institute, the highest and best use of
the site as though vacant is defined as:
Among all reasonable, alternative use that yields the highest present
land value, after payments are made for labor, capital, and coordination.
The use of a property based on the assumption that the parcel of land is
vacant or can be made vacant by demolishing any improvements.
Legally Permissible
The subject's zoning classification permits development of office,
retail, and service related uses. Office uses with a ground level retail or
service components are consistent with the overall development of the area.
Physically Possible
The subject site contains approximately 5.14 acres of land, with frontage
along the ring road surrounding Fairoaks Regional Mall and visibility above
the tree lines to 1~66 and Legato Road. The size and configuration of the site
is felt to provide a suitable land use and/or development potential for a wide
variety of possible and ordinary suburban land uses. Municipal utilities would
adequately provide for nearly all uses. Street improvements are also adequate.
Financially Feasible
Several features of the subject property indicate that office or hotel
use is the highest and best use of the subject property. First, while a retail
use is an obvious use given the proximity to the mall, retail uses are
typically low density, and would not, therefore, generate the greatest overall
site value. Second, a motel already exists adjacent to the subject and there
is only moderate demand for hotel space in the locale, suggesting that another
hotel at this site might be in advance of demand. Finally, the office markets
have returned to the point where rents are supporting new development,
occupancies are very high and new development is occurring or being discussed
in many locations in Fairfax County. Office uses are usually at a high density
and would create incremental value over lower density uses.
Based on the above, we have concluded that the highest and best use of
the subject, as vacant, is as an office building with surface and/or decked
parking.
Highest and Best Use of Property as Improved
According to the Dictionary of Real Estate Appraisal, highest and best
use of the property as improved is defined as:
The use that should be made of a property as it exists. An existing
property should be renovated or retained so long as it continues to
contribute to the total market value of the property, or until the return
from a new improvement would more than offset the cost of demolishing the
existing building and constructing a new one.
-43-
Highest and Best Use
Unlike the previous analysis of the subject site as vacant, this analysis
considers the subject property as currently improved with an evaluation as to
the physical, legal, and financial appropriateness of the existing land use.
Legal Considerations
The subject site, as presently improved, represents a legal, conforming
use.
Physical Considerations
The subject site has been improved with the existing structure and, based
upon our observation, there are no apparent physical factors such as soils,
drainage, or other site characteristics that would adversely affect the
continued utility and/or existence of the subject improvements.
Financially Feasible
The use of the subject improvements is considered to contribute in an
economic manner to the subject site. Occupancy levels at the subject property
are slightly consistent with competing buildings in the market.
Land sales for speculative office development have begun to occur in the
western portions of Fairfax County where land is most plentiful. Unit prices
have generally been between $18 and $25 per FAR foot. However, a brief test of
reasonableness tells us that redevelopment of the site is not likely. Given
the range of value indicators developed in this report, or generally in the
$18.0 to $20.0 million range, and assuming an office project could be built on
the site to the legally permissible density of 0.80 FAR, the land's value
would have to be in excess of $100 to $112 per FAR foot to justify buying the
property, demolishing the improvements, and beginning anew. Hence, given our
final value conclusion there is obviously sufficient value in the property, as
improved, to negate any possible redevelopment of the tract for the
foreseeable future.
As a result, the subject is forecast to provide an adequate return to the
land, both on an intermediate and long-term basis. This conclusion is
supported by the data and analysis presented in the balance of this report.
Our conclusion is contingent upon property management maintaining a course of
action which will be conducive to maximizing value.
-44-
Valuation Process
In this appraisal, we have used the Sales Comparison Approach and the
Income Capitalization Approach to develop a market value estimate.
The Cost Approach has been omitted from this analysis for the following
reasons:
First and foremost, the value being sought is the leased fee estate,
whereas the Cost Approach normally depicts the fee simple estate.
Therefore, the interest being appraised cannot be reflected by the Cost
Approach in its traditional form. The current average rent at the subject
property is $14.50 per square foot, where new construction is being
justified at full service rents at or above the mid-$20s per square foot.
Thus, the leased fee impact on the subject's value is significant.
Lastly, one of the most persuasive reasons for not using the Cost
Approach is the fact that market participants do not typically use this
approach as a determinant of value but rather as a reasonableness test
that they are paying less than replacement cost. While not justification
in itself to omit the approach, it does underscore its overall lack of
relevance in the market place. Accordingly, while we have omitted a full
Cost Approach analysis, we have included a replacement cost estimate in
the Addenda to the report.
In the Sales Comparison Approach, we performed the following steps:
o Searched the market for recent office sales within the Northern Virginia
market which contain similar physical and economic characteristics to the
subject property.
o Analyzed differences between those sales and the subject on the basis of
the sales price per square foot and extracted overall capitalization rates.
o Correlated the various value indications into a point value estimate from
within the range.
In developing the Income Capitalization Approach, we:
o Studied rents in effect in the immediate and competing areas to estimate
potential rental income at market levels for office, and industrial uses.
o Studied the recent history of operating expenses at the subject property
and competing properties to estimate an appropriate level of stabilized
expenses and reserves for replacement.
o Estimated net operating income by subtracting stabilized expenses from
potential gross income after deduction for vacancy and collection loss.
o Prepared a discounted cash flow analysis in which the estimated income and
expenses over a projected holding period, and the estimated property value
at the time of reversion, are discounted at an appropriate rate to estimate
present market value.
-45-
Valuation Process
In estimating the final value, we performed the following:
o Reviewed and re-examined each of the approaches to value which were
employed.
o Considered the type and reliability of the data used and applicability of
each approach.
o Reconciled the approaches to a final value conclusion.
-46-
Sales Comparison Approach
Methodology
In the Sales Comparison Approach, we estimated value by comparing this
property with similar, recently sold properties in the surrounding or
competing area. Inherent in this approach is the principle of substitution,
which holds that when a property is replaceable in the market, its value tends
to be set at the cost of acquiring an equally desirable substitute property,
assuming that no costly delay is encountered in making the substitution.
By analyzing sales that qualify as arms-length transactions between
willing and knowledgeable buyers and sellers, we can identify value and price
trends. The basic steps of this approach are:
1. research recent, relevant property sales and current offerings throughout
the competitive area;
2. select and analyze properties that are similar to the property appraised,
considering changes in economic conditions that may have occurred between
the sale date and the date of value, and other physical, functional, or
locational factors;
3. identify sales that include favorable financing and calculate the cash
equivalent price;
4. reduce the sale prices to a common unit of comparison such as price per
square foot of net rentable area, effective gross income multiplier, and
overall capitalization rate;
5. make appropriate comparative adjustments to the prices of the comparable
properties to relate them to the property being appraised; and
6. interpret the adjusted sales data and draw a logical value conclusion.
In this instance, the sale prices inherent in the comparables were
reduced to those common units of comparison used to analyze improved
properties that are similar to the subject. Of the available units of
comparison, the sales price per square foot of net rentable area (used by
buyers, sellers, and brokers), as well as the effective gross income
multiplier (EGIM), employed predominately by appraisers, are the most commonly
used measurements to value office buildings in the marketplace.
From an appraiser's perspective, the EGIM is probably a more discernible
indicator of value because it considers the income characteristics which in
turn dictate the price per square foot paid. Also, the selection of an EGIM is
generally less subjective than trying to correlate the sales price per square
foot methodology. However, given the limited number of recent data points,
this latter approach will not be applied and we will rely on the per square
foot analysis.
The comparable sales included herein were selected for their high
occupancy levels, ranging from 95 to 100 percent at the time of sale. On the
following page is a summary of recent market data considered to be most
indicative of the subject's current market value. Detail sheets describing
these sales can be found in the Addenda of this report.
-47-
Oakwood Center
Fairfax County, Virginia
Comparable Office Building Sales Summary
====================================================================================================================================
Overall
Comp. Year Net Land Cash Sale Price Expense Capital-
Sale Sale Built/ No. Rentable Area Percent Equivalent Per SF Ratio ization
No. Name/Location: Date Renovated Stories Area(SF) (Acres) Occupied Sale Price NRA EGIM (EGI) Rate
====================================================================================================================================
I-1 Centrepolnte I & II May-97 1988 11 408,111 17.00 100.0% $55,000,000 $134.77 N/A N/A N/A
4000 and 4050 Legato Road 1990
Fairfax, VA
I-2 8280 Greensboro Drive Apr-97 1985 9 205,341 2.64 97.0% $30,000,000 $146.10 N/A N/A 8.75%
McLean, VA (Estimate)
I-3 Tysons Office Center Apr-97 1981 9 142,000 2.58 100.0% $16,000,000 $112.68 N/A N/A N/A
8133 Leesburg Pike
Vienna, VA
I-4 Cameron Office Park I Oct-96 1991 6 143,707 4.28 95.0% $15,400,000 $107.16 6.97 40.6% 8.52%
3601 Eisenhower Avenue
Alexandria, VA
I-5 Nortel Building Aug-96 1989 10 252,315 6.61 100.0% $35,000,000 $138.72 N/A N/A 9.00%
2010 Corporate Ridge Road
McLean, VA
I-6 Reston Plaza I and II Jul-96 1985 3 126,557 4.72 100.0% $13,650,000 $107.86 6.86 49.2% 7.40%
12020 and 12030
Sunrise Valley Drive
Reston, VA
I-7 Executive Park III May-96 1985 6 104,620 5.31 100.0% $12,200,000 $116.61 6.89 40.2% 8.70%
1850 Centennial Park Drive
Reston, VA
====================================================================================================================================
Subject Greenwood Corporate Center
12015 Lee Jackson Memorial N/A 1985 8 150,961 5.14 87.0% 41.7%
Fairfax, Fairfax County, VA
====================================================================================================================================
Low: 1981 104,620 2.58 95.00% $12,200,000 $107.16 6.86 40.2% 7.4%
Data Range: High: 1991 408,111 17.00 100.00% $55,000,000 $146.10 6.97 49.2% 9.0%
Mean: 1987 197,522 6.16 98.86% $2S,321,429 $123.41 6.91 43.3% 8.5%
====================================================================================================================================
* Projected from first year of DCF Analysis
NRA Net Rentable Area
EGI Effective Gross Income
====================================================================================================================================
Sales Comparison Approach
Sales Price Per Square Foot Analysis
The seven comparables indicate sales prices ranging from $107.16 to
$146.10 per square foot of net rentable area on a cash equivalent basis. These
prices per square foot have been influenced by differences in construction
quality, condition of the premises, character of the tenancy, and location.
Nevertheless, it is important to address each property in terms of the
conventional sequence of adjustments. Following are those considerations which
are relevant to the subject. The first three elements must be considered in
advance of applying any other compensating factors to derive value conclusions
via the sales price per square foot methodology. These same three factors must
also be addressed before the selection of an effective gross income
multiplier.
Property Rights Conveyed
As shown in the summary table, all of the comparables are encumbered by
existing leases; therefore, the leased fee estate was conveyed in each case. As
such, no adjustments are warranted for differences in property rights conveyed.
Seller Financing/Cash Equivalency
All of the comparables were sold on the basis of cash to the seller.
Thus, we have made no adjustments to the comparables for seller financing.
Conditions of Sale
We identified no special motivational conditions concerning the
comparables; therefore, no adjustments for conditions of sale were made.
Date of Sale
As shown in the summary table, the transactions occurred between May 1996
and May 1997, a period of one year. As mentioned in the preceding Office
Market Analysis, the overall office market in the Washington, D.C.
metropolitan area has strengthened over the past 12 to 24 months, with the
Northern Virginia markets being the most active and rapidly improving section
of the metropolitan area.
All of the comparables sold during a period of continuing improvement and
active investment. Sales prices appear to be showing an increasing trend,
though the short time period in which the transactions occurred as well as the
various physical and economic differences between them make a definitive
analysis difficult. Thus, while interviews with investors and our own analysis
of the data suggests values may have increased over this period, we have not
specifically made a market conditions adjustment. Rather we will conclude to
the upper end of the adjusted value indications.
Other
Most of the additional considerations for the comparables involve
locational issues, design and quality elements, and economic factors. Location
and economics are interrelated and the following chart provides pertinent
information about the various submarkets in which the subject and the
comparables are located. The data, which is as of First Quarter 1997, relates
to the overall markets. It is noted that the subject's average rental rate is
currently $19.34 per square foot, with its most recent leases being between
$19.00 and $21.75 per square foot.
-49-
Sales Comparison Approach
Occupancy and Rental Data by Submarket
Average Class A Average Overall
Submarket Occupancy Rate Rental Rates Rental Rates
Per SF Per SF
============== ================ ================= ===============
Fairfax/Oakton/Vienna 93.7% 521.96 S19.48
Merrifield/Route 50 95.2% $23.54 $17.65
Tysons Comer/McLean 94.8% $24.12 $22.46
Reston/Hemdon 93.3% $23.17 $20.02
Huntington/Eisenhower 96.3% $19.50 $21.16
Analysis of Specific Comparables
Comparable I-1, Centrepointe I and II, are located a mile or two west of
the subject. The project consists of two, eleven story, Class A office
buildings that were 100 percent occupied, primarily by AMS. The tenant was
expanding in the second building. Rental rates were reported to be below
market. They are superior quality buildings with a better location, and are
superior in that respect. The buildings are very superior to the subject in
terms of quality, and somewhat superior in terms of location and rent roll.
Overall, a downward adjustment is necessary to equate the comparable to the
subject.
Comparable I-2, 8280 Greensboro Drive, is a Class A-, nine-story office
building in the Tysons Corner market. It was close to 100 percent occupied
according to the buyer, who would disclose only that their going in
capitalization rate was near 8.75 percent. The building is in a superior
location to the subject and is a superior quality. As perspective on the
differential, recent lease comparables for this quality building in Tysons
Corner have been in the mid-$20s per square foot. From an economic standpoint,
existing net operating income at the comparable was $2.91 per square foot
higher than the subject. Overall, a downward adjustment is necessary to equate
the comparable to the subject.
Comparable I-3, Tysons Office Center, is a Class A-/B+, nine-story office
building located on Route 7 in the Tysons Corner submarket. While in a
superior market to the subject, it is of a similar vintage, though with a more
appealing exterior facade. The asking rents at the time of sale were $20 per
square foot and are generally consistent with the subject's. While superior in
some respects, it is significantly inferior to the subject in that it has a
many leases at below market rents which the purchaser expects to roll to
market over the next three years. Given the locational superiority being
offset by the economic inferiority, the building is rated as being inferior to
the subject. Overall, an upward adjustment is necessary to equate the
comparable to the subject.
Comparable I - , Cameron Office Park, Building I, is a six story, Class A
office building constructed in 1991 and 95 percent occupied at the time of
sale. It has good access and visibility to the interstate highways. The
tenancy was very stable until 1999 and 2000 when 80 percent of the building
rolls over. The buyer did not perceive this as a problem, but as an
-50-
Sales Comparison Approach
opportunity to increase the rents. Nonetheless, the comparable has a lower
existing net operating income than the subject for several years and is
inferior to the subject in this regard. Overall, an upward adjustment is
deemed necessary to equate the comparable to the subject.
Comparable I-5, the Nortel Building on Corporate Ridge Road in McLean, is
a good quality, ten-story, office building constructed in 1989 that was 100
percent occupied at the time of sale. The seller occupied 57 percent of the
building and had signed itself to a market level lease prior to sale. There is
limited tenant turnover until 2001. From an economic standpoint, existing net
operating income at the comparable was $2.61 per square foot higher than the
subject. Downward adjustments are necessary, therefore, to equate the
comparable's superior rent levels and tenant stability to the subject.
Comparable I-6, Reston Plaza I and 11, are two, three-story brick office
buildings on Sunrise Valley Drive in Reston, Virginia. They are physically
similar to the subject. They sold 100 percent occupied with average rents
several dollars below market, but with a net operating income about $1.90 per
square foot less than the subject. Thus, the purchaser acquired the property
recognizing that there was significant room for increasing income. Overall,
the project was inferior to the subject in terms of existing income. Overall,
an upward adjustment is deemed necessary to equate the comparable to the
subject.
Comparable I-7, Executive Office Park III, also in Reston, was the sale
of a 100 percent occupied, six-story, brick office building constructed in
1985. This building was leased at below market rents, estimated by the seller
to be about $3.40 per square foot. Net operating income was roughly $0.27 per
square foot more than the subject. Their estimate of market rent for the
building was less than the subject's, however, suggesting various physical
and/or locational differences. Tenancy was stable for three years then
followed by 59 percent turnover in 1999 and 2000. Thus, the comparable's
turnover risk makes it inferior to the subject. Overall, an upward adjustment
is necessary to equate the comparable to the subject.
The following chart summarizes how each sale compares to the subject
property from a physical, locational and economic (occupancy and rental rate)
standpoint.
-51-
Sales Comparison Approach
==============================================================================
Improved Sales Comparison
==============================================================================
Sales Overall Rating
Comp. Property Price Relative to
No. Per SF the Subject(1)
===== ============================= ============= ==================
I-1 Centrepointe I & II $134.77 Somewhat
Fairfax, VA Superior
I-2 8280 Greensboro Drive $146.10 Superior
McLean, VA
I-3 Tysons Office Center $112.68 Inferior
Vienna, VA
I-4 Cameroon Office Park I $107.16 Very
Alexandria, VA Inferior
I-5 Nortel Building $138.72 Somewhat
McLean, VA Superior
I-6 Reston Plaza I and 11 $107.66 Very
Reston, VA Inferior
I-7 Executive Park III $116.61 Inferior
Reston, VA
==============================================================================
Note 7: Considers the effect of all adjustments.
Because of the multiple differences inherent in office properties with
respect to quality and design, location, and economics, not to mention the
quality of the tenant base, mathematical adjustments for the reasoning noted
above would be extremely difficult, at best. The two comparables rated somewhat
superior to the subject are I-1 and I-5, with unit prices of $134.77 and $138.72
per square foot respectively. They set the upper limit of likely values.
Comparables I-3 and I-7 are rated inferior to the subject, but less so than some
of the other sales. Their unit prices are $112.68 and $116.61 per square foot,
respectively, and they set the lower limit of likely unit values. Thus, the
range of unit values is between say $115 and $130 per square foot. Further
review suggests that the subject, with many new leases at market rents is more
likely to be at the upper end of this range, or say $125 to $130 per square
foot. Accordingly, we have concluded to this range. When applied to the net
rentable area, our estimated value range by the Sales Price Per Square Foot
method is $18,900,000 to $19,600,000, rounded.
Sales Price Per Square Foot Unit Analysis
SF NRA x Unit Price {S/SF) = Value Estimate
================== ======== ====================== ================
150,961 x $125.00 = $18,870,125
150,961 x $130.00 = $19,624,930
------------------------------------------------------------------------------
Rounded: $18,900,000 to $19,600,000
or $125.20 to $129.83/SF
-52-
Income Capitalization Approach
Methodology
The Income Capitalization Approach is a method of converting the
anticipated economic benefits of owning property into a value estimate through
capitalization. The principle of "anticipation" underlies this approach in
that investors recognize the relationship between an asset's income and its
value. In order to value the anticipated economic benefits of a particular
property, potential income and expenses must be estimated, and the most
appropriate capitalization method must be selected.
The two most common methods of converting net income into value are
direct capitalization and discounted cash flow analysis. In direct
capitalization, net operating income is divided by an overall rate extracted
from market sales to indicate a value. In the discounted cash flow method,
anticipated future net income streams and a reversionary value are discounted
to an estimate of net present value at a chosen yield rate (internal rate of
return).
In our opinion the discounted cash flow method is appropriate. The
discounted cash flow analysis is generally thought to be the best method for
evaluating income producing properties purchased for investment. Forecasted
future patterns of income and expenses are modeled to reflect perceived
investor expectations.
Potential Gross Income
Generally, office tenants pay fixed gross rent on a rentable area basis
which is consistent with space measurement standards for buildings of similar
vintage, plus any increases in operating expenses and real estate taxes above
stipulated base year amounts.
Existing Leases
As of July 1997, and including several signed renewals and new leases for
tenants due to take occupancy in July, the property is 74 percent leased by
about seven different tenants. One additional lease has been executed for an
August 1997 commencement that will bring the property to an 87 percent
occupancy. The property contains 150,961 rentable square feet in total with
all of the fourth floor unleased as of the effective date of the appraisal.
The auditorium and lunch room on the first floor are considered as permanent
amenities. The average rent in the first full year of the analysis is $19.34
per square foot.
The major tenants in the property include Mantech, Logicon, and as of
August Aerotek. Mantech formerly occupied most of the building and has
downsized and renewed for space on all of the 6th, 8th and part of the first
floors. Their total area is 43,848 square feet at an average rent of $19.80
per square foot, full service. Logicon has leased all of the 7th floor
commencing July 1997 with a base rent of $20.00 per square foot. The new
Aerotek lease on the 7th floor is for $21.75 per square foot. We have been
provided with either leases or lease abstracts for most of these tenants.
The building has one other full floor tenant on the 5th floor that signed
in 1994 and has a current rent of 12.58 per square foot. The balance is either
vacant or occupied by smaller tenants. The credit quality for the tenants is
not specifically known. In conversations with the property manager, we were
informed that none of the tenants were currently at risk of default.
-53-
Income Capitalization Approach
Based upon the subject's current lease expiration schedule 24 percent of
the property's rentable area is due to expire within the next three fiscal
years. Within years four through six, 23 percent of current leases are due to
expire, all in fiscal year 2004. Within our projected 11 year holding period
all of the leases currently in place or projected to be signed will expire. An
expiration summary is shown in the following table.
Based upon the lease expiration schedule, we have forecasted an eleven
year investment holding period. Fiscal year 2008 has no vacancy and would
represent an overstatement of the reversionary value. Fiscal year 2009, by
contrast, has a more normalized turnover percentage compared to a market with
average lease terms of six years (16.7 percent annually) and, for analysis
purposes, is considered a stabilized reversionary year (please refer to the
fiscal year cash flow).
Market Rental Rate
Market rent for the property has been estimated by analyzing comparable
leases exhibited on the summary chart on the facing page.
Prior to adjustment, the comparables (excluding leases at Greenwood
Corporate Center) reflect a range in base rent of $16.00 to $21.00 per square
foot, full service. After adjustment for rent concessions, the range was
unchanged. There are few concessions being granted in today's market. Only
three of the comparable leases included any free rent and none included above
standard tenant improvement allowances.
-54-
Income Capitalization Approach
As shown in the Micro Market summary table presented in the Market
Analysis section of the report, asking rents at competing properties are in
the range of $17.50 to $25.00 per square foot. Actual lease rates are only
slightly below asking levels.
The subject's contract rents average $19.34 per square foot, full
service, in the first 12 months of the holding period. Most leases within the
property were signed in the 1997 and only four leases totaling 36,622 square
feet have commencement dates in 1996 or earlier, a period when average rents
were well below the current market rents. All of the recent leases at the
property are shown at the top of the Comparable Office Rentals chart on the
preceding facing page. The most recent leases at the property have been in the
$19.00 to $21.75 per square foot range. Two lease proposals currently being
negotiated were initially offered at $21.00 and $21.50 per square foot. On
average, we believe the contract rents within the building are only a little
below market.
Additional rental income from these leases include operating expense
reimbursements for increases over base year amount. Expense stops for most
tenants are between $5.95 and $6.24 per square foot, or near the 1996 actual
operating expenses of $6.09 per square foot.
Recent leases within the market include few concessions, either in the
form of free rent or above standard tenant improvement allowances. Most
brokers interviewed were of the opinion that rental concessions were not being
granted.
Several brokers indicated that the market has continued to improve over
the last six months, with rents increasing and concessions remaining almost
non-existent. In the view of many, the leasing market has generally reached
stabilization and the delivery of new office buildings to the market will be
the primary influence on rental rate and occupancy trends. In keeping with
these observations, we have assumed that market rent will increase at an
average rate of 3.5 percent per annum through the projection period. The
recent rent spikes are not anticipated to continue in the minds of market
participants we spoke with due primarily to the onset of new speculative
construction. Investors are reportedly taking a wait and see approach over the
short term at least. It is not too inconceivable that additional rent spikes
will occur. However, we believe the prudent approach at this stage is level
rent growth. Finally, free rent and tenant workletter concessions should
remain consistent with current levels.
The property's asking rental rate of $20.00 to $25.00 per square foot is
somewhat less than the minimum rents for new leases at the subject property of
$19.00 to $21.75 per square foot. In our opinion, market rents for space
within the subject property are solidly at $21.00 per square foot, recognizing
that some leasing will be done above and below this rate.
The above estimated market rents assume the following concession package.
==============================================================================
Free Rent Tenant Improvements
=============== ======================= ====================================
New Leases 1997 0 months 1997 $8.00
Thereafter O months Growing Thereafter at 3.5%
Renewing Leases 1997 0 months 1997 $4.00
Thereafter O months Growing Thereafter at 3.5%
==============================================================================
-55-
Income Capitalization Approach
Assumptions Regarding Existing and Proposed Leases
Our analysis specifically assumes that all of the existing tenants will
remain in the property and continue to pay rent under the terms of their
leases. Information provided by management indicates that none of the tenants
are currently in default. The tenant base appears to be stable and management
has indicated that defaults are not anticipated.
With regard to lease expirations, we have projected that 60 percent of
tenants will rollover (sign a new lease) and approximately 40 percent will
turnover (allow their lease to expire and vacate the property) upon expiration
of their primary lease term. This assumption is based in large part on
management's projection of a near term retention rate which is based on their
knowledge and expertise in the market. Furthermore, we believe that this level
of retention can be achieved over a long term holding period.
Typical leases are three to ten years in duration. An examination of the
comparable leases shows an average term of about six years given a typical mix
of lease terms. Accordingly, we have assumed six year terms for speculative
tenants.
