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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.
Summary of Salient Facts and Conclusions
Summary of Income and Expense Information:
================================================================================
Operating Summary
================================================================================
1994 Actual 1995 Actual 1996 Budget
================================================================================
Operating Income $17,434,454 $18,376,676 $17,759,198
--------------------------------------------------------------------------------
Operating Expenses $ 8,097,816 $ 8,292,469 $ 8,265,686
--------------------------------------------------------------------------------
Net Income $ 9,336,638 $10,084,207 $ 9,493,512
================================================================================
============================
Income Approach Assumptions
============================
Current Occupancy: 81.4% (Inclusive of pending leases,
lease renewals, and month-to-month
tenants)
Stabilized Occupancy: 95.5%
Forecasted Date of Stabilization: July 1,1999
Sales Growth: Flat - 1996
2.0% - 1997
3.0% - 1998
3.5% - Thereafter
Rent Growth: Flat - 1996-1997
2.0% - 1998
3.0% - 1999
3.5% - Thereafter
Expense Growth: 3.5% - 1996-2006
Tax Growth: 6.0% - 1996-1997
5.0% - 1998
4.0% - Thereafter
Tenant Alterations
New: $8.00/SF
Renewal: $1.00/SF
Leasing Commissions
New: $3.50/SF
Renewal: $1.50/SF
Renewal Probability: 70.0%
Going-In Capitalization Rate: 8.75 - 9.25%
Terminal Capitalization Rate: 9.00 - 9.50%
Discount Rate: 11.00 - 11.50%
|
Summary of Salient Facts and Conclusions
"As Is" Market Value
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
|
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
INTRODUCTION
Identification of Property
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.
-1-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Introduction
Extent of the Appraisal Process
In the process of preparing this appraisal, we:
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:
-2-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Introduction
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.
-3-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Introduction
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.
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.
-4-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
REGIONAL ANALYSIS
Introduction
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.
-5-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Regional Analysis
Air Service
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.
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CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Regional Analysis
Tax Structure
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.
-7-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Regional Analysis
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.
-8-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Regional Analysis
Income
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.
-9-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Regional Analysis
Overview
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.
-10-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Regional Analysis
Majors Employers -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.
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CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Regional Analysis
Retail Sales
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.
-12-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Regional Analysis
Conclusion
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.
-13-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
NEIGHBORHOOD ANALYSIS
Introduction
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
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CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Neighborhood Analysis
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.
White Plains CBD Office Market Overview (1995)
Market Statistics Class A Inventory Total Inventory
================================================================================
No. Buildings: 22 49
--------------------------------------------------------------------------------
Inventory: 4,982,291 6,433,809
--------------------------------------------------------------------------------
- 1995 Vacancy Rate: 23.7% 26.4%
--------------------------------------------------------------------------------
- 1994 Vacancy Rate: 30.2% 30.4%
--------------------------------------------------------------------------------
Asking Rent: $24.86 $22.96
--------------------------------------------------------------------------------
Leasing Activity: 332,571 354,397
--------------------------------------------------------------------------------
Net Absorption: 303,026 253,690
================================================================================
Source: Cushman & Wakefield, Inc.
================================================================================
|
-15-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Neighborhood Analysis
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.
-16-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
RETAIL MARKET ANALYSIS
Trade Area Overview
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
-17-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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.
-18-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Competition
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
===================================================================================================================
|
-19-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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
|
-20-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Comments:
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.
-21-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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
|
-22-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Comments:
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.
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CUSHMAN &
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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)
|
-24-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Comments:
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.
-25-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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)
|
-26-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Comments:
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.
-27-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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
|
-28-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Comments:
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.
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CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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)
|
-30-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Comments:
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.
-31-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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
|
-32-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Comments:
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.
-33-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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
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CUSHMAN &
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VALUATION ADVISORY SERVICES
Retail Market Analysis
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.
-35-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Future Regional Competition
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
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CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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
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CUSHMAN &
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Retail Market Analysis
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.
========================================================================================================
|
-38-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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:
===========================
1996* $15,100
---------------------------
1995* $14,200
---------------------------
1994 $ 8,316
---------------------------
1993 $ 7,229
---------------------------
1992 $ 7,080
===========================
|
*Value Line estimated sales
dollars
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.
