A PORTION OF
OPP MARKETPLACE SHOPPING CENTER
507 EAST CUMMINGS ROAD
OPP, ALABAMA
(CZ97-147R)
FOR
MR. LARRY MILLER
MERRILL LYNCH
WORLD FINANCIAL CENTER - NORTH TOWER
NEW YORK, NY 10281
AS OF
AUGUST 6, 1997
BY
HOWARD J. PORTER, JR., MAI, CCIM
GLEN E. HEINZELMAN, ASSOCIATE APPRAISER
H. J. PORTER & ASSOCIATES
1214 FIRST AVENUE, SUITE 130
COLUMBUS, GEORGIA 31901
(706) 324-4990
[LOGO]
H.J. Porter & Associates
[LOGO]
[H.J. Porter & Associates - LETTERHEAD]
August 20, 1997
Mr. Larry Miller
Merrill Lynch
World Financial Center - North Tower
New York, NY 10281
Re: A portion of the Opp Marketplace
507 East Cummings Road
Opp, Alabama
Dear Mr. Miller:
At your request, the undersigned Associate has inspected and we have made an
appraisal of the above referenced property. The purpose of this appraisal was to
determine the market value of the leased fee interest in the subject property,
one of fifteen shopping centers to be included in a portfolio of retail shopping
centers cross collateralized, under single management, and subject to stringent
provisions. AS SUCH, THE ESTIMATED VALUE OF THE SUBJECT PROPERTY IS SUBJECT TO
THE ABOVE CONDITIONS. This complete appraisal communicated in a self contained
narrative report has been prepared in a accordance with the Uniform Standards of
Professional Appraisal Practice (USPAP) as amended by the Comptroller of the
Currency.
Based upon our investigation into the subject property, and its current economic
environment, we are of the opinion that the market value of the leased fee
interest in the subject property as of August 6, 1997, is:
ONE MILLION FOUR HUNDRED EIGHTY THOUSAND DOLLARS
($1,480,000)
Divided as: Improvements $1,413,400
Land 66,600
----------
Total $1,480,000
Please note that this report is subject to the contingent and limiting
conditions as found in the addendum. It should be noted that our employment was
not conditional upon our producing a specific value with a given range. Future
employment prospects with Merrill Lynch are not
Real Estate Research, Appraisal & Counseling
Birmingham, AL; Columbus, GA; Montgomery, AL; Auburn, AL
Mr. Larry Miller
August 20, 1997
Page #2
dependent upon our producing a specified value. Also, neither payment of our
fee, nor our employment are/were based upon whether a loan application is
approved or disapproved. We appreciate the opportunity to be of service to you
in this matter.
The attached report is submitted in support of these conclusions.
Yours very truly,
/s/Howard J. Porter /s/Glen E. Heinzelman
Howard J. Porter, Jr., MAI, CCIM Glen E. Heinzelman, Associate
Certified General Real Property Appraiser Licenced Real Property Appraiser
Alabama Certificate #G51 Alabama Certificate #L12
[LOGO]
H.J. Porter & Associates
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
PROPERTY IDENTIFICATION: Opp Marketplace
507 East Cummings Road
Opp, Alabama
PROPERTY RIGHT APPRAISED: Leased Fee Estate
HIGHEST AND BEST USE
AS VACANT AND IMPROVED: Neighborhood Shopping Center
DATE OF VALUE: August 6, 1996
SITE DATA: 2.05 Acres or 89,298 Sq. Ft.
BUILDING DATA: 25,350 Sq. Ft. Divided As:
Harco Drugs - 8,450 Sq. Ft.
B.C. Moore - 16,900 Sq. Ft.
ESTIMATED LAND VALUE: $66,600
VALUE INDICATIONS:
Cost Approach $1,314,000
Income Approach $1,485,000
Market Approach $1,460,000
MARKET VALUE: $1,480,000
H.J. Porter & Associates, Inc.
TABLE OF CONTENTS
Intended Use of Appraisal ................................................. 1
Environmental Considerations .............................................. 1
Scope of the Assignment ................................................... 1
Date of Value Estimate .................................................... 2
Exposure Period ........................................................... 2
Type Appraisal/Type Report ................................................ 2
Property Ownership ........................................................ 3
Property Location ......................................................... 3
Zoning/Public Utilities ................................................... 4
Legal Description/Land Size ............................................... 4
Ad Valorem Tax Analysis ................................................... 6
Purpose of Appraisal/Definition of Value .................................. 7
Rights Appraised .......................................................... 7
Area Analysis - Opp/Covington County, Alabama ............................. 8
Neighborhood Analysis ..................................................... 13
Site Analysis ............................................................. 15
Description of Subject Improvements ....................................... 16
Highest and Best Use ...................................................... 18
The Appraisal Process ..................................................... 20
Land Value - Direct Comparison ............................................ 23
Cost Approach to Value .................................................... 29
Income Approach to Value .................................................. 32
Market Approach ........................................................... 45
Reconciliation and Final Value Estimate ................................... 63
Certification ............................................................. 64
EXHIBITS
Location Map .............................................. Facing Page 4
State Map ................................................. Facing Page 9
Site Plan ................................................. Facing Page 15
Subject Photographs ....................................... Facing Page 16
Land Sales Map ............................................ Facing Page 27
Improved Sales Map ........................................ Facing Page 60
REAR EXHIBITS
Korpacz Real Estate Investor Survey
Assumptions and Limiting Conditions
Qualifications
State of Alabama Certification
H.J. Porter & Associates, Inc.
1
INTENDED USE OF APPRAISAL
These appraisal have been requested to function as an underwriting guide for
mortgage loan purposes and for use in securitization of mortgages. Accordingly,
these appraisals may be provided by Merril Lynch & Co., to potential investors
in a securitization of other sale of mortgage loans. The appraisal is undertaken
without departure in accordance with USPAP as promulgated by the Appraisal
Foundation and as amended by the Comptroller of Currency.
ENVIRONMENTAL CONSIDERATIONS
According to a Phase I Environmental Site Assessment conducted March 25, 1992
and updated December, 1994 by CTE Environmental, there was no evidence of
environmental hazards or liabilities at the subject site or adjacent properties.
A copy of the Environment Site Assessment is included in the rear exhibits. The
appraised value contained herein assumes that the subject is free of any
environmental contamination.
SCOPE OF THE ASSIGNMENT
The subject property, a neighborhood shopping center, is one of fifteen shopping
centers to be included in a portfolio of retail properties which are crlss
collateralized, under single management, and subject to stringent release
provisions.
The scope of the assignment includes undertaking the three traditional
approaches to value with consideration given to the current status of the retail
market in Opp, Alabama and the surrounding market area. In the Cost Approach,
local real estate professionals and appraisers were contacted and a search of
public records undertaken to locate comparable land sales. A detailed inspection
of the site and improvements was made by the Associate Appraiser. Construction
details were obtained from the physical inspection by the Associate and from
plans prepared by Sanford - Bell & Associates, Inc. dated June 8, 1993, with
revision dates of September 10, 1993, October 5, 1993, November 16, 1993, June
21, 1994, and September 30, 1994. Current cost estimates were obtained from the
Marshall Valuation Service, a nationally recognized cost service indexed to the
local market.
In the Income Approach to Value, a survey of local retail market conditions was
made by interviewing local leasing and management agents. Rental income was
compared to similar properties in the local and regional market areas. Expense
comparables were studied to estimate the appropriate expense deductions. The
resulting net operating income was then capitalized into a present value
estimate by direct capitalization. The overall capitalization rate was derived
from market sales, built-up rates using current market rates for debt and
equity, and from published investor surveys.
H.J. Porter & Associates, Inc.
SCOPE OF THE APPRAISAL - (CONTINUED) 2
The Sales Comparison or Market Approach was developed after a search for sales
of similar shopping centers. To locate appropriate sale comparables, local
Realtors, appraisers, mortgage lenders, and developers were interviewed. The
sales located were compared to the subject with adjustments made for items of
differences.
After development of the three approaches, the value indications derived were
reconciled to provide a value estimate for the subject property as of the
effective date of appraisal.
DATE OF VALUE ESTIMATE
The subject property is valued as of August 6, 1997 which is the date the
subject was physically inspected by the Associate Appraiser. The date utilized
in preparing this appraisal was researched, gathered, and/or updated during the
period August 5 through August 15, 1997. The date of the appraisal is August 20,
1997 the date of the transmittal letter.
EXPOSURE PERIOD
Based on the current economic environment of which the subject is a part and the
value estimated to obtain a price in this report, the subject would have
required a market exposure period of between 6 and 12 months at or near the
appraised value. This estimate is predicated on conversations with local real
estate professionals and conversations with parties who purchased properties
with lease terms similar to the subject.
TYPE APPRAISAL/TYPE REPORT
In accordance with the Uniform Standard of Profession Appraisal Practice, the
appraisers have performed a "Complete" appraisal according to Standard Rule 1
and the communicated to the client in a "Self-contained Appraisal Report" in
accordance with Standard Rule 2-2a.
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
LOCATION MAP
3
PROPERTY OWNERSHIP
The subject property is under the ownership of:
Opp Partners, Ltd.
250 Washington Street
P.O. Box 680176
Prattville, AL 36067
The subject property is a portion of a neighborhood shopping center known as The
Opp Marketplace. The underlying land was part of the assemblage for the shopping
center. The assemblage took place in September, 1993 in two purchases for a
total of $200,000 for 8.06 acres. The total purchase price equates to a per acre
purchase price of $24,814 per acre. The shopping center containing a total of
55,975 sq. ft. was constructed soon after in mid 1994 on the northernmost 6.33
acres with the southernmost 1.73 acres retained for expansion or resale.
Since construction, two transactions affecting the shopping center have
transpired. First, in mid, 1995 the fee simple interest in the southernmost 1.73
acres was sold to SouthTrust Bank for $50,000 or $28,902 per acre. The
transaction was recorded in the Covington County Courthouse in Deed Book 909 at
page 166 on October 11, 1995. Second, the leasehold in the 30,625 sq. ft.
Winn-Dixie was sold to Alvin and Norma Chan in mid 1995 for a purchase price of
$1,920,000 or $62.70 per sq. ft. of leasable area. This transaction was recorded
in the Covington County Courthouse on November 22, 1995 in Deed Book 911 at page
131.
To the best of our knowledge no other transactions involving the subject or Opp
Marketplace Shopping Center have occurred in the five years prior to the date of
appraisal. Additionally, to the best of our knowledge, there are no offered
pending to purchase the subject nor is it currently listed for sale.