Vacancy between leases includes the period of actual downtime and the
construction period to build-out tenant spaces. Consistent with our
experience, we have assumed a stabilized vacancy and construction period of
nine months. We acknowledge that current time between tenants may be shorter,
though a long term trend may reflect fluctuations. Vacancy between leases is
weighted for the 40 renewal probability, resulting in an effective downtime of
four months (rounded) upon each lease expiration. On a six year average lease
term, this equates to 5.3 percent average physical vacancy (downtime of four
months divided by the downtime plus the 72 month average lease term)
Miscellaneous Income
Sources of miscellaneous income for the property include additional
charges for overtime HVAC, interest on security deposits, and other income
from additional services to the tenants. In 1996 there were $6,024 in
miscellaneous revenues, but none were projected in the owner's 1997 budget.
Typically, office buildings have some receipts in this category, and we have
included a stabilized $2,000 per year in our analysis. It is projected to grow
in the future at 2.0 percent annually.
Reimbursable Expenses (Escalations)
Tenants are responsible for their pro-rata share of real estate taxes
when taxes exceed those incurred during the first full year of their
occupancy. This type of escalation is typically also applied to operating
expenses in the majority of office buildings. The majority of current leases
in the subject property include an operating expense escalation, which
calculation may be summarized as follows:
Billing Year Operating Expenses
Less: Base Year Operating Expenses
Equals: Increase in Operating Expenses
Multiplied by: Tenant's Pro Rata Share
-56-
Income Capitalization Approach
We have assumed that future leases in the subject property will be on a
full service basis. Tenants will be responsible for the increase in operating
expenses and real estate taxes over the base calendar year amount.
Vacancy and Collection Loss
Our cash flow projection assumes a tenant vacancy of nine months upon
each lease expiration set against our probability of renewal estimated at 60
percent, in addition to a global credit loss provision applied to the gross
rental income. The global credit loss provision is applied to the gross rental
income from all tenants and is estimated at 2.0 percent throughout the holding
period.
All of the fourth floor is currently vacant, and it consists of two
demised suites totaling 19,872 square feet. We have absorbed the space in
October and December 1997 given that negotiations are currently underway for
both spaces.
Based on the subject's weighted average downtime between leases, as well
as the preceding absorption schedule for the subject property, the overall
average occupancy rate of the subject property over the 11 year holding period
is 95.5 percent. Including our overall credit loss allowance estimated at 2.0
percent, the implied overall vacancy and credit loss factor for the subject
property is 93.5 percent.
Operating Expenses
We have analyzed the reported operating expenses for 1996 and budgeted
expenses for 1997. The total expenses for 1995 were not available due to the
transfer of the property between owners in that year. We forecasted the
property's operating expenses after reviewing operating expenses of similar
buildings and after consulting local building managers and agents, including
Cushman & Wakefield property management personnel, etc. We also examined
industry norms as reported by the BOMA Experience Exchange Report published by
the Building Owners and Managers Association International, a nationally
recognized publication.
On the facing page is the income and expense analysis for the property.
The following analysis attempts to utilize the subject's historical operating
expense data supported by the comparable expense data. The age and unique
physical features of the subject warrant consideration of the subject's
historical expenses in estimating market operating expenses.
Following are the projected operating, recoverable and non-recoverable
expenses we have used in our cash flow analysis. We have analyzed each item of
expense individually and attempted to project what the typical informed
investor would consider reasonable. Although every expense category is
addressed herein, only those requiring explanation of variations will be
discussed in great detail.
The forecast of projected growth rates in all categories of expense
reflect typical investor expectations as noted in the Cushman & Wakefield
Investor Survey, which has been placed in the Addenda of this report. Except
where noted, our projected growth rates for the various types of expense
categories generally do not attempt to reflect growth rates for any individual
-57-
Income Capitalization Approach
year, but rather the long term trend over the period of analysis. Based on the
historical CPI trends, we concluded that our selected growth rate of 3.5
percent would fairly reflect an overall inflationary rate over the long term.
Recoverable Expenses
Real Estate Taxes
We discussed real estate taxes in a prior section. We used the current
tax amount and tax rate for 1997, stepped the total tax liability in 1998
for potential increases in assessments, and have it growing at 3.5
percent annually thereafter to keep pace with overall property value
increases in the market.
Operating Expenses
Operating expenses consist of property insurance, utilities, janitorial
services, repairs and maintenance, contract services for items such as
trash removal, landscaping, snow removal, elevator and HVAC maintenance,
etc. The total operating expenses were $4.10 per square foot in 1996 and
were projected in the 1997 budget at $4.24 per square foot, or a 3.4
percent increase. Comparables show operating expenses in the $3.50 to
$3.80 per square foot range for similar quality facilities, and the BOMA
experience report shows average costs of $4.12 per square foot and a low
mid range point of $3.72 per square foot. We have stabilized operating
expenses at a level consistent with the subject's recent history and the
trend at the comparables, or $4.15 per square foot. The estimate is
considered reasonable for stabilized operations.
Administrative and Other Operating Expenses
This fee includes recoverable administrative costs for administrative and
on-site maintenance personnel, rent collection, property supervision, and
budget preparation, as well as miscellaneous items such as accounting and
general office expenses (less the management fee). The expense has been
stable at $0.70 to $0.75 per square foot. Based on data from comparable
properties, we stabilized the 1997 cost at $0.75 per square foot.
Management Fees
This fee includes rent collection, property supervision, and budget
preparation. The current management agreement includes a fee of 2.5
percent of effective gross income. In conversations with local real
estate professionals, we have determined the management fees for
multi-tenant buildings are most commonly at the 2.5 to 3.5 percent level.
We have modeled the management fee at 3.0 percent of effective gross
income.
Non-Recoverable Expenses
Non-Recoverable Administrative Expenses
This expense category typically covers miscellaneous non-recoverable
expense items such as legal and advertising expenses. No non-recoverable,
non-capital expenses were identified for 1996 or in the 1997 budget. The
BOMA experience reports for this locale show an average of $0.25 per
square foot. Based on our experience with other such properties, we
stabilized the 1997 cost at $0.20 per square foot.
-58-
Income Capitalization Approach
Our projected expenses are predicated on the assumption that the property
will be prudently managed, while maintaining the improvements at a competitive
level to preserve value. The preceding cumulative annual operating expense
estimate for fiscal year 1997/98 equates to $1,068,738 ($7.08 per square foot
of net rentable area), excluding capital replacements, tenant alterations and
leasing commissions. This projection is up $0.25 per square foot from the 1996
actual expenses, or 3.7 percent.
Other Expenses
o Other operating expenses include Tenant Improvements, Leasing Commissions
and Reserves for Replacements. The probability of incurring future leasing
commissions and tenant improvements/finish is based on the following:
40 percent probability of turnover existing tenant vacates a space
and the space is released to a new tenant) and 60 percent
probability of rollover (an existing tenant relets his space).
Tenant Improvements/Finish - As previously noted, we have forecasted a
tenant finish allowance of $8.00 per square foot for new tenants in
second generation space, and $4.00 per square foot for renewals.
Therefore, upon the expiration of all leases, a weighted tenant
improvements allowances is applied to tenants upon expiration.
Application of the renewal probabilities results in a weighted average
tenant improvement allowance of $5.60 per square foot. Tenant
improvements/finish costs are projected to increase at the rate of 3.5
percent per year through the projection period.
Leasing Commissions - For the period under analysis, average leasing
commissions for all new leases are estimated to be 5.0 percent and 2.0
percent for renewals. The new lease commission rate reflects the fact
that a landlord will typically be charged a commission of 3.0 to 4.0
percent by the tenant's agent and 2.0 to 3.0 percent by the landlord's
agent. Upon renewal, landlords resist paying leasing commissions but
typically pay a portion of the full commission rate or a partial fee to
the management company for its assistance in working with the tenant.
Application of the renewal probabilities results in a weighted average
commission rate of 3.20 percent. The weighted average commissions are
applied to all expiring space and are not passed through to tenants.
Capital Replacements/Reserves - Reserves for replacements should be
(though as a practical matter, they may not be) set aside to accumulate
an amount sufficient to replace and/or repair certain major building
components, i.e., roof, HVAC system, etc. during the period under
analysis. Based on our inspection and conversations with the property
manager, the subject property appears to be in good condition overall. We
have estimated capital reserves of $0.15 per net rentable square foot for
1997, increasing by 3.5 percent per year throughout our analysis.
The expense growth rates incorporated in our projections result in a 3.4
percent annual compound growth rate over the holding period. This reflects a
partial year increase for the remainder of 1997, but a significant increase in
real estate taxes due to a projected bump in 1998.
-59-
Income Capitalization Approach
Discounted Cash Flow Analysis
In the discounted cash flow analysis, we employed the PRO-JECT+ plus
software which allowed us to simulate the operating characteristics of the
property and to make a variety of operating assumptions. We attempted to
reflect the most likely investment assumptions of typical buyers and sellers
in this particular market segment.
Discounted Cash Flow Assumptions
We used the following figures and assumptions in the computer model.
Years in Forecast: 12
Holding Period: 11
Starting Date: July 1, 1997
Market Rental Rate (Year 1) $21.00/sf
Annual Escalations: 3.0%
Miscellaneous Income: $2,000
Growth in Market Rental Rate: 3.5% per annum
Expense and Tax Pass-Throughs: Gross leases - tenants pay pro-rata
share of real estate tax and operating
cost increases over a base year
amount.
Expense Growth Rate: 1.75% at the end of 1997, 3.5%
thereafter
Consumer Price Index: 3.5% per annum
Free Rent (All leases) None
Lease Term (Typical): 6 years
Renewal Probability: 60%
Tenant Improvements - New Leases $8.00/SF
Tenant Improvements - Renewing Leases $4.00/SF
Leasing Commissions:
New Leases 5.0%
Renewal Leases 2.0%
Weighted Average 3.2%
-60-
Income Capitalization Approach
Vacancy Between Leases: 9 months (prior to renewal probability of
60%; effective vacancy is 4 months
Credit Loss: 2.0% (average; applies to all tenants).
Reversion Year: 2009 (12th fiscal year).
Reversion Cap Rate: 9.25% (applied to net operating income).
Reversion Selling Expenses: 2.5% (includes brokerage, legal fees and
estimated transfer taxes).
Discount Rate (IRR): 11.5% (see Discount Rate Analysis).
Cash Flow Projection
On the following page is our 12 year cash flow projections which include
our 11 year holding period and 12th year reversion. The cash flow reflects the
results of the PRO-JECT+ plus projection.
A terminal capitalization rate was used to estimate the market value of
the property at the end of the assumed investment holding period. We estimated
an appropriate terminal rate based on indicated rates in today's market.
The OARs for the comparable sales from which we were able to derive
capitalization rates ranged from 7.4 to 9.0 percent, with a median of 8.7
percent. Sales 2 and 4 had little projected turnover over the holding period
and are most typical of multi-tenant buildings in the market, like the subject
would be at the end of the holding period.
Cushman and Wakefield has surveyed national real estate investors for
their investment objectives as of the Winter of 1996. This information
includes parameters relative to going-in cap rates, terminal capitalization
rates, and IRRs for specific property types. A copy of this survey can be
found in the Addenda.
==================================================================================================
Cushman 8 Wakefield Investor Survey
Autumn 1996
Offices-Suburban/Non-CBD, Class-B--Leased Asset
==================================================================================================
Going-in Terminal Income Expense
Cap Rate Cap Rate IRR Growth Growth
================ ================ =============== ============ ==========
Overall Range 8.0-12.0 % 9.0-11.0 % 10.5 - 18.0 % 0.0-8.0 % 2.0-5.0 %
Average Low/
Average High 9.5 /10.0 % 9.8 / 10.2 % 12.0 / 12.5 % 3.4 / 4.5 % 3.4 / 3.7 %
==================================================================================================
The preceding table summarizes the investment parameters of some of the
most prominent investors currently acquiring investment-grade suburban,
non-CBD office properties in the United States. Generally speaking, our survey
reveals terminal capitalization rates of 8.0 to 12.0 percent with the average
low and high responses of 9.5 and 10.0 percent for investment grade Class B -
Leased offices in non-CBD suburban locations.
We also considered the Korpacz Real Estate Investor Survey for the First
Quarter 1997 for the National Suburban Office Market. It showed terminal cap
rates ranging from 8.25 to 11.0 with an average of 9.6 percent. The average
was down eight basis points compared to a year ago.
-63-
Income Capitalization Approach
A premium was added to today's rate to allow for the risk of unforeseen
events or trends which might affect our estimate of net operating income
during the holding period, including a possible deterioration in market
conditions for the property. Investors typically add 50 to 100 basis points to
the "going-in", rate to arrive at a terminal capitalization rate, according to
Cushman 8 Wakefield's periodic investor surveys. Based on the subject's age,
condition, and competitiveness at the end of the holding period, as well as
the high demand for office product in the Northern Virginia market, we would
conclude to a 9.0 to 9.5 percent reversionary capitalization rate, or say 9.25
percent.
Discount Rate Analysis
We estimated future cash flows, including property value at reversion,
and discounted that income stream at an internal rate of return (yield rates)
currently required by investors for similar-quality real property. The yield
rate (Internal rate of return or IRR) is the single rate that discounts all
future equity benefits (cash flows and equity reversion) to an estimate of net
present value.
Cushman & Wakefield Valuation Advisory Services periodically surveys
national real estate investors to determine their investment objectives.
Following is a brief review of internal rates of return, overall rates, and
income and expense growth rates considered acceptable by respondents.
==============================================================================
Autumn 1996 Investor Survey
==============================================================================
Going-ln Terminal IRR
Low High Low High Low High
======= ======== ======= ======= ======= ======= =
Mean 8.80% 9.50% 9.30% 9.90% 11.2% 11.6%
Range 8.00% 11.0% 8.00% 11.0% 10.0% 13.0%
==============================================================================
This table summarizes the investment parameters of some of the most
prominent investors currently acquiring good quality suburban office
properties in the United States. The entire survey is included in the Addenda
to this report, with a further breakdown of yield rates shown earlier.
The wide range of investment parameters indicates that property risk and
yield are assessed to a particular investment property based on a variety of
variables. Risk is the primary determinant, and the risk variables include
whether current contract rents are significantly above or below current market
rents; the amount and timing of tenant roll-overs; the risk to lease-up the
property and the strength of the market during the lease-up period; the
durability of the cash flow, and its ability to increase with inflation along
with the creditworthiness of the existing tenancy; investor demand for the
property type; the diversification of the metropolitan area; the property's
location within the local market and the supply and demand for the property
type within the market; and the effective age of the property.
-63-
Income Capitalization Approach
The investors' internal of return cited above range from 10.0 to 13.0
percent. In our analysis of this office building, we discounted the cash flows
at 11.5 percent.
The internal rate of return and terminal capitalization rate selected for
this analysis were strongly influenced by our recent Investor Survey. We
realize that this type of survey reflects target rather than transactional
rates. Transactional rates are usually difficult to obtain in the verification
process and are actually only target rates of the buyer at the time of sale.
The property's performance will ultimately determine the actual yield and
capitalization rate at the time of sale after a specific holding period. We
have found that, in improving markets or with above average properties, demand
will be high and transactional rates may be lower than target rates that are
quoted in surveys. We have tried to recognize this factor in our choice of
these two rates for our cash flow model.
Eleven-Year Cash Flow Analysis
Based on the discount rate selected above, we estimate property value at
$18,800,000, rounded. The valuation table is presented on the following page.
-65-
Greenwood Corporate Center
Fairfax, Virginia
Discounted Cash Flow Analysis
========================================================================================================
NET DISCOUNT PRESENT CASH ON
FISCAL CASH FACTOR @ VALUE OF COMPOSITION CASH
YEAR FLOW 11.50% CASH FLOWS OF YIELD RETURN
========================================================================================================
1998 $ 320,537 X 0.896861 = $287,477 1.53% 1.71%
1999 $ 1,712,712 X 0.804360 = $1,377,636 7.33% 9.12%
2000 $ 1,899,479 X 0.721399 = $1,370,282 7.29% 10.11%
2001 $ 1,848,367 X 0.646994 = $1,195,883 6.37% 9.84%
2002 $ 2,246,256 X 0.580264 = $1,303,422 6.94% 11.96%
2003 $ 2,346,632 X 0.520416 = $1,221,225 6.50% 12.49%
2004 $ 1,820,753 X 0.466741 = $849,820 4.52% 9.69%
2005 $ 2,189,598 X 0.418602 = $916,570 4.88% 11.66%
2006 $ 1,938,752 X 0.375428 = $727,861 3.87% 10.32%
2007 $ 2,407,448 X 0.336706 = $810,603 4.31% 12.82%
2008 $ 1,417,881 X 0.301979 = $428,170 2.28% 7.55%
Total Present Value of Cash Flows $10,488,949 55.83% 9.75%
Average
Reversion:
2009 * $2,606,642 / 9.25% = $28,179,914
Less: Cost of Sale @ 2.50% = ($704.498)
-------------
Net Reversion = $27,475,416
X Discounted Factor = 0.301979
-------------
* Net Operating Income
Total Present Value-of Reversion $8,296,993 44.17%
-------
Total Present Value $18,785,942 100.00%
ROUNDED: $18,800,000
-------------
================================================================
Net Leasable Area (S.F.): 150,961
Per Square Foot of Net Rentable Area $124.54
Implicit Going-in Capitalization Rate:
Year One NOI ( 12 Months ) $1,491,024
NOI Annualized $1,491,024
Going-In Cap Rate 7.93%
================================================================
========================================================================================================
Income Capitalization Approach
Reconciliation Within Income Capitalization Approach
Using the above indicated rates of return, our cash flow model indicated
a value of $18,800,000, rounded, or $124.54 per square foot, as shown on the
preceding page. This value estimate produces a very high implied going-in
capitalization rate of 7.9 percent, which falls at the low end of the range
generally required by investors as noted in the Cushman & Wakefield Investor
Survey. As discussed earlier, going-in rates derived from the comparable sales
were mostly between 8.5 and 9.0 percent. The primary factors impacting the low
going-in rate are that the property's current tenancy includes a few tenants
paying rent that is $4 to $8 per square foot less than market, as well as
there being near term tenant improvement costs and commissions to be paid for
the new tenants leasing up the remaining vacant space. Given these items, an
implied going-in rate below those of the sales is logical, as it reflects the
property's near term upside potential.
Regarding the composition of the yield, as analyzed in the Discounted
Cash Flow Analysis chart, 56 percent of the subject's ultimate yield is
derived from the cash flow of the property with the balance attributable to
the reversion or resale of the property at the conclusion of the holding
period. Typical investor requirements dictate that a substantial amount of the
value be derived from the cash flow. Greater risk would be evident when the
reversion provides a larger percentage of the overall return than the cash
flows. In this instance, the relationship is consistent with investor
expectations.
Thus, it is our opinion that the prospective market value of the
property, as of July 1, 1997, by the Income Capitalization Approach,
$18,800,000 which equates to $124.54 per square foot of net rentable building
Value Indicated by Discounted Cash Flow Analysis: $18,800.000
-67-
Reconciliation and Final Value Estimate
We have considered all of the traditional approaches to estimating market
value of commercial real estate in our analysis. Two of the three traditional
approaches were utilized, indicating the following values for the subject
property.
Sales Comparison Approach $18,900,000 to $19,600,000
Income Capitalization-Approach $18,800,000
The three traditional methods of estimating the market value of
commercial real estate are not mutually exclusive approaches to deriving an
estimate of most probable selling price, but are inter-dependent
methodologies, each relying on components from at least one of the other
approaches. Hence, the Cost Approach requires extensive market data to derive
estimates of depreciation and to determine the value of land as if vacant.
This approach may also require income data in order to make adjustments for
functional and economic obsolescence. The Sales Comparison Approach requires
application of methods from the Income Capitalization Approach in order to
make adjustments for differences in income that have influenced the sale
price. Consideration of market data is also required for the Income
Capitalization Approach in the selection and application of equity,
capitalization and discount rates, and estimation of income and expenses.
Consequently, it is our opinion that purchasers and sellers, at least
intuitively, consider components of all three approaches in the process of
negotiating an acceptable price for a particular property.
It is the Income Capitalization Approach, however, that is logically
considered the most appropriate technique for estimating the value of
income-producing property. Not only does this approach represent the most
direct and accurate simulation of market behavior, it is the method explicitly
employed by buyers and sellers in acquisition and disposition decisions.
Therefore, following the implied dictum of the market, we have used an
approach based primarily on projected income as the foundation for our
valuation of the subject property.
There are several additional reasons why the Sales Comparison Approach
does not form the primary basis of our value estimate for the subject
property. The quantity and quality of market information inhibits the use of
the Sales Comparison Approach. Inadequacy of information regarding gross and
net income, lease details and expenses of comparable sales often deters
accurate and relevant adjustments of unit price indicators. Comparison at a
dollar per square foot level precludes the analysis of those key factors which
form the basis for projections on which the purchase decision was made.
In light of the above, we are of the opinion that the prospective market
value of the leased fee estate in the property, as of July 1, 1997, is:
THIRTEEN MILLION EIGHT HUNDRED THOUSAND DOLLARS
$18,800,000
-68-
Reconciliation and Final Value Estimate
Marketing Time
Marketing time is an estimate of the time that might be required to sell
a real property interest at the appraised value. Marketing time is presumed to
start on the effective date of the appraisal. (Marketing time is subsequent to
the effective date of the appraisal and exposure time is presumed to precede
the effective date of the appraisal.) The estimate of marketing time uses some
of the same data analyzed in the process of estimating reasonable exposure
time and it is not intended to be a prediction of a date of sale.
We believe, based on the assumptions employed in our analysis, as well as
our selection of investment parameters for the subject, that our value
conclusions represent a price achievable within one year's marketing time on
the open market.
-69-
Assumptions and Limiting Conditions
"Appraisal" means the appraisal report and opinion of value stated therein; or
the letter opinion of value, to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the
Appraisal.
This appraisal is made subject to the following assumptions and limiting
conditions:
1. No opinion is intended to be expressed and no responsibility is assumed
for the legal description or for any matters which are legal in nature or
require legal expertise or specialized knowledge beyond that of a real
estate appraiser. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens
unless otherwise stated. No survey of the Property was undertaken.
2. The information contained in the Appraisal or upon which the Appraisal is
based has been gathered from sources the Appraiser assumes to be reliable
and accurate. Some of such information may have been provided by the
owner of the Property. Neither the Appraiser nor COW shall be responsible
for the accuracy or completeness of such information, including the
correctness of estimates, opinions, dimensions, sketches, exhibits and
factual matters.
3. The opinion of value is only as of the date stated in the Appraisal.
Changes since that date in external and market factors or in the Property
itself can significantly affect property value.
4. The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal.
Publication of the Appraisal or any portion thereof without the prior
written consent of C&W is prohibited. Except as may be otherwise stated
in the letter of engagement, the Appraisal may not be used by any person
other than the party to whom it is addressed or for purposes other than
that for which it was prepared. No part of the Appraisal shall be
conveyed to the public through advertising, or used in any sales or
promotional material without C&W's prior written consent. Reference to
the Appraisal Institute or to the MAI designation is prohibited.
5. Except as may be otherwise stated in the letter of engagement, the
Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
-70-
Assumptions and Limiting Conditions
6. The Appraisal assumes (a) responsible ownership and competent management
of the Property; (b) there are no hidden or unapparent conditions of the
Property, subsoil or structures that render the Property more or less
valuable (no responsibility is assumed for such conditions or for
arranging for engineering studies that may be required to discover them);
(c) full compliance with all applicable federal, state and local zoning
and environmental regulations and laws, unless noncompliance is stated,
defined and considered in the Appraisal; and (d) all required licenses,
certificates of occupancy and other governmental consents have been or
can be obtained and renewed for any use on which the value estimate
contained in the Appraisal is based.
7. The physical condition of the improvements considered by the Appraisal is
based on visual inspection by the Appraiser or other person identified in
the Appraisal. C&W assumes no responsibility for the soundness of
structural members nor for the condition of mechanical equipment,
plumbing or electrical components.
8. The forecasted potential gross income referred to in the Appraisal may be
based on lease summaries provided by the owner or third parties. The
Appraiser has not reviewed lease documents and assumes no responsibility
for the authenticity or completeness of lease information provided by
others. C&W recommends that legal advice be obtained regarding the
interpretation of lease provisions and the contractual rights of parties.
9. The forecasts of income and expenses are not predictions of the future.
Rather, they are the Appraiser's best estimates of current market
thinking on future income and expenses. The Appraiser and C&W make no
warranty or representation that these forecasts will materialize. The
real estate market is constantly fluctuating and changing. It is not the
Appraiser's task to predict or in any way warrant the conditions of a
future real estate market; the Appraiser can only reflect what the
investment community, as of the date of the Appraisal, envisages for the
future in terms of rental rates, expenses, supply and demand.
10. Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance of the improvements or may be located at or about the
Property was not considered in arriving at the opinion of value. These
materials (such as formaldehyde foam insulation, asbestos insulation and
other potentially hazardous materials) may adversely affect the value of
the Property. The Appraisers are not qualified to detect such substances.
C&W recommends that an environmental expert be employed to determine the
impact of these matters on the opinion of value.
11. Unless otherwise stated in the Appraisal, compliance with the
requirements of the Americans With Disabilities Act of 1990 (ADA) has not
been considered in arriving at the opinion of value. Failure to comply
with the requirements of the ADA may adversely affect the value of the
property. C&W recommends that an expert in this field be employed.
-71-
Certification of Appraisal
We certify that, to the best of our knowledge and belief:
1. Steven A. Studabaker, MAI, inspected the property and wrote the report.
Donald R. Morris, MAI, Manager, Cushman & Wakefield of Washington D.C.,
Valuation Advisory Services, also inspected the property and has reviewed
and approved the report.
2. The statements of fact contained in this report are true and correct.
3. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
4. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
5. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event. The appraisal assignment was not
based on a requested minimum valuation, a specific valuation or the
approval of a loan.
6. No one provided significant professional assistance to the persons
signing this report.
7. Our analyses, opinions and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation and the Code
of Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. As of the date of this report, Steven A. Studabaker, MAI, and Donald R.
Morris, MAI, have completed the requirements of the continuing education
program of the Appraisal Institute.
10. It is our opinion that the estimated prospective market value of the
subject property, in as-is condition, as of the effective date of the
appraisal, July 1, 1997, was $18,800,000.