-39-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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
-40-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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.
-41-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
[GRAPHIC OMITTED]
GALLERIA AT WHITE PLAINS
EFFECTIVE TRADE AREA
[MAP]
Pop 96: TOTAL (EST.)
[GRAPHIC OMITTED]
GALLERIA AT WHITE PLAINS
EFFECTIVE TRADE AREA
[MAP]
Population % Growth 1996-2001
Retail Market Analysis
Households
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.
-44-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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.
-45-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
[GRAPHIC OMITTED]
GALLERIA AT WHITE PLAINS
EFFECTIVE TRADE AREA
[MAP]
HH96 By Income: Average (EST.)
Retail Market Analysis
Effective Buying Income
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.
-47-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
Mall Shop Sales
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.
===================================================
Comparable Mall Shops Sales
===================================================
Year Sales Per Sq/Ft Percentage Chg.
===================================================
1991 $405 -
---------------------------------------------------
1992 $366 -9.63%
---------------------------------------------------
1993 $368 0.55%
---------------------------------------------------
1994 $380 3.26%
---------------------------------------------------
1995 $344 -9.47%
===================================================
|
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.
-48-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
================================================================================
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.
-49-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
========================================================================================
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
-50-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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.
-51-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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.
-52-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Retail Market Analysis
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.
-53-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
PROPERTY DESCRIPTION
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
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-54-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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.
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-55-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Property Description
Improvements Description
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.
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-56-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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.
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-57-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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.
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-58-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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.
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-59-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
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.
|
-60-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Property Description
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.
-61-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
REAL PROPERTY TAXES AND ASSESSMENTS
Overview
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.
===============================================
Millage Rate History
===============================================
Tax Year Rate/$100 % Change
===============================================
1986/87 $187.29 ---
-----------------------------------------------
1987/88 $196.93 5.15%
-----------------------------------------------
1988/89 $210.45 6.87%
-----------------------------------------------
1989/90 $224.16 6.51%
-----------------------------------------------
1990/91 $241.09 7.55%
-----------------------------------------------
1991/92 $265.51 10.13%
-----------------------------------------------
1992/93 $291.85 9.92%
-----------------------------------------------
1993/94 $315.60 8.14%
-----------------------------------------------
1994/95 $339.38 7.53%
-----------------------------------------------
1995/96 $362.82 6.91%
===============================================
Compound Annual
Growth Rate 7.62%
===============================================
|
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.
-62-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Real Property Taxes and Assessments
Management Budget
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).
-63-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
ZONING
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.
-64-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
HIGHEST AND BEST USE
Highest and Best Use Analysis
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.
-65-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Highest and Best Use
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.
-66-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Highest and Best Use
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.
-67-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Highest and Best 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.
-68-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
VALUATION PROCESS
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.
-69-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
SALES COMPARISON APPROACH
Methodology
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.
-70-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
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.
-71-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
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.
-72-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
Regional Mall Property Sales
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
-73-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
===================================================================================================================================
REGIONAL MALL SALES 1995
1995 Transaction Chart
Cushman & Wakefield, Inc.
===================================================================================================================================
Sales Sale Year Total Sold Shop Shop Occu-
No. Property/Location Date Built Sale Price GLA GLA GLA Ratio pancy
===================================================================================================================================
95-1 Natick Mall Dec-95 1994 $265,000,000 1,160,733 646,733 436,733 37.6% 99.0%
Natick, MA (redevel.)