PROPERTY LOCATION
The subject property is located east of the intersection U.S. Highway 331 and
County Highway 22 (Opp-Alberton Road) within the city limits of Opp, Covington
County, Alabama It is located by street address as:
Opp Marketplace
507 East Cummings Road
Opp, Alabama
H.J. Porter & Associates, Inc.
4
ZONING/PUBLIC UTILITIES
The subject property is located in the city limits of Opp, Alabama and is
subject to that city's zoning jurisdiction. The site is currently zoned B-2,
General Commercial, which allows shopping center use. This zoning classification
calls for a minimum lot size of 2,000 sq. ft., minimum lot width of 50', maximum
coverage ratio of 50%, maximum height of 65' and no minimum yard set back except
when adjacent to a residentially zoned area where the setback requirement would
be 30 feet. This classification also calls for an on-site parking ratio of 5
parking spaces for each 1,000 sq. ft. of floor area. Based on an inspection of
the property and plans, the existing improvements appear to conform to the
current zoning ordinance.
The subject has all utilities including electricity, gas, water, sewage, and
telephone in sufficient quantities to sustain commercial development. Public
services such as police and fire protection are provided by the City of Opp.
LEGAL DESCRIPTION/LAND SIZE
The legal description for the subject was obtained from the owners, Opp
Partners, Ltd. The subject property is legally described as:
A parcel of land lying in and being a part of the south half
of the Southeast quarter of Section 28, Township 4 North,
Range 18 East, Covington County, Alabama; and being more
particularly described as follows:
Commence at the Southwest corner of the Southeast quarter of
the Southeast quarter of Section 28, Township 4 North, Range
18 east, Covington County, Alabama, and run thence North 89
degrees 54 minutes 25 seconds West along the south line of
the Southwest quarter of the Southeast quarter of Section 28
for a distance of 163.64 feet to a point on the east
right-of-way line of U.S. Highway 331; thence North 16
degrees 19 minutes 15 seconds West along said east
right-of-way line for a distance of 55.86 feet; thence
continue along said East right-of-way line a curve to the
left (having a radius of 1103.62 feet, a chord bearing of
North 21 degrees 25 minutes 45 seconds West, a chord
distance of 196.54 feet) and arch distance of 196.80 feet;
thence leaving said east right-of-way line North 64 degrees
29 minutes 45 seconds East a distance of 32.31 feet; thence
North 00 degrees 09 minutes 54 seconds East a distance of
59.18 feet to the POINT OF BEGINNING: Thence North 00
degrees 09 minutes 54 seconds East a distance of 202.36 feet
to a point on the south right-of-way line of County Highway
22 (Opp-Alberton Road); thence along said south right-of-way
line South 85 degrees 28 minutes 00 seconds East a distance
of 223.30 feet; thence South 00 degrees 09 minutes 54
seconds West along a right-of-way widening line a distance
of 24.50 feet; thence South 84 degrees 55 minutes 00 seconds
East along said south right-of-way line a distance of 220.81
feet; thence leaving said rough right-of-way line South 00
degrees 09 minutes 54 seconds West a distance of 203.85
feet; thence North 89 degrees 50 minutes 06 seconds West a
distance of 206.00 feet; thence North 00 degrees 09 minutes
06 seconds West a distance of 61.28 feet; thence North 89
degrees 50 minutes 06 seconds West a distance of 236.70 feet
to the POINT OF BEGINNING; said parcel containing 2.05
acres, more or less.
Based on this description, the subject property is irregular shaped and contains
a total land area of 2.05 acres. The subject parcel has approximately 450 fee of
frontage on the south side of County Road 22 (Opp - Alberton Road).
H.J. Porter & Associates, Inc.
LEGAL DESCRIPTION/LAND SIZE - (CONTINUED) 5
As indicated previously, the subject property is one of fifteen shopping centers
to be included in a portfolio of retail properties which are cross
collateralized, under single management, and subject to stringent release
provisions. The other shopping centers contained in the portfolio are listed as
follows:
================================================================================
Greenbrier Station Shopping Center The "Y" Shopping Center
Anniston, Alabama Panama City Beach, Florida
--------------------------------------------------------------------------------
Clanton Marketplace Mandelville Marketplace
Clanton, Alabama Pandelville, Louisiana
--------------------------------------------------------------------------------
Betts Crossing Shopping Center Brownsville Place Shopping Center
Opelika, Alabama Brownsville, Tennessee
--------------------------------------------------------------------------------
Russell Crossing Shopping Center Chicot Crossing Shopping Center
Pheinx City, Alabama Pascagoula, Mississippi
--------------------------------------------------------------------------------
29 North Shopping Center Delchamps Plaza
Cantonment, Florida Long Beach, Mississippi
--------------------------------------------------------------------------------
Nine Mile Plaza Shopping Center One Main Place
Pensacola, Florida Moss Point,Mississippi
--------------------------------------------------------------------------------
Parker Shopping Center
Parker, Florida
================================================================================
H.J. Porter & Associates, Inc.
6
AD VALOREM TAX ANALYSIS
The subject parcel is under the taxing authority of the Covington County Tax
Assessor's Office and is found on the tax rolls as:
Assessed to: Opp Partnership, Ltd.
250 Washington Street
P.O. Box 680176
Prattville, AL 36067
Parcel I.D. #: 23-11-08-28-4-403-6-038.003
23-11-08-28-4-404-0-009.001
Value: Land: $ 34,200
Improvements: $828,945
--------
Total: $863,145
Assessment Ratio: 20%
Local Millage Rate: $0.039 per $1,000 of assessed value
Annual Tax: $6,732.53
The subject property is part of the Opp Marketplace shopping center anchored by
a 30,625 sq. ft. Winn Dixie Supermarket. The Winn Dixie is owned by others as
discussed in the Ownership History section of this report and taxed separately.
To test the reasonableness of the taxes levied against the subject, the taxes
levied against two other shopping centers in Opp were investigated. The result
of that investigation is contained in the following chart.
================================================================================
PROPERTY NAME SIZE (SQ. FT.) TAX VALUATION VALUATION/SQ.FT.
================================================================================
Sanford Station 54,280 $2,074,601 $39.35
Three Notch Plaza 39,300 $1,721,338 $43.80
================================================================================
SUBJECT 25,350 $ 863,145 $34.05
================================================================================
The two tax comparables are older shopping centers anchored by secondary tenants
such as Piggly Wiggly and IGA Supermarkets who took over second generation
anchor space. Based on factors such as age, overall condition, quality of anchor
tenant, etc. the taxes levied against the subject appear to be appropriate.
H.J. Porter & Associates, Inc.
7
PURPOSE OF APPRAISAL/DEFINITION OF VALUE
The purpose of the appraisal is to estimate the market value of the leased fee
interest in the subject property as of the effective date of appraisal, August
6, 1997.
Market Value is defined by the Appraisal Standards Board of the Appraisal
Foundation in the 1997 Glossary - Uniform Standards of Professional Appraisal
Practice, page 155 as:
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 best interest;
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.
RIGHTS APPRAISED
The ownership interest in the subject property appraised is the "Leased Fee
Estate." The Dictionary of Real Estate Appraisal, 3rd Edition, Page 204, defines
Leased Fee Estate as, "an ownership interest held by a Landlord with the right
of use and occupancy conveyed by lease to others. The rights of lessor "the
leased fee owner" and the leased fee are specified by contract terms contained
within the lease."
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
AREA MAP
8
AREA ANALYSIS - COVINGTON COUNTY AND OPP, ALABAMA
The four basic factors which should be considered in analyzing an area are:
(1) Physical-Location factors; (2) Economic-Financial factors; (3)
Political-Governmental factors; and (4) Sociological factors. Each of these
factors is briefly analyzed.
PHYSICAL-LOCATIONAL FACTORS
The subject property is located in Covington County in the town of Opp.
Covington County is located in southeastern Alabama approximately twenty miles
north of the Florida state line. Traveling distances to major metropolitan areas
are:
================================================================
LOCATION MILES DIRECTION
----------------------------------------------------------------
Birmingham, Alabama 166 North
Mobile, Alabama 145 Southwest
Montgomery, Alabama 75 North
Atlanta, Georgia 244 Northeast
Tampa, Florida 408 Southeast
Jacksonville, Florida 322 Southeast
================================================================
Opp is served by two Federal highways. U.S. Highway 331 is the north/south
artery linking Opp to the state capital of Montgomery to the north and the
Florida panhandle to the south. U.S. Highway 84 is the east/west traffic artery
linking Opp to the City of Dothan to the east and Interstate 65 to the west.
Access to the interstate highway system is within a short drive time. Interstate
65, the major north/south artery, is 48 miles west of Opp and Interstate 10 in
the Florida panhandle, a major east/west artery, is approximately 46 miles
south.
The town of Opp was established in 1920 after the L & N Railroad won its
litigation against the Central of Georgia Railroad to survey a right-of-way into
Covington County. The L & N Built a rail line eastward from Andalusia, the
county seat, and made a southbound arm where the town of Opp is located. This
southbound arm provided a good "turning around" place for trains, and because is
was already inhabited, a small town was laid out. The town was named after Henry
Opp, the lawyer for the L & N Railroad who won the litigation. The railroad
continues to play a vital road in the economy of Opp to this day.
H.J. Porter & Associates, Inc.
AREA ANALYSIS - COVINGTON COUNTY AND OPP, ALABAMA (CONTINUED) 9
PHYSICAL AND LOCATIONAL FACTORS - (CONTINUED)
Other major transportation facilities in the area include the Andalusia-Opp
Airport located midway between the two communities and the Chattahoochee River
Dock approximately 75 miles to the east.
The topography of the area is gentle rolling hills. The mean annual temperature
is 64 degrees with an average rainfall of 54.8 inches. The topography, climate,
and rail system provided the ideal environment for the area to become an
important agricultural region. Major agricultural products include cattle,
cotton, broilers, hogs, nuts, fruits, eggs, and soybeans. Natural resources
include calcitic lime as well as pine and other hardwood timber.
ECONOMIC AND FINANCIAL FACTORS
The 1990 Census indicated that the population of Covington County and the town
of Opp declined from the 1980 levels. However, the population of the area has
remained fairly constant since 1970. The table below shows the population
changes, according to the U.S. Census, from 1970 to 1990.