DRAFT
Steven A. Studabaker, MAI
Virginia Certified General Appraiser No. 4001-001111
DRAFT
Donald R. Morris, MAI
Virginia Certified General Appraiser No. 4001-002465
-72-
Addenda
Addenda
Legal Description
Legal Description
[MAP]
[GRAPHIC OMITTED]
LEGATO ROAD STATE ROUTE 658
LEGAL DESCRIPTION - PARCEL 1
BEGINNING AT A POINT in the intersection of Legato Road (State Route 656) and
Interstate Route 66: THENCE with the east line of Legato Road N 40 degrees 48'
00" W, 122.40 feet to a point; THENCE 07 degrees 36' 34" E, 370.29 feet to a
point; WITH the arc of a curve to the right whose radius is 4940.00 feet, chord
is 128.95 feet, chord bearing is N 08 degrees 21' 26" E, for a distance of
128.95 feet to a point; THENCE N 09 degrees 06' 18" E, 298.57 feet to a point;
THENCE departing said road and running with the land of Sears, Roebuck Company
and the land of Fairfax Associates the following courses and distances:
WITH the arc of a curve to the right whose radius is 39.00 feet, chord is 29.10
feet, chord bearing is N 77 degrees 11'55" E, for a distance of 29.82 feet to a
point; THENCE S 80 degrees 53' 42" E, 23.21 feet to a point; WITH the arc ofa
curve to the left whose radius is 191.00 feet, chord is 94.63 feet, chord
bearing in N 84 degrees 45' 42" E, for a distance of 95.63 feet to a point;
THENCE N 70 degrees 25' 05" E, 4.54 feet to a point; WITH the arc of a curve to
the right whose radius is 39.00 feet, chord is 52.90 feet, chord bearing is S 66
degrees 52' 48" E, for a distance of 58.13 feet to a point; WITH the arc of a
curve to the left whose radius is 897.00 feet, chord is 52.40 feet, chord
bearing is S 25 degrees 51' 05" E, for a distance of 52.40 feet to a point;
THENCE 39 degrees 34' 03" W, 241.06 feet to a point; WITH the arc of a curve to
the left whose radius is 451.00 feet, chord is 630.78 feet, chord bearing is S
42 degrees 31' 09" E, for a distance of 698.55 feet to a point; THENCE S 13
degrees 40' 41" E, 50.22 feet to a point in the north line of Interstate Route
66;
THENCE with said Route 66, S 76 degrees 19' 19" W, 506.00 feet to a point,
and S 80 degrees 53' 05" W, 50.06 feet to the point of beginning and containing
5.1436 acres, more or less.
PREPARED BY: Harold A. Logan Associates, P.C.
October 17, 1995
Legal Description
Addenda
Improved Sales Comparables
Office Building Offering
I-1 Sale
Building Name: Centerpointe I and 11
Location: 4000 and 4050 Legato Road
Fairfax, Fairfax County, VA
Grantor: Joshua Realty Corporation
(GE Investments)
Grantee: Beacon Properties
Date of Offering: June 1996
Recording Data: Deed Book 9986, Page 825
Recording Date: 05/O1/97
Physical Description:
Land Area: 17.00 Acres
Net Rentable Area: 408,111 Square Feet
Year Built: Circa 1988
Occupancy at Sale: 100 %
Parking: Structured; 3.6/1000
Quality: Excellent
Construction: Masonry and Glass
Stories: 11
Sale Price: $55,000,000
Terms of Sale: All Cash to Seller
Purchaser is a REIT
Sale Price/Square Foot (RSF): $134.77
Centerpointe I: 203,630 SF NRA, Yr Built: 1988
Centerpointe II: 204,481 SF NRA, Yr Built: 1990
COMMENTS:
This is the sale of two, Class A suburban office buildings located at
the intersection of West Ox Road and Legato Road, just south of US Route 50.
The buildings are 100 percent occupied by American Management Systems (203,630
and 69,585 SF), QSI (28,359 SF), Fujitsu (20,336 SF) and others. Lease
rollover exposure occurs in 1997, 1999 and 2007. The price is based on IRRs in
the 11.0 to 11.5
Office Building Offering
I-1 Continued
percent range. Asking rents in the market are between $18.00 and $20.00 per
square foot. The contract price is $8,000,000 below the initial asking, or
a 13% discount.
DCA4-2581
Office Building Sale
==============================================================================
I-2 Sale
Building Name: 8280 Greensboro Drive
Location: 8280 Greensboro Drive
McLean, Fairfax County, VA
Parcel Number: 029-3-15-0010-A
Grantor: Tysons Corner Limited Partner-
ship (Balcor)
Grantee: Gateway Costal Properties, Inc
(RREEF)
Date of Sale: 04/23/97
Recording Data: Deed Book 9978, Page 446
Recording Date: 04/23/97
Physical Description:
Land Area: 115,140 Square Feet
2.64 Acres
Net Rentable Area: 205,341 Square Feet
Year Built: 1985
Parking: 547 spaces
Construction: Steel frame; reflective glass
Zoning: C4, Fairfax county
Stories: 9
Sale Price: $30,000,000
Terms of Sale: Cash to Seller
Appraisal Indicators:
Overall Rate (OAR): 8.75%
Sale Price/Square Foot (RSF): $146.10
Number of Tenants: 24; largest = Deltek Systems (25%)
Legal Description: Lot 10A, Section 4, Leasco Office Park
COMMENTS:
This is the sale of a 9-story, Class A-, reflective glass
office building built in 1985 and located in one of the
Office Building Offering
I-2 Continued
prime office neighborhoods in Tysons Corner, Virginia. The buyer would not
divulge any detailed financial information on the property outside of the
following data:
The price equated to a going-in capitalization rate of about 8.75 percent.
The purchaser's target yields (IRRs) for this market are between 10.75% for
Class A, top of the market buildings with long term, stable income, and
12.0% for Class A-/B + buildings with below market existing rents.
They are no longer assuming any major spikes in rent growth due to the
anticipated new construction that will be delivered in the next 9 to 12
months.
They do examine replacement costs as a test of reasonableness regarding the
spread between their acquisition relative to new product delivered at
market rent levels.
DCA4-4284
Office Building Sale
==============================================================================
I-3 Sale
Building Name: Tysons Office Center
Location: 8133 Leesburg Pike
Vienna, Fairfax County, VA
Parcel Number: 039-2-02-0041,0042
Grantor: Tysons Office Center Limited
Partnership (VIB Management
Grantee: Tysons Office Center, Inc.
(Invesco)
Date of Sale: 04/16/97
Recording Data: Deed Book 9973, Page 1212
Recording Date: 04/16/97
Physical Description:
Land Area: 112,398 Square Feet
2.58 Acres
Net Rentable Area: 142,000 Square Feet
Year Built: 1981
Occupancy at Sale: 100 %
Parking: 358 spaces
Construction: Steel frame, reflective glass
Zoning: C3, Fairfax County
Stories: 9
Sale Price: $ 16,000,000
Terms of Sale: Cash to Seller
Appraisal Indicators:
Overall Rate (OAR): 8.4%
Discount Rate (IRR): 12.0%
Sale Price/Square Foot (RSF): $112.68
Parking Ratio: 2.5 per 1,000 SF
Tenant Turnover: 60-65% in 3 Years
Average Rents: $3.00 to $3.50/SF Below Market
Rent Growth: 5%, 5%, 3.5% thereafter
==============================================================================
Office Building Sale
I-3 (Continued)
COMMENTS: This is the sale of a Class B office building built in 1981 and
located in the popular Tysons Corner submarket. The property was in good
condition at the time of sale. The sellers recently spent about $3.0M on
renovating the lobbies, restrooms, and on a new roof and mechanical upgrades.
The buyers indicated that the building was 100 percent occupied at the time of
sale but was subject to 60 to 65% tenant turnover in the first three years of
ownership. These tenants had rents averaging around $16.50/SF compared to
$20/SF for market rents. Hence, the buyer saw this as an opportunity to roll
up a lot of below market leases, move them to market rents, and sell the
property in four to seven years at a price that would still be attractive to
the next owner. Because there is risk associated with this type of effort, and
particularly because there is new construction being planned for competing
markets, the buyer used a slightly higher IRR of 12.0 percent, compared to
IRRs closer to 11.0% for their acquisition of Class A properties. The buyer
also reported expenses of approx $7.00/SF.
DCA4-4286
Office Building Sale
==============================================================================
I-4 Sale
Building Name: Camron Office Park-Building I
Location: 3601 Eisenhower Avenue
Alexandria, VA
Parcel Number: 070.00-01-07
Grantor: #1 Radnor Camron Run L.P.
Robert Buchanan-Buchanan Assoc
Grantee: Camron Run L.L.C.
Robert E. Dewitt
Date of Sale: 10/14/96
Recording Data: Deed Book 1584, Page 726
Recording Date: 10/14/96
Physical Description:
Land Area: 186,437 Square Feet
4.28 Acres
Gross Building Area: 151,442 Square Feet
Net Rentable Area: 143,707 Square Feet
Year Built: 1991
Occupancy at Sale: 95 %
Parking: 2.4 per 1000 SF
Quality: Good
Construction: Concrete and steel frame
Zoning: OCM100, Alexandria
Stories: 6
Sale Price: $ 15,400,000
Terms of Sale: Financing provided by MetLife
for $10,500,000 at market
terms
Economic Indicators:
Effective Gross Income: $2,210,171 Buyer's Proforma
Less: Operating Expenses: $898,168 Buyer's Proforma
Net Operating Income: $ 1,312,003 Buyer's Proforma
Appraisal Indicators:
Effective Gross Inc. Mult.: 6.97
==============================================================================
Office Building Sale
==============================================================================
14 Continued
Overall Rate (OAR): 8.52%
Sale Price/Square Foot (GSF): $101.69
Sale Price/Square Foot (RSF): $ 107.16
Operating Expense Ratio 40.6%
COMMENTS: This is the sale of an office building situated in the
Hungtington/Eisenhower submarket in Alexandria. The property fronts the north
side of Eisenhower Avenue and has good access and some visibility to
Interstate 95/395 (Beltway).
The building was 95 percent leased to 12 tenants. There was one tenant who
occupied 10 percent of the building which is scheduled to rollover in the
first year of the holding period, however, this tenant has recently renewed.
There is signifcant rollover risk in 1999 and 2000 when 35 and 48 percent of
the leases expire. According to the buyer, this was not viewed as
substantially troublesome because of the current and anticipated strength of
the submarket.
The property was listed for $15,500,000 and was on the market for less than
six months.
DCA4-4022
Office Building Sale
==============================================================================
I-5 Sale
Building Name: The Nortel Building
Location: 2010 Corporate Ridge
McLean, Fairfax County, VA
Parcel Number: 39-2-1-62A
Grantor: Northern Telecom, Inc.
Grantee: Acquiport Corporate Ridge, Inc
(Equitable Real Estate)
Date of Sale: 08/01/96
Recording Data: Book 9776 Page 126
Recording Date: 08/07/96
Physical Description:
Land Area: 288,090 Square Feet
6.61 Acres
Net Rentable Area: 252,315 Square Feet
Year Built: 1989
Occupancy at Sale: 100 %
Parking: 4.0 per 1,000
Quality: Good
Construction: Limestone and glass
Zoning: PDC, Planned Dev. Commercial
Stories: 10
Sale Price: $35,000,000
Terms of Sale: All Cash to Seller
Cash Equivalent
Economic Indicators:
Effective Gross Income: $5,261,200 Buyer's Proforma
Less: Operating Expenses: $1,766,200 Buyer's Proforma
Net Operating Income: $3,495,000 Buyer's Proforma
Appraisal Indicators:
Effective Gross Inc. Mult.: 6.65
Overall Rate (OAR): 10.01%
Discount Rate (IRR): 11.75%
Sale Price/Square Foot (RSF): S138.72
==============================================================================
Office Building Sale
==============================================================================
I-5 Continued
Lease Expirations: 7% 1996, 11% 1998, 14% 1999, 11% 2001
Rent Growth: 6 % 1996, 1997, 1998
Major Tenant: Nortel: 144,879 SF, $19.65/SF, $3/SF Yr6
Estimated Market Rent At Sale: $20.00/SF
COMMENTS: This is the sale of a Class A building in the Tysons Corner
submarket. The seller occupies 144,879 square feet (57 percent) of the
building at a lease rate of $19.65 per square foot, full service, with an a
rent step of $3.00 per square foot in year 6. There are no commissions or
tenant improvements paid on the new lease. The balance of the building is
leased to five credit-worthy tenants. The building features a cafeteria and
fitness center. The income durability is good, with limited rollover through
the year 2001. The stabilized capitalization rate of 10.01 percent is derived
from the buyer's proforma. Their indicated cash-on-cash return was 9.1
percent. The buyer indicated that they were not the highest bidder on this
sale-leaseback transaction, but were finally selected based on their ability
to manage the building. Thus the transaction price per square foot is
considered somewhat low, and the return and yield rates high. The listing
broker reported an exposure time of less than three months.
The purchaser reported rent growth of 6% in years 1996 through 1998, and 4%
thereafter, and basing the acquisition on an 11.75% IRR.
DCA4-4023
Office Building Offering
I-6 Sale
Building Name: Reston Plaza I & 11
Location: 12020 and 12030 Sunrise Valley
Drive
Reston, Fairfax County, VA
Parcel Number: 017-3-08-0003-B1 and B2
Grantor: Aetna Life Insurance Company
Grantee: Reston Plaza Office LLC
(LaSalle Advisors)
Date of Sale: 07/25/96
Recording Data: Deed Book 9762, Page 1986
Recording Date: 07/25/96
Physical Description:
Land Area: 205,795 Square Feet
4.72 Acres
Net Rentable Area: 126,557 Square Feet
Year Built: 1985
Occupancy at Sale: 100 %
Parking: 2.9/1,000 SF, Surface
Quality: Average
Construction: Concrete and Steel
Zoning: 14, Fairfax County
Stories: 3
Sale Price: $13,650,000
Terms of Sale: All Cash to Seller
Considered Cash Equivalent
Economic Indicators:
Effective Gross Income: $1,990,000 Actual
Less: Operating Expenses: $980,000 Estimate
Net Operating Income: $1,010,000 Estimate
Appraisal Indicators:
Effective Gross Inc. Mult.: 6.86
Overall Rate (OAR): 7.4%
Sale Price/Square Foot (RSF): $107.86
==============================================================================
Office Building Sale
I-6 Continued
Operating Expense Ratio: 49.2%
COMMENTS:
This is the sale of two, 100 percent occupied, good quality, office
buildings situated at the northeast quadrant of Sunrise Valley Drive and
Edmund Halley Drive in Reston. At the time of sale, there was about 1,700
square feet of space available. The average lease rate was reported at
$15.20/SF in Building I and $16.00/SF in Building II, full service.
Contract rents were well below market at the time of sale. There was some
other income from parking and expense recoveries were projected by the
seller at $80,000 in 1996, dropping to $20,000 in 1997 due to non-recurring
circumstances. Thus, we have estimated the net operating income at mid-year
1996 to be about $1,010,000.
The seller reported included proforma rent escalations of 6%, 5%, 4% and 3%
thereafter for 1996 on. Their internal valuations applied a 12.0% IRR, but
this was acknowledged to be conservative compared to today's market.
DCA4-4030
Office Building Sale
I-7 Sale
Building Name: Executive Park III
Location: 1850 Centennial Park Drive
Reston, Fairfax County, VA
Parcel Number: Tax Map 017-4-12-0011 -D4
Grantor: AETNA Life Insurance Company
Grantee: Massachusetts Mutual Life
Insurance Company
Date of Sale: 05/31/96
Recording Data: Deed Book 9716 Page 484
Recording Date: 05/31/96
Physical Description:
Land Area: 231,270 Square Feet
5.31 Acres
Gross Building Area: 104,620 Square Feet
Net Rentable Area: 104,620 Square Feet
Year Built: 1985
Occupancy at Sale: 100 %
Parking: 322 spaces or 3.1 per 1,000 SF
Quality: Excellent
Construction: Brick
Zoning: 13, Fairfax County
Stories: 6
Sale Price: $ 12,200,000
Terms of Sale: Cash to Seller; no major
capital repairs needed.
Economic Indicators:
Effective Gross Income: $1,771,400 Actual
Less: Operating Expenses: $711,400 Actual
Net Operating Income: $1,060,000 Actual
Appraisal Indicators:
Effective Gross Inc. Mult.: 6.89
Overall Rate (OAR): 8.7%
Sale Price/Square Foot (GSF): $116.61
==============================================================================
Office Building Sale
I-7 Continued
Sale Price/Square Foot (RSF): $116.61
Average Rents at Sale: $15.10/SF
Seller's Market Rent Estimate: $18.50/SF
Tenant Turnover {1996-2000): 2%, 9%, 6%, 26%, 33%
COMMENTS:
This is the sale of an attractive, six-story, Class A office building,
known as Executive Park III, in Reston, Fairfax County, Virginia. The
building was 100 percent occupied in March of 1996. The largest tenant is
PHP. Average rent in the building is $15.10 per square foot; this is below
the seller's estimate of market rent of $ 18.50 per square foot. Operating
expenses are estimated to be $6.80 per square foot.
There is an underground storage tank that was tested and did not leak. No
impact on value.
DCA4-4045
Addenda
Rent Roll Supplied by Management
[LOGO] CB
COMMERCIAL
====================================================================================================================================
GREENWOOD CENTER
RENT ROLL
MAY 1997
====================================================================================================================================
BASE CHANGE EXPENSE RENT CONTACT
TENANT SUITE NRSF COMMENCE EXPIRES RENT DATE STOP ESCALATION NUMBER
====================================================================================================================================
MANTECH (1ST FLOOR) 100 524 06/01/92 05/31/97 $12.17 N/A $5.62 3% per annum Ernie
Crenshaw
218-6000
------------------------------------------------------------------------------------------------------------------------------------
INTELISYS INC. 110 3,283 01/06/95 12/31/98 $14.68 01/01/98 $6.24 3% per annum Jeff Gee
3,047 06/01/95 12/21/98 $14.68 01/01/98 $6.24 3% per annum 385-0347
-----
Total 6,330
------------------------------------------------------------------------------------------------------------------------------------
CB COMMERCIAL
MANAGEMENT OFFICE Bernie
130 1,640 N/A N/A N/A N/A N/A N/A Grace
273-3060
------------------------------------------------------------------------------------------------------------------------------------
VACANT 140 1,532 N/A N/A N/A N/A N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
FAIRFAX FAMILY PRACTICE 200 7,968 09/01/96 08/31/06 $15.50 09/01/97 $5.95 3% per annum Vicky
Jubanowsky
218-3500
------------------------------------------------------------------------------------------------------------------------------------
210 9,033 05/27/94 05/26/00 $12.58 06/01/97 $5.77 3% per annum Sharon
500 19,872 Synan
------
WALCOFF & ASSOCIATES Total 28,905 934-9848
------------------------------------------------------------------------------------------------------------------------------------
EASTERN TELECOM Matt
Eveland
220 2,452 10/01/96 09/30/97 $15.09 N/A $6.24 N/A 934-2720
------------------------------------------------------------------------------------------------------------------------------------
MANTECH - EXPANSION 6th floor 2,514 09/01/93 05/31/97 $14.68 N/A N/A 3% per annum see suite
100
------------------------------------------------------------------------------------------------------------------------------------
MANTECH various 97,190 06/01/92 05/31/97 $12.54 N/A $5.62 3% per annum see suite
100
------------------------------------------------------------------------------------------------------------------------------------
TOTAL NET REHAB. AREA 148,955 (PER LEASE)
==============================================================
STORAGE AND OTHERS
------------------------
ENGINEER/JANITORIAL OFF 150 1,060
------------------------------------------------------------------------------------------------------------------------------------
BREAKROOM 946 OCCUPIED 149,429 95.99%
------------------------------------------------------------------------------------------------------------------------------------
TOTAL STORAGE AREA 2,006 VACANT 1,532 1.01%
------------------------------------------------------------------------------------------------------------------------------------
TOTAL 160,961 100%
------------------------------------------------------------------------------------------------------------------------------------
GROSS LEASEABLE AREA 150,951
====================================================================================================================================
================================================================================
SUBSIDIARY PUB. TRADED
TENANT PARENT CO. MARK SYMBOL
================================================================================
MANTECH (1ST FLOOR) NO
NO N/A
N/A N/A
--------------------------------------------------------------------------------
INTELISYS INC. NO NO
N/A N/A
N/A
--------------------------------------------------------------------------------
CB COMMERCIAL
MANAGEMENT OFFICE
N/A N/A
--------------------------------------------------------------------------------
VACANT N/A N/A
--------------------------------------------------------------------------------
FAIRFAX FAMILY PRACTICE NO
NO N/A
N/A N/A
--------------------------------------------------------------------------------
NO NO
N/A N/A
WALCOFF & ASSOCIATES N/A
--------------------------------------------------------------------------------
EASTRER TELECOM NO
NO N/A
N/A N/A
--------------------------------------------------------------------------------
MANTECH - EXPANSION see suite 100 see suite
100
--------------------------------------------------------------------------------
MANTECH see suite 100 see suite
100
--------------------------------------------------------------------------------
Addenda
Pro-Ject +plus Assumption Reports
GREENWOOD CENTER
PROJECT DESIGNATOR: 7112
REVISION: 6/21/97 @ 18:18
TENANT REGISTER
TENANT SQUARE FEET BEGIN DATE END DATE
---------------------------------------- ----------- ---------- --------
# 1 - SUITE 100 MANTECH 4,104 6/1997 5/2007
# 2 - SUITE 110 INTELISYS 6,330 6/1995 12/1998
# 3 - SUITE 150 BREAK ROOM / STORG 2,394 1/1997 12/2016
# 4 - SUITE 200 FAIRFAX FAMILY 7,968 9/1996 8/1997
# 5 - SUITE 220 EASTERN TELECOM 2,452 6/1993 9/1997
# 6 - SUITE 250 VERSATILITY 9.033 7/1997 12/2004
# 7 - SUITE 300 AEROTEK 19,596 8/1997 7/2003
# 8 - SUITE 400 VACANT 8,596 12/1997 11/2003
# 9 - SUITE 450 VACANT 11,000 10/1997 9/2005
# 10 - SUITE 500 WALCOFF & ASSOCIAT 19,872 5/1994 5/2000
# 11 - SUITE 600 MANTEC 19,872 6/1997 5/2007
# 12 - SUITE 700 LOGICON 19,872 7/1997 6/2007
# 13 - SUITE 800 MANTEC 19,872 6/1997 5/2007
---------
13 TENANTS 150,961
=========
PROPERTY TAXES , REFERRED TO AS TAX
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 185,901
1998 VALUE - 231,240
THEREAFTER - GROWING AT GROWTH AATE EXP1
MANAGEMENT FEES , REFERRED TO AS MGTI
AN INFORMATIONAL EXPENSE
1997 VALUE - 67,716
1998 VALUE - 86,911
1999 VALUE - 90,413
2000 VALUE - 93,786
2001 VALUE - 104,169
2002 VALUE - 108,324
2003 VALUE - 106,716
2004 VALUE - 111,767
2005 VALUE - 110,839
2006 VALUE - 120,362
2007 VALUE - 110,306
2008 VALUE - 130,233
2009 VALUE - 127,506
2010 VALUE - 139,025
2011 VALUE - 136,393
PERCENTAGE OF POTENTIAL GROSS INCOME
FOR ALL TENANTS SUBJECT TO VACANCY
1997 VALUE - 2.00
THEREAFTER - CONSTANT
MANAGEMENT FEE
PERCENTAGE OF EFFECTIVE GROSS INCOME
FOR ALL TENANTS
PASSED THROUGH TO TENANTS USING EXPENSE MGTI
1997 VALUE - 3.00
THEREAFTER - CONSTANT
COMMISSION CALCULATIONS
STANDARD METHOD #1 - 5.000% OF TOTAL RENT
STANDARD METHOD #2 - 2.000% OF TOTAL RENT
STANDARD METHOD #3 - 3.200% OF TOTAL RENT
STANDARD METHOD #4 - 0.000% OF TOTAL RENT
PAGE 6
STANDARD METHOD #5 - 0.000% OF TOTAL RENT
COMMISSION PAYOUTS
STANDARD METHOD #1 - CASHED OUT
STANDARD METHOD #2 - CASHED OUT
STANDARD METHOD #3 - CASHED OUT
STANDARD METHOD #4 - CASHED OUT
STANDARD METHOD #5 - CASHED OUT
ALTERATION CALCULATION
1997 VALUE - 0.00
1998 VALUE - 0-00
1999 VALUE - 0.0C
2000 VALUE - 0.00
2001 VALUE - 0-00
2002 VALUE - 0.00
2003 VALUE - 0.00
2004 VALUE - 0.00
2005 VALUE - 0.00
2006 VALUE - 0.00
2007 VALUE - 0-00
2008 VALUE - 0.00
2009 VALUE - 0.00
2010 VALUE - 0.00
2011 VALUE - 0.00
THEREAFTER - CONSTANT
ALTERATION PAYOUTS
STANDARD METHOD #1 - CASHED OUT
STANDARD METHOD #2 - CASHED OUT
STANDARD METHOD #3 - CASHED OUT
STANDARD METHOD #4 - CASHED OUT
STANDARD METHOD #5 - CASHED OUT
COMMON AREA MAINTENANCE POOL
NONE
CAPITAL EXPENDITURES
RESERVES
MARKET RATE RESR MULTIPLIED BY AREA MEASURE NRA
PERCENT OF RELATIVE
MONTH ANNUAL SALES VOLUME
----- ------------ ------
JAN 8.33% 1.00
FEB 8.33% 1.00
MM 8.33% 1.00
APR 8.33' 1.00
MAY 8.33% 1.00
JUN 8.33% 1.00
JUL 8.33% 1.00
AUG 8.33% 1.00
SEP 8.33% 1.00
OCT 8.33% 1.00
NOV 8.33% 1.00
DEC 8.33% 1.00
------ -----
TOTALS 100.00% 12.00
GLOBAL RECOVERIES
Base Year Expense, REFERRED TO AS BYES
PRO RATA SHARE RECOVERY OF EXPENSE BASE PRO RATED ON TENANT SQUARE FOOTAGE OVER
AREA MEASURE NRA CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
TENANT PROLOGUE
MINIMUM RENTS:
SPECIFIED AMOUNTS INTERPRETED AS AMOUNTS/SQUARE FOOTAGE
MARKET RATES INTERPRETED AS AMOUNTS/SQUARE FOOT/YEAR
SALES VOLUMES AND BREAKPOINTS:
SPECIFIED AMOUNTS INTERPRETED AS AMOUNTS/YEAR
MARKET RATES INTERPAETED AS AMOUNTS/SQUME FOOT/YEAR
RENEWAL RENTS ME COMPOUNDED ANNUALLY
RELETTING DOWNTIME AND EXPENSES ME NOT CONDITIONAL ON GOING TO MARKET
PAGE 8
REFERENCE TENANTS
NONE
GREENWOOD CENTER
PROJECT DESIGNATOR: 7112
REVISION: 6/21/97 @ 18:18
PROJECT ASSUMPTIONS REPORT
FOR TENANTS ONLY
INCLUDING ALL TENANTS
TENANTS
THERE ARE A TOTAL OF 13 LEASEHOLD TENANT(S):
# 1 - SUITE 100 , MANTECH
BASE LEASE DATS: 6/1997 TO 5/2007
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 4,104
MARKET RATE: MKTl
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - 19.80/SF/YR
THEREAFTER - GROWING AT 4.00%
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: 373,000
PAYOUT: CASHED OUT
ALTERATIONS: 12.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
# 2 - SUITE 110 , INTELISYS
BASE LEASE DATES: 6/1995 TO 12/1998
PAGE 2
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 6,330
MARKET RATE: MKTl
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 14.25/SF/YR
CHANGING TO - 14.57/SF/YR ON 1/1997
CHANGING TO - 15.12/SF/YR ON 1/1998
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
BASED ON AN ABSOLUTE PERCENTAGE OF 4.20%
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF 6.24/SF MULTIPLIED BY AREA MEASURE NRA
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
2 5.00 4 NONE NONE YES YES
3 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
--------------------------------------------------------------------------------
# 3 - SUITE 150 , BREAK ROOM / STORG
BASE LEASE DATES: 1/1997 TO 12/2016
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 2,394
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 0.00/SF/YR
RECOVERIES: NONE
COMMISSIONS: NONE
ALTERATIONS: NONE
PAGE 3
SPECULATIVE RENEWALS: NONE
# 4 - SUITE 200 , FAIRFAX FAMILY
BASE LEASE DATES: 9/1996 TO B/1997