-----------------------------------------------------------------------------------------------------------------------------------
95-2 Smith Haven Mall Dec-95 1969/ $221,000,000 1,351,913 813,786 505,626 37.4% 93.0%
Lake Grove, NY 86
-----------------------------------------------------------------------------------------------------------------------------------
95-3 Capitola Mall Dec-95 1977/ $52,500,000 577,396 577,396 197,396 34.2% 92.0%
(1) Capitola, CA 88
-----------------------------------------------------------------------------------------------------------------------------------
95-4 Centre at Sallsbury Aug-95 1990 $78,000,000 884,825 744,825 278,915 31.5% 89.0%
Sallsbury, MD
-----------------------------------------------------------------------------------------------------------------------------------
95-5 Piedmont Mall Jul-95 1983/ $39,000,000 534,135 409,153 188,049 35.2% --
Danville, VA 84
-----------------------------------------------------------------------------------------------------------------------------------
95-6 River Oaks Center Jul-95 1978 $26,200,000 574,657 493,791 219,099 38.1% --
Decatur, AL
-----------------------------------------------------------------------------------------------------------------------------------
95-7 Columbia Mall Jul-95 1998 $27,650,000 351,364 351,364 128,024 36.4% 96.0%
Bloomsberg, PA
-----------------------------------------------------------------------------------------------------------------------------------
95-8 Hot Springs Mall Jun-95 1982 $22,775,000 389,914 318,033 156,000 40.0% 83.0%
Hot Springs, AR
-----------------------------------------------------------------------------------------------------------------------------------
95-9 Westgate Mall May-95 1960/ $43,000,000 649,185 448,268 253,993 39.1% 77.9%
San Jose, CA 89
-----------------------------------------------------------------------------------------------------------------------------------
95-10 Silver City Galleria Apr-95 1992 $159,106,000 1,005,595 749,595 349,107 34.7% 96.0%
East Taunton, MA
-----------------------------------------------------------------------------------------------------------------------------------
95-11 Westgate Mall Apr-95 1975 $25,300,000 768,000 449,974 272,630 35.5% 85.0%
Spartanburg, SC
-----------------------------------------------------------------------------------------------------------------------------------
95-12 Hanover Mall Jan-95 1971/ $38,000,000 649,130 649,130 298,531 46.0% 90.0%
Hanover, MA 93
-----------------------------------------------------------------------------------------------------------------------------------
95-13 Greenbrier Mall Jan-95 1981 $84,700,000 774,201 594,201 318,595 41.2% 96.0%
Chesapeake, VA
-----------------------------------------------------------------------------------------------------------------------------------
95-14 Galleria at Tyler Jan-95 1970/ $123,750,000 1,044,536 431,640 411,640 39.4% 86.0%
(2) Riverside, CA 91
===================================================================================================================================
Survey Low: $22,775,000 351,364 318,033 128,024 31.5% 77.9%
Survey High: $265,000,000 1,351,913 813,786 505,626 46.0% 99.0%
-----------------------------------------------------------------------------------------------------------------------------------
Survey Mean: $86,141,500 765,399 548,419 286,738 37.6% 90.2%
===================================================================================================================================
====================================================================================================================================
Capitalization Rates Unit Rate Comparison
-------------------- --------------------
Sales Shop Going-in Terminal Price/GLA Price/Mall Sales
No. Property/Location Sales/sf NOI NOI/sf OAR OAR IRR Purchased Shop GLA Multiple
====================================================================================================================================
95-1 Natick Mall $416 $21,311,000 $32.95 8.04% 8.00% 10.75% $410 $607 1.46
Natick, MA
------------------------------------------------------------------------------------------------------------------------------------
95-2 Smith Haven Mall $420 $16,500,000 $20.28 7.74% -- -- $272 $437 1.04
Lake Grove, NY
------------------------------------------------------------------------------------------------------------------------------------
95-3 Capitola Mall $262 $4,987,500 $8.64 9.50% -- -- $91 $266 1.02
(1) Capitola, CA
------------------------------------------------------------------------------------------------------------------------------------
95-4 Centre at Sallsbury $257 $7,020,000 $9.43 9.00% -- -- $105 $280 1.09
Sallsbury, MD
------------------------------------------------------------------------------------------------------------------------------------
95-5 Piedmont Mall $250 $3,600,000 $8.80 9.23% -- -- $95 $207 0.83
Danville, VA
------------------------------------------------------------------------------------------------------------------------------------
95-6 River Oaks Center $200 $2,908,200 $5.89 11.10% -- -- $53 $120 0.60
Decatur, AL
------------------------------------------------------------------------------------------------------------------------------------
95-7 Columbia Mall $165 $2,958,500 $8.42 10.70% -- -- $79 $216 1.31
Bloomsberg, PA