============================================================
YEAR COUNTY OPP
------------------------------------------------------------
1970 34,079 6,593
1980 36,850 7,204
1990 36,478 6,985
============================================================
The population of the county increased 7% and the population of Opp increased
5.9% from 1970 to 1990. The county's population has a civilian labor force of
17,580 and are employed by in a variety of industries. The table below shows the
breakdown of the labor force by industry groups as of March, 1997.
============================================================
INDUSTRY EMPLOYMENT
------------------------------------------------------------
Manufacturing 5,590
Transp., Comm., Utility 1,127
Wholesale & Retail 3,252
Services 2,320
Other 5,291
============================================================
H.J. Porter & Associates, Inc.
AREA ANALYSIS - COVINGTON COUNTY AND OPP, ALABAMA (CONTINUED) 10
ECONOMIC AND FINANCIAL FACTORS - (CONTINUED)
As of May, 1997 the unemployment rate in Covington County stood at 7.3%, which
compares with 4.9% for the State of Alabama and 4.8% nationwide. Major private
sector employers in and around Opp are listed in the table below.
=========================================================================
NAME PRODUCT EMPLOYEES YR. EST.
-------------------------------------------------------------------------
Opp & Nicolas Mills Cotton Sheeting 901-1,000 1920
Covington Industries Men's Clothing 651-750 1950
Alabama Farmer Co-Op Shelled Peanuts 310-350 1969
General Manufacturing Ladies Sportswear 251-300 1967
Phillips Van Husen Shirts 151-200 1970
Anderson's Peanuts Peanut Processing 101-150 1961
Sweatt's Prefade Industrial Laundry 101-150 1961
Sonoco Products Spiral Tubes 21-30 1982
Shuler Brothers Chips Wood Chips 16-20 1986
Food Services, Inc. Processed Foods 16-20 1967
Opp New, Inc. Publishing 31-40 1901
=========================================================================
As indicated in the table above, the textile, forest product, and agricultural
industries dominate the private sector economy of Covington County. Baring any
unforeseen development initiative by the State of Alabama, the economic mix of
the county with its reliance on agriculture and natural resources is anticipated
to continue into the future.
As illustrated in the table on the following page, retail sales in Covington
County almost doubled from 1986 to 1996. Much of the increase coming between
1992 and 1996, given stagnant population growth rates and high relative
unemployment rates, would appear to more of a function of inflation rather than
increased population and economic prosperity.
H.J. Porter & Associates, Inc.
AREA ANALYSIS - COVINGTON COUNTY AND OPP, ALABAMA (CONTINUED) 11
The town of Opp is governed by a mayor/council form of government. In 1987, the
town established a Planning Commission which has increased the efficiency and
implementation of zoning ordinances, utility services, and other governmental
related services. Opp owns and operates distribution services for water, sewer,
electricity, and cable television. Natural gas is provided by local and regional
gas companies. Opp has a total of 23 police personnel and thirteen police cars.
There are four full-time fire fighters and seventeen volunteers. They have a
fire insurance rating of 5.
SOCIOLOGICAL FACTORS
The community's education, health, and recreation facilities are typical of many
small rural towns in Alabama. Opp has one hospital with 99 beds and eight
doctors and one nursing home with 179 beds. They have an elementary, junior
high, and high school with a total enrollment of approximately 1,600 students.
Higher education facilities include the MacArthur Technical College in Opp,
Enterprise State Junior College in Enterprise approximately 22 miles east, and
Troy State University in Troy approximately 42 miles north.
H.J. Porter & Associates, Inc.
AREA ANALYSIS - COVINGTON COUNTY AND OPP, ALABAMA (CONTINUED) 12
SOCIOLOGICAL FACTORS - (CONTINUED)
The area's recreational facilities are typical with four swimming pools,
thirteen tennis courts, one golf course, eight ball fields, two parks, and nine
basketball courts. In 1992, the State of Alabama opened the Lake Frank Jackson
State Park just outside the city limits of Opp. It is a 1,100 acre lake which
cost over $8 million to build. The lake is stocked with bass, bream, crappie,
and catfish. Local civic organizations have several bass and other fishing
tournaments annually. Planned additions include restrooms and camping
facilities.
Throughout Alabama and the panhandle of Florida, Opp is most noted for its
annual "Rattlesnake Rodeo" where visitors learn the many facts and myths
regarding rattlesnakes. This event which also includes country music, arts and
crafts, and stock car racing, is held in the fall of each year.
CONCLUSION
In conclusion, Opp is a small rural community located in southeast Alabama.
Agriculture is the economic base and has fostered some related industries. The
population has remained stable over the past twenty years and is anticipated to
remain so into the foreseeable future.
H.J. Porter & Associates, Inc.
NEIGHBORHOOD ANALYSISZ 13
The term neighborhood is defined in "The Appraisal of Real Estate" 11th Ed.
at page 189 as "a group of complementary land uses."
The four basic factors which must be considered in analyzing a neighborhood or
district, as in an area analysis are:
(1) Physical and Locational Factors
(2) Economic and Financial Factors
(3) Political and Governmental Factors
(4) Sociological Factors
Each of these factors is discussed briefly with conclusions as to their effect
on the subject property.
PHYSICAL AND LOCATIONAL FACTORS
The subject is located in the city limits of Opp, Alabama just south of the
Central Business District. The neighborhood boundaries are considered to be the
city limits. The shopping center of which the subject is a portion is located in
the "Y" intersection of U.S. Highway 331 and Parry Store Road. At this location
U.S. Highway 331 heads in an easterly direction and turns south at Parry Store
Road. South-bound travelers have an excellent view of the subject. In the
subject's immediate area, U.S. Highway 331 is a four-lane highway. There is a
traffic signal west of the subject where U.S. Highway 331 turn eastward at
Cummings Avenue and at the "Y" intersection where State Highway 52 turns
eastward. Parry Store Road is a minor two-lane paved street which links the
mostly rural areas to the east to the city of Opp. The subject property is
conveniently located with easy access from any location within Opp and the
surrounding area.
The Central Business District of Opp is located generally north of Cummings
Avenue which runs parallel to the A & F Railroad. Like many small rural
communities in Alabama, the "downtown" area of Opp was first established in the
early 1990's. In connection with the early development, residential properties
encompassed the business district. Many of the stores and offices buildings have
been remodeled and expanded over the years. In the early 1960's as the "baby
boom" generation started to come of age, new businesses and commercial
properties started locating outside of the Central Business District due to the
lack of available vacant land within the CBD. New commercial development
proceeded mostly in a southerly direction along U.S. Highway 331 around the "Y"
intersection of Staten Highway 52. These was a limited amount of development
just north of the downtown area.
Developments along these paths range from fast food restaurants, service
stations, free standing stores, and neighborhood shopping centers. They range in
age from twenty-five years old to five
H.J. Porter & Associates, Inc.
NEIGHBORHOOD ANALYSIS - (CONTINUED) 14
years old. As such, the subject neighborhood is considered to be in the
growth stage of its life cycle.
The topography of the neighborhood is gentle rolling hills with very little
problem of flooding. All utilities area available in sufficient quantities to
sustain commercial development.
ECONOMIC AND FINANCIAL FACTORS
The primary factor effecting the subject is competing retail properties. As
indicated above, most retail properties are located in the Central Business
District where the age of the properties range from 30 to 90 years and also
along U.S. Highway 331 south of the subject. There are two neighborhood shopping
centers in Opp. Based on a visual inspection of these centers, their ages are
estimated to be between 20 and 25 years. It appears that they were part of the
original commercial property expansion outside of the CBD. Neither of these
centers have any small, local tenant shop space which will compete with the
subject. Each center is anchored by a grocery store.
The first shopping center is located on the north fringe of the CBD and is
anchored by Piggly Wiggly and Babcock Furniture. Other tenants include Family
Dollar, Factory Connection, and T & C Pharmacy. There is one vacant shop. Based
on interviews with these tenants rental rates are below $3.00 per square foot.
The second shopping center is located in the "Y" intersection of U.S. Highway
331 and State Highway 52 just south of the subject. Tenants in this unnamed
center include Bargain Town, Movie Gallery, D's Furniture, IGA Foods, and Heilig
Myers.
In addition to the subject, Burger King and McDonald's have located near the
subject on Highway 331. The Burger King is located in front of the subject in
the "Y" intersection and McDonald's is located across the street to the west.
CONCLUSION
In conclusion, the subject is well located between the original Central Business
District and the expanded southern district. Its location is suited to serve the
needs of the city of Opp and surrounding rural community as well as travelers
along U.S. Highway 331 on route to the Florida beaches.
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
15
SITE ANALYSIS
The subject site is located east of the intersection of U.S. Highway 331 and
County Highway 22 (Opp-Alberton Road) in the city limits of Opp, Covington
County, Alabama. The individual site characteristics are as follows:
Size: 89,298 Sq. Ft. or 2.05 Acres
Shape: Irregular
Street Frontage: Approximately 550 ln. ft. on the south side of County
Highway 22
Average Depth: Approximately 250 Ln. Ft.
Topography: Relatively level and at grade with the fronting roadway
Access: Good from U.S. Highway 22. In addition, as part of the Opp
Marketplace shopping center anchored by Winn Dixie, the site
enjoys cross easements for ingress and egress across the
adjacent parcel to the south for access to U.S. Highway 331.
Drainage/Flood
Hazard: According to the FEMA Flood Insurance Rate Map, Community
Panel No. 010241, effective July 8, 1985, the subject
property is located in a Zone C flood hazard area. This is
an area designated as being one with minimal flooding and
flood insurance is typically not required for lending
purposes.
Soils: Considered typical and adequate for development as evidenced
by the surrounding development.
Utilities: All utilities are available in sufficient quantities
development.
Site Improvements: Portion of a neighborhood shopping center and all associated
site improvements.
Street
Improvements: U.S. Highway 331 is a four-lane roadway with curb, cutters,
and streetlights installed. County Road 22 is basically a
two-lane residential street.
Surrounding Uses: Retail, commercial, and residential uses.