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 7,968
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
l998 VALUE - 16.50/SF/YR
THEREAFTER - GROWING AT 3.00%
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF 5.95/SF MULTIPLIED BY AREA MEASURE NRA
COMMISSIONS: NONE
ALTERATIONS: NONE
OPTION 1 DATES: 9/1997 TO 8/2006
SQUARE FOOTAGE: 10,420
MINIMUM RENT:
INITIAL RENT - 17.00/SF/YR
CHANGING TO - 17.50/SF/YR ON 9/2001
WITH 2 MONTHS OF FREE RENT
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPEl PRO RATED ON TENANT SQUARE FOOTAGE OVER
AREA MEASURE NRA CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF 5.95/SF MULTIPLIED BY AREA MEASURE NRA
CPI ADJ INDEX: IND3
CPI RENTAL ADJUSTMENT BASED ON AN INDEX OF MARKET RATE IND3
WITH A BASE OF THE INDEX VALUE IN THE OCCUPANCY YEAR
ACTING ON 100.00% OF THE OCCUPANCY YEAR BASE RENT
WITH A COMPOUNDED CAP OF 3.00%
AND CONTINUOUS ANNUAL GROWTH
MONTHLY PAYMENT ON A CASH BASIS USING A LEASE YEAR COMPUTATION
NOT CHARGED IN LIEU OF OVERAGE RENT FOR RETAIL LEASES
COMMISSIONS: NONE
ALTERATIONS: 45,000
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
2 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
PAGE 4
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
--------------------------------------------------------------------------------
# 5 - SUITE 220 , EASTERN TELECOM
BASE LEASE DATES: 6/1993 TO 9/1997
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 2,452
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - 15.09/SF/YR
THEREAFTER - GROWING AT GROWTH RATE INC3
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF 6.24/SF MULTIPLIED BY AREA MEASURE NRA
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS: NONE
# 6 - SUITE 250 , VERSATILITY
BASE LEASE DATES: 7/1997 TO 12/2004
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 9,033
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 19.00/SF/YR
CHANGING TO - 20.50/SF/YR ON 7/2003
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCPANCY YEAR
CPI AWE INDEX: IND3
CPI RENTAL ADJUSTMENT BASED ON AN INDEX OF MARKET RATE IND3
PAGE 5
WITH A BASE OF THE INDEX VALUE IN THE OCCUPANCY YEAR
ACTING ON 100.00% OF THE OCCUPANCY YEAR RENT (NO GRACE)
WITH A COMPOUNDED CAP OF 3.00%
AND CONTINUOUS ANNUAL GROWTH
MONTHLY PAYMENT ON A CASH BASIS USING A LEASE YEAR COMPUTATION
NOT CHARGED IN LIEU OF OVERAGE RENT FOR RETAIL LEASES
COMMISSIONS: STANDARD METHOD #l
PAYOUT: CASHED OUT
ALTERATIONS: 5.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
2 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
--------------------------------------------------------------------------------
# 7 - SUITE 300 , AEROTEK
BASE LEASE DATES: 8/1997 TO 7/2003
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 19,596
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 14.09/SF/YR
CHANGING TO - 21.75/SF/YR ON 1/1998
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
CPI AWE INDEX: IND3
CPI RENTAL ADJUSTMENT BASED ON AN INDEX OF MARKET RATE IND3
WITH A BASE OF THE INDEX VALUE IN THE OCCUPANCY YEAR
ACTING ON 100.00% OF THE OCCUPANCY YEAR RENT (NO GRACE)
WITH A COMPOUNDED CAP OF 3.00%
AND CONTINUOUS ANNUAL GROWTH
MONTHLY PAYMENT ON A CASH BASIS USING A LEASE YEAR COMPUTATION
PAGE 6
NOT CHARGED IN LIEU OF OVERAGE RENT FOR RETAIL LEASES
COMMISSIONS: 3.00%
PAYOUT: CASHED OUT
ALTERATIONS: 11.33/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
2 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
--------------------------------------------------------------------------------
# 8 - SUITE 400 , VACANT
BASE LEASE DATES: 12/1997 TO 11/2003
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 8,596
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - MARRET RATE MRT1
THEREAFTER - GROWING AT GROWTH RATE INC3
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR } EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: STANDARD METHOD #1
PAYOUT: CASHED OUT
ALTERATIONS: 8.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
PAGE 7
2 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
--------------------------------------------------------------------------------
# 9 - SUITE 450 , VACANT
BASE LEASE DATES: 10/1997 TO 9/2005
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 11,000
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 21.00/SF/YR
CHANGING TO - 22.00/SF/YR ON 10/2003
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
CPI RENTAL ADJUSTMENT BASED ON AN INDEX OF MARKET RATE IND3
WITH A BASE OF THE INDEX VALUE IN THE OCCUPANCY YEAR
ACTING ON 100.00% OF THE OCCUPANCY YEAR RENT (NO GRACE)
WITH A COMPOUNDED CAP OF 3.00%
AND CONTINUOUS ANNUAL GROWTH
MONTHLY PAYMENT ON A CASH BASIS USING A LEASE YEAR COMPUTATION
NOT CHARGED IN LIEU OF OVERAGE RENT FOR RETAIL LEASES
COMMISSIONS: STANDARD METHOD #1
PAYOUT: CASHED OUT
ALTERATIONS: 8.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
2 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
PAGE 8
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
--------------------------------------------------------------------------------
# 10 - SUITE 500 , WALCOFF & ASSOCIATE
BASE LEASE DATES: 5/1994 TO 5/2000
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 19,872
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - 12.58/SF/YR
THEREAFTER - GROWING AT GROWTH RATE INC3
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPEl
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF 5.77/SF MULTIPLIED BY AREA MEASURE NRA
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
2 5.00 4 NONE NONE YES YES
3 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
PAGE 9
# 11 - SUITE 600 , MANTECH
BASE LEASE DATES: 6/1997 TO 5/2007
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 19,872
MARKET RATE: MKT1
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - 19.80/SF/YR
THEREAFTER - GROWING AT 4.00%
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: NONE
ALTERATIONS: 12.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
--------------------------------------------------------------------------------
# 12 - SUITE 700 , LOGICON
BASE LEASE DATES: 7/1997 TO 6/2007
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 19,872
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - 20.00/SF/YR
THEREAFTER - GROWING AT 3.00%
RECOVERIES:
PAGE 10
OPERATING EXPENSES
PRO RATA SHARE = RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: STANDARD METHOD #1
PAYOUT: CASHED OUT
ALTERATIONS: 8.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
--------------------------------------------------------------------------------
# 13 - SUITE 800 , MANTECH
BASE LEASE DATES: 6/1997 TO 5/2007
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 19,872
MARKET RATE: MRT1
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - 19.80/SF/YR
THEREAFTER - GROWING AT 4.00t
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: NONE
ALTERATIONS: 12.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
PAGE 11
LENGTH VACANT SO FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
---- ------------ ------ -------- --------- ----------- -----------
l 5.00 4 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE MKT1 MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE INC3 PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPE1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE NRA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #3
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE TIWA
RENEWAL PAYOUT: CASHED OUT
Member of the Appraisal Institute (MAI Designations #9812)
District of Columbia Certified General Real Estate Appraiser (#GA00010267)
Commonwealth of Virginia Certified General Real Estate Appraiser
(#4001002465)
State of Maryland Certified General Real Estate Appraiser (#7220)
State of West Virginia Certified General Real Estate Appraiser (#237)
Appraisal/Real Estate Experience:
Director/Manager, Cushman & Wakefield of Washington, D.C. and Assistant
Manager, Cushman & Wakefield of Texas, Inc., Dallas, Texas, Valuation
Advisory Services, a full service real estate organization specializing in
appraisal and consultation. April 1990 to present.
Associate Appraiser, Joseph A. Dengel & Company, Dallas, Texas, May 1977 to
April 1990.
Other real estate experience includes work as a residential listing and
selling agent preparing market analyses and origination contracts.
Experience includes appraisal of the following types of property:
Office Buildings Medical Office Buildings
Regional Malls Power Centers
Outlet Centers Community & Neighborhood Shopping Centers
Department Stores Industrial Buildings
Residential Subdivisions Single Family Residences
Multi-Family Properties Condominiums/Duplexes
Subdivision Analysis Farm/Ranch
Mixed Use Properties Golf Courses
Grape Vineyards Special Purpose Facilities
Commercial Land Hotel/Motel
Ad Valorem Tax Appeals
Appraisal and consulting services used for mortgage loans, relocations,
gift and estate tax, condemnation and litigation purposes.
Qualified as an expert witness in state and federal real estate court
cases.
Education:
Bachelor of Arts (Political Science),
1981 University of Texas at Arlington, Arlington, Texas.
QUALIFICATIONS
Donald R. Morris, MAI
Appraisal Institute Courses:
#1A1 - Real Estate Appraisal Principles
#1A2 - Basic Valuation Procedures
#1B1 - Capitalization Theory & Techniques, Part A
#1B2 - Capitalization Theory & Techniques, Part B
#410 - Standards of Professional Appraisal Practice, Part A (USPAP)
#420 - Standards of Professional Appraisal Practice, Part B (Al)
#21 - Case Studies in Real Estate Valuation
#22 - Report Writing and Valuation Analysis
#82 - Residential Valuation Procedures
Additional Accredited Real Estate Courses:
Real Estate Appraisal
Principles of Real Estate
Real Estate Marketing
Real Estate Finance
Property Management
Federal National Mortgage Corporation (Fannie Mae) - Appraisal Training
Certified in the Appraisal's Institute's voluntary program of continuing
education for its designated members.
QUALIFICATIONS
STEVEN A. STUDABAKER,MAI
Professional Affiliations:
Member of the Appraisal Institute (MAI Designations #10241)
Certified General Real Estate Appraiser District of Columbia -
(#GA00010046)
Certified General Real Estate Appraiser Commonwealth of Virginia - (#4001
001 111)
Certified General Real Estate Appraiser State of Maryland - (#10057)
Board of Directors, Washington, D.C. Chapter of the Appraisal Institute,
1995 & 1996
Appraisal/Real Estate Experience:
Associate Director, Cushman & Wakefield of Washington, D.C., Valuation
Advisory Services, a full service real estate organization specializing in
appraisal and consultation. Member of National Retail Valuation Group.
January, 1987 to present.
Office Buildings Medical Office Buildings
Biomedical Buildings Industrial Buildings
Regional Malls Power Centers
Outlet Centers Community 8 Neighborhood Shopping Centers
Department Stores Subdivision Development Analysis
Residential Subdivisions Bulk Single Family Lots
Multi-Family Properties Mixed Use Properties
Commercial Land Hotel
Fractional Interest Valuations Leasehold/Leased Fee Valuations
Ad Valorem Tax Appeals
Education:
Bachelor of Arts (International Affairs & Economics), 1975
University of Colorado, Boulder, Colorado
Masters in Business Administration (Finance), 1980
University of Southem California, Los Angeles, California
Additional Accredited Real Estate Courses:
Real Estate Investment Analysis
Subdivision Analysis
Comprehensive Appraisal Workshop
Appraisal Reporting of Complex Residential Properties
Continuing education for state licensing
This CD ROM contains an electronic version of appraisals for the Mortgaged
Properties in PDF format and forms part of the paper version of the Prospectus
Supplement. The information contained in this CD ROM does not appear elsewhere
in paper form in this Prospectus Supplement and must be considered as part of,
and together with, the information contained elsewhere in this Prospectus
Supplement and the Prospectus. The information contained in this CD ROM has
been filed by the Seller with the Securities and Exchange Commission as part
of a Current Report on Form 8-K, which is incorporated by reference in this
Prospectus Supplement, and is also available through the public reference
branch of the Securities and Exchange Commission. Defined terms used in this CD
ROM but not otherwise defined therein shall have the respective meanings
assigned to them in the paper portion of the Prospectus Supplement and the
Prospectus. All of the information contained in this CD ROM is subject to the
same limitations and qualifications contained in this Prospectus Supplement and
the Prospectus. Prospective investors are strongly urged to read the paper
portion of this Prospectus Supplement and the Prospectus in its entirety prior
to accessing this CD ROM. If this CD ROM was not received in a sealed package,
there can be no assurances that it remains in its original format and should
not be relied upon for any purpose. Prospective investors may contact J.
Theodore Borter of Goldman, Sachs Co. at (212)902-3857 to receive an original
copy of the CD ROM.
COMPLETE APPRAISAL
OF REAL PROPERTY
Lakebrooke Pointe
4805 Lake Brook Drive
Innsbrook, Henrico County, Virginia
IN A SELF-CONTAINED REPORT
As of July 1, 1997
Prepared For:
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
Prepared By:
Cushman & Wakefield of Washington, D.C., Inc.
Valuation Advisory Services
1875 Eye Street, NW
Suite 700
Washington, D.C. 20006
Cushman & Wakefield of Washington, D.C., Inc.
1875 Eye Street, N.W, Suite 700
Washington, D.C. 20006 CUSHMAN &
(202) 467-0600 WAKEFIELD (R)
A ROCKEFELLER GROUP COMPANY
June 18, 1997
Mr. Sheridan Schechner
Managing Partner
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
RE: Complete Appraisal of Real Property
Lakebrooke Pointe
4805 Lake Brook Drive
Innsbrook, Henrico County, Virginia
Dear Mr. Schechner:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Washington, D.C., Inc. is pleased to transmit our
appraisal report estimating the market value of the leased fee estate in the
referenced real property.
As specified in the Letter of Engagement, the value opinion reported below
is qualified by certain assumptions, limiting conditions, certifications, and
definitions, which are set forth in the report. We particularly call to your
attention to the following special assumption.
1. Pursuant to your request, the date of value is July 1, 1997. We
specifically assumed that no value affecting changes occur between the
date of inspection, which was June 15, 1997, and the prospective date
of value.
This report was prepared for Goldman Sachs Mortgage Company and is
intended, only for the specified use of the Client. It may not be distributed to
or relied upon by other persons or entities without the written permission of
the Cushman & Wakefield of Washington, D.C., Inc.
This appraisal report has been prepared in accordance with our
interpretation of your institution's guidelines, the regulations of OCC and the
Uniform Standards of Professional Appraisal Practice, including the Competency
Provision and The Financial Institutions Reform, Recovery and Enforcement Act
(FIRREA) and the guidelines of federal regulatory agencies.
The property was inspected and the report prepared by Kelly J. Small under
the supervision of Donald R. Morris, MAI.
As a result of our analysis, we estimate the prospective market value of
the leased fee estate in the referenced property and subject to the assumptions,
limiting conditions, certifications and definitions set forth herein, as of July
1, 1997, to be:
SIX MILLION EIGHT HUNDRED THOUSAND DOLLARS
$6,800,000
Mr. Sheridan Schechner
June 18, 1997 Page 2
This letter is invalid as an opinion of value if detached from the report,
which contains the text, exhibits, and an Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF WASHINGTON, D.C. INC.
/s/Kelly J. Small
Kelly J. Small
Appraiser
Valuation Advisory Services
/s/Donald R. Morris
[SEAL}
Donald R. Morris, MAI Donald R. Morris
Manager, Director No. 4001-002465
Valuation Advisory Services
State of Virginia Certified General Appraiser No. 4001-002465
Property Name: Lakebrooke Pointe
Location: 4805 Lake Brook Drive
General Overview: The project comprises a two-story
office building containing a total
of 61,632 square feet of net
rentable area. The improvements
were constructed in 1996 and are
situated on an 8.0 acre site. On
the effective date of appraisal,
the building was 100 percent
occupied by four tenants ranging in
size from 2,709 to 31,500 square
feet.
Interest Appraised: Leased fee estate
Date of Value: July 1, 1997
Date of Inspection: June 15, 1997
Ownership: R, F & P Land II, Inc.
Highest and Best Use: Office development, as market
conditions permit
Value Indicators
Sales Comparison Approach: $6,800,000 to $6,900,000 (rounded)
Value Per Square Foot: $110 to $112
Indicated Value: $6,800,000
Income Capitalization Approach
Estimated Market Rental Rate: $17.00 SF, Full Service
Stabilized Vacancy Rate: 7.0%
Effective Gross Income: $978,629
Operating Expenses $323,483
Real Estate Taxes: $47,399
Net Operating Income: $655,146
Estimated Vacancy Between Tenants 9 months
Free Rent: None
Probability of Renewal: 70%
Tenant Improvement Allowance
Shell Space: N/A
New Tenants in Previously
Occupied Space $13.00 per square foot
Renewal Tenants in Same Space: $6.50 per square foot
Estimated Market Rental Growth Rate 3.5%
Estimated Expense Growth Rate: 3.5%
Estimated Real Estate Tax Growth Rate: 3.5%
CUSHMAN &
WAKEFIELD (R)
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
Summary Of Salient Facts And Conclusions
Reversion Year Capitalization Rate 10.5%
Transaction Costs in Reversion Sale: 3.0%
Discount Rate: 12.0%
Indicated Value: $6,800,000
Value Conclusion: $6,800,000
Value Per Square Foot: $110.33 (Net Rentable Area)
Implicit Capitalization Rate: 9.6%
Special Assumptions Affecting Valuation:
1. Pursuant to your request, the date of value is July 1, 1997. We
specifically assumed that no value affecting changes occur between the date
of inspection, which was June 15, 1997, and the prospective date of value.
2. Please refer to the complete list of assumptions and limiting conditions
included at the end of this report.
Page
INTRODUCTION ............................................................. 1
Identification of Property ........................................... 1
Property Ownership and Recent History ................................ 1
Purpose and Function of Appraisal .................................... 1
Extent of the Appraisal Process ...................................... 1
Date of Value and Property Inspection ................................ 1
Property Rights Appraised ............................................ 1
Definitions of Value, Interest Appraised, and Other Pertinent Terms .. 2
Legal Description .................................................... 3
REGIONAL ANALYSIS ........................................................ 4
NEIGHBORHOOD ANALYSIS .................................................... 19
OFFICE MARKET ANALYSIS ................................................... 24
PROPERTY DESCRIPTION ..................................................... 35
Site Description ..................................................... 35
Improvements Description ............................................. 36
REAL ESTATE TAXES AND ASSESSMENTS ........................................ 39
ZONING ................................................................... 41
HIGHEST AND BEST USE ANALYSIS ............................................ 43
VALUATION PROCESS ........................................................ 45
SALES COMPARISON APPROACH ................................................ 46
INCOME APPROACH .......................................................... 51
RECONCILIATION AND FINAL VALUE ESTIMATE .................................. 64
ASSUMPTIONS AND LIMITING CONDITIONS ...................................... 66
CERTIFICATION OF APPRAISAL ............................................... 68
ADDENDA .................................................................. 69
INTRODUCTION
Identification of Property
The subject property comprises a two-story office building known as the
Lakebrooke Pointe, which is located at 4805 Lake Brook Drive in Innsbrook,
Henrico County, Virginia. The improvements contains 61,632 net rentable square
feet and are situated on an 8.0 acre parcel. The building is modern in
appearance and functional in design. As of the date of inspection, the property
was 100 percent leased to four tenants ranging in size from 2,709 to 31,500
square feet.
Property Ownership and Recent History
The property is owned by RF&P Land Corporation, who acquired the site in
November 1994 for $808,500 from Financial Institute III. At the time of sale,
the property comprised unimproved land.
We have reason to believe that the property may now be under contract of
sale; however, after discussing the matter with the owner, we have been unable
to obtain any details of the pending transaction. The present owner considers
this information to be confidential and was not willing to provide details for
our analysis.
Purpose and Function of Appraisal
The purpose of the appraisal is to estimate the market value of the leased
fee estate. The appraisal is to be used to monitor the performance of a
portfolio asset.
Extent of the Appraisal Process
In the process of preparing this appraisal, we:
o Inspected the exterior of the building and the site improvements and a
representative sample of tenant spaces with property management.
o Reviewed leasing policy, concessions, tenant build-out allowances, and
history of recent rental rates and occupancy with the building
manager.
o Reviewed a detailed history of income and expense and a budget
forecast for 1997.
o Conducted market research of occupancies, asking rents, concessions
and operating expenses at competing buildings which involved
interviews with on-site managers and a review of our own data base
from previous appraisal files.
o Prepared an estimate of stabilized income and expense (for
capitalization purposes).
o Conducted market inquiries into recent sales of similar buildings to
ascertain sales price per square foot, effective gross income
multipliers and capitalization rates. This process involved telephone
interviews with sellers, buyers and/or participating brokers. (See
detailed sales write-ups in Addenda for more complete information on
the verification process.)
o prepared the Sales Comparison and Income Approaches to value.
The date of value is July 1, 1997. We inspected the property on June 18,
1997.
Property Rights Appraised
The rights being valued are the leased fee estate.
Definitions of Value, Interest Appraised, and Other Pertinent Terms
The definition of market value taken from the Uniform Standards of
Professional Appraisal Practice, 1994 Edition, published by The Appraisal
Foundation, is as follows:
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and acting in
what they consider their own best interests;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(5) The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.
Exposure Time
Under Paragraph 3 of the Definition of Market Value, the value estimate
presumes that "A reasonable time is allowed for exposure in the open
market. Exposure time is defined as the estimated length of time the
property interest being appraised would have been offered on the market
prior to the hypothetical consummation of a sale at the market value on the
effective date of the appraisal. Exposure time is presumed to precede the
effective date of the appraisal.
Based on the improved sales data presented in this document, coupled with
our conversations with local property owners, brokers and management firms,
we have estimated the appropriate exposure time would have been 12 months
for the property.
Marketing Time
Marketing time is an estimate of the time that might be required to sell a
real property interest at the appraised value. Marketing time is presumed
to start on the effective date of the appraisal. Marketing time is
subsequent to the effective date of the appraisal and exposure time is
presumed to precede the effective date of the appraisal. The estimate of
marketing time uses some of the same data analyzed in the process of
estimating reasonable exposure time and it is not intended to be a
prediction of a date of sale. We estimated marketing time to be
approximately 12 months.
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by The Appraisal Institute, are as
follows:
Leased Fee Estate
An ownership interest held by a landlord with the right of use and
occupancy conveyed by lease to others. The rights of the lessor (the leased
fee owner) and the leased fee are specified by contract terms contained
within the lease.
Leasehold Estate
The right to use and occupy real estate for a stated term and under certain
conditions; conveyed by a lease.
Market Rent
The rental income that a property would most probably command on the open
market; indicated by the current rents paid and asked for comparable space
as of the date of the appraisal.
Cash Equivalent
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities
that cannot be sold at their face amounts.
Discounted Cash Flow (DCF) Analysis
The procedure in which a discount rate is applied to a set of projected
income streams and a reversion. The analyst specifies the quantity,
variability, timing and duration of the income streams as well as the
quantity and timing of the reversion and discounts each to its present
values at a specified yield rate. DCF analysis can be applied with any
yield capitalization rate and may be performed on either a lease-by-lease
or aggregate basis.
Legal Description
The subject is identified as parcel 28-A-20E among the land records of
Henrico County, Virginia. We were not provided with a metes and bounds
description of the site.
The dynamic nature of economic relationships within a market area have a
direct bearing on real estate values and the long-term quality of a real estate
investment. In the market, the value of a property is not based on the price
paid for it in the past or the cost of its creation, but on what buyers and
sellers perceive it will provide in the future. Consequently, the attitude of
the market toward a property within a specific neighborhood or market area
reflects the probable future trend of that area.