------------------------------------------------------------------------------------------------------------------------------------
95-8 Hot Springs Mall $240 $2,277,500 $7.16 10.00% -- -- $72 $146 0.61
Hot Springs, AR
------------------------------------------------------------------------------------------------------------------------------------
95-9 Westgate Mall $191 $4,096,457 $9.14 9.53% -- -- $96 $169 0.89
San Jose, CA
------------------------------------------------------------------------------------------------------------------------------------
95-10 Silver City Galleria $290 $13,219,000 $17.63 8.31% 8.00% 11.00% $212 $456 1.57
East Taunton, MA
------------------------------------------------------------------------------------------------------------------------------------
95-11 Westgate Mall $240 $2,403,500 $5.34 9.50% -- -- $56 $93 0.39
Spartanburg, SC
------------------------------------------------------------------------------------------------------------------------------------
95-12 Hanover Mall $204 $3,811,400 $5.87 10.03% -- -- $59 $127 0.62
Hanover, MA
------------------------------------------------------------------------------------------------------------------------------------
95-13 Greenbrier Mall $250 $6,600,000 $11.11 7.79% 8.00% 11.50% $143 $266 1.06
Chesapeake, VA
------------------------------------------------------------------------------------------------------------------------------------
95-14 Galleria at Tyler $244 $9,600,000 $22.24 7.76% 8.00% 10.50% $287 $301 1.23
(2) Riverside, CA
====================================================================================================================================
Survey Low: $165 $2,277,500 $5.34 7.47% 8.00% 10.50% $53 $93 0.39
Survey High: $420 $21,311,000 $32.95 11.10% 8.00% 11.50% $410 $607 1.57
------------------------------------------------------------------------------------------------------------------------------------
Survey Mean: $259 $7,235,218 $12.35 9.14% 8.00% 10.94% $145 $264 0.98
====================================================================================================================================
|
(1) Cash equivalent price.
(2) Net of allocation for excess land. Sale includes cinema.
REGIONAL MALL SALES 1995
1995 Transaction Chart
Cushman & Wakefield, Inc.
============================================================================
CUSHMAN &
WAKEFIELD(R)
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
|
===================================================================================================================================
REGIONAL MALL SALES 1994
1994 Transaction Chart
Cushman & Wakefield, Inc.
====================================================================================================================================
Sales Sale Year Total Sold Shop Shop Occu-
No. Property/Location Date Built Sale Price GLA GLA GLA Ratio pancy
====================================================================================================================================
94-1 Independence Center Dec-94 1974/ $53,400,000 863,986 392,524 392,524 45.4% 84.0%
(1) Independence, MO 88
------------------------------------------------------------------------------------------------------------------------------------
94-2 Biltmore Fashion Park Dec-94 1963/ $110,000,000 554,503 372,000 219,000 39.5% 97.0%
(2) Phoenix, AZ 92
------------------------------------------------------------------------------------------------------------------------------------
94-3 Confidential Dec-94 1981/ $108,000,000 1,123,580 333,468 333,648 29.7% 95.0%
Major Southwest USA 93
------------------------------------------------------------------------------------------------------------------------------------
94-4 CPI Portfolio Dec-94
(3) 1) Orange Park Mall 1975/ $151,500,000 2,110,051 1,142,386 750,436 35.6% 90.0%
Orange Park, Florida 91
2) University Mall 1974/
Pensacola, Florida 90
3) Broadway Square Mall 1975/
Tyler, Texas 89
------------------------------------------------------------------------------------------------------------------------------------
94-5 Fashion Valley Center Nov-94 1969/ $128,500,000 1,370,262 518,900 373,725 27.3% 91.0%
San Diego, CA 81/84
------------------------------------------------------------------------------------------------------------------------------------
94-6 Mall of the Americas Oct-94 1970/ $76,200,000 678,000 678,000 225,000 33.2% 98.5%
Miami, Florida 93+
------------------------------------------------------------------------------------------------------------------------------------
94-7 Corte Madera T.C. Sep-94 1958/ $70,500,000 425,572 425,572 237,453 55.8% 93.5%
(4) Marin County,California 85
------------------------------------------------------------------------------------------------------------------------------------
94-8 Layton Hills Mall Sep-94 1980/ $51,375,000 710,030 620,030 399,001 56.2% 94.0%
Layton, Utah 91
------------------------------------------------------------------------------------------------------------------------------------
94-9 North Shore Square Jul-94 1985 $34,150,000 624,000 358,709 178,326 28.6% 94.0%
Sidell, Louisiana
------------------------------------------------------------------------------------------------------------------------------------
94-10 Chesterfield T.C. Jun-94 1986/ $93,600,000 605,161 605,161 291,744 48.2% 95.0%
(5) Richmond, Virginia 87/89
------------------------------------------------------------------------------------------------------------------------------------