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPHS]
1) Front View of Subject looking East
2) Side View of Subject looking Southeast
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Southwest
5) View of U.S. Hwy 331 looking North (Subject on Right)
6) View of County Rd 22 looking East (Subject on Right)
7) View of County Rd 22 looking West (Subject on Left)
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPHS]
1) Front View of Subject looking East
2) Side View of Subject looking Southeast
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Southwest
5) View of U.S. Hwy 331 looking North (Subject on Right)
6) View of County Rd 22 looking East (Subject on Right)
7) View of County Rd 22 looking West (Subject on Left)
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPHS]
1) Front View of Subject looking East
2) Side View of Subject looking Southeast
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Southwest
5) View of U.S. Hwy 331 looking North (Subject on Right)
6) View of County Rd 22 looking East (Subject on Right)
7) View of County Rd 22 looking West (Subject on Left)
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPHS]
1) Front View of Subject looking East
2) Side View of Subject looking Southeast
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Southwest
5) View of U.S. Hwy 331 looking North (Subject on Right)
6) View of County Rd 22 looking East (Subject on Right)
7) View of County Rd 22 looking West (Subject on Left)
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPHS]
1) Front View of Subject looking East
2) Side View of Subject looking Southeast
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Southwest
5) View of U.S. Hwy 331 looking North (Subject on Right)
6) View of County Rd 22 looking East (Subject on Right)
7) View of County Rd 22 looking West (Subject on Left)
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPHS]
1) Front View of Subject looking East
2) Side View of Subject looking Southeast
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Southwest
5) View of U.S. Hwy 331 looking North (Subject on Right)
6) View of County Rd 22 looking East (Subject on Right)
7) View of County Rd 22 looking West (Subject on Left)
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPHS]
1) Front View of Subject looking East
2) Side View of Subject looking Southeast
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Southwest
5) View of U.S. Hwy 331 looking North (Subject on Right)
6) View of County Rd 22 looking East (Subject on Right)
7) View of County Rd 22 looking West (Subject on Left)
16
DESCRIPTION OF SUBJECT IMPROVEMENTS
The subject is a portion of a neighborhood shopping center known as The Opp
Marketplace. The center, anchored by Winn-Dixie, contains a total gross
leasable area of 55,975 square feet. The subject property consists of the
northernmost two tenant spaces containing 25,350 sq. ft. of gross leasable
area. The two tenant spaces are currently leased to Harco Drugs (8,450 sq.
ft.) and B.C. Moore's (16,900 sq. ft.). The shopping center in general, and
the subject improvements in particular have been well maintained and appear
to be functionally designed for their intended purpose. No significant degree
of deferred maintenance was observed upon physically inspecting the
improvements.
It is beyond the scope to narratively discuss all of the pertinent construction
details that comprise the subject improvements. The basic construction details
that follow were obtained from the physical inspection of the property by the
Associate Appraiser on August 6, 1997. The subject's basic construction details
are as follows:
Property Type: Portion of neighborhood shopping center
Total GLA: 55,975 - Opp Marketplace Shopping Center
25,350 - Subject portion of shopping center
Year Built: Late 1994
Effective Age: 2 years
Roof: Built up tar and gravel over rigid insulation on metal
decking. Steel truss support system
Walls: Concrete block and brick veneer over concrete block on the
from. Painted concrete block at rear and sides. Partition
walls between tenant spaces are metal studs covered with
sheetrock.
Doors: Anodized aluminum store front doors. Interior (rest room)
doors hollow core wood.
Windows: Anodized bronze aluminum store fronts with single glazing.
Floors: Reinforced 4" concrete slab with resilient tile cover.
Insulation: Rigid insulation in built-up roof system.
Ceilings: Suspended lay-in acoustic tile with recessed fluorescent
light fixtures.
H.J. Porter & Associates, Inc.
DESCRIPTION OF SUBJECT IMPROVEMENTS - (CONTINUED) 17
HVAC: Individual roof mounted electric central heating and cooling
for each unit.
Plumbing: One and two-two fixture restrooms in each shop space.
Miscellaneous: Approximately 53,450 sq. ft. of asphalt paving, 820 ln. ft.
of concrete curbing, 5,425 sq. ft. of concrete paving, 4
metal light poles and fixtures, and landscaping. There are
114 parking spaces on the site equating to a parking ratio
of 4.5 spaces for each 1,000 sq. ft. of floor area.
Additional parking is located on the adjacent parcel also
associated with the Opp Marketplace and available through
cross easements for parking.
H.J. Porter & Associates, Inc.
18
HIGHEST AND BEST USE
Highest and best Use is defined in the Dictionary of Real Estate Appraisal, 3rd
edition, page 171, as:
"The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria the highest and best use must meet are LEGAL PERMISSIBILITY,
PHYSICAL POSSIBILITY, FINANCIAL FEASIBILITY, AND MAXIMUM PROFITABILITY."
Based on this definition, consideration must be given to both the subject land
site as if vacant, and the total property as improved.
HIGHEST & BEST USE - AS IF VACANT
PHYSICALLY POSSIBLE - The 2.05 acre size of the subject would support a wide
range of uses including residential, commercial, and some light industrial uses.
All the necessary utilities and other public services are available in
sufficient quantities to support development. The subject site is part of a
larger parcel currently improved with a Winn-Dixie Supermarket. Further, there
are no other physical site characteristics that would negatively impact the
development potential of the site.
LEGALLY PERMISSIBLE - The subject site is zoned B-2, General Commercial, by the
City of Opp. The current zoning allows for office or retail use as well as
certain governmental and non-profit related uses such as schools and churches.
The subject's B-2 zoning is the same as that of the adjacent parcel improved
with the Winn-Dixie Supermarket.
FINANCIALLY FEASIBLE - An inspection of the area surrounding the subject,
including the Opp central business district, suggests that there is no effective
demand for office use. Almost all of the office development in Opp is
concentrated in the downtown area in older storefront buildings or converted
residences. The pattern of commercial development in the area, and that which is
also considered the most financially feasible, is for retail or commercial
service uses along U.S. Highway 331 to serve the Opp community and traveling
public. The adjacent parcel to the south is currently improved with a Winn-Dixie
Supermarket. Therefore, it would appear that development of the site with a
retail use to take maximum advantage of the adjacent development would meet the
test of being financially feasible.
MAXIMALLY PRODUCTIVE - In determining the highest and best use of the subject
site, "as if vacant and available", the use which is maximally productive
generally becomes the deciding factor. Maximally productive uses are limited by
the current real estate market, the availability of substitute property for
development, and the growth stage of the area. To be maximally productive, that
use which provides the most return to the land must be selected.
H.J. Porter & Associates, Inc.
HIGHEST AND BEST USE - (CONTINUED) 19
HIGHEST AND BEST USE-AS VACANT - (CONTINUED)
It has previously been determined that it would be physically possible, legally
permissible, and financially feasible to develop the site with a retail use
compatible with the current zoning classification and adjacent use. Therefore,
as of the effective date of appraisal, retail use is considered to be maximally
productive and therefore the highest and best use of the subject site, as if
vacant and available.
HIGHEST AND BEST USE - AS IMPROVED
The same criteria utilized to determine the highest and best use of the subject
site, as if vacant and available for development, is utilized to determine the
highest and best use of the property, as improved.
As stated throughout this report, as of the date of appraisal, the subject site
is currently improved retail shop space containing a total of 25,350 sq. ft of
gross leasable area and associated site improvements as portion of a
neighborhood shopping center anchored by Winn-Dixie. The shopping center in
general and the subject improvements in particular are considered to be in good
condition and functionally designed for their intended use.
PHYSICALLY POSSIBLE AND LEGALLY PERMISSIBLE - The subject improvements are
situated on a site containing 2.05 acres or 89,298 sq. ft. of land. The
improvements generate a land-to-building ratio of 3.52:1 based on the total
gross leaseable area. The land-to-building ratio allows for an ample amount of
on-site parking. Additionally, a retail use, such as the existing improvements
is allowable without exception under the sites current B-2 zoning
classification.
FINANCIALLY FEASIBLE AND MAXIMALLY PRODUCTIVE - Subsequent sections of this
report indicate a site value of $66,600, as if vacant and developable to its
highest and best use. The three approaches to value produced indications of
value from $1,314,000 to $1,485,000. Hence, the existing improvements appear to
contribute significantly to overall property value. Therefore, the focus of this
analysis will be on the property "as improved". No other use or development
option, as of the effective date of value, would appear to generate a higher
return to the land.
H.J. Porter & Associates, Inc.
20
THE APPRAISAL PROCESS
The appraisal process is a procedure for estimating the market value of real
property. This process involves gathering all pertinent information available
from the market which may influence the value of the subject property. This data
is then utilized in forming an estimate of value based upon the three generally
accepted approaches to value. These three approaches are the Cost Approach, the
Income Approach, and the Direct Sales Comparison Approach.
COST APPROACH
The Cost Approach is defined as that approach in appraisal analysis which is
based upon the proposition that an informed purchaser would pay no more than the
cost of producing a substitute property with the same utility as the subject
property. It is assumed that the potential purchaser considers producing a
substitute property with the same utility as the property being appraised. This
analysis involves the cost to buyer of producing an exact replica of the subject
property, in the same location and condition as the subject property, as of the
effective date of the appraisal.
The application of the Cost Approach involves the following steps:
1. Estimating value of the site as if vacant and available to be put to its
highest and best use.
2. Estimating the reproduction cost new of the improvements.
3. Estimating all elements of accrued depreciation.
4. Subtracting the total accrued depreciation from the reproduction cost new
of the improvements (resulting in an estimate of the present worth of the
improvements).
5. Adding the present worth of all the improvements (including site
improvements) to the estimated site value.
6. Rounding the figure to an appropriate indication of value.
The major limitations of the Cost Approach is its reliance upon an estimation of
accrued depreciation. Generally, the older the property and the higher the
estimate of accrued depreciation, the less reliable becomes the value indication
from this approach. This is particularly critical in the valuation of older
properties that normally incur greater amounts of depreciation. The Cost
Approach is particularly appropriate when the property being appraised involves
relatively new improvements which represent the highest and best use of the site
or when the improvements are relatively unique or specialized and there is
limited or a total lack of comparable properties which have sold recently.
H.J. Porter & Associates, Inc.
THE APPRAISAL PROCESS - (CONTINUED) 21
INCOME ANALYSIS
The Income Analysis is defined as that procedure in appraisal analysis which
converts anticipated benefits (dollar income or amenities) to be derived from
the ownership of property into a value estimate. Anticipated future income
and/or reversions are discounted to a present-worth figure through the
capitalization process.
This analysis requires an estimate of market rent based upon comparable rent of
leased properties. This rental estimate is a gross amount and all expenses to
real estate are deducted. These expenses include vacancy and rent loss which,
when subtracted from the gross income, produces the effective gross income.
Other expenses include real estate taxes, management cost, insurance cost, and
maintenance expense. If applicable, a reduction would also be made for services
and utilities. All expense estimates are obtained from the market by comparison
to similar structures.