Since real estate is an immobile asset, economic trends affecting its
locational quality in relation to other competing properties within its market
area will also have a direct effect on its value as an investment. To
accurately reflect such influences, it is necessary to examine the past and
probable future trends which may affect the economic structure of the market and
evaluate their impact on the market potential of the subject. This section of
the report is designed to isolate and examine the discernible economic trends in
the region and neighborhood which influence and create value for the subject
property. A regional map indicating the location of the subject is presented on
the following page.
Location
The subject property is located in Henrico County, within the
Richmond-Petersburg Metropolitan Statistical Area (MSA). For statistical
purposes, this area includes Chesterfield, Dinwiddie, Goochland, Hanover,
Henrico, New Kent, Powhatan and Prince George Counties. In addition, this MSA
also includes Charles, Colonial Heights, Hopewell, Petersburg and Richmond
Cities.
Richmond is located approximately 100 miles south of Washington, D.C. and
is midway between Atlanta and Boston. The City of Richmond is situated at the
end of the navigable portion of the James River, which bisects the city. Founded
in 1737 as a central marketplace of inland Virginia, it linked the piedmont and
mountain areas of Virginia with the seaports at Hampton Roads. In 1779, Richmond
became the state capital which has had a profound effect upon the growth of the
region. Richmond is the home of the Virginia General Assembly, state and federal
courts, and Virginia's capital. The success of the Richmond area is evidenced by
the influx and growth of local businesses, immigration to and population growth
in the area, as well as expansion of the employment base.
Demographic statistics for the Richmond MSA are summarized in the following
table.
SELECTED AREA DEMOGRAPHICS
RICHMOND MSA
Population
2001 Projection 1,000,848
1996 Estimate 942,346
1990 Census 865,640
1980 Census 761,304
1980-1990 % Change 13.70%
1990-1996 % Change 8.86%
1996-2001 % Change 6.21%
Households
2001 Projection 386,777
1996 Estimate 362,848
1990 Census 331,824
1980 Census 269,289
1980-1990 % Change 23.22%
1990-1996 % Change 9.35%
1996-2001 % Change 6.59%
Median Household Income
2001 Projection $46,784
1996 Estimate $40,118
1990 Census $33,489
1980 Census $18,293
1980-1990 % Change 86.07%
1990-1996 % Change 19.79%
1996-2001 % Change 16.62%
1990 Average Home Value $78,111
1990 % College Graduates 18.3%
============================================================
Source: Strategic Mapping, Inc.
============================================================
Population
According to Strategic Mapping, Inc., the population in the Richmond MSA
has increased dramatically slightly since 1980. In 1980 the population for the
entire MSA was 761,304 which then increased to 865,640 or 13.70 percent in 1990.
The population estimate for 1996 shows a slight slowing trend in the population
as the estimate increased from the 1990 figure to 942,346 or 8.86 percent.
Projections for the year 2001 show an increase expected over the next five year
period of 6.21 percent. This trend shows strong growth across the region.
Households
The total number of households in the MSA has increased approximately 23.22
percent from 1980 to 1990. The 1990 household figure of 331,824 households has
increased to an estimated figure of 362,848 in 1996 which indicates an increase
of 9.35 percent over the six year period since 1990. Similar to the overall
population growth, the average annual increase
has decelerated from the previous ten year period to a more normalized basis,
which is still above the national averages. The number of households has been
increasing since 1980, even during periods when the population was shrinking.
This has been possible due to the declining household size which has dropped
from 2.72 persons in 1980 to 2.52 persons in 1996. The number of households is
expected to increase to 386,777 in the year 2001, an increase of 6.59 percent
from the 1996 estimate. The steadily increasing number of households should have
a positive impact on the local economic condition.
Income
The median income per household in the MSA has increased considerably since
1980. In 1980 the median household income was $18,293, which increased by 86.07
percent or 8.61 percent per annum to $33,489 in 1990. Based on estimates from
Strategic Mapping, Inc., the 1996 median household income was $40,118. The 1996
estimate indicates that overall growth in the median household income slowed to
19.79 percent from 1990 to 1996 or a still strong 3.30 percent per annum. The
area is expected to continue in this income growth trend through 2001. A
breakdown of the household income characteristics for the MSA is shown as
follows:
Over the past year, the overall unemployment rate in the Richmond MSA
remained flat. Henrico County had a lower unemployment rate of 3.0 percent as of
year end 1996. The most recent unemployment figure as of March 1997 for Henrico
County was 2.6 percent, which is slightly below the 2.7 percent figure twelve
months earlier. The March 1997 rate for the metro area of 3.3 percent was the
same for the previous period. The metropolitan area has been experiencing an
improvement in the economy. The Richmond MSA has outperformed the nation and the
state in terms of employment over the past few years; and it is anticipated that
it will continue to do so in the future.
The following tables compare the unemployment rate for the area to that of
the state and national average for the year end averages and the current month
figures.
UNEMPLOYMENT RATE
COMPARISON BY COUNTY, MSA, STATE, AND U.S.
Year Henrico Richmond Virginia U.S.
County MSA
=======================================================================
1996 3.0% 3.7% 4.4% 5.4%
1995 2.9% 3.7% 4.5% 5.6%
1994 3.3% 4.4% 4.9% 6.1%
1993 3.9% 4.9% 5.1% 6.9%
1992 5.4% 6.7% 6.4% 7.5%
=======================================================================
Source: U.S. Department of Labor and Employment Security, Bureau of
Labor Market Information.
CURRENT MONTH - UNEMPLOYMENT RATE
Geographic Area March 1996 March 1997
=================================================================
Henrico County 2.7% 2.6%
Richmond MSA 3.3% 3.3%
Virginia 4.6% 4.4%
U.S. 6.0% 5.9%
=================================================================
Source: U.S. Department of Labor and Employment Security
As population in the Richmond area has increased, employment has grown as
existing businesses expanded and new companies located in the area. Local
businesses are attracted to the convenient location between Atlanta and Boston,
competitive tax policies, and excellent transportation systems. In Richmond,
there is no sales tax on raw materials, and no state or local inventory tax on
manufacturing. Furthermore, sales and use tax, corporate income tax, and
unemployment insurance tax rates are low compared to national averages of other
cities. In fact, Richmond has the lowest unemployment insurance tax rate in the
nation, while the worker's compensation rate is seventh in the U.S. The labor
force has an education level as high or higher than other metro areas of
Richmond's size, or larger. Furthermore, Richmond area workers are reportedly 43
percent more productive per worker hour than U.S. workers as a whole, according
to the Metropolitan Economic Development Council. In addition, less than 11
percent of Richmond area workers are unionized, compared to the national average
of 20 percent. These factors have contributed to the influx of employers into
the Richmond area. Richmond's business climate has attracted and retained some
of the most prestigious businesses in the U.S., helping to boost the local
employment base.
As shown in the following table, with the exception of manufacturing all
industry segments witnessed steady growth. The largest increases came from
services at 3.24 percent followed by T.C.P.U. at 2.87 percent, and construction
at 2.67 percent. The following table illustrates the five year trend for
employment by sector for the Richmond MSA.
Total employment increased by 0.78 percent over the past year and 1.74
percent over the past five years, in combination with a declining unemployment
rate (as of March 1997), indicates economic stability in the area. We anticipate
slow growth in employment during the next few years and possibly accelerated
growth towards the end of the decade. The largest increases are anticipated in
the services and construction categories with the strengthening economy, with
growth expected from all areas with the exception of government which is
expected to decline. Shown below is the most recent employment by industry in
the subject's area.
==========================================================================================================
NON-AGRICULTURAL INSURED EMPLOYMENT BY MAJOR INDUSTRY DIVISION
April 1996 to 1997 Comparison - Not Seasonally Adjusted
RICHMOND AREA MSA
==========================================================================================================
INDUSTRY Average Employment SHARE Average Employment SHARE CHANGE
April: 1996 (000's) April 1997(000's)
==========================================================================================================
Manufacturing 59.3 11.7% 59.8 11.7% 0.84%
Construction 30.2 6.0% 31.6 6.2% 4.64%
Mining 0.8 0.2% 0.7 0.1% (12.50%)
T.C.P.U.* 26.2 5.2% 26.5 5.2% 1.15%
Trade 118.4 23.4% 120.1 23.5% 1.44%
F.I.R.E 42.6 8.4% 43.1 8.4% 1.17%
Services 130.1 25.7% 130.6 25.5% 0.38%
Government 98.5 19.5% 98.9 19.3% 0.41%
==========================================================================================================
TOTALS 506.1 100.0% 511.3 100.0% 1.03%
==========================================================================================================
* Transportation, & Public Utilities
** Finance/Insurance/Real Estate
==========================================================================================================
Over the past year, total employment witnessed a small increase of 1.03
percent. Construction and Retail Trade were the leading industries with an
overall increase of 4.64 percent and 1.44 percent respectively. This offset the
small losses in the mining industry.
The appraisers have outlined both the major employers in the local market
of Henrico County and the macro market of metropolitan Richmond, Virginia. It
should be noted that in both the metropolitan rankings and the county rankings
the top employment lists include private industry only. As can be seen, the
majority of the employment is trade and service oriented in nature for both
areas. The following charts summarize the major employers within the county and
the MSA.
=======================================================================
Employer Number of Employees
=======================================================================
Circuit City 5,000-6,000
Reynolds Metal 4,000-5,000
Crestar Financial 3,000-4,000
Secours 3,000-4,000
Tri-Son Health Care 2,000-3,000
Via Systems Technology 2,000-3,000
American Home Products 1,000-2,000
United Parcel Service 1,000-2,000
Tysons Ford 900-1,000
Stone Container 800-900
=======================================================================
Source: Henrico County Office of Economic Development
MAJOR AREA EMPLOYERS
RICHMOND, VIRGINIA METRO AREA (1997)
Employer Number of Employees
=======================================================================
Philip Morris USA 8,000
Columbia/HCA Healthcare Corp. 6,340
Circuit City Stores 5,194
Reynolds Metals Co. 4,300
Capital One Financial Corp. 4,064
Dominion Resources Inc. 3,803
Ukrops Super Markets Inc. 3,585
Allied Signal Corp. 3,400
Crestar Financial Corp. 3,252
Bon Secours Richmond Health 3,051
NationsBank Corp. 2,726
Trigon Blue Cross/Blue Shield 2,705
Signet Banking Corp. 2,501
DuPont Co. 2,500
Bell Atlantic-Virginia 2,445
Viasystems Technologies Corp. 2,100
Food Lion Inc. 1,621
Central Fidelity Banks, Inc. 1,595
Richfood Holdings Inc. 1,583
Wal-Mart Stores Inc. 1,512
=======================================================================
Source: Richmond Times Dispatch
=======================================================================
Transportation
The Richmond area is served by four interstate highways creating an
excellent network for entering and exiting the vicinity. Interstate routes 95,
64, 195 and 295 are within the City and serve the metropolitan area. Interstate
95 is the most important north-south highway on the
eastern seaboard. To the north, it connects Richmond with Washington, D.C. and
other cities in the northeast corridor; to the south, it reaches to Miami,
Florida. Route 95 also traverses downtown Richmond and serves as an expressway
in the local vicinity. Interstate 64, which runs principally east to west, lends
access to Hampton Roads and the Tidewater area of Virginia. To the west, it
intersects with Interstate 81 in the Shenandoah Valley before continuing to West
Virginia and Kentucky. Locally, I-295 forms a semicircle around the metropolitan
area, with an eventual extension south to Prince George County and a southern
connector to Interstate 95 is proposed. Interstate Route 195 gives access to the
portion of Richmond located along the James River. Yet another local expressway
is the Powhite Parkway which links the two halves of the city of Richmond (the
north and south banks of the James River). The Powhite has been extended to the
emerging suburban areas of central Chesterfield County. Several U.S. highways
converge in Richmond, namely, Routes 1, 33, 60, 250, 301 and 360.
Richmond International Airport has recently undergone a $38 million
expansion, making it a modern state-of-the-art airport. The expansion includes
all-weather second level boarding courses and a new entrance roadway connecting
with Interstate 64. The airport is located 12 miles east of Richmond in Henrico
County. There are over 200 flights daily by American, Delta, Eastern, United and
U.S. Air, plus six regional carriers. Air time to New York is only 60 minutes.
The Richmond area is a major East Coast rail center. Passenger railways are
utilized by AMTRAK while the major freight railway companies are CSX
Transportation; Richmond, Fredericksburg and Potomac; and Norfolk-Southern.
The port of Richmond provides an excellent water transportation system for
cargo to Europe, Africa, South America, Canada and the Caribbean. The deep water
port is the westernmost on the north Atlantic and handles over 413,000 tons of
bulk and container cargo annually.
The Greater Richmond Transit Company (GRTC) provides transportation
services to commuters. The system offers several transit routes in Henrico
County as well as downtown service connecting the financial and retail
districts. Trailways, Greyhound and Groome Transportation charter buses to other
cities.
Education/Recreation
The Richmond area boasts of numerous colleges and universities in the
vicinity. Among these educational institutions are Randolf-Macon College,
University of Richmond, Virginia Commonwealth University, Medical College of
Virginia, Virginia Union College, etc. Many of the area's public secondary
school systems allocate higher per student expenditures than the national
average. Area school systems have also adopted progressive measures over the
past decade to improve and enhance the normal school criteria. In addition,
there are many prestigious private secondary schools including St.
Christopher's, St. Catherine's, Collegiate, and Benedictine.
The city of Richmond serves as the cultural and recreational heart of
Central Virginia. There are many museums including the Virginia Museum of Fine
Arts, The Valentine Museum, Museum of the Confederacy, and the Science Museum of
Virginia.
In addition, Richmond serves as a center for the performing arts at
locations including the Carpenter Center and the Theater Virginia. Local area
residents can also enjoy numerous parklands including James River Park, Bryan
Park and Pocohontas State Park.
Conclusion
Richmond is centrally located along the East Coast at the northern end of
the Sun Belt. This location contributed to its growth as a business and
industrial area over the last decade. While population and employment growth in
the region have recently diminished, both are expected to continue growing at
moderate rates during the 1990s. The moderate cost of living, low taxes and
strong economics appeal to Richmond businesses. Transportation networks and
waterways that make Richmond attractive to corporations also make it attractive
to individuals. Overall, the Richmond area is expected to prosper moderately in
the future.
Richmond is the capitol of Virginia and is headquarters to 14 Fortune 500
Companies. The office market is segmented by location within the metropolitan
area, with the Central Business District (CBD) of Richmond being the oldest
segment. As the office market expanded around the CBD, new development was
categorized into four quadrants: northwest, northeast, southwest and southeast.
Most of the growth in past decade occurred in the northwest and southwest
quadrants. Although many firms prefer to be located in downtown Richmond,
Henrico County has become a new growth area for office park development. The
campus style office development became increasingly popular in the 1980s.
Development has generally expanded away from the urban core into northwest
Henrico County (just south of Interstate 295). The amount of office space in the
eastern quadrants is so insignificant that reliable statistics for these areas
were not available.
According to Harrison & Bates, Inc. 1997 Office Market Report, total
inventory of office space in the Richmond metropolitan area in 1996 was
approximately 18.1 million square feet, with approximately 6.1 million square
feet in the Richmond CBD and 11.9 million square feet in the suburban markets.
The following table presents the geographic distribution of the office inventory
in the metropolitan area, along with other statistical data:
Geographic Distribution of Inventory
Metropolitan Richmond Office Market
Year-End 1996
===============================================================================
Jurisdiction Inventory SF Overall SF Under Y-T-D Net
(000) Vacancy Construction Absorption
===============================================================================
Central Business District 6,131,500 16.36% 0 200,407
Northwest Quadrant 8,048,248 6.23% 80,000 316,002
Southwest Quadrant 3,890,710 9.46% 157,788 68,171
===============================================================================
Total 18,070,458 10.36% 237,788 584,580
===============================================================================
As of year-end 1996, the overall vacancy rate stood at 10.36 percent,
continuing a slow recovery from the year-end 1994 vacancy of 12.43 percent. The
continued decline in vacancy is a result of minimal pure speculative office
space brought on the market in recent years. Vacancy was higher in the CBD at
16.4 percent than in the suburbs at 7.3 percent. The Northwest submarket
demonstrated the lowest vacancy rate of 6.2 percent, where it has generally
remained for the past three years. The Southwest Quadrant demonstrated the most
improvement, with vacancy decreasing from 14.44 percent in 1994 to the current
level of 9.46 percent. This is the first decline below ten percent since the
early 1980s. The following table presents the historical vacancy, rental rate
and absorption data, showing a steadily declining vacancy rate and increased
absorption:
Historical Data
Metropolitan Richmond Office Market
1994 -1996
=============================================================================
Year Inventory SF Vacancy SF Under Net Absorption
(000) Construction (SF)
=============================================================================
1994 17,430,591 12.43% 62,000 407,215
1995 17,655,281 11.56% 352,000 344,077
1996 18,070,458 10.36% 237,788 584,580
=============================================================================
Annual Averages 11.44% 217,263 445,291
=============================================================================
Lenders' strict underwriting criteria, limited market demand, and the
increase in sublet market space as a result of corporate consolidations and
downsizing all contributed to the lack of office construction in 1994. In 1995
and 1996, construction of office space increased, with a total of 352,000 and
237,788 square feet of space completed, respectively. Most of the new
construction in 1996 occurred in the Southwest Quadrant, accounting for 157,788
square feet or 66 percent of total new construction. The remaining 80,000 square
feet of new space was delivered in the Northwest Quadrant and included five
build-to-suits within the Innsbrook Office Park, some of which included
speculative office space (minimal). No new construction was delivered in the
CBD, as it continues it slow recovery with a glut of Class C space.
The market absorbed 584,580 square feet in 1996, an increase of 70 percent
over the 1995 figure. This level approximates the average annual absorption
between 1992 and 1996 of 541,159 square feet. The Northwest Quadrant absorbed
the largest amount of space in 1996 totaling 316,002, or 54 percent of total
absorption.
Current Construction Activity
Only build-to-suit construction is expected through 1997 and 1998, as
developers are still having difficulty financing purely speculative projects.
According to numerous sources throughout the market, one of the most important
and far reaching commercial real estate developments over the past two years was
the announcement by Motorola's plans to build a major semi-conductor plant in
Goochland County. The company exercised an option to purchase 230 acres in the
West Creek Corporate Center. Long term plans call for construction of several
million square feet of buildings and the creation of an initial 5,000 jobs. This
location is only minutes from the Innsbrook area and will likely increase demand
from semi-conductor clients and associated firms.
Discussions with local market participants indicated that Northwest
Richmond is a developers market, given the lack of available space. A number of
major corporations, such as Wheat First, Circuit City, Virginia Mutual Insurance
Company and Heilig Meyers, have built or are starting construction of their own
buildings. Innsbrook appears to be the most attractive site for office
development, with several deliveries expected by year-end 1997. A summary of
buildings currently under construction is highlighted below.
Office Market Analysis
================================================================================
==============================================================================
Buildings Under Construction
Northwest Quadrant
==============================================================================
Building Size (SF) SF % Available Asking Rental
Available Rate (SF)
==============================================================================
Glen Forest Medical 40,000 0 0% N/A
Virginia Mutual 64,000 35,000 54.7% $17.25
Wheat First 100,000 70,000 70.0% $17.00
==============================================================================
Investment Market
The investment market in the metropolitan Richmond area has been active. Since
1995, there has been a marked turnaround in property sales in the office market,
with buyers motivated by the turnaround in the market and the potential
appreciation of property values. Sellers are no longer lenders, as many of the
distressed situations have been resolved. Buyers returning to the market include
REITS, pension funds, insurance companies and local or regional investors. With
a higher concentration of available capital, the metropolitan market has
experienced rising prices on average. The table on the following page depicts
historical and recent office building sales that have occurred in the suburban
Richmond market.
The sales indicate a wide range in unit values from a low of $30.58 to a
high of $114.94 per square foot of rentable area. As depicted, real estate
values have stabilized throughout suburban Richmond over the past two years.
Class A and B properties located in highly desirable office parks with high
occupancy sold in the range of $85.00 to $11 0.00 per square foot. The Southwest
Quadrant office sales were generally lower than those in the Northwest Quadrant,
selling in the $80.00 to $90.00 per square foot range. Property values in the
downtown market continue to be depressed, with few sales occurring.
Apartment communities joined by suburban office properties as currently the
most desirable investment property type. In the office market, the few downtown
building sales were dwarfed by activities within the suburbs, with the strongest
action in the Northwest Quadrant. Highwoods REIT was the most active buyer,
purchasing a number of buildings in Innsbrook. In the Southwest Quadrant,
Brookdale Investors purchased two buildings in Moorefield, while two other
buildings were purchased by Commonwealth Atlantic Properties (formerly RF&P) in
The Arboretum.
==============================================================================================
Office Building Sales Summary
Suburban Richmond
==============================================================================================
Bldg. Address Size(SF) Yr Built Occup. Sale Date Price (SF)
==============================================================================================
Vistas at Brookfield 70,582 1985 95% 05/97 $82.74
Pioneer Building 49,019 1987 100% 05/97 $76.50
Moorefield V 42,000 1986 96% 04/97 $86.67
4101 Cox Road 58,184 1990 95% 12/96 $103.12
804 Moorefield Park Dr. 51,307 1985 97.5% 12/96 $83.81
808 Moorefield Park Dr. 47,230 1987 100% 11/96 $69.87
4701 Cox Road 100,178 1990 99% 06/96 $106.90
Arboretum VI and VII 103,986 1990 95% 06/96 $85.54
4881 Cox Road 108,000 1996 100% 02/96 $101.16
Vantage Place 55,374 1986-88 96% 09/95 $79.28
Vantage Pointe 63,867 1990 95% 09/95 $84.71
Owens & Minor 63,000 1989 100% 09/95 $114.94
Markel & Mercer Buildings 197,260 1987/90 100% 07/95 $98.35
Proctor-Silex 97,253 1988 99% 07/95 $85.53
Colonnade at Innsbrook 65,757 1986 98% 12/94 $88.36
Aetna Office Building 101,293 1990 98% 12/94 $83.91
Markel Building 71,745 1988 95% 09/94 $100.36
Koger Southside 131,000 1986 84% 09/94 $55.00
Progressive Building 70,260 1987 90% 06/94 $83.09
Allstate Building 39,281 1985 100% 03/94 $77.65
10710 Midlothian Tnpk. 152,000 1989 64% 07/93 $38.98
2820 Waterford Lake Dr. 42,718 1989 69% 05/93 $40.97
9321-27 Midlothian Tnpk 63,770 1984 64% 03/93 $30.58
==============================================================================================
Land Values
Over the past year, there has been an increased level of sales activity for
vacant office sites. However, tightened credit, a drop in new construction and
poor performance among improved properties has limited the pool of potential
buyers of office land. In addition to poor demand for office sites, there is a
glut of land available for development and for sale. Some of these projects
include Gateway, Boulders, Bellgrade, Stony Point, Westerre, Innsbrook,
Moorefield, West Creek, etc. At present, there are over 1,000 acres of office
land available for development in established office parks throughout the
region. In addition to these sites available in park developments, there are
many single office tracts dispersed throughout the Richmond suburbs available
for sale.
As with the improved sales, the land sale price trend is upward. The
primary hub of activity is the subject's Innsbrook Office Park, where property
values have increased as demand for office space in this park continues to
strengthen. Prior to 1994, land tracts were sold from former lenders or
institutions regulated by the Resolution Trust Corporation (RTC), and buyers
would only purchase land at cut-rate prices. As noted in the following table,
recent activity includes a clear increase in the demand for and price of office
land.
=====================================================================================
Office Land Sales Summary
Metropolitan Richmond Office Market
=====================================================================================
Location Net Area Sale Date Sale Price Price/Acre
(Acres)
=====================================================================================
Innsake Drive 2.90 02/97 $ 555,500 $191,552
Innsbrook, VA
Lake Brook Drive 8.00 11/95 $1,200,000 $150,000
Innsbrook, VA
North Park Drive 7.97 07/95 $ 995,625 $125,000
Innsbrook, VA
North Park Drive 12.84 07/95 $1,605,000 $125,000
Innsbrook, VA
Cox Road and Nuckols Road 5.00 01/95 $ 750,000 $150,000
Innsbrook, VA
Innsbrook Drive @ The Overlook 52.00 12/94 $5,096,000 $ 98,000
Innsbrook, VA
Lakebrook Drive 5.50 11/94 $ 808,500 $147,000
Innsbrook, VA
Westerre Office Park @ Gaskin Road 10.67 05/94 $ 880,400 $ 82,511
Innsbrook, VA
Polo Parkway/Bellgrade 4.14 10/93 $ 372,877 $ 90,165
Chesterfield County, VA
Cherokee Road/Stony Point 40.28 07/93 $2,202,483 $54,723
City of Richmond, VA
Waterfront Dr/Innsbrook 6.60 03/93 $ 485,000 $73,484
Henrico County, VA
=====================================================================================
The appropriate unit of comparison in suburban Richmond is the price per
usable acre. The preceding sales represent both speculative investors and
build-to-suit/owner-occupant sales. The most recent sale, however, involved the
purchase of a site within Innsbrook for development of a Homewood Suites hotel.
These sales represent a trading range from $54,723 per usable acre to $191,500
per usable acre. Market participants indicated that, due to the limited
availability of space, the market is shifting to a development market. This is
expected to continue to place upward pressure on land prices within the market.
Summary of Metropolitan Office Market
Although some submarkets remain soft, the overall vacancy rate continues to
decline, and the remaining available space tends to be less desirable. The
Northwest Quadrant, in
particular, is leading the region in net absorption and vacancy. We believe that
over the next several years, the metropolitan office market should reach a more
stabilized position both from an occupancy and lease rate standpoint.
Northwest Quadrant Office Market
The subject property is located in Henrico County within the Northwest
Quadrant. This quadrant is the largest submarket in terms of total rentable
area, with 8.0 million square feet of office space, or 45 percent of total
inventory. The Southwest Quadrant and CBD have 3.8 million square feet and 6.1
million square feet, respectively. Within Northwest Quadrant, the subject is
located within the Innsbrook Office Park, the prime office location within the
greater Richmond area. The Innsbrook Office Park includes a total of 3.5 million
square feet of space, or approximately 44 percent of the entire Northwest
Quadrant. The following table presents the historical vacancy and absorption
data for the Northwest Quadrant.