94-11 Waterside Shops Jun-94 1992 $65,500,000 250,000 250,000 173,930 69.6% 99.0%
Naples, Florida
------------------------------------------------------------------------------------------------------------------------------------
94-12 Crossroads Mall Apr-94 1974 $51,500,000 1,114,720 378,704 378,704 34.0% 95.0%
Oklahoma City, Oklahoma
------------------------------------------------------------------------------------------------------------------------------------
94-13 Riverchase Galleria Feb-94 1986 $175,000,000 1,251,142 462,612 350,504 28.0% 95.0%
Hoover, Alabama
------------------------------------------------------------------------------------------------------------------------------------
94-14 Stratford Square Mall Jan-94 1981/ $119,000,000 1,294,682 493,404 493,404 38.1% 98.5%
Bloomingdale, Illinois 88/91
====================================================================================================================================
Survey Low: $34,150,000 250,000 250,000 173,930 27.3% 84.0%
Survey High: $175,000,000 2,110,051 1,142,386 750,436 69.6% 99.0%
------------------------------------------------------------------------------------------------------------------------------------
Survey Mean: $92,016,071 926,835 502,248 342,659 40.6% 94.3%
====================================================================================================================================
====================================================================================================================================
Capitalization Rates Unit Rate Comparison
-------------------- ---------------------
Sales Shop Going-in Terminal Price/GLA Price/Mall Sales
No. Property/Location Sales/sf NOI NOI/sf OAR OAR IRR Purchased Shop GLA Multiple
====================================================================================================================================
94-1 Independence Center $200 $4,592,000 $11.70 8.60% -- -- $136 $136 0.68
(1) Independence, MO
------------------------------------------------------------------------------------------------------------------------------------
94-2 Biltmore Fashion Park $380 $8,600,000 $23.12 7.82% -- -- $296 $502 1.32
(2) Phoenix, AZ
------------------------------------------------------------------------------------------------------------------------------------
94-3 Confidential $300 $7,538,400 $22.61 6.98% 7.25% 10.70% $324 $324 1.08
Major Southwest USA
------------------------------------------------------------------------------------------------------------------------------------
94-4 CPI Portfolio
(3) 1) Orange Park Mall $250 $13,350,000 $11.69 8.81% -- -- $133 $202 0.81
Orange Park, Florida
2) University Mall
Pensacola, Florida
3) Broadway Square Mall
Tyler, Texas
------------------------------------------------------------------------------------------------------------------------------------
94-5 Fashion Valley Center $325 $9,637,500 $18.57 7.50% 8.00% 11.00% $248 $344 1.06
San Diego, CA
------------------------------------------------------------------------------------------------------------------------------------
94-6 Mall of the Americas $325 $6,706,000 $9.89 8.80% 11.80% $112 $339 1.04
Miami, Florida
------------------------------------------------------------------------------------------------------------------------------------
94-7 Corte Madera T.C. $325 $5,900,000 $13.86 8.37% 9.00% 11.00% $166 $297 0.91
(4) Marin County,California
------------------------------------------------------------------------------------------------------------------------------------
94-8 Layton Hills Mall $226 $4,730,000 $7.63 9.21% -- -- $83 $129 0.57
Layton, Utah
------------------------------------------------------------------------------------------------------------------------------------
94-9 North Shore Square $218 $3,073,000 $8.57 9.00% -- -- $95 $192 0.88
Sidell, Louisiana
------------------------------------------------------------------------------------------------------------------------------------
94-10 Chesterfield T.C. $290 $8,424,000 $13.92 9.00% -- -- $155 $321 1.11
(5) Richmond, Virginia
------------------------------------------------------------------------------------------------------------------------------------
94-11 Waterside Shops $400 $5,043,500 $20.17 7.70% -- -- $262 $377 0.94
Naples, Florida
------------------------------------------------------------------------------------------------------------------------------------
94-12 Crossroads Mall $189 $5,300,000 $14.00 10.29% -- -- $136 $136 0.72
Oklahoma City, Oklahoma
------------------------------------------------------------------------------------------------------------------------------------
94-13 Riverchase Galleria $350 $13,295,000 $28.74 7.60% -- 11.50% $378 $499 1.43
Hoover, Alabama
------------------------------------------------------------------------------------------------------------------------------------
94-14 Stratford Square Mall $260 $8,962,500 $18.16 7.53% 8.25% 11.00% $241 $241 0.93
Bloomingdale, Illinois
====================================================================================================================================
Survey Low: $189 $3,073,000 $7.63 6.98% 7.25% 10.70% $83 $129 0.57
Survey High: $400 $13,350,000 $28.74 10.29% 9.00% 11.80% $378 $502 1.43
------------------------------------------------------------------------------------------------------------------------------------