After all expenses have been subtracted from the gross income, the resulting
figure is the net operating income, which will be capitalized into value. The
capitalization rate is derived from actual sales that have occurred in the
market place. The sales are analyzed in order to estimate the net operating
income of the property. After the net operating income is estimated, it is
divided by the sales price to provide an indication of the overall
capitalization rate. Capitalization rates can also be built up from the market
factors considered most applicable to income-producing properties. After the net
operating income and the capitalization rate are estimated, the net income is
then capitalized into a value indication by the applicable capitalization
technique.
DIRECT SALES COMPARISON APPROACH
The Direct Sales Comparison Approach is defined as that approach in an appraisal
analysis which is based upon the proposition that an informed purchaser would
pay no more for the property than the cost to him of acquiring an existing
property with the same utility. Presumably, the potential purchaser considers
the alternatives that are available to him and then makes a rational decision
based upon the information he has about those alternatives that are available to
him and then makes a rational decision based upon the information he has about
those alternatives.
The application of the Direct Sales Comparison Approach involves selecting a
number of competitive properties which have recently sold on the market. The
information derived from this section is analyzed through an adjustment process
which develops indications of what the competitive properties would have sold
for if they possessed all the important characteristics of the subject property.
These indications fall into a pattern surrounding one figure which, when
appropriately rounded, is an indication of the market value of the subject
property as of the date of the appraisal.
H.J. Porter & Associates, Inc.
THE APPRAISAL PROCESS - (CONTINUED) 22
The reliability of this approach is dependent upon the availability and
verification of the comparable sales data. The degree of comparability between
the competitive properties and the subject, and the absence of non-typical
conditions affecting the sales price of those properties are also important
items that are considered. Therefore, this approach is particularly applicable
when an active market provides sufficient quantities of reliable data which can
be verified from authoritative sources.
RECONCILIATION ANALYSIS
The reconciliation analysis is an evaluation process where the appraiser
carefully evaluates value indications from each of the three approaches. The
reliability of each approach to the present appraisal problem is examined and
weight is given to the accuracy, reliability, quantity of data available for use
in each approach, and the approach in which the market participant typically has
the greatest confidence.
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON 23
The subject site is valued by direct comparison with recent sales of other
similarly zoned commercial sites. Three of the sales are located in the Opp area
in close proximity to the subject. The fourth sale is located in Andalusia in an
area considered to be reasonably comparable to the subject. Each of the sales
analyzed on the basis of their location and utility relative to the subject.
Sales considered include:
SALE #1
Address/Location: Part of Opp Market Place
U.S. Highway 331
Opp, Alabama
Grantor: Sara H. Long
Grantee: Tom Newton
Sale Date: 12\08\1993
Sale Price: $65,000
Cash Equiv Price: $65,000
Terms: Cash to Seller
Recorded: Deed Book 852, Page 42 Covington County
Verified With: Angie Metcalf, Coldwell Banker Real Estate
Verified By: Glen Heinzelman, H. J. Porter & Associates
Date Verified: 08\07\1997
Rights Conveyed: Fee simple title
Land Size: Acres: 1.366 Square Feet: 59,503
Zoning: B-2, General Commercial District
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Level/Typical of the area
Access/Visibility: Good/Good
Utilities: All available
Remarks: This property is located on the south side of U.S.
331 south of its intersection with
County Road 22 (Opp-Alberton Road)
next to the Dairy Queen.
Indicators of Value: PRICE PER ACRE: $47,584
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 24
SALE #2
Address/Location: NEC U.S. 331 and Kellum Street
Opp, Alabama
Grantor: Nagarbhai B. Patel
Grantee: Saidutt, Inc.
Sale Date: 04\07\1994
Sale Price: $51,000
Cash Equiv Price: $51,000
Terms: Cash to seller
Recorded: Deed Book 877 Page 390 Covington County
Verified With: Angie Metcalf, Coldwell Banker Real Estate
Verified By: Glen Heinzelman
Date Verified: 08\07\1997
Rights Conveyed: Fee simple title
Land Size: Acres: 1.20 Square Feet: 52,272
Zoning: B-2, General Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Level; typical of the area
Access/Visibility: Good; Good
Utilities: All except sewer
Remarks: This property has 100' of frontage on U.S. 331 and
350' of frontage on Kellum Street.
It is currently improved with a
Holiday Inn Express.
Indicators of Value: PRICE PER ACRE: $42,500
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 25
SALE #3
Address/Location: U.S. Highway 84
Andalusia, Alabama
Grantor: Kenneth R. Odem
Grantee: W. S. Rabren, Jr.
Sale Date: 07\18\1994
Sale Price: $85,000
Cash Equiv Price: $85,000
Terms: Cash to seller.
Recorded: Deed Book 880 Page 240 Covington County
Verified With: Danny Solomon, Cedar Creek Realty
Verified By: Linda Yates
Date Verified: 10\28\1994
Rights Conveyed: Fee simple title
Land Size: Acres: 2.13 Square Feet: 92,783
Zoning: B-3, Highway Commercial
Highest & Best Use: Commercial
Use at Sale: Vacant
Topo/Drainage: Above street grade; Adequate
Access/Visibility: Good; good
Utilities: All available
Remarks: The property has 302' of frontage along U.S.
Highway 84 and an average depth of
360 feet. It is presently improved
with an accounting office.
Indicators of Value: PRICE PER ACRE: $39,906
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 26
SALE #4
Address/Location: Parcel "B" Opp Marketplace
Opp, Alabama
Grantor: Opp Partners, Ltd.
Grantee: South Trust Bank, NA.
Sale Date: 10\11\1995
Sale Price: $50,000
Cash Equiv Price: $50,000
Terms: Cash to seller
Recorded: Deed Book 909, Page 166 Covington County
Verified With: Tom Newton, Opp Partners
Verified By: Glen Heinzelman, H.J. Porter & Associates
Date Verified: 08\07\1997
Rights Conveyed: Fee simple title
Land Size: Acres: 1.73 Square Feet: 75,359
Zoning: B-2, General Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Level/adequate
Access/Visibility: Good/Good
Utilities: All available
Remarks: This property is part of the Opp Marketplace
shopping center adjacent to and
south of the Winn-Dixie Supermarket.
It has no direct access from U.S.
Highway 331. Access is by easements
for ingress and egress with the
shopping center. It is to be
developed with a South Trust Bank
branch.
Indicators of Value: PRICE PER ACRE: $28,902
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
COMPARABLE LAND SALES
LAND VALUE -DIRECT COMPARISON (CONTINUED) 27
Land Sales 1 through 4 detailed above are compared to the subject's shopping
center site and adjusted to the subject for notable differences. These
adjustments are made in the adjustment grid below.
===============================================================================================================================
LAND SALES COMPARISON GRID
===============================================================================================================================
COMP. NUMBER SUBJECT #1 #2 #3 #4
-------------------------------------------------------------------------------------------------------------------------------
Grantor Long Patel Odem Opp Partn.
Grantee Newton Saidutt Rabrem SouthTrust
Location U.S. 331 U.S. 331 Hwy 84 U.S. 331
City Opp Opp Andalusia Opp
Sale Price $65,000 $51,000 $85,000 $50,000
Date of Sale 8/6/97 12/8/93 4/7/94 7/18/94 10/11/95
Size (Acres) 2.050 1.366 1.200 2.130 1.730
Price/Acre $47,584 $42,500 $39,906 $28,902
===============================================================================================================================
ADJUSTMENTS
-------------------------------------------------------------------------------------------------------------------------------
Conditions of Sale Normal Normal Normal Normal
Market Conditions 0.0% 0.0% 0.0% 0.0%
Preliminary Adj. Unit Price $47,584 $42,500 $39,906 $28,902
===============================================================================================================================
PHYSICAL DIFFERENCES #1 #2 #3 #4
-------------------------------------------------------------------------------------------------------------------------------
Location -20.0% -20.0% -20.0% 15.0%
Size -6.0% -8.0% 1.0% -3.0%
--- --- --- ---
Subtotal-Physical -26.0% -28.0% -19.0% 12.0%
===============================================================================================================================
FINAL ADJ. UNIT PRICE $35,212 $30,600 $32,324 $32,370
===============================================================================================================================
The comparable sales listed above were adjusted to the subject for:
Conditions of Sale: All sales were normal arm's length transactions that
required no adjustments.
Time: Conversations with local real estate professionals and
the county tax appraiser indicate that land values in
Opp have remained stable over the past five years.
Therefore, no adjustment for market conditions or time
was considered appropriate.
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 28
Location: The subject property has no direct access from the major area
roadway, U.S. Highway 331. It is accessible from the minor
artery, County Highway 22 (Opp-Alberton Road). Comparables No. 1,
2, and 3 all front and are accessible from U.S. Highway 331 and
are considered to have superior locations relative to the
subject. Downward adjustments of 20% were applied to these
comparables to recognize their superior locations relative to the
subject. Comparable No. 4 is Parcel "B" of the Opp Marketplace
Shopping Center and does not have any direct access to a roadway
other than by an easement across the Winn-Dixie property to the
north. The location of this comparable is considered to be
inferior relative to the subject. An upward adjustment of 15% was
applied to this comparable for location.
Size: All sales were adjusted to a 90% curve using the Dilmore Size
adjustment table. This table is based on the fact that a
property's price per unit is generally inversely related to its
size.
The comparable sales after adjustment, indicate a range of value from $32,324 to
$35,212 per acre. Each of the adjusted sales were given relatively equal
consideration in the value estimate of the subject site, as if vacant.
Based on these adjusted sales, the subject site, "As if Vacant", is valued as:
The cost factors used from the Marshall Valuation Service, a national cost
service indexed to the Opp market and found to be reliable and consistent with
costs incurred by builders within the area. The cost factors from this cost
service are inclusive of architect/engineering fees, construction period
interest, contractors overhead and profit, and normal site prep costs. Excluded
are site improvements such as paving, landscaping, etc., land costs, and
indirect costs such as developers profit permanent loan fees.