================================================================================
Historical Data
Northwest Quadrant
1994 - 1996
================================================================================
Year Inventory SF Vacancy SF Under Net Absorption
(000) Construction (SF)
================================================================================
1994 7,535,932 6.20% 52,000 241,525
1995 7,744,618 6.64% 332,000 161,764
1996 8,048,248 6.23% 80,000 316,002
================================================================================
Annual Averages 6.35% 154,667 239,764
================================================================================
Taken as a whole, the Northwest Quadrant office market exhibited an overall
vacancy rate of 6.23 percent as of year-end 1996. As depicted, vacancy has
remained relatively stable over the past three years despite new deliveries and
increased absorption. However, the vacancy rate has improved significantly in
this submarket over the past six to seven years, with the current vacancy rate
representing an 11.0+/- percent decline from year-end 1990, when it was 17.20
percent.
Although vacancy for the submarket as a whole has remained relatively
stable, a breakdown by Class indicates that vacancy for Class A space has
continued to decline, with minimal Class A space availability. The lack of
significant new construction, coupled with positive absorption, has led to a
shortage of large blocks of Class A office space. According to Morton G.
Thalhimer, Inc.'s April 1997 Office Market Survey, Class A vacancy was 1.70
percent, compared to 9.20 and 24.66 percent for Class B and C space,
respectively. The most significant vacancy remains within the Class C market,
which increased its vacancy from 19.00 percent at year-end 1995 to the current
level of 24.66 percent. The following table illustrates the historical vacancy
for Class A space within the Northwest Quadrant.
Despite tight market conditions within the Northwest Quadrant for the past
three years, rental rates for Class A space have edged up only slightly, while
rates for Class B and C remained flat, keeping those properties competitive with
Class A product. Due to the lack of space availability within the Class A
market, brokers anticipate continued upward pressure on rental rates. Free rent
and tenant improvement allowances are currently limited in the Northwest
Quadrant, as tenants generally prefer the lowest possible base rental rate.
The general consensus is that tenants will have to sign concession free
leases at a rate of $16.50 to $17.00 per square foot for multi-tenant Class-A
buildings in the Northwest Quadrant by year-end 1997. These figures do not
reflect that, while face rents have increased somewhat, concession packages have
diminished significantly. Many landlords in the market depicted limited tenant
improvement packages and no free rent allowances in recent deals. Furthermore,
landlords have been able to obtain an expense reimbursement from some tenants,
which has been absent from Richmond office leases for some time.
Brokers and investors were surveyed as to their opinions of rent spikes,
given the lack of available Class A space within the market. Several brokers
indicated that there would be a potential for rent spikes; however, this notion
has not come to fruition over the past two years and is not likely to occur
because of the large amounts of vacant land available for development. Moreover,
with continued construction of space (even build-to-suits), the potential for
rent spikes lessens. Over the past year, rental rates edged up only slightly
from an average of $15.75 per square foot to $16.25 per square foot, an increase
of about 3.0 percent. Investors surveyed indicated that rent spikes were highly
speculative and generally not incorporated into their purchase decisions.
Although many investors felt that rental rates may in fact grow at a rate
greater than inflation over the short term, they are typically unwilling to make
this assumption in their investment projections.
As can be seen, the forces of supply and demand have pushed the Northwest
Quadrant Class A office market toward a landlord's market, with a shortage of
supply as evidenced by the declining vacancy factor, increased rental rates, and
declining concessions. Market participants expect rents to continue to increase
and reach a level which will justify speculative development in the near term.
The subject property is located on Lake Brook Drive, just north of its
intersection with Nuckols Road, within the Innsbrook Office Park. Neighborhood
boundaries are considered to be I-295 to the north and west, Springfield Road to
the east, and I-64 to the south. Nuckols Road provides access to I-295
immediately west of the property, while Cox Road provides access to I-64 less
than one mile south. These interstates provide accessibility and convenience
throughout the metropolitan area and provides direct access to Interstate 95,
which is the main north/south artery on the east coast.
Predominant land uses in the area consist of a mixture of commercial
development, including retail centers and office buildings, single-family
detached, single-family attached and multi-family residential developments, as
well as a wide variety of highway commercial uses along the major roadways.
As noted, the subject is located within the Innsbrook Office Park.
Innsbrook is the prime suburban office location for corporations seeking space
in the Richmond area due to the campus setting and vast amount of amenities
offered. A brief description of Innsbrook, including amenities offered, is
summarized in the following table.
================================================================================
Innsbrook Corporate Center
================================================================================
o Size 800 acres
o Number of Buildings 65
o SF Developed 2.4+ million
o Number of Companies 325
o Number of Employees 11,000+
o Site Amenities 3 miles jogging trails
Volleyball Courts
126-room AmeriSuites Hotel
136-room Hampton Inn
Innsbrook Shoppes (Retail Center)
Corporate Picnic Area
Outdoor Activity Pavilion
U.S. Post Office
Henrico County Public Library
Five Residential Communities
532 single family homes
88 condominiums
================================================================================
In addition to the amenities presented above, there are a total of three
lakes: Lake Innsbrook (6 acres); Waterfront Lake (11 acres); and Lake Rooty (18
acres).
Innsbrook Office Park is located northwest of the CBD of Richmond, on both
sides of the intersection of Nuckols Road and Cox Road, and includes a total of
3,554,168 square feet of space among 70 office buildings. The following table
presents the historical vacancy for the office park over the past five years,
showing a continuing declining vacancy rate.
Office Market Analysis
================================================================================
=============================================================
Historical Vacancy
Innsbrook Office Park
April 1992 - April 1997
=============================================================
Year Inventory SF Vacancy Vacancy
(000) (SF) %
=============================================================
1992 2,346,651 316,415 13.48%
1993 2,400,991 136,275 5.68%
1994 2,419,324 51,460 2.13%
1995 2,452,800 61,375 2.50%
1996 2,572,800 40,474 1.57%
1997 3,554,168 18,219 0.05%
=============================================================
Source: Morton G. Thalhimer, Inc. (April 1997)
Vacancy in Innsbrook reached its peak in September 1991 at 19.57 percent.
Since this time, there has been a consistent downward trend in vacancy rates,
with a current vacancy rate of under 1.0 percent as of April 1997. As indicated,
demand has outpaced supply since 1994, when vacancy declined to 2.13 percent.
Significant construction activity occurred in 1996, as 981,368 square feet was
added to the Innsbrook office market. This space was confined primarily to two
owner-occupied developments: Capitol One completed construction of 454,000
square feet in three buildings in 1996 and Signet Bank completed a 330,000
square foot building. All of the space was 100% owner occupied at the time
construction was complete.
We conducted a micro-market analysis, concentrating on competing office
buildings, containing a total of 545,000+/- square feet. These projects,
presented on the table on the following page, are more indicative of the
subject's competition than the entire suburban market as previously examined.
The competition for the subject comes from other Class A and good quality Class
B office buildings in the Innsbrook Office Park. These buildings are generally
mid -rise suburban office buildings, built in the late 1980s/early 1990s, with
surface or structured parking in similar settings.
The buildings in the micro-market range in size from 43,300 to 101,293
square feet. Asking rental rates range from $15.50 to $17.00 per square foot,
full service, for conventional office space, with an average of $16.06 per
square foot. The overall vacancy among the surveyed buildings is less than one
percent, with eight of the competitive projects fully occupied. Within the
entire Innsbrook Office Park, only three other buildings are not 100 percent
occupied, all of which have less than 3,000 square feet of space available.
Relative to its competition, the subject represents the newest building in
the market. It is typical in terms of quality and finishes for most of the
competitive buildings and is considered to be Class A building in this market.
================================================================================================
Innsbrook Office Park
Competitive Properties
April 1997
================================================================================================
Name/Location Year Built Total SF Vacant SF Vacancy Quoted
Rents
================================================================================================
The Colonnade 1986 65,757 4,559 6.9% $16.50
4050 Innslake Dr.
AETNA Building 1990 101,293 0 0% $16.00
4701 Cox Rd
Allstate Building 1986 43,300 0 0% $16.00
4191 Innslake Dr
Liberty Mutual Building 1990 58,325 0 0% $16.00
41 01 Cox Rd
Rowe Plaza 1990 77,442 0 0% $17.00
4510 Cox Rd
Progressive Building 1987 70,260 0 0% $15.50
4461 Cox Rd.
Cigna Building 1984 46,914 0 0% $15.50
4198 Cox Rd
Markel Building 1987 72,260 0 0% $16.00
4551 Cox Rd
================================================================================================
TOTAL N/A 535,551 4,559 0.01% $16.06 (Avg)
================================================================================================
Summary
The Northwest Quadrant and Innsbrook office markets are continuing their
strong absorption and rental rate growth trends. Investment activity in the
office market has also continued to be active. With healthy absorption in the
Northwest Quadrant, the vacancy rate has remained near 6.0 percent over the past
three years. Similarly, the Innsbrook Office Park experienced positive
absorption and declining vacancy, with a current vacancy rate of less than 1.0
percent. Recent trends in the Innsbrook market include increasing rental rates,
lower vacancy rates, and the potential for new speculative or build-to-suit
construction.
The subject property benefits from its location at an easily accessible
intersection in western Henrico County. The neighborhood bodes well for the
subject property in terms of demand generated for office space due to the
excellent access and transportation arteries accessible from Innsbrook. In
addition, corporations are attracted to the area due to the excellent amenities
offered including retail, hotel and residential development. Innsbrook Corporate
Center is considered the prime location for suburban office users within the
Richmond metropolitan area.
Based on the characteristics of the neighborhood, we believe continued
investment in stabilized properties is warranted. The area appears stable and
improving. We project that growth will continue to be positive.
Site Description
Location: East side of Lake Brook Drive, north of Nuckols
Road. The street address is 4805 Lake Brook Drive,
Innsbrook, Henrico County, Virginia
Shape: Basically rectangular
Area: 8.0 acres (348,480 square feet)
Frontage: The site has frontage along the east side of Lake
Brook Drive.
Topography/Terrain: Slightly below street grade.
Street Improvements
Lake Brook Drive: Two lane in each direction, asphalt paved,
concrete curbs and sidewalks, street lighting and
storm drains
Soil Conditions: We not receive or review a soil report. However,
we assume that the soil's load-bearing capacity is
sufficient to support the existing structures. We
did not observe any evidence to the contrary
during our physical inspection of the property.
The tract's drainage appears to be adequate.
Utilities
Water & Sewer: Henrico County
Electricity: Virginia Power Company
Telephone: Bell Atlantic Telephone
Access: Primary access is from Lake Brook Drive
Land Use Restrictions: We were not given a current
title report to review. We do not know of any
easements, encroachments, or restrictions that
would adversely affect the site's use. However, we
recommend a title search to determine whether any
adverse conditions exist.
Flood Hazard: According to FEMA Community Panel No. 510077-0050
B National Flood Insurance Rate Map, dated
February 4, 1981, the subject property appears to
be in Zone C, an area outside the 500 year flood
plain where flood insurance is not required.
Wetlands: We were not given a Wetlands survey. If a
subsequent engineering survey reveals the presence
of regulated Wetlands areas, we reserve the right
to amend this valuation.
Property Description
================================================================================
Site Improvements: Concrete curbs and sidewalks and surface parking
for 275 vehicles.
Hazardous Substances: We were not given a Wetlands survey. If subsequent
engineering data reveal the presence of regulated
wetlands, it could materially affect property
value. We recommend a wetlands survey by a
competent engineering firm
Comments: Good site for office development due to location
and size.
Improvements Description
The site is improved with a two-story office building known as Lakebrooke
Pointe, which is located at 4805 Lake Brook Drive in Innsbrook, Henrico County,
Virginia. The improvements comprise a precast steel frame Class A office
building that was constructed in 1996 and contain 61,632 square feet of net
rentable area. As of the date of appraisal, the building was 100 percent
occupied by four tenants ranging in size from 2,709 to 31,500 square feet.
We were not provided with any plans or construction specifications for this
property. The following description is based on our visual inspection and
discussions with the building manager. We inspected several, but not all areas
of the building. We noted the finish to be good quality and in good condition,
in those areas. Following are the construction details for the subject
improvements based on our inspection of the property.
General Data
Year Built: 1996
Building Area
Net Rentable Area (NRA): 61,632 square feet
Number of Stories: 2
Construction Detail
Foundations: Concrete slab
Framing: Steel
Floors: Concrete slab
Exterior Walls: Precast concrete panels
Roof Structure: Flat built-up tar and gravel
Roof Cover: Insulated membrane roofing
Windows: Metal frame, insulated double glaze
Pedestrian Doors: Double set of double glass in metal frame doors
Mechanical Detail
Heating and Cooling: Electric variable air volume (VAV) system.
Electrical Service: Assumed to meet code
Elevator Service: Each building is served by two hydraulic cabs.
Fire Protection: Sprinklered
Interior Detail
Layout: The building is served by a central elevator lobby
with offices along the perimeter.
Floor Covering: Primarily carpet in the office areas and ceramic
tile in the restrooms.
Walls: Painted gypsum wall board on metal studs.
Ceilings: Ceilings in office and hall areas are suspended
acoustical tile.
Lighting: Recessed fluorescent
Rest Rooms: Each floor has a set of men's and women's
restrooms.
Americans with
Disabilities Act (ADA): The Americans With Disabilities Act (ADA) became
effective January 26, 1992. We have not made, nor
are we qualified by training to make, a specific
compliance survey and analysis of this property to
determine whether or not it is in conformity with
the various detailed requirements of the ADA. It
is possible that a compliance survey and a
detailed analysis of the requirements of the ADA
could reveal that the property is not in
compliance with one or more of the requirements of
the Act. If so, this fact could have a negative
effect upon the value of the property.
Hazardous Substances: We are not aware of any potentially hazardous
materials (such as formaldehyde foam insulation,
asbestos insulation, radon gas emitting materials,
or other potentially hazardous materials) which
may be used in the construction of the
improvements. If concerns exist in this area, we
recommend that a professional engineer be engaged.
Property Description
================================================================================
Other Site Improvements
On-Site Parking: 275 surface parking spaces, or 4.5 spaces per
1,000 square feet of building area
Landscaping: Good, mature trees, shrubbery around the building
and parking lot perimeter
Comments: The quality of the subject improvements is rated
good. The layout and functional plan are
considered good. No deferred maintenance was
encountered. The normal life expectancy of a
building of this type is 45 years. We consider the
effective age to be equal to one year, leaving an
estimated remaining economic life of 44 years.
We did not inspect the roof of the building or
make a detailed inspection of the mechanical
systems. The appraisers, however, are not
qualified to render an opinion as to the adequacy
or condition of these components. The client is
urged to retain an expert in this field if
detailed information is needed about the adequacy
and condition of mechanical systems
The subject property is identified for real estate assessment and taxation
purposes by Henrico County, Virginia as parcel 28-A-20E. Henrico County
assesses commercial property annually through a computer analysis of comparable
sales. The assessed values reflect full market value. Every two to five years,
the County will physically inspect each property. Present rules do not call for
automatic reassessment upon sale or transfer of ownership. The assessments and
tax bills are based on a calendar year basis. The subject property was recently
assessed in January 1997.
Tax Rates
The 1997 tax rate for Henrico County is $0.94 per $100 of assessed value.
The following chart depicts a four-year prior history:
===============================================================================================
Tax Rate Per $100 of Assessed Value
===============================================================================================
Taxing Authority 1993 1994 1995 1996 1997
Tax Rate Tax Rate Tax Rate Tax Rate Tax Rate
===============================================================================================
Henrico County $0.98 $0.98 $0.98 $0.96 $0.94
===============================================================================================
Between 1980 and 1995, the tax rate for Henrico County remained unchanged
at $0.98 per $100 of assessed value. As depicted, the 1996 and 1997 rates
decreased slightly to $0.96 and $0.94 per $100 of assessed value, respectively.
Tax rates tend to increase or decrease based upon the combined influences of
changes in property values and increasing governmental budgetary needs as the
jurisdiction tries to maintain a pace with inflationary pressures. Over the long
term the county tax rates show an upward trend and we would expect tax rates to
increase in incremental bumps. Given the relative flatness of tax rates over the
past decade, we anticipate future increases in the tax rate to be minimal.
Tax Assessment
The subject's 1997 full cash value and subsequent assessment is outlined in
the following table.
=============================================================
Lakebrooke Pointe
Full Cash Value and Assessment
=============================================================
Land Value $ 960,800
Improvement Value $4,009,200
Total Value $4,970,000
Taxable Assessment $4,970,000
Tax Rate x .094
----------
Taxes Due $46,718.00
=============================================================
Ad Valorem Tax Conclusions
As developed above, the net tax associated with the subject property is
$46,718, or $0.76 per square foot. To measure whether the property's taxes are
market oriented, we analyzed the tax liabilities of comparable properties within
the Innsbrook Office Park, as summarized on the following table.
Real Estate Taxes and Assessments
================================================================================
================================================================================
Real Estate Tax Comparables
Innsbrook Office Park
================================================================================
Building Size (SF) Yr Built R.E. R.E. Taxes (SF)
Taxes
================================================================================
The Colonade 65,758 1986 $53,035 $0.81
4050 Innslake Drive
AETNA Building 101,293 1990 $76,982 $0.76
4701 Cox Road
Liberty Mutual Building 58,325 1990 $50,112 $0.86
4101 Cox Road
Allstate Building 43,300 1986 $34,158 $0.79
4191 Innslake Drive
================================================================================
The real estate taxes of comparable office buildings within the Innsbrook
Office Park range from $0.76 to $0.86 per square foot. The subject property's
1997 actual taxes of $0.76 per square foot falls within the range indicated by
the comparable properties, albeit at the low end of the range.
The full cash value for the subject property is 37 percent lower than our
value conclusion. Because present assessment rules do not call for automatic
reassessment upon sale or transfer of ownership, the tax rate has remained
relatively flat over the past decade, and the subject's current assessment falls
within the range of the tax comparables, we have not forecast a substantial
increase in real estate taxes in our analysis of the property. Overall, we are
projecting growth in real estate taxes consistent with inflationary
expectations, or about 3.5 percent per year.
The subject property is zoned M-1C, a light industrial zoning district of
Henrico County, Virginia. The purpose of this zoning classifications is to
provide areas for industrial and manufacturing uses. A wide range of uses are
permitted including manufacturing, fabricating, processing, wholesale
distribution and warehousing facilities, as well as office and retail. The
Henrico Zoning Ordinance is pyramidal with respect to business, industrial and
office zones and essentially, most use allowed in the business and office zone
is permitted in the M-1 district. The following restrictions apply:
Minimum Lot Area: None Specified
Minimum Lot Width: None Specified
Maximum Height: 45 Feet
Minimum Setbacks:
Front: 25 Feet
Side: None, Unless adjacent to a residential
district then 25 feet
Rear: 30 Feet
Off-Street Parking One space for every 250 square feet of
floor area. Given the gross building area
of square feet, a total of 247 parking
spaces are required. Currently, the
subject site has 275 surface parking
spaces, which is above the minimum
required. The indicated ratio is 4.4
spaces per 1,000 square feet of NRA.
We are not experts in the interpretation of complex zoning ordinances, but
the building appears to conform to current zoning requirements, including
parking. However, the formal determination of compliance is beyond the scope of
a real estate appraisal.
To the best of our knowledge, there are no known deed restrictions (private
or public) which would further limit the use of the subject property. This
statement should not be taken as a guarantee or warranty that no such
restrictions exist. Deed restrictions are a legal matter and only a title
examination by an attorney would normally uncover such restrictive covenants.
Thus, an examination by a title attorney is recommended on the subject property
if any questions regarding such restrictions arise.
According to the Dictionary of Real Estate Appraisal, Third Edition (1993),
a publication of the Appraisal Institute , the highest and best use of real
property is defined as:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility, and maximum profitability.
We evaluated the sites' highest and best use as if vacant. In this case,
the highest and best use must meet the aforementioned criteria. The use must be
(1) legally permissible, (2) physically possible, (3) financially feasible, and
(4) maximally productive.
Highest and Best Use, As If Vacant
The first test concerns permitted uses. According to our understanding of
the zoning ordinance noted earlier in this report, the site could be developed
with general office and financial institutions uses. Residential, retail and
industrial uses are not permitted.
The second test is what is physically possible. As discussed in the
Property Description section, the site's shape, soil, available utilities,
topography, etc. do not physically limit its use given its suburban location.
Additionally, we know of no easements which adversely impact the property. Thus,
the site has no physical limiting conditions, other than size, to restrict its
development.
The third and fourth tests are, respectively, what is feasible and what
will produce the highest net return. After determining those uses which are
physically possible and legally permissible, the remaining uses must be analyzed
in light of their financial feasibility. That is, for a potential use to be
seriously considered, it must have the potential to provide a sufficient return
to attract investment capital from alternative forms of investments.
The subject lies in the midst of office development. Additional office use
would be logical and consistent with surrounding uses. Other successful office
developments have been developed in the area, leading to the conclusion that
another similar use may also succeed. With the site's good access and excellent
location within the Northwest Quadrant office market, prospective tenants would
likely be interested in this location. Accordingly, we conclude that the highest
and best use of the subject would be to develop an office building.
Although the office market in which the subject competes is showing
improvement in vacancy and rental rates, the rent level is still insufficient to
support the cost of new speculative construction. Currently, with the exception
of the pre-leased office space, there are no speculative buildings underway in
the subject neighborhood. Furthermore, this has been the case for the past five
years. This attests to the limited feasibility of new construction in the
subject market; however, as rental rates continue to increase, new construction
is anticipated to be feasible in the near future. A recent survey by the Morton
G. Thalhimer brokerage firm indicated that new speculative construction may be
seen in the market within one to two years.
Based on the foregoing, development of the site, as if vacant, with a
speculative office building appears unlikely at the present time. Nevertheless,
there are a number of larger
tenants in the marketplace and a distinct lack of large availabilities.
Therefore, development of the site on a build-to-suit basis could begin soon.
As Improved
According to the Dictionary of Real Estate Appraisal, highest and best use
of the property as improved is defined as:
The use that should be made of a property as it exists. An existing
property should be renovated or retained as is so long as it continues to
contribute to the total market value of the property, or until the return
from a new improvement would more than offset the cost of demolishing the
existing building and constructing a new one.
The highest and best use "as vacant" and "as improved" must be compatible.
If the site value as though vacant is greater than the property as improved
(less demolition cost), then existing improvements have no value. Sometimes,
however, existing improvements have interim use value. If the highest and best
use of the site as though vacant is holding for future development, then the
improvements might make a short term contribution to property value.
As noted in the Property Description section of this report, the subject
site is improved with a two-story buildings totaling 61,632 net rentable square
feet. Completed in 1996, the improvements are functional in design and are of
good quality when compared to suburban office developments in Henrico County.
The building is currently 100 percent occupied by four tenants.
The data within the Office Market Analysis section revealed that the
submarket in which the subject competes has a vacancy rate of less than one
percent and steadily increasing rents. As improved, the subject is capable of
providing an adequate return to the land both on an intermediate and long-term
basis. This conclusion is supported by the data and analysis presented in the
balance of this report. This premise is obviously contingent upon property
management utilizing a course of action which will be conducive to maximizing
occupancy and rent levels. For these reasons, it is our opinion that the highest
and best use of this site, as improved, is for continued use as a multi-tenant
office project.
Appraisers typically use three approaches in valuing improved property.
These include the Cost Approach, the Sales Comparison Approach and the Income
Approach. The type and age of the property and the quantity and quality of data
affect the applicability of each approach in a specific appraisal situation. The
strengths and weaknesses of each approach utilized are weighed in the final
analysis with the approach or approaches offering the greatest quantity and
quality of supporting data given most consideration in the final analysis. In
this appraisal, we have used the Sales Comparison Approach and the Income
Capitalization Approach to develop a market value estimate. In addition, we have
provided a replacement cost estimate in the Addenda.
The Cost Approach was not performed for the following reasons:
o As discussed in the Highest and Best Use section, new construction is
not feasible in the subject market at the present time. Consequently,
some external/economic obsolescence is inherent in the
reproduction/replacement cost new of the subject improvements.
Quantifying this form of obsolescence is highly subjective and very
theoretical. As a result, the reliability of this approach becomes
very suspect under these circumstances.
o The investment marketplace does not typically trade buildings such as
the subject on a cost/value basis.
o The value being sought is the leased fee estate, whereas the Cost
Approach normally depicts the fee simple estate. Therefore, the
interest being appraised cannot be reflected by the Cost Approach in
its traditional form.
o Market participants do not typically use this approach as a
determinant of value but rather as a reasonableness test that they are
paying less than replacement cost. While not justification in itself
to omit the approach, it does underscore its overall lack of relevance
in the market place.
In the Sales Comparison Approach, we performed the following steps:
o Searched the market for recent office building sales;
o Analyzed those sales on the basis of the sales price per square foot
(net rentable area); and
o Correlated the various value indications into a point value estimate
from within the range.
In developing the Income Capitalization Approach, we:
o Studied rents in effect in the immediate and competing areas to
estimate potential rental income at market levels for office, and
industrial uses.
o Studied the recent history of operating expenses at the subject
property and competing properties to estimate an appropriate level of
stabilized expenses and reserves for replacement.
o Estimated net operating income by subtracting stabilized expenses from
potential gross income after deduction for vacancy and collection
loss.
o Prepared a discounted cash flow analysis in which the estimated income
and expenses over a projected holding period, and the estimated
property value at the time of reversion, are discounted at an
appropriate rate to estimate present market value.
In estimating the final value, we performed the following:
o Reviewed and re-examined each of the approaches to value which were
employed.
o Considered the type and reliability of the data used and applicability
of each approach.
o Reconciled the approaches to a final value conclusion.