Survey Mean: 288 $7,510,850 $15.90 8.37% 8.13% 11.17% $197 $288 0.96
====================================================================================================================================
|
(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.
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
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.
-74-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
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.
======================================================================
Transaction Price/SF Price/SF Sales
Year Unit Rate Range* Mean Multiple
======================================================================
1991 $203 - $556 $357 1.17
----------------------------------------------------------------------
1992 $226 - $511 $320 1.07
----------------------------------------------------------------------
1993 $173 - $647 $363 1.15
----------------------------------------------------------------------
1994 $129 - $502 $288 .96
----------------------------------------------------------------------
1995 $ 93 - $607 $264 .98
======================================================================
|
*Includes all sales by each respective year.
-75-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
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.
-76-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
=========================================================================================
CHART B
Regional Mall Sales
Involving Mall Shops and Anchor GLA
=========================================================================================
1991 1992 1993
=========================================================================================
Sale Unit NOI Sale Unit NOI Sale Unit NOI
No. Rate Per SF No. Rate Per SF No. Rate Per SF
=========================================================================================
91-3 $156 $11.30 92-1 $258 $20.24 93-2 $225 $17.15
-----------------------------------------------------------------------------------------
91-4 $228 $16.50 92-3 $197 $14.17 93-3 $135 $11.14
-----------------------------------------------------------------------------------------
91-9 $193 $12.33 92-4 $385 $29-43 93-6 $224 $16.39
-----------------------------------------------------------------------------------------
91-11 $234 $13.36 92-5 $182 $14.22 93-7 $ 73 $ 7.32
-----------------------------------------------------------------------------------------
91-12 $287 $17.83 92-6 $203 $16.19 93-9 $279 $20.66
-----------------------------------------------------------------------------------------
91-13 $242 $13.56 92-7 $181 $13.60 93-10 $ 97 $ 9.13
-----------------------------------------------------------------------------------------
91-14 $248 $14.87 92-8 $136 $ 8.18 93-11 $289 $24.64
-----------------------------------------------------------------------------------------
92-10 $161 $12.07 93-12 $194 $13.77
-----------------------------------------------------------------------------------------
93-13 $108 $ 9.75
-----------------------------------------------------------------------------------------
93-14 $322 $24.10
-----------------------------------------------------------------------------------------
93-15 $214 $16.57
-----------------------------------------------------------------------------------------
Mean $227 $14.25 Mean $213 $16.01 Mean $196 $15.51
=========================================================================================
|
CHART B
Regional Mall Sales
Involving Mall Shops and Anchor GLA
1994 1995
===============================================================================
Sale Unit NOI Sale Unit NOI
No. Rate Per SF No. Rate Per SF
===============================================================================
94-2 $296 $23.12 95-1 $410 $32.95
-------------------------------------------------------------------------------
94-4 $133 $11.69 95-2 $272 $20.2B
-------------------------------------------------------------------------------
94-5 $248 $18.57 95-3 $ 91 $ 8.64
-------------------------------------------------------------------------------
94-6 $112 $ 9.89 95-4 $105 $ 9.43
-------------------------------------------------------------------------------
94-7 $166 $13.86 95-5 $ 95 $ 8.80
-------------------------------------------------------------------------------
94-8 $ 83 $ 7.63 95-6 $ 53 $ 5.89
-------------------------------------------------------------------------------
94-9 $ 95 $ 8.57 95-7 $ 79 $ 8.42
-------------------------------------------------------------------------------
94-10 $155 $13.92 95-8 $ 72 $ 7.16
-------------------------------------------------------------------------------
94-11 $262 $20.17 95-9 $ 96 $ 9.14
-------------------------------------------------------------------------------
94-13 $378 $28.74 95-10 $212 $17.63
-------------------------------------------------------------------------------
95-11 $ 56 $ 5.34
-------------------------------------------------------------------------------
95-12 $ 59 $ 5.87
-------------------------------------------------------------------------------
95-13 $143 $11.11
-------------------------------------------------------------------------------
95-14 $287 $22.24
===============================================================================
Mean $193 $15.62 Mean $145 $12.35
===============================================================================
|
*Sale included peripheral GLA.