Calculations of total building reproduction costs are:
==============================================================================================
ESTIMATED REPRODUCTION COST NEW - NEIGHBORHOOD SHOPPING CENTER
==============================================================================================
Average Class "C" - Sec 13, Pg 21
Base Cost $46.06
Current Cost Multiplier x 1.000
Local Cost Multiplier x 0.920
Perimeter Multiplier x 0.880
-----
25,350 Sq. Ft. @ $37.29 per Sq. Ft. = $945,302
==============================================================================================
INDIRECT COST
Indirect costs including developer's fee/entrepreneurial profit and permanent
loan fees are added to the subject's direct cost to estimate the total value of
the subject property via the Cost Approach. Developer's fee/Entrepreneurial
profit is added at 20% based upon sales of new shopping centers, discussions
with Developers and Brokers, and with consideration given to the cross
collateralization of the portfolio of retail properties of which the subject is
a part. Permanent loan fees are added at the amount typically charged by lenders
- 2% of the loan amount (1% construction - 1% permanent).
DEPRECIATION AND OBSOLESCENCE
Incurable physical deterioration identifies items of deterioration that cannot
be practically or economically corrected at present. For the purposes of this
analysis, incurable physical deterioration has not been classified as being
either long or short lived. A long-lived item is a building component that is
expected to have a remaining economic life that is the same as the remaining
economic life of the structure. A short-lived item is a building component that
is expected to have a remaining economic life that is shorter than the remaining
life of the structure.
H.J. Porter & Associates, Inc.
COST APPROACH TO VALUE - (CONTINUED) 30
DEPRECIATION AND OBSOLESCENCE - (CONTINUED)
In this instance separating the items of incurable physical deterioration into
long and short lived items would serve little or no useful appraisal purpose
because of the overall age of the improvements.
In the case of the subject improvements, incurable physical deterioration has
been estimated using the age/life concept in that we estimate the improvements
to have an effective age of approximately 2 years, from a total estimated
economic life of approximately 40 years. Therefore, it is estimated that the
improvements suffer from incurable physical deterioration, both long and
short-lived, of approximately 5.0 percent (2 years/40 years = 5.0 percent) of
the estimated Reproduction Cost New.
Functional obsolescence is a loss in value resulting from defects in design. The
defect may be curable or incurable. Curable functional obsolescence is measured
by the cost to cure the condition. Incurable functional obsolescence may be
caused by a deficiency or a superadequacy. A deficiency may be a component or
system that should be in the property but is not, or it may be a substandard or
defective component or system in the property that does not work properly. A
superadequacy is a component or system in the property that exceeds market
requirements and does not contribute to value an amount equal to its cost. Upon
inspection of the subject, no degree of functional obsolescence, either curable
or incurable, was noted.
External obsolescence is the diminished utility of a structure or project due to
negative influences from outside the site and can be caused by a variety of
factors, i.e., neighborhood declined, the property's location in a community,
state, or region; or market conditions. No degree of external obsolescence is
believed to be present in the subject improvements as of the effective date of
appraisal.
CONCLUSION TO COST APPROACH
The calculation of value by the Cost Approach is presented in tabular form on
the following page.
H.J. Porter & Associates, Inc.
COST APPROACH TO VALUE - (CONTINUED) 31
CONCLUSION TO COST APPROACH (CONTINUED)
====================================================================================================================================
VALUATION - COST APPROACH
====================================================================================================================================
DIRECT COST
Shopping Center 25,350 Sq. Ft. x $37.29 per Sq. Ft. = $945,302
LESS DEPRECIATION: Curable Incurable
------- ---------
Physical $0 $47,265
Functional $0 $0
External $0 $0
Total $0 $0 $47,265
-- -- -------
DEPRECIATED COST OF SHOPPING CENTER $898,036
Add: Site Improvements Area Cost/Sq. Ft. % Dep. Cost New
---- ------------ ------ --------
Asphalt Paving 53,450 $1.50 15.0% $68,149
Concrete Paving 5,425 $1.75 10.0% $8,544
Concrete Curbs 820 $7.50 10.0% $5,535
Light Poles 4 $2,500 10.0% $9,000
Landscaping $25,000
-------
TOTAL SITE IMPROVEMENTS $116,228
--------
TOTAL DEPRECIATED COST NEW $1,014,264
INDIRECT COST
Developer's Fee 20.0% of Total Cost/Land $216,173
Permanent Loan Fees @ 2.0% of Loan Amount
(Loan basis = 80.0% of Land/Bldg Cost) $17,179
-------
TOTAL INDIRECT COST $233,467
--------
TOTAL REPRODUCTION COST NEW $1,247,731
LAND VALUE (FROM PREVIOUS SECTION) $66,600
-------
PRELIMINARY VALUE BY COST APPROACH $1,314,331
(ROUNDED) $1,314,000
====================================================================================================================================
H.J. Porter & Associates, Inc.
32
INCOME APPROACH TO VALUE
As a primary approach to value for the subject, the subject's net operating
income is capitalized into a value estimate by use of an overall capitalization
rate. In arriving at a net operating income, consideration is given to rentals
and expenses which are incurred in the operation of the property.
CONTRACT INCOME
The subject is currently occupied by two tenants. B.C. Moor & Son's, Inc.
occupies 16,900 sq. ft. or 66.6% of the total net rentable area and Harco
Drug occupies 8,450 sq. ft. or 33.4% of the total net rentable area. A
summary of these leases appear in the Rear Exhibits.
To determine whether the previously summarized leases are representative of
market rents for similar retail space, the contract rents were compared to other
drug store leases in the States of Alabama, Georgia, and Tennessee. A summary of
those leases appears in the following chart.
====================================================================================================================================
SUMMARY OF RENT COMPARABLES
====================================================================================================================================
Tenant Location Year Leased Size (Sq. Ft.) Rent/Sq. Ft.
------------------------------------------------------------------------------------------------------------------------------------
Drugs For Less Birmingham, AL 1993 18,000 $7.50
Harco Drugs Birmingham, AL 1993 12,876 $5.95
Harco Drugs Pell City, AL 1993 9,100 $7.50
Harco Drugs Alabaster, AL 1993 9,100 $8.50
Big B Drugs Chattanooga, TN 1994 8,470 $7.00
Harco Drugs Tuscaloosa, AL 1994 10,160 $7.90
Big B Drugs Phenix City, AL 1995 15,500 $4.75
Revco Drugs Anniston, AL 1995 9,240 $7.75
Drugs For Less Birmingham, AL 1995 18,000 $7.00
Revco Drugs Dalton, GA 1996 8,450 $9.75
Harco Drugs Mobile, AL 1997 10,125 $8.25
====================================================================================================================================
HARCO DRUGS OPP, AL 1994 8,450 $7.50
====================================================================================================================================
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 33
Based on the rents summarized on the previous chart, it is determined that
the current contract rent of $7.50 per sq. ft. for the 8,450 sq. ft. leased
by Harco Drugs, Inc. is commensurate with market rents for similar drug store
space in anchored shopping centers. Additionally, given adjustments for size
and name recognition, the current contract rent of $5.00 per sq. for the
16,900 sq. ft. leased by B.C. Moore & Son's, Inc. is also considered to be
commensurate with the market rent for similar space located in similar
shopping centers.
EXPENSE CONTRIBUTIONS
Each tenant is contractually obligated to contribute to the expenses incurred in
the operation of the shopping center. Their contributions amount to their
pro-rata share of the taxes, property insurance, and common area maintenance
expenses. These expenses have been estimated later in this report and summarized
in the following chart.
ESTIMATED OF EXPENSE CONTRIBUTIONS
Taxes $6,733
Insurance $2,535
Common Area Maintenance $11,408
-------
Total Reimbursable $20,676
Total Sq. Ft. (NRA) 25,350
============================================
REIMBURSEMENT/SQ. FT. (NRA) $0.82
============================================
VACANCY AND COLLECTION LOSS
The subject is 100% leased as of the effective date of appraisal. However, it
would be imprudent to believe that a potential buyer would not consider some
degree of vacancy collection loss when evaluating the income producing potential
of the subject. This opinion is supported by the pro-forma operating statements
obtained in the confirmation of the sales utilized to develop a value estimate
by the Market Approach. For the purposes of this analysis, given the credit
quality of the existing tenants, a vacancy and collection loss factor of 2.5% of
the total potential gross income for subject, including expense contributions,
has been incorporated into this analysis.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 34
EFFECTIVE GROSS INCOME
Given the preceding discussion, the Effective Gross Income for the subject is
estimated as follows:
====================================================================================================================================
ESTIMATE OF EFFECTIVE GROSS INCOME
====================================================================================================================================
POTENTIAL GROSS INCOME:
Harco Drug 8,450 Sq. Ft. @ $7.50 per Sq. Ft. = $63,375
B.C. Moore 16,900 Sq.Ft. @ $5.00 per Sq. Ft. = $84.500
--------
Potential Gross Rental Income $147,875
EXPENSE CONTRIBUTIONS:
Harco Drug 8,450 Sq. Ft. @ $0.82 per Sq. Ft. = $6,929
B.C. Moore 16,900 Sq.Ft @ $0.82 per Sq. Ft. = $13,858
-------
Total Expense Contributions $20.787
--------
Total Potential Gross Income $168,662
Less Vacancy & Collection Loss:
2.5% of Potential Gross Income $4,217
--------
EFFECTIVE GROSS INCOME $164,445
====================================================================================================================================
OPERATING EXPENSES
After estimating Effective Gross Income, all applicable expenses are deducted to
arrive at Net Operating Income. To estimate the appropriate expense levels,
statements from similar shopping centers are analyzed. The expense comparables
are presented on the following pages.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 35
COMPARABLE #1
Project Name: Delchamps Plaza South
Location: Skyland Boulevard
Tuscaloosa, Alabama
Year Built: 1986 GLA: 108,903 SF
Source: Yearn end statements
Type Center: Neighborhood Shopping Center
Analysis Year: 1996 Analysis By: LHH
Comments: Miscellaneous expense consists of travel and structural repair
expenses
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 36
COMPARABLE #2
Project Name: Delchamps Plaza North
Location: MacFarland & Watermelon Road
Tuscaloosa, Alabama
Year Built: 1986 GLA: 59,389 SF
Source: Year end statements
Type Center: Neighborhood Shopping Center
Analysis Year: 1995 Analysis By: DPM
Comments: Utilities expense is included in CAM. Miscellaneous expense is
non-pass through expense for building repair.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 37
COMPARABLE #3
Project Name: Stratford Square
Location: East Boulevard
Montgomery, Alabama
Year Built: 1987 GLA: 121,236 SF
Source: Year end statement
Type Center: Community Shopping Center
Analysis Year: 1995 Analysis By: PJM
Comments: Miscellaneous expense includes $3,762 for on-site management and
$1,888 for advertising and promotional expenses.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 38
COMPARABLE #4
Project Name: Confidential
Location: Central Alabama
Year Built: 1978 GLA: 62,510 SF
Source: Year End Statement
Type Center: Neighborhood Shopping Center
Analysis Year: 1995 Analysis By: PJM
Based on these expense comparables, the pertinent expense categories in
appropriate amounts are estimated below.