Inherent in the Sales Comparison Approach is the principle of substitution,
which holds that when a property is replaceable in the market, its value tends
to be set at the cost of acquiring an equally desirable substitute property,
assuming that no costly delay is encountered in making the substitution. We have
compared the subject property to several relevant property sales.
By analyzing sales which qualify as arms-length transactions between
willing and knowledgeable buyers and sellers, we can identify value and price
trends. Comparability in physical, locational and economic characteristics are
important criteria when selecting the sales for comparison with the subject
property. The basic steps involved in the application of this approach are as
follows:
(1) researching recent, relevant property sales and current offerings
throughout the competitive area'
(2) selecting and analyzing those properties considered most similar to
the subject, considering changes in economic conditions that may have
occurred between the s ale date and the date of value, and other
physical, functional or locational factors;
(3) identifying the sales which include favorable financing and calculate
the cash equivalent price;
(4) reducing the sale prices to common units of comparison, such as price
per square foot of building area (in this net rentable area);
(5) making appropriate adjustment between the comparable properties and
the property appraised; and
(6) interpreting the adjusted results and drawing a logical value
conclusion.
In this instance, the sale prices inherent in the comparables were reduced
to those common units of comparison that can be used to analyze improved
properties that are similar to the subject. Considering the available units of
comparison, one of the most important benchmarks used by buyers and sellers of
office building is price per square foot of net rentable area (NRA).
The following summary chart includes recent transactions of suburban office
buildings from which price trends can be identified for the extraction of value
parameters. The complete survey results on each property appear in detain in the
Addenda of the report.
Sales Comparison Approach
------------------------------------------------------------------------------------------------------------------------------------
Lakebrooke Pointe
4805 Lake Brook Drive
Innsbrook, Virginia
Summary of Building Sales
====================================================================================================================================
Net Cash Sale Price Overall
Sale Year Built Rentable Percent Equivalent Per SF Rate
No. Name/Location Sale Date Renovated Area (SF) Occupied Sale Price (NRA)
====================================================================================================================================
1 Vistas at Brookfield May 1997 1985 70,582 95% $5,840,000 $82.74 10.66%
5516 and 5540 Falmouth Street
Richmond, Virginia
------------------------------------------------------------------------------------------------------------------------------------
2 Liberty Mutual Building Dec 1996 1990 58,184 95% $6,000,000 $103.12 10.83%
4101 Cox Road
Innsbrook, Virginia
------------------------------------------------------------------------------------------------------------------------------------
3 Aetna Building Jun 1996 1990 100,178 99% $10,750,000 $107.31 10.20%
4701 Cox Road
Innsbrook, Virginia
------------------------------------------------------------------------------------------------------------------------------------
4 Capitol One Feb 1996 1996 108,000 100% $10,914,000 $101.06 10.26%
4881 Cox Road
Innsbrook, Virginia
------------------------------------------------------------------------------------------------------------------------------------
5 Owens & Minor Sep 1995 1989 63,000 100% $7,241,000 $114.94 8.71%
4800 Cox Road
Innsbrook, Virginia
------------------------------------------------------------------------------------------------------------------------------------
Subj Lakebrooke Pointe Date of 1996 61,632 100% -- -- --
Innsbrook, Virginia Value
====================================================================================================================================
The five comparables indicate sales prices ranging from $82.74 to $114.94
per square foot of net rentable area. The prices per square foot have been
influenced by differences in construction quality, condition of the premises,
character of the tenancy, and location. Nevertheless, it is important to address
each property in terms of the conventional sequence of adjustments. Following
are those considerations which are relevant to the subject. The first three
elements must be considered in advance of applying any other compensating
factors to derive value conclusions via the sales price per square foot
methodology. These same three factors must also be addressed before the
selection of an effective gross income multiplier.
Property Rights Conveyed
As shown in the summary table, all of the comparables are encumbered by
existing leases; therefore, the leased fee estate was conveyed in each case.
Consequently, no adjustments are warranted for differences in property rights
conveyed.
Seller Financing/Cash Equivalency
All of the comparables were sold on the basis of cash to the seller or cash
equivalent financing. Thus, we have made no adjustments to the comparables for
seller financing.
Conditions of Sale
We identified no special motivational conditions concerning the
comparables; therefore, no adjustments for conditions of sale were made.
Date of Sale
As shown in the summary table, the transactions occurred between September
1995 and May 1997. As indicated in the Office Market Analysis section, the
suburban Richmond office market, as well as the Innsbrook submarket, has
strengthened over the past year, with declining vacancy and increasing rents.
With the exception of Sale I-1, which occurred in May 1997, all of the sales
require upward adjustments for the date of sale to reflect the improved market
conditions.
Other
Most of the additional considerations for the comparables involve
locational issues, design and quality elements, and economic factors. It is
noted that the subject property is 100 percent leased to four tenants at rental
rates ranging from $15.25 to $16.96 per square foot, full service, with a
weighted average rental rate of $16.70 per square foot. The property has limited
rollover until the year 2003, when approximately 49 percent of the existing
leases will have expired. The remaining 51 percent of the building is leased
through the year 2010 to a single tenant. In the following discussion, we
compare each of the improved sales to the subject property and conclude if the
comparable is similar, inferior or superior.
Comparable I-1, Vistas at Brookfield, is located several miles southeast of
the subject in the Brookfield Office Park, just south of the intersection of
Interstate 64 and West Broad Street. As previously noted, Innsbrook is
considered the premier office location in Henrico County due to the vast amount
of amenities offered, as well as the excellent transportation network. Thus,
this property is considered inferior to the subject from a locational
standpoint. The buildings were constructed in 1985 and are significantly older
than the subject. A broker familiar with the sale indicated that this building
has high expenses caused by an inefficient
floorplate. At the time of sale, the building was 95 percent leased to various
tenants, with limited rollover over the next two years. Existing leases range
from $15.50 to $16.50 per square foot. This property is considered inferior to
the subject from a locational standpoint, physical standpoint (age/condition and
floorplates), and economic (occupancy) standpoint. Thus, have labeled the sale
of this building as overall inferior to the subject.
Comparable I-2, the Liberty Mutual Building, is located in close proximity
to the subject within the Innsbrook Office Park at 4101 Cox Road. No adjustment
is deemed necessary to this comparable for location. Constructed in 1990, the
building is slightly inferior to the subject in terms of age/condition. At the
time of sale, the property was 100 percent occupied by five tenants. This sale
is considered similar to the subject from a locational and economic (occupancy)
standpoint, and slightly inferior from a physical standpoint. Overall, we
consider this sale slightly inferior to the subject due to its slightly older
age and improved market conditions since the date of sale (as previously
discussed).
Comparable I-3, the Aetna Building, is also located in close proximity to
the subject within the Innsbrook Office Park at 4701 Cox Road. Again, no
adjustment is deemed necessary for location. Constructed in 1990, the building
is slightly inferior to the subject from a physical standpoint. At the time of
sale, the property was 99 percent leased, with the most recent rents at $16.00
to $16.50 per square foot. Aetna, the lead tenant, downsized and vacated 56,000
square feet or 56 percent of the building. The purchaser considered the loss of
Aetna as a lead tenant a minimal risk given the low vacancy in Innsbrook. This
sale is considered similar to the subject from a locational and economic
(occupancy) standpoint, and slightly inferior from a physical standpoint.
Overall, we consider this sale slightly inferior to the subject due to its
slightly older age and improved market conditions since the date of sale.
Comparable I-4, Capitol One Customer Service Center, is located within the
Innsbrook Office Park at 4881 Cox Road. The building was constructed in 1996 and
considered similar to the subject in terms of age/condition. The property was a
build-to-suit for which a purchase option was exercised upon completion of
construction. At the time of sale, the building was 100 percent leased to the
lead tenant at $10.91 per square foot, triple net. This property is considered
similar to the subject from a locational, physical and economic (occupancy)
standpoint. As previously indicated, this sale requires an upward adjustment for
improving market conditions since the date of sale. Thus, this sale is
considered slightly inferior to the subject.
Comparable I-5, the Owens & Minor Headquarters Building, is located within
the Innsbrook Office Park at 4800 Cox Road. Constructed in 1989, the building is
considered inferior to the subject from a physical standpoint. At the time of
sale, the property was 100 percent leased to a single tenant for an eleven year
term at $12.35 per square foot, triple net. This sale is considered similar to
the subject from a locational standpoint, inferior from a physical standpoint
and date of sale, and superior from an economic (rollover) standpoint. Overall,
we consider this sale slightly superior to the subject due to its higher
occupancy/limited rollover over the holding period.
The following chart summarizes how each sale compares to the subject
property from a physical, locational and economic standpoint.
Sales Comparison Approach
================================================================================
================================================================
Improved Sales Comparison
================================================================
Overall Rating
Sale Price Relative to
No. Per SF the Subject
================================================================
I-1 $82.74 Inferior
I-2 $103.12 Slightly Inferior
I-3 $107.31 Slightly Inferior
I-4 $101.06 Inferior
$114.94 Slightly Superior
================================================================
Because of the multiple differences inherent in office properties with
respect to quality and design, location, and economics, not to mention the
quality of the tenant base, mathematical adjustments for the reasoning noted
above would be extremely difficult, at best.
Comparables I-1 through I-4, with sale prices of $82.74 to $107.31 per
square foot, are considered inferior to the subject, while Comparable I-5, with
a sale price of $114.94 per square foot, is considered superior. Thus, the
subject's value should most likely fall within the range of $107.31 and $114.94
per square foot, and probably nearer the mid-point range because it is
considered only slightly superior to Sale I-3 at $107.31 per square foot and
slightly inferior to Sale I-5 at $114.94 per square foot.
Based on the information presented, we have concluded at a value range for
the subject of $110 to $112 per net rentable square foot. When applied to the
net rentable area, our estimated value range by the sales price per square foot
method is presented as follows:
Sales Price Per Square Foot Unit Analysis
61,632 SF X $11/SF = $6,779,520
61,632 SF X $112/SF = $6,902,784
================================================================================
Concluded to: $6,800,000
The income approach is a method of converting the anticipated economic
benefits of owning property into a value estimate through capitalization. The
principle of anticipation underlies this approach in that investors recognize
the relationship between an asset's income and its value. In order to value the
anticipated economic benefits of a particular property, potential income and
expenses must be estimated, and the most appropriate capitalization method must
be selected.
The two most common methods of converting net income into value are direct
capitalization and discounted cash flow analysis. In direct capitalization, net
operating income is divided by an overall rate extracted from market sales to
indicate a value. In the discounted cash flow method, anticipated future net
income streams and a reversionary value are discounted to an estimate of net
present value at a chosen yield rate (internal rate of return).
The direct capitalization method is an effective technique when stable
conditions exist both in the marketplace and for the property; however, when
market conditions are either changing or likely to change in a fairly dramatic
manner over time, direct capitalization becomes a difficult technique to
administer.
As previously discussed, the subject is located in a strengthening market,
with increasing rents and declining vacancy. It is our opinion that the
discounted cash flow method affords the most realistic method of reflecting
investor expectations of the current period, as well as the projected continued
office market recovery. For this reason, it is our opinion that the discounted
cash flow method is also appropriate method in the valuation of the subject
property. As such, the direct capitalization method will not be used in this
analysis but at the conclusion of the income approach, we will analyze the
resulting overall capitalization rate derived from the discounted cash flow
analysis as a check for reasonableness.
Following is an analysis of the current market rental rates, existing
leases in place, other revenue, vacancy and collection loss projections, and
historical/future operating and fixed expenses for the subject property.
Potential Gross Income
Summary of Existing Leases
The object of this appraisal is to estimate the value of the leased fee
estate in the subject property. Accordingly, consideration must be given to the
leases in place at the time of appraised valuation. The actual leases for the
subject's tenants are incorporated in the following discounted cash flow
analysis. We utilize Pro-Ject +plus, a software program designed to analysis
multi-tenant properties, in this analysis and several of the computer generated
reports are included in the Addenda.
The subject is 100 percent leased to four tenants at rental rates of $15.25
to $16.96 per square foot, full service. A copy of the rent roll, which was
provided by management, can be found in the Addenda.
The major tenant in the property is Kemper Insurance, who occupies 31,500
square feet, or 51 percent of the building. Target is the second largest tenant,
occupying 20,835 square
feet, or 34 percent of the entire building. The remaining two tenants (Lowes and
J. Sargeant Reynolds) occupy 2,709 and 6,588 square feet, respectively.
Assumptions Regarding the Existing Leases
Information provided by management indicates that the tenant is not in
default of their lease. We assume that the existing tenant will continue to pay
rent under the terms of their lease obligations. We address renewal probability
in the Vacancy and Collection Loss section.
Lease Expirations
In our analysis, consideration is also given to lease expiration schedule.
The timing of lease expiration is an important element and a prospective buyer
would attempt to assess the risk relative to upcoming turnover. For example, a
large lease expiring in the near future would indicate the possibility of a
significant drop in income and consequently a higher risk factor might be
appropriate. The following chart summarizes the property's annual lease
expirations.
The risk associated with lease expirations in the subject property does not
appear high until fiscal year 2003, when Target's lease expires. At that time,
approximately 49 percent of existing leases will have expired. Kemper Insurance,
who occupies the remaining 51 percent of the project, has a lease expiration
beyond the holding period in the year 2010. Based on the foregoing, expirations
are not considered to be a significant factor in the analysis of the subject.
Market Rental Rate
Market rent for the property has been estimated by analyzing comparable
leases exhibited on the summary chart on the following page.
Prior to adjustment, the comparables reflect a rental range of $16.00 to
$17.00 per square foot, full service. After adjustment for rent concessions, the
range was unchanged. New buildings within Innsbrook, including the Wheat First
Building and a building planned for development by Liberty Property Trust, are
achieving rental rates averaging $17.00 to $18.00
per square foot, with $10.00 to $14.00 per square foot workletters. With the
exception of Rental One (Wheat First Building), the subject property represents
newer construction than the comparables and thus, should achieve a rent at the
higher end of the range.
There are few concessions being granted in today's market. None of the
rentals included above standard tenant improvement allowances. Allowances ranged
from $5.00 to $13.00 per square foot for new and second generation space. Annual
rent escalations were generally 2.5 to 3.0 percent per year. Lease terms ranged
from three to five years, with most at five years.
As shown in the Micro Market summary table presented in the Market Analysis
section of the report, asking rents at competing properties are in the range of
$15.50 to $17.00 per square foot. Thus, it appears that actual lease rates are
within the range of asking levels.
The two most recent 1996 leases signed at the subject property were at
rental rates of $15.95 and $16.96 per square foot full service for spaces
ranging in size from 2,709 to 6,588 square feet. Annual escalators were 2.75 to
3.0 percent. Tenant improvements provided for Lowes (2,709 square feet) was
$14.50 per square foot. We were not provided with J. Sargeant Reynolds' (6,588
square feet) tenant improvement allowance. Additional rent for these leases
include operating expense escalation over the base year of occupancy.
Recent leases within the market include few concessions, either in the form
of free rent or above standard tenant improvement allowances. Most brokers
interviewed were of the opinion that rental concessions were not being granted.
Several brokers indicated that the market has continued to improve over the
last 12 to 24 months, with rents increasing and concessions remaining almost
non-existent. In the view of many, the leasing market has generally reached
stabilization and delivery of new office buildings to the market will be the
primary influence on rental rate and occupancy trends. In keeping with these
observations, we have assumed that market rent will increase at an average rate
of 3.5 percent per annum through the projection period. As discussed in the
Office Market Analysis section, rent spikes are not anticipated to occur in the
minds of market participants due primarily to the large amounts of vacant land
available for development. Investors surveyed indicated that rent spikes were
highly speculative and generally not incorporated into their purchase decisions.
Although many investors felt that rental rates may in fact grow at a rate
greater than inflation over the short term, they are unwilling to make this
assumption in their investment projections. Although it is not inconceivable
that rent spikes could occur, we believe the prudent approach at this stage is
level rent growth. Finally, free rent and tenant workletter concessions will
remain consistent with current levels.
----------------------------------------------------------------------------------------------------------------------------
Minimum Effective
Comp. Lease Lease Size Rent Rent Term Expense Stop
No. Building Name/Address Date Yr. Built (SF) ($/SF) ($/SF) (Yrs) ($/SF)
----------------------------------------------------------------------------------------------------------------------------
1 Wheat First Securities May-97 1997 5,638 $ 17.00 $ 17.00 3 Base Year
10700 North Park Drive
Innsbrook, Henrico County
2 Rowe Plaza Feb-97 1990 4,422 $ 16.50 $ 16.50 5 Base Year
4510 Cox Road
Innsbrook, Henrico County
3 Liberty Mutual Building Feb-97 1990 4,000 $ 16.00 $ 16.00 5 Base Year
4101 Cox Road
Innsbrook, Henrico County
4 The Allstate Building Jan-97 1986 1,300 $ 16.00 $ 16.00 5 Base Year
4191 Cox Road
Innsbrook, Henrico County
-----------------------------------------------------------------------------------------------------------------------
Totals 15,360 $ 16.38 5 Base Year
-----------------------------------------------------------------------------------------------------------------------
============================================================================================================================
-------------------------------------------------------------------------------------------
Tenant
Comp. Annual Improvement
No. Building Name/Address Escalations Concesssions Allowance (SF)
-------------------------------------------------------------------------------------------
1 Wheat First Securities 2.50% None $13.00
10700 North Park Drive
Innsbrook, Henrico County
2 Rowe Plaza 3.0% None $10.00
4510 Cox Road
Innsbrook, Henrico County
3 Liberty Mutual Building 3.0% None $6.00
4101 Cox Road
Innsbrook, Henrico County
4 The Allstate Building 3.0% None $5.00
4191 Cox Road
Innsbrook, Henrico County
--------------------------------------------------------------------------------------
Totals 2.5% = 3.0% None $5.00 = $13.00
--------------------------------------------------------------------------------------
===========================================================================================
The most recent lease deals at the subject property of $15.95 to $16.96 per
square foot in 1996 are basically in-line with the rents for new leases in the
market of $16.00 to $17.00 per square foot. In our opinion, market rents for
space within the subject property will be $17.00 per square foot, recognizing
that some leasing will be done above and below this rate.
The above estimated market rents assume the following concession package.
Assumptions Regarding Existing and Proposed Leases
Our analysis specifically assumes that all of the existing tenants will
remain in the property and continue to pay rent under the terms of their leases.
Information provided by management indicates that none of the tenants are
currently in default. The tenant base appears to be stable and management has
indicated that defaults are not anticipated.
Given the low vacancy for Class A space within the Innsbrook Office Park of
under 1.0 percent, and the lack of new speculative construction, we have
projected that 70 percent of tenants will rollover (sign a new lease) and
approximately 30 percent will turnover (allow their lease to expire and vacate
the property) upon expiration of their primary lease term.
An examination of the comparable leases shows typical lease terms of three
to five years, with most at five years. Accordingly, we have assumed five year
terms for speculative tenants.
Vacancy between leases includes the period of actual downtime and the
construction period to build-out tenant spaces. Consistent with our experience,
we have assumed a stabilized vacancy and construction period of nine months. We
acknowledge that current time between tenants may be shorter, though a long term
trend may reflect fluctuations. Vacancy between leases is weighted for the 30
renewal probability, resulting in an effective downtime of three months
(rounded) upon each lease expiration. On a five year average lease term, this
equates to 4.8 percent average physical vacancy (downtime of 3 months divided by
the downtime plus the 60 month average lease term)
Reimbursable Expenses (Escalations)
Tenants are responsible for their pro-rata share of operating expenses
(including real estate taxes) when they exceed those incurred during the first
full year of their occupancy. The majority of current leases in the subject
property include an operating expense escalation, which calculation may be
summarized as follows:
Billing Year Operating Expenses
Less: Base Year Operating Expenses
Equals: Increase in Operating Expenses
Multiplied by: Tenant's Pro Rata Share
Prior market performance has indicated that landlords were unable to
receive any reimbursement from tenants. However, as the market has strengthened
in recent months, expense recovery by the landlord have been market oriented,
with tenants responsible for the increase in all operating expenses over the
base year of occupancy. We have assumed that future leases in the subject
property will be on a full service basis with tenants responsible for the
increase in all operating expenses over the base calendar year amount.
Vacancy and Collection Loss
Our cash flow projection assumes a tenant vacancy of nine months upon each
lease expiration set against our probability of renewal estimated at 70 percent,
in addition to a global credit loss provision is applied to the gross rental
income. The global credit loss provision is applied to the gross rental income
from all tenants and is estimated at 2.0 percent throughout the holding period.
Our renewal probability is based on the lack of space available within the
Innsbrook Office Park (less than one percent) and lack of new speculative
construction.
There are no vacant spaces at the property and the first lease expiration
occurs in the year 2001. Based on the subject's weighted average downtime
between leases, the overall average occupancy rate of the subject property over
the 10 year holding period is 98.7 percent. Including our overall credit loss
allowance estimated at 2.0 percent, the implied overall vacancy and credit loss
factor for the subject property is 3.3 percent. This rate is substantially lower
than our estimated vacancy and collection loss of 6.8 percent because the
property is 100 percent leased through the year 2001 and 51 percent of the
building is leased to a single tenant through the year 2010.
Operating Expenses
We based our estimate of operating expenses for the subject on a review of
the actual 1994 through 1996 expenses, as well as the 1997 budget. This data was
compared with expense comparables at similar suburban office buildings as well
as industry studies. In addition, we have consulted Cushman & Wakefield's
Management Services staff for further support. The Historical and Budget
Operating Statements for the subject property provided by property management
can be found in the Addenda.
We have analyzed each item of expense individually and attempted to project
what the typical investor would consider reasonable. Increases in the expenses
during subsequent years are projected at 3.5 percent per annum. Based on
historical CPI trends, we conclude that our selected growth rate reflects an
overall inflationary rate over the long term. The forecast of growth rates in
all categories of expenses reflect typical investor expectations as noted in the
Cushman & Wakefield Investor Survey, a copy of which is in the Addenda. Except
where noted, our forecasted growth rate for the various expense categories
generally does not attempt to reflect growth rates for any individual year, but
rather the long term trend over the projected holding period.
Real Estate Taxes
Real estate taxes are based on the actual assessment and tax rate reported
in the Real Estate Taxes and Assessment section. The Year One real estate
taxes are equal to $46,718, or $0.76 per square foot of net rentable area.
Operating expenses include utilities, repairs and maintenance, janitorial
and service contracts, insurance, etc. The building's actual cost was $3.28
per square foot n 1996. The 1997 budgeted expense is slightly lower at
$3.20 per square foot. We have estimated this expense at $3.50 per square
foot in year one, which is slightly higher than the budget, but consistent
with the expense comparables at $3.36 to $3.86 per square foot.
General & Administrative
These expenses are directly connected to the administration of the
building, including office payroll, general office expense, advertising and
other miscellaneous expenses. The building's actual cost was $0.62 in 1996.
The 1997 budgeted expense is lower at $0.45 per square foot, but slightly
higher than the expense comparables at $0.21 to $0.34 per square foot. We
have estimated this expense consistent with the budget, or $0.45 per square
foot.
Management Fees
This expense represents the fee for management responsibilities, whether
provided by an outside company or ownership. This includes rent collection,
property supervision and budget preparation. Cushman & Wakefield Property
Management personnel reported that typical management agreements range from
2.5 to 3.0 percent of effective gross income. The current management fee
charged at the subject is 3.0 percent of effective gross income. It is our
opinion that this rate is reflective of market parameters and as such, a
management fee equal to 3.0 percent of effective gross income is estimated
for the subject.
New leases will require a leasing commission equivalent to 4.0 percent of
total rental income and 2.0 percent on renewal leases. The new lease
commission rate reflects the fact that a landlord will typically be charged
a commission of 3.0 to 4.0 percent by the tenant's agent and 2.0 to 3.0
percent by the landlord's agent. Upon renewal, landlords resist paying
leasing commissions, but typically pay a portion of the full commission
rate or a partial fee to the management company for its assistance in
working with the tenant. This expense item is not passed through to the
tenant. The probability factor is used for speculative renewals.
Tenant Improvements/Finish
The tenant improvement allowance was previously discussed and is projected
to be $13.00 per square foot for new tenants and $6.50 per square foot for
renewals. This expense is also not passed through to the tenants. The
probability factor applies to speculative renewals. Tenant
improvements/finish costs are projected to increase at the rate of 3.5
percent per year through the projection period.
Capital Replacements/Reserves
Reserves for replacements should be (though as a practical matter, they may
not be) set aside to accumulate an amount sufficient to replace and/or
repair certain major building components, i.e., roof, HVAC system, etc.
during the period under analysis. Taking into consideration the subject's
age, we have estimated capital reserves of $0.25 per net rentable square
foot for Year One, increasing by 3.5 percent per year throughout our
analysis.
Our projected expenses are predicated on the assumption that the property
will be prudently managed, while maintaining the improvements at a competitive
level to preserve value. The preceding cumulative annual operating expense
estimate for fiscal year 1998 equates to $323,483 or $5.25 per square foot of
gross leasable area, excluding capital replacements, tenant alterations and
leasing commissions. These expenses are in-line with the expense comparables at
$4.75 to $5.48 per square foot and are considered reasonable. The growth rates
incorporated in our projections result in a 3.54 percent annual compound growth
rate over the holding period.
Discounted Cash Flow Analysis
In the discounted cash flow analysis, we employed the PRO-JECT+ plus
software which allowed us to simulate the operating characteristics of the
property and to make a variety of operating assumptions. We attempted to reflect
the most likely investment assumptions of typical buyers and sellers in this
particular market segment. We used the following figures and assumptions in the
computer model.
Years in Forecast: 11
Holding Period: 10
Starting Date: July 1, 1997
Market Rental Rate (Year 1) $17.00 per SF, Full Service
Miscellaneous Income: N/A
Growth in Market Rental Rate: 3.5% percent
Expense and Tax Pass-Throughs: Tenants pay increases over base
year of occupancy.