-77-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
Analysis of Sales
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.
-78-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
===============================================================
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:
NIM = Sales Price
Net Operating Income
-79-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
=================================================
Net Income Multiplier Calculation
=================================================
Net Income
Sale No. NOI/SF Price/SF Multiplier
=================================================
93-1 $23.42 $355 15.16
-------------------------------------------------
93-4 $32.95 $471 14.29
-------------------------------------------------
93-5 $28.88 $396 13.71
-------------------------------------------------
93-8 $20.55 $265 12.90
-------------------------------------------------
93-16 $19.18 $268 13.97
-------------------------------------------------
94-1 $11.70 $136 11.62
-------------------------------------------------
94-3 $22.61 $324 14.33
-------------------------------------------------
94-12 $14.00 $136 9.71
-------------------------------------------------
94-14 $18.16 $241 13.27
=================================================
Mean $21.27 $288 13.22
=================================================
|
Valuation of the subject property utilizing the net income multipliers
(NIMs) from the comparable properties accounts for the disparity of the net
operating incomes ($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.
-80-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
=================================================================
Adjusted Unit Rate Summary
=================================================================
Subject Net Income Indicated Price
Sale No. NOI/SF Multiplier $/SF
=================================================================
93-1 $26.21 15.16 $397
-----------------------------------------------------------------
93-4 $26.21 14.29 $375
-----------------------------------------------------------------
93-5 $26.21 13.71 $359
-----------------------------------------------------------------
93-8 $26.21 12.90 $338
-----------------------------------------------------------------
93-16 $26.21 13.97 $366
-----------------------------------------------------------------
94-1 $26.21 11.62 $306
-----------------------------------------------------------------
94-3 $26.21 14.33 $376
-----------------------------------------------------------------
94-12 $26.21 9.71 $254
-----------------------------------------------------------------
94-14 $26.21 13.27 $348
=================================================================
Mean $26.21 13.22 $346
=================================================================
|
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
-81-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
Sales Multiple Method
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.
==============================================
Sales Multiple Summary
==============================================
Sale Going-In Sales
No. OAR Multiple
==============================================
93-1 7.47% 0.92
----------------------------------------------
93-4 7.00% 1.16
----------------------------------------------
93-5 7.29% 1.16
----------------------------------------------
93-8 7.75% 0.88
----------------------------------------------
93-16 7.16% 1.09
----------------------------------------------
94-1 8.60% 0.68
----------------------------------------------
94-3 6.98% 1.08
----------------------------------------------
94-12 10.29% 0.72
----------------------------------------------
94-14 7.53% 0.93
==============================================
Mean 7.79% 0.96
==============================================
|
-82-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
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
-83-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Sales Comparison Approach
Value Conclusion "As Is"
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.
-84-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
INCOME APPROACH
Introduction
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.
-85-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Income Approach
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.
-86-
CUSHMAN &
WAKEFIELD(R)
VALUATION ADVISORY SERVICES
Income Approach
Potential Gross Revenues
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 percentag
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