Management/Leasing: The management fees of the comparable properties
range from 3.8% to 6.1%. As indicated previously, the
subject property is one of fifteen shopping centers
in a cross collateralized portfolio of retail
properties under single management. Considering
economics of scale, the subject's management fee is
estimated at the low end of the range at 4% of
effective rental income.
Ad Valorem tax: The actual ad valorem taxes levied against the
subject obtained from the Covington County Tax
Assessor's office have been deemed appropriate and
included in this analysis.
Insurance: Based upon the expense comparable information
included herein, the cost of insuring the subject's
improvements and the cost of liability insurance is
estimated to be $2,535 per year or $0.10 per square
foot of net leasable area.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 40
OPERATING EXPENSES (CONTINUED)
Common Area Maintenance: The common area maintenance expense, including
utility expense for the parking and walkway areas,
based on the expense comparables has been estimated
to be $11,408 per year or $0.45 per sq. ft. of net
leasable area.
Structural Maintenance: Structural maintenance is estimated to
be $.10 per square foot for a total annual amount of
$2,535 which is found to be similar to other
neighborhood shopping centers as well as typical
requirements by permanent lenders.
Miscellaneous Expenses: Miscellaneous expenses for legal and accounting
services has been estimated to amount to 1.0% of the
effective gross income.
Based on the preceding, the total operating expenses are estimated to be $30,770
per year or $1.21 per square foot of net leasable area. The total expense
estimate results in an operating expense ratio of 18.7% which is supported by
the expense comparables.
NET OPERATING INCOME
The Net Operating Income is calculated by subtracting the Operating Expenses
from the Effective Gross Income and is estimated at $133,676. The table on the
following page is a reconstructed operating statement for the subject
illustrating the previously discussed calculation of income and expenses.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 41
NET OPERATING INCOME - (CONTINUED)
====================================================================================================================================
VALUATION - INCOME APPROACH
====================================================================================================================================
Potential Gross Income
Harco Drug 8450 Sq. Ft. @ $7.50 per Sq. Ft. = $63,375
B. C. Moore 16900 Sq. Ft. @ $5.00 per Sq. Ft. = $84,500
-------
Potential Gross Rental Income $147,875
Expense Contributions
Harco Drug 8450 Sq. Ft. @ $0.82 per Sq. Ft. = $6,929
B. C. Moore 16900 Sq. Ft. @ $0.82 per Sq. Ft. = $13,858
-------
Total Expense Contributions $20,787
-------
Total Potential Gross Income $168,662
Less Vacancy & Collection Loss
2.5% of Potential Gross Income $4,217
------
Effective Gross Income $164,445
Less Expenses: % of EGI Per Sq. Ft. Total
-------- ----------- -----
Management 4.0% $0.35 $5,915
Ad Valorem Taxes 4.0% $0.27 $6,733
Property Insurance 1.5% $0.10 $2,535
Common Area Maintenance 6.8% $0.45 $11,408
Structural Maintenance/Reserves 1.5% $0.10 $2,535
Miscellaneous 1.0% $0.07 $1,644
Total Expenses $30,770
-------
Net Operating Income $133,676
====================================================================================================================================
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 42
CAPITALIZATION RATE
To estimate the subject's value via the Income Approach, the subject's
stabilized net operating income is capitalized with an overall capitalization
rate of 9.0%. The selected overall capitalization rate is based on several
methods of capitalization rate development with consideration given to the cross
collateralization of the subject property with the other fourteen shopping
centers in the securitized portfolio of retail properties. The capitalization
rate development methods, which are presented following the Income Approach
Summary on the following page, includes rates extracted from comparable sales,
recently published investor surveys, and three methods using mortgage and equity
positions which include the Ellwood, Band of Investment, and Debt Coverage Ratio
methods.
Rates extracted from the comparable sales ranged from 9.57% to 10.20% with an
average of 9.81% and the most recent sale being at 9.64%. Published rates from
the Second Quarter 1997, Korpacz Real Estate Investor Survey for National Strip
Shopping Centers, ranged from 8.25% to 13.00% with an average rate of 9.84%
which is similar to the market extracted rates. The mid range rates from the
three mortgage/equity methods ranged from 8.90% to 9.24%. The rates developed
with mortgage equity factors reflect current conditions and declining interest
rates. The criteria used for these methods was taken from the above mentioned
investor survey and from interviews with mortgage brokers.
The High, Middle, and Low average of the five methods of capitalization rate
development are 10.25%, 9.31%, and 8.71% respectively. Based on this analysis
and the above considerations, the subject's overall capitalization rate is
estimated to fall between the Middle and Low range of the five methods.
Given the preceding, the value indication provided by the Income Approach can be
expressed as follows:
VALUE INDICATION
Net Operating Income $133,676 Capitalized at 9.0% $1,485,283
(ROUNDED) $4,485,000
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 43
====================================================================================================================================
PROPERTY CAPITALIZATION RATE JUSTIFICATION
====================================================================================================================================
PROPERTY: Opp Marketplace Shopping Center
ADDRESS: Opp, Alabama
DATE: August 6, 1997
Pessimistic Most Likely Optimistic
----------- ----------- ----------
-----------------------------------------------------
1. Market extracted rates for 10.20% 9.81% 9.57%
-----------------------------------------------------
similar local properties
-----------------------------------------------------
2. Recent published cap rates 13.00% 9.84% 8.25%
-----------------------------------------------------
used by institutional investors
Source: Korpacz 2nd Q, 1997
3. Ellwood method calculated rates
11.55% = Eqty yield before tax
% Property appreciation (income) over
hold period = -5.00% 0.00% 5.00%
75.00% = Mortgage percent of value
7.75% = Mortgage interest rate
20 = Mortgage term in years
10 = Investment holding period
9.85% = Rm = Mortgage constant
14.40% = Rmp = Mortgage constant over holding period
31.59% = P = Percent of mortgage paid off over hold period
5.82% = SFF = Sink fund factor
37.18% = J factor
-----------------------------------------------------
Calculated cap rate = 9.36% 8.90% 8.45%
-----------------------------------------------------
4. Band of Investment Method
Mortgage percent to value 70.00% 75.00% 80.00%
Mortgage constant (Rm) 10.35% 9.85% 9.35%
Equity percent to value 30.00% 25.00% 20.00%
Eqty cash on cash rate (Re) 8.00% 7.00% 6.00%
-----------------------------------------------------
Calculated cap rate = 9.65% 9.14% 8.68%
-----------------------------------------------------
5. Debt Coverage Ratio Method
Req'd debt coverage ratio 1.25 1.20 1.15
Mortgage percent to value 70.00% 75.00% 80.00%
Mortgage constant 10.35% 9.85% 9.35%
-----------------------------------------------------
Calculated cap rate = 9.06% 8.87% 8.60%
-----------------------------------------------------
H.J. Porter & Associates, Inc.
44
Explanatory Notes
Capitalization Rate Evidence
The accompanying chart illustrates 5 different sets of data or evidence to
appropriate current property capitalization rates.
Item # 1 Reflects the current range in capitalization rates in
the local market based on actual sales - this information is
historical in nature although there has been a fairly consistent
pattern evident in this market over the years.
Item # 2 Reflects actual cap rates used by large financial
institutions in the acquisition and financing of major real
estate projects. These rates are also historical in nature, but
are based on properties of a magnitude atypical in this market
area. Properties that would appeal to at least a regional and
perhaps a national market of potential buyers.
Item # 3 Reflects a calculated cap rate utilizing the Ellwood
model based on future expectations in income and property value
growth and equity yield rates - explicit input assumptions are
listed. This method is compelling when market mortgage and equity
yield returns are predictable and property and income changes can
be reliably predicted.
Item # 4 Analyzes required capital outlays to service both the
debt (ie mortgage payment) and the equity (cash on cash or before
tax cash flow or equity dividend). The weighted average of these
required returns is, by definition, equal to the capitalization
rate. It should be noted that the mortgage interest rate and
equity yield rate are NOT part of this calculation.
Item #5 Provides another method often used by lenders. The debt
coverage ratio is a factor equal to the net operating income
divided by the annual debt service - in other words, it is an
estimate of the "cushion" or excess of net operating income over
and above debt service. The calculated cap can be solved for by
the following formula R(o) = R(m) X DCR X M.
The actual cap rate used by the appraisers in this analysis is bracketed by this
information. Further, this chart illustrates the implicit market expectations of
the various investment parameters that are reflected by the specific
capitalization rate used.
H.J. Porter & Associates, Inc.
45
MARKET APPROACH
To estimate the subject property's value by market comparison, a direct
comparison is made with actual sales of other shopping center properties. These
sales are analyzed on the basis of price per square foot of gross building area
(GBA) and their effective gross income multiplier (EGIM).
While the subject property is part of a large portfolio of retail properties
which would most likely be marketed as a total package, no sales of similar
portfolios of properties were found with which to compare. The market for retail
properties is national with purchase decisions made on the strength and
reliability of the income streams. Similar shopping center sales were located in
Birmingham, Moody, Madison, and Mobile, Alabama and Chattanooga, Tennessee.
Each sale is adjusted to the subject for pertinent items, including unusual
financing or conditions of sale, time lapsed since sale, and physical
differences such as age, condition, and construction quality and location as
reflected in the net operating income.
The sales considered are detailed on the following pages with a comparison and
adjustment following the presentation of the sales data.
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 46
COMPARABLE IMPROVED SALES
[GRAPHICS OMITTED]
[PHOTOGRAPH]
SALE #1
Address/Location: The Village on Lorna
3001 Lorna Road
Hoover, Alabama
Grantor: Lorna Properties
Grantee: Village on Lorna Shopping Center, Ltd.
Sale Date: 05/26/1995
Sale Price: $11,200,000
Cash Equiv Price: $11,200,000
Equity: $2,240,000
Debt: $8,960,000 First Yr. Debt Service: $933,084
Terms: Cash to seller; equity, debt, and Yr. 1 debt
service estimated based on 80% LTV,
8.5% interest, and 20 year
amortization.