Expense Growth Rate: 3.5% per annum
Consumer Price Index: 3.5% per annum
Free Rent: None
Lease Term (Typical): 5 years
Renewal Probability: 70%
Tenant Improvements - New Leases $13.00 per SF
Tenant Improvements - Renewing Leases $6.50 per SF
Leasing Commissions: 4% new leases; 2% for renewals. All
payable in year 1 of the lease.
Vacancy Between Leases: 9 months (prior to renewal
probability of 70%; effective
vacancy is 3 months
Credit Loss: 2.0%
Reversion Cap Rate: 10.5% (applied to net operating
income).
Reversion Selling Expenses: 3% (includes brokerage, legal fees
and estimated transfer taxes).
Discount Rate (IRR): 12.0% (see Discount Rate Analysis).
Cash Flow Projection
On the following page is our 11 year cash flow projections which include
our 10 year holding period and 11th year reversion. The cash flow reflects the
results of the PRO-JECT+ plus projection.
A terminal capitalization rate was used to estimate the market value of the
property at the end of the assumed investment holding period. We estimated an
appropriate terminal rate based on indicated rates in today's market.
The OARs for the comparable sales from which we were able to derive
capitalization rates ranged from 8.71 to 10.83 percent. A premium was added to
today's rate to allow for the risk of unforeseen events or trends which might
affect our estimate of net operating income during the holding period, including
a possible deterioration in market conditions for the property. Investors
typically add 50 to 100 basis points to the "going-in" rate to arrive at a
terminal capitalization rate, according to Cushman & Wakefield's periodic
investor surveys.
Discount Rate Analysis
We estimated future cash flows, including property value at reversion, and
discounted that income stream at an internal rate of return (yield rates)
currently required by investors for similar-quality real property. The yield
rate (internal rate of return or IRR) is the single rate that discounts all
future equity benefits (cash flows and equity reversion) to an estimate of net
present value.
Cushman & Wakefield Valuation Advisory Services periodically surveys
national real estate investors to determine their investment objectives.
Following is a brief review of internal rates of return, overall rates, and
income and expense growth rates considered acceptable by respondents.
====================================================================
Autumn 1996 Investor Survey
Suburban-Office Buildings
=====================================================================
Going-In Terminal IRR
--------------------------------------------------------------------
Low High Low High Low High
====================================================================
Mean 8.80% 9.50% 9.30% 9.90% 11.2% 11.6%
--------------------------------------------------------------------
Range 8.00% 11.0% 8.00% 11.0% 10.0% 13.0%
====================================================================
The preceding table summarizes the investment parameters of some of the
most prominent investors currently acquiring high-grade investment properties in
the United States. Generally speaking, our survey reveals terminal
capitalization rates of 8.0 to 11.0 percent with the average low and high
responses of 9.3 and 9.9 percent for investment grade offices in non-CBD
suburban locations.
The wide range of investment parameters indicates that property risk and
yield are assessed to a particular investment property based on a variety of
variables. Risk is the primary determinant, and the risk variables include
whether current contract rents are significantly above or below current market
rents; the amount and timing of tenant rollovers; the risk to lease-up the
property and the strength of the market during the lease-up period; the
durability of the cash flow, and its ability to increase with inflation along
with the credit worthiness of the existing tenancy; investor demand for the
property type; the diversification of the metropolitan area; the property's
location within the local market and the supply and demand for the property type
within the market; and the effective age of the property.
The internal rate of return and terminal capitalization rate selected for
this analysis were strongly influenced by our recent Investor Survey. We realize
that this type of survey reflects target rather than transactional rates.
Transactional rates are usually difficult to obtain in the verification process
and are actually only target rates of the buyer at the time of sale. The
property's performance will ultimately determine the actual yield and
capitalization rate at the time of sale after a specific holding period. We have
found that, in improving markets or with above average properties, demand will
be high and transactional rates may be lower than target rates that are quoted
in surveys. We have tried to recognize this factor in our choice of these two
rates for our cash flow model.
Discussions with local investors and brokers including Morton G. Thalhimer,
Harrison and Bates, Innsbrook Development Company and the Joyner Company, to
name a few, indicated a yield rate range of 12.0 to 13.0 percent for suburban
Richmond office properties and a terminal capitalization rate of 10.0 to 10.5
percent. One investor familiar with the Richmond market noted that, given the
second-tier orientation of the Richmond market (on a national scale), the
subject's discount rate would be above the mean indicated in our national
survey. Another broker indicated that an investor purchasing a building recently
within Innsbrook utilized as discount rate of 12.5 percent and a terminal rate
of 10.0 percent.
In our DCF model, we selected a terminal capitalization rate that accounted
for the anticipated holding period and reflected the subject's tenancy, quality
and location. This rate also reflected the risk involved in our DCF analysis
based on the income and expense projections that were modeled, as well as the
approximate age of the property at the end of the holding period. The rate we
selected reflects the rollover risk over the holding period, as well as the
strength of the Innsbrook office market.
Conclusion
Using a 10.5 percent terminal rate and a 12.0 percent discount rate, our
cash flow model indicated a value of $6,800,000 or $110.33 per square foot, as
shown on the following page. This value estimate produces an implied going-in
capitalization rate of 9.6 percent, which is basically in-line with the range
generally required by investors as noted in the Cushman & Wakefield Investor
Survey.
Regarding the composition of the yield, as analyzed in the Discounted Cash
Flow Analysis chart, 57 percent of the subject's ultimate yield is derived from
the cash flow of the property with the balance attributable to the reversion or
resale of the property at the conclusion of the holding period. Typical investor
requirements dictate that a substantial amount of the value be
derived from the cash flow. Greater risk is evident when the reversion provides
a larger percentage of the overall return than the cash flows. The average cash
on cash return is 10.3 percent, based on this value conclusion. This rate would
generate investor interest because the yields are appropriate relative to the
risks involved.
Thus, it is our opinion that the market value of the property by the Income
Approach, is $6,800,000.
Lakebrooke Point
4805 Lake Brook Drive
Innsbrook, Henrico County, Virginia
Discounted Cash Flow Analysis
====================================================================================================================================
NET DISCOUNT PRESENT ANNUAL
CALENDAR CASH FACTOR @ VALUE OF COMPOSITION CASH ON CASH
YEAR FLOW 12.00% CASH FLOWS OF YIELD RETURN
====================================================================================================================================
1998 $639,738 X 0.89286 = $571,195 8.41% 9.41%
1999 $655,841 X 0.79719 = $522,832 7.70% 9.64%
2000 $672,397 X 0.71178 = $478,599 7.05% 9.89%
2001 $688,833 X 0.63552 = $437,766 6.45% 10.13%
2002 $568,988 X 0.56743 = $322,859 4.75% 8.37%
2003 $644,330 X 0.50663 = $326,438 4.81% 9.48%
2004 $607,970 X 0.45235 = $275,015 4.05% 8.94%
2005 $868,688 X 0.40388 = $350,849 5.17% 12.77%
2006 $901,557 X 0.36061 = $325,110 4.79% 13.26%
2007 $765,235 X 0.32197 = $246,385 3.63% 11.25%
---------- ----
Total Present Value of Cash Flows $3,857,047 56.79% 10.31%
Average
Reversion:
2008 $986,566 (1) 10.50% = $9,395,867
Less: Cost of Sale@ 3.00% $281,876
----------
Net Reversion $9,113,991
X Discount Factor 0.32197
----------
Total Present Value of Reversion $2,934,461 43.21%
Total Present Value of Cash Flow $6,791,509 100.00%
ROUNDED: $6,800,009
==========
-----------------------------------------------------------------------
Gross Leasable Area (S.F.): 61,632
Per Square Foot of Gross Leasable Area: $110.33
Implicit Going-in Capitalization Rate:
Year One NOI $655,146
Going-In Capitalization Rate: 9.6%
-----------------------------------------------------------------------
Note: (1) Net Operating Income
====================================================================================================================================
We employed two of the three approaches to value in our analysis. The
indicated values are shown below:
Sales Comparison Approach $6,800,000
Income Approach $6,800,000
The three traditional methods of estimating the market value of commercial
real estate are not mutually exclusive approaches to deriving an estimate of
most probable selling price, but are inter-dependent methodologies, each relying
on components from at least one of the other approaches. Hence, the Cost
Approach requires extensive market data to derive estimates of depreciation and
to determine the value of land as if vacant. This approach may also require
income data in order to make adjustments for functional and economic
obsolescence. The Sales Comparison Approach requires application of methods from
the Income Capitalization Approach in order to make adjustments for differences
in income that have influenced the sale price. Consideration of market data is
also required for the Income Capitalization Approach in the selection and
application of equity, capitalization and discount rates, and estimation of
income and expenses. Consequently, it is our opinion that purchasers and
sellers, at least intuitively, consider components of all three approaches in
the process of negotiating an acceptable price for a particular property.
It is the Income Capitalization Approach, however, that is logically
considered the most appropriate technique for estimating the value of
income-producing property. Not only does this approach represent the most direct
and accurate simulation of market behavior, it is the method explicitly employed
by buyers and sellers in acquisition and disposition decisions. Therefore,
following the implied dictum of the market, we have used an approach based
primarily on projected income as the foundation for our valuation of the subject
property.
There are several additional reasons why the Sales Comparison Approach does
not form the basis of our value estimate for the subject property. The quantity
and quality of market information inhibits the use of the Sales Comparison
Approach. Inadequacy of information regarding gross and net income, lease
details and expenses of comparable sales often deters accurate and relevant
adjustments of unit price indicators. Comparison at a dollar per square foot
level precludes the analysis of those key factors which form the basis for
projections on which the purchase decision was made.
Based on the above discussion, we have formed an opinion that the
prospective market value of the leased fee estate in the subject property,
subject to the assumptions, limiting conditions, certifications and definitions
as of July 1, 1997, was:
SIX MILLION EIGHT HUNDRED THOUSAND DOLLARS
$6,800,000
Marketing Time
Marketing time is an estimate of the time that might be required to sell a
real property interest at the appraised value. Marketing time is presumed to
start on the effective date of the appraisal, whereas exposure time is presumed
to precede the effective date of appraisal. The estimate of marketing time uses
some of the same data analyzed in the process of estimating the reasonable
exposure time and is not intended to be a prediction of a date of sale.
Our estimate of an appropriate marketing time for the subject relates to a
sale of the property in its As Is condition. Based on our discussions with local
brokers and buyer/sellers of office projects like the subject, as well as our
assessment of the local real estate market And economic forces in general, we
have concluded that the probable marketing period for the subject property in
today's environment would be about 12 months.
"Appraisal" means the appraisal report and opinion of value stated therein; or
the letter opinion of value, to which these Assumptions and Limiting Conditions
are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the
Appraisal.
This appraisal is made subject to the following assumptions and limiting
conditions:
1. No opinion is intended to be expressed and no responsibility is assumed for
the legal description or for any matters which are legal in nature or
require legal expertise or specialized knowledge beyond that of a real
estate appraiser. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens
unless otherwise stated. No survey of the Property was undertaken.
2. The information contained in the Appraisal or upon which the Appraisal is
based has been gathered from sources the Appraiser assumes to be reliable
and accurate. Some of such information may have been provided by the owner
of the Property. Neither the Appraiser nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits and factual matters.
3. The opinion of value is only as of the date stated in the Appraisal.
Changes since that date in external and market factors or in the Property
itself can significantly affect property value.
4. The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal.
Publication of the Appraisal or any portion thereof without the prior
written consent of C&W is prohibited. Except as may be otherwise stated in
the letter of engagement, the Appraisal may not be used by any person other
than the party to whom it is addressed or for purposes other than that for
which it was prepared. No part of the Appraisal shall be conveyed to the
public through advertising, or used in any sales or promotional material
without C&W's prior written consent. Reference to the Appraisal Institute
or to the MAI designation is prohibited.
5. Except as may be otherwise stated in the letter of engagement, the
Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
6. The Appraisal assumes (a) responsible ownership and competent management of
the Property; (b) there are no hidden or unapparent conditions of the
Property, subsoil or structures that render the Property more or less
valuable (no responsibility is assumed for such conditions or for arranging
for engineering studies that may be required to discover them); (c) full
compliance with all applicable federal, state and local zoning and
environmental regulations and laws, unless noncompliance is stated, defined
and considered in the Appraisal; and (d) all required licenses,
certificates of occupancy and other governmental consents have been or can
be obtained and renewed for any use on which the value estimate contained
in the Appraisal is based.
7. The physical condition of the improvements considered by the Appraisal is
based on visual inspection by the Appraiser or other person identified in
the Appraisal. C&W assumes no responsibility for the soundness of
structural members nor for the condition of mechanical equipment, plumbing
or electrical components.
8. In preparing this appraisal, we have relied on the rent roll and the
history of income and expenses furnished by the owner or the management
company representing the owner. We have not reviewed actual tenant leases.
9. The forecasts of income and expenses are not predictions of the future.
Rather, they are the Appraiser's best estimates of current market thinking
on future income and expenses. The Appraiser and C&W make no warranty or
representation that these forecasts will materialize. The real estate
market is constantly fluctuating and changing. It is not the Appraiser's
task to predict or in any way warrant the conditions of a future real
estate market; the Appraiser can only reflect what the investment
community, as of the date of the Appraisal, envisages for the future in
terms of rental rates, expenses, supply and demand.
10. Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance of the improvements or may be located at or about the
Property was not considered in arriving at the opinion of value. These
materials (such as formaldehyde foam insulation, asbestos insulation and
other potentially hazardous materials) may adversely affect the value of
the Property. The Appraisers are not qualified to detect such substances.
C&W recommends that an environmental expert be employed to determine the
impact of these matters on the opinion of value.
11. Unless otherwise stated in the Appraisal, compliance with the requirements
of the Americans With Disabilities Act of 1990 (ADA) has not been
considered in arriving at the opinion of value. Failure to comply with the
requirements of the ADA may adversely affect the value of the property. C&W
recommends that an expert in this field be employed.
We certify that, to the best of our knowledge and belief:
1. Kelly J. Small inspected the property and prepared the report, and Donald
R. Morris, MAI, Manager, Cushman & Wakefield of Washington D.C., Valuation
Advisory Services, reviewed and approved the report.
2. The statements of fact contained in this report are true and correct.
3. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
4. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
5. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event. The appraisal assignment was not based on
a requested minimum valuation, a specific valuation or the approval of a
loan.
6. No one provided significant professional assistance to the persons signing
this report.
7. Our analyses, opinions and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. As of the date of this report, Donald R. Morris, MAI, has completed the
requirements of the continuing education program of the Appraisal
Institute.
10. We estimate that the prospective market value of the leased fee estate in
the existing office building, subject to the assumptions, limiting
conditions, certifications and definitions as of July 1, 1997, is
$6,800,000.
/s/ Kelly J. Small /s/ Donald R. Morris,
Kelly J. Small Donald R. Morris, MAI
Appraiser Manager, Director
Valuation Advisory Services Washington, D.C. Valuation Advisory Services
Virginia Certified General
Appraiser 4001-002465
[Seal] .
Building Name: Vistas at Brookfield
Location: Vistas I - 5540 Falmouth Street
Vistas II - 5516 Falmouth Street
Brookfield Office Park
Richmond, Virginia
Grantor: Continental Properties, Inc.
Grantee: Brookfiled Holdings, L.P.
Date of Sale: May, 1997
Deed Book/Page: Not Available
Consideration: $5,840,000
Financing: All cash
Building Size (NRA): 70,582 square feet total
(Both Buildings)
Unit Price: $82.74/SF of net rentable area
Financial Estimates (Seller's 1997 Budget)
Effective Gross Income: $1,149,812 ($16.29/SF)
Operating Expenses: $527,000 ($7.47/SF)
Net Operating Income: $622,812 ($8.82/SF)
Ro: 10.66%
EGIM: 5.08
Expense Ratio: 45.8%
Comments:
These four-story, Class B office buildings are located within the Brookfield
Office Park, just south of the intersection of Interstate 64 and West Broad
Street. The buildings are adjoining, and were completed in 1985. The buildings
were 95% leased at the time of sale to numerous medium sized tenants including
AEC Engineering, Brian Brothers and Kelsurn and Lee. A broker of the sale noted
that there was limited tenant rollover over the next two years. Rental rates
within the building typically range from $15.50/SF to $16.50/SF.
A broker familiar with the sale indicated that the expenses are above typical
suburban office buildings due to a high utilities expense. This increased
expense is caused by an "inefficient floorplate". It should also be noted that
one broker reported a sale price of $5,890,000. owever, this price was reduced
slightly by commissions ($40,000) and a $10,000 credit to the buyer for physical
items.
[PHOTO OMITTED -- LIBERTY MUTUAL BUILDING]
Building Name: Liberty Mutual Building
Location: 4101 Cox Road
Innsbrook Corporate Park
Richmond, Virginia
Grantor: Home Beneficial Life Insurance Company
Grantee: Highwoods - Forsythe L.P.
Date of Sale: December, 1996
Deed Book/Page: 2691/2034
Consideration: $6,000,000
Financing: All cash
Building Size (NRA): 58,184 SF
This Class A office building was completed in 1990 and delivered to the market
during the beginning of the recession, with subsequent poor absorption history.
The lender ultimately foreclosed on the owner. The property was then purchased
by Home Beneficial Life Insurance Company in December of 1993 for $5,050,000 and
was 95% leased at the time of sale. The sale generated a 10.96% cap rate and an
EGIM of 6.01. The 1993 sale included 2.9 acres of residual land which had a POD
for another 42,000 SF office building. The residual land was allocated a value
of $252,000. The most recent sale did not include the 2.9 acres of
residual/undeveloped land. The parcel has been subdivided and is under separate
contract for sale to a hotel developer for $550,000.
As of the most recent sale date, the building was 100% occupied to five
tenants. Capitol One had 35,000 SF and Liberty Mutual leased 18,000 SF. The
property had been marketed for six months prior to the sale. It should be noted
that the seller's proforma included a lower EGI and slightly higher expense
estimate, which resulted in a cap rate of 10.0%.
This acquisition by Highwoods is part of Highwoods Property's massive move into
the suburban Richmond office market. Highwoods is a Raleigh, N.C. based real
estate investment trust (REIT) which has purchased over $45 million of assets in
the Richmond area during the past year (1995).
[PHOTO OMITTED -- AETNA BUILDING]
Building Name: Aetna Building
Location: 4701 Cox Road
Innsbrook Corporate Park
Richmond, Virginia
Grantor: 4701 Cox Road, L.P.
Grantee: Highwoods - Forsythe L.P.
Date of Sale: June, 1996
Deed Book/Page: 2656/1793
Consideration: $10,750,000
Financing: All cash
Building Size (NRA): 100,178 SF
Unit Price: $107.31/SF of net rentable area
Financial Data:
Effective Gross Income: $1,546,763 ($15.44/SF)
Operating Expenses: $451,338 ($4.50/SF)
Net Operating Income: $1,095,425 ($10.93/SF)
Ro: 10.2%
EGIM: 6.95
Expense Ratio: 29.2%
Comments:
This is a high quality four-story building that was built in 1990 with Aetna as
the lead tenant. Aetna subsequently downsized, thus reducing their office space
needs and vacating 56,000 SF in this building. The space has since been
released.
The property was acquired in July of 1993 by several local investors for
speculative investment. The initial owner, Rowe Development, experienced
company-wide financial problems and lost most of its extensive office holdings.
The previous purchaser was a Dutch group who viewed the property as a long term
investment with good upside potential. They considered the loss of Aetna as a
lead tenant as minimal risk, given the low vacancy in Innsbrook.
The building was 99% leased at the time of sale, and was completed in 1990.
Recent rental rates at the property ranged from $16.00/SF to $16.50 per square
foot. The building is leased on a multi-tenant basis. Expenses noted above do
not include reserves, leasing or tenant improvement costs. All income data is
estimated by the buyer based upon the existing leases and expenses.
[PHOTO OMITTED -- CAPITOL ONE CUSTOMER SERVICE CENTER]
Building Name: Capitol One Customer Service Center
Location: 4881 Cox Road
Innsbrook Corporate Park
Richmond, Virginia
Grantor: Liberty Property, L.P.
Grantee: First Security Bank of Utah
Date of Sale: February, 1996
Deed Book/Page: 2633/402
Consideration: $10,914,000
Financing: Cash to seller, funded by $15.5 million
Deed of Trust note with
NationsBank of Texas.
Building Size (NRA): 108,000 SF
Unit Price: $101.06/SF of net rentable area
Financial Data:
Effective Gross Income: $1,178,500 ($10.91/SF) (Triple net
lease in place)
Operating Expenses: $58,925 ($0.55/SF)
Net Operating Income: $1,119,575 ($10.37/SF)
Ro: 10.26%
EGIM: 9.26
Expense Ratio: 5.0%
Comments:
This is a high quality four-story building that was completed in 1996. The
property is located on the east side of Cox Road, north of Nuckols Road within
Innsbrook. It represents a build-to-suit project for which a purchase option was
exercised immediately upon completion of construction. Projected operating data
is based upon the terms of the triple net lease in place at the time of sale.
The ground floor contains a small lobby, substantial computer and mechanical
areas, a loading dock and receiving area, and multi-purpose/training areas. The
upper floors are largely open work space with private perimeter offices.
[PHOTO OMITTED -- OWENS & MINOR HEADQUARTERS BUILDING]
Building Name: Owens & Minor Headquarters Building
Location: 4800 Cox Road
Innsbrook Corporate Park
Richmond, Virgina
Grantor: Owens & Minor Joint Venture
Grantee: O & M investors L.P. (Delaware)
Date of Sale: September, 1995
Deed Book/Page: 2604/1487
Consideration: $7,241,000
Financing: All cash
Building Size (NRA): 63,000 SF
Unit Price: $114.94/SF
Financial Data:
Effective Gross Income: $778,000 ($12.35/sf)
Operating Expenses: $147,261 ($2.34/sf)
Net Operating Income: $630,739 ($10.00/sf)
Ro: 8.71%
Comments:
This is a sale/leaseback of the Owens & Minor headquarters office building
located within Innsbrook. It was acquired by a Dutch syndicate whose investment
return criteria is lower than has been experienced within comparables sales in
the Richmond market. The building was leased for eleven years beginning in 1995.
The lease schedule is as follows:
Year 1: $778,000
Year 2: $828,000
Year 3: $878,000
Year 4-10 $867,500
Year 11: $927,500
The building, which was completed in 1989, is 100% leased to a single tenant for
eleven years. The building was in good condition at the time of sale, with the
site having lake frontage. According to the broker, the building was constructed
as a two-story, single tenant headquarters building and possesses some physical
characteristics which would make it difficult to convert to a multi-tenant
building.
Addenda
Rent Roll
Lakebrooke Pointe
4805 Lake Brook Drive
Richmond, Virginia 23058
Rent Roll
Lease Rent Lease Security 4/1/97
Flr Tenant Commence Commences Expires Deposit RSF
-------------------------------------------------------------------------------------------------------
Kemper Insurance 23-Oct-95 23-Oct-95 22-Oct-10 0.00 31,500
Target(1) 01-Nov-95 01-Feb-96 28-Feb-03 0.00 20,835
J. Sargeant Reynolds 03-Sep-96 03-Sep-96 02-Sep-01 0.00 6,588
Lowes 20-Sep-96 20-Sep-96 30-Sep-01 0.00 2,709
Total Occupied $0.00 61,632
Total Leased 61,632
Total Available 0
Total Building 61,632
% Occupied 100.00%
% Leased 100.00%
Apr-97 Current
Rental Esc Rent
Flr Tenant Rate Rate Term 4/97 Specific Use of Space
----------------------------------------------------------------------------------------------
Kemper Insurance 16.14 1.025 180 42,377.34 Insurance Company
Target(1) 15.25 1.00 84 26,477.81 Regional HQ of Retailer
J. Sargeant Reynolds 15.95 1.0275 60 8,756.55 Executive Development Prog.
Lowes 16.96 1.03 60 3,828.72 Regional HQ of Retailer
Total Occupied $81,440.42
Total Leased
Total Available
Total Building
% Occupied
% Leased
LAKEBROOKE POINTE
Constructed Rent Roll
--------------------------------------------------------------------------------
SF Lease Lease Rental Lease Lease
Tenant Name Occupied Start Date End Date Rate Term Type
--------------------------------------------------------------------------------
1 Kemper Insurance 31,500 10/23/95 10/22/10 $16.14 15 FSG
2 Target 20,835 11/l/95 2/28/03 $15.25 7 FSG
3 J. Sargeant Reynolds 6,588 9/3/96 9/2/01 $15.95 5 FSG
4 Lowes 2,709 9/20/96 9/30/01 $16.96 5 FSG
Total Occupied Square Feet 61,632
Total Available Square Feet 61,632
---------------------------------------------
Occupancy 100%
Average Rent per Square Foot $15.85
=============================================
16
Addenda
Income and Expense Statements
Historical Operating Statements
Lakebrooke Pointe
Building NRA 61,632 SF
1995 Actual 1996 Actual 1997 Actual
-------------------- ----------------------- ----------------------
Item Amount Per SF Amount Per SF Amount Per SF
----------------------------------------------------- ----------------------- ----------------------
INCOME
Gross Income $101,877 $ 1.65 $844,285 $13.70 $ 980,824 $15.91
Reimbursements 0 0.00 24,400 0.40 26,964 0.44
-------------------- ----------------------- ----------------------
Total Income $101,877 $ 1.65 $868,685 $14.09 $1,007,788 $16.35
-------------------- ----------------------- ----------------------
EXPENSES
Real Estate Taxes $ 4,615 $ 0.07 $ 44,323 $ 0.72 $ 44,324 $ 0.72
Operating Expenses 14,906 0.24 202,277 3.28 197,122 3.20
General & Administrative 14,616 0.24 38,322 0.62 27,478 0.45
Management Fee 4,643 0.08 21,555 0.35 30,234 0.49
-------------------- ----------------------- ----------------------
Total Expenses $ 38,780 $ 0.63 $306,477 $ 4.97 $ 299,158 $ 4.85
-------------------- ----------------------- ----------------------
NET OPERATING INCOME $ 63,098 $ 1.02 $562,208 $ 9.12 $ 708,630 $11.50
==================== ======================= ======================
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