Recorded: Inst. No. 1995-61351, Jefferson County
Verified With: Hunter Keller, Engel Realty (205) 939-6800
Verified By: David Mullins, MAI, H.J. Porter & Associates
Date Verified: 04/18/1996
Rights Conveyed: Leased fee
Land Size: 12.6 Acres
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 47
SALE #1 (CONTINUED)
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood shopping center
Parking: 728 spaces Parking Ratio: 5.15/1,000 Sq. Ft.
Building Size: 141,444 SF(NRA)
Land:Bldg Ratio: 3.9:1
Year Built: 1986
Condition: Average to Good
Building
Description: One story neighborhood shopping center containing
two separate building of masonry construction
Anchors: Delchamps (51,945 Sq. Ft.) and Drugs for Less
(14,500 Sq. Ft.)
Anchor - Sq. Ft.: 66,445 Anchor %: 46.98
Local: Typical local, regional, and national small shop
tenants
Local - Sq. Ft.: 74,999 Local %: 53.02
Lease Information: Anchor & Local: CAM, taxes and insurance. Delchamps
recently expanded and renovated
their space with an estimated
expenditure of 2.5 to 3.0 million
dollars. In conjunction, they signed
a new 15 year lease with 3, five
year options.
ANALYSIS
(1|2|3)*Source TOTAL $ AMOUNT $ PER SF (GBA)
-------------- --------------
(S\A\P) Potential Gross Income: $1,578,760 $11.16
(A\E\F) Vac & Credit Loss: $94,725 $ 0.67
---------- ------
(A\E\F) Effec. Gross Income: $1,484,034 $10.49
(A\E\F) Less Expense: $376,266 $ 2.66
---------- ------
(A\E\F) Net Oper. Income $1,107,768 $ 7.83
(A\E\F) Debt Service (Yr. 1) $933,084 $ 6.60
---------- ------
(S\A\F) Cash Flow $174,684 $ 1.24
================================================================================
Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
================================================================================
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 48
SALE #1 (CONTINUED)
INDICATORS OF VALUE: Price Per SF (NRA): $79.18
PGIM: 7.09
EGIM: 7.55
R(o): 9.89%
Expense Ratio: 25.35%
Remarks: PGI includes potential rent based on actual base rent plus
expense contributions and miscellaneous income. The actual 1994
NOI was $901,481 and is somewhat skewed due to vacancy of local
space during Delchamp's expansion and rent concessions during
this period. Also, leasing commissions and tenant improvements
were deducted as expenses before the NOI calculation.
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 49
[GRAPHICS OMITTED]
SALE #2
Address/Location: The Village at Moody
U.S. Highway 411
Moody, Alabama
Grantor: F.S. Partnership, Ltd.
Grantee: Birmingham Realty
Sale Date: 02/14/1996
Sale Price: $4,485,000
Cash Equiv Price: $4,485,000
Equity: $1,485,000
Debt: $3,000,000
Terms: $1,485,000 cash plus assumption of $3,000,000
mortgage at market rates and terms.
Recorded: Deed Book 261 at page 313, St. Clair County
Verified With: Paul Spina, Grantor (205) 733-1131
Verified By: David Mullins, MAI, H.J. Porter & Associates
Date Verified: 04/10/1996
Rights Conveyed: Leased fee
Land Size: 8.43 Acres
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 50
SALE #2 (CONTINUED)
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood shopping center
Parking: 396 spaces Parking Ratio: 6.51/1,000 Sq. Ft.
Building Size: 60,800 SF(NRA)
Land: Bldg Ratio: 6.0:1
Year Built: 1995
Condition: Good
Building
Description: In-line, one story masonry construction with brick
exterior on front and sides, and CCB on rear. Flat
built-up roof system
Anchors: Winn-Dixie (44,000 Sq. Ft.)
Anchor - Sq. Ft.: 44,000 Anchor %: 72.37
Local: J&E Ent., Head Start, Movie Gallery, Open Book,
Vulcan Rehabilitation, Moody Cleaners, Village
Beverage, Merle Norman, and The Nail Shop
Local - Sq. Ft.: 16,800 Local %: 27.63
Lease Information: Winn-Dixie - $7.00 per Sq. Ft.; Local tenant rent
ranges from $10.50 to $11.50 per Sq. Ft. with an
average of $10.67 per sq. ft. All tenants pay
pro-rata share of CAM, taxes, and insurance.
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (GBA)
-------------- --------------
(S\A\P) Potential Gross Income: $533,922 $8.78
(A\E\F) Vac & Credit Loss: $9,920 $0.16
------ -----
(A\E\F) Effec. Gross Income: $524,002 $8.62
(A\E\F) Less Expenses: $87,532 $1.44
------- -----
(A\E\F) Net Oper. Income $436,470 $7.18
================================================================================
Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
================================================================================
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 51
SALE #2 (CONTINUED)
INDICATORS OF VALUE: Price Per SF (NRA): $73.77
PGIM: 8.40
EGIM: 8.24
R(o): 10.18%
Expense Ratio: 16.09%
Remarks: At the time of sale this center was less than one year old and
did not have a complete year of operating history. PGI includes
contract rent plus estimated expense contributions. Market
vacancy was estimated at 5% of local tenant rent and expense
contributions. Expenses include 4% management fee, taxes at $0.58
per sq. ft., insurance at $0.10 per sq. ft., CAM at $0.40 per sq.
ft., and structural maintenance at $0.50 per sq. ft. This center
is located at the northeast corner of Interstate 10 and U.S.
Highway 411 in Moody, Alabama. This area is a rapidly growing
commercial district in the Birmingham/Atlanta interstate
corridor.
MARKET APPROACH - (CONTINUED) 52
[GRAPHICS OMITTED]
[PHTOGRAPH]
SALE #3
Address/Location: Plaza Center
Hughes Road at Old Madison Pike
Madison, Alabama
Grantor: Plaza, Ltd.
Grantee: Amberjack, Ltd.
Sale Date: 12/21/1994
Sale Price: $5,850,000
Cash Equiv Price: $5,850,000
Terms: Cash to seller
Recorded: Deed Book 846 at page 1097, Madison County
Verified With: Tommy Tillman, Broker, (205) 822-7116
Verified By: David Mullins, MAI, H.J. Porter & Associates
Date Verified: 01/11/1995
Rights Conveyed: Leased fee
Land Size: 9.08 Acres
Access/Visibility: Good/Good
Highest & Best Use: Neighborhood shopping center
Building Size: 79,400 Sq. Ft. (NRA)
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 53
SALE #3 (CONTINUED)
Land: Bldg Ratio: 5.0:1
Year Built: 1994
Condition: Good
Building
Description: One story masonry construction with brick veneer
and dryvit front. Flat built-up roof
Anchors: Kroger (62,800 Sq. Ft.)
Anchor - Sq. Ft.: 62,800 Anchor %: 79.09
Local: Sporting Edge, Cleaners, Papa John's Pizza,
Heavenly Hear, Baskin-Robbins, Cornerstone, Movie
Gallery, and Hallmark Cards
Local - Sq. Ft.: 16,600 Local %: 20.91
Lease Information: All tenants pay pro-rata share of CAM, taxes, and
insurance.
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (GBA)
(S\A\P) Potential Gross Income: $689,320 $8.68
(A\E\F) Vac & Credit Loss: $17,750 $0.22
-------- -----
(A\E\F) Effec. Gross Income: $671,570 $8.46
(A\E\F) Less Expenses: $111,457 $1.40
-------- -----
(A\E\F) Net Oper. Income $560,113 $7.05
================================================================================
Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
================================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $73.68
PGIM: 8.49
EGIM: 8.71
R(o): 9.57%
Expense Ratio: 16.60%
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 54
[GRAPHICS OMITTED]
[PHOTOGRAPH]
SALE #4
Address/Location: North Hixson Marketplace
Hixson Pike and Camp Columbus Road
Chattanooga, TN
Grantor: North Hixson, L.L.C.
Grantee: Amberjack, Ltd.
Sale Date: 03/04/1996
Sale Price: $4,760,000
Cash Equiv Price: $4,760,000
Terms: Cash to seller
Recorded: Unknown, Hamilton County
Verified With: Dick Schmalz with Grantor (205) 871-2617
Verified By: David Mullins, MAI, H.J. Porter & Associates
Date Verified: 03/15/1996
Rights Conveyed Leased fee
Land Size: 9.24 Acres
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood shopping center
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 55
SALE #4 (CONTINUED)
Parking: 405 Spaces Parking Ratio: 5.88/1,000 sq. ft.
Building Size: 63,270 Sq. Ft. (NRA)
Land: Bldg Ratio: 6.4:1
Year Built: 1995
Condition: Good
Building
Description: One story neighborhood shopping center with split
face block exterior walls and synthetic stucco on
steel stud canopy.
Anchors: Winn-Dixie (49,600 sq. ft. GBA and 44,000 sq. ft.
NRA) and Big B Drugs (8,470 sq. ft.)
Anchor - Sq. Ft.: 52,470 Anchor %: 82.93
Local: Movie Gallery, Sally's Beauty, and other local
tenants
Local - Sq. Ft.: 10,800 Local %: 17.07
Lease Information: All tenants pay pro-rata share of CAM, taxes, and
insurance.
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (GBA)
-------------- --------------
(S\A\P) Potential Gross Income: $623,083 $9.85
(A\E\F) Vac & Credit Loss: $13,057 $0.21
-------- -----
(A\E\F) Effec. Gross Income: $610,026 $9.64
(A\E\F) Less Expenses: $124,533 $1.97
-------- -----
(A\E\F) Net Oper. Income: $485,493 $7.67
================================================================================
Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
================================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $75.23
PGIM: 7.64
EGIM: 7.80
R(o): 10.20%
Expenses Ratio: 20.41%
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 56
SALES #4 (CONTINUED)
Remarks: At the time of sale there were two vacant local shops containing
2,400 sq. ft. Expense contribution included in PGI and local
vacancy. Vacancy based on 10% of local shop income plus expense
contributions. Expenses based on 4% management, excluding expense
contributions, $1.59 for taxes, CAM, and insurance, plus $0.05
for structural reserves. The estimated expenses were consistent
with the Grantor's pro forma. Average local shop space rent for
leased space was $10.45 per sq. ft.
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 57
[GRAPHICS OMITTED]
[PHOTOGRAPH]
SALE #5
Address/Location: Hillcrest Marketplace
Hillcrest Road at Grelot Road
Mobile, Alabama
Grantor: Hillcrest Marketplace, Ltd.
Grantee: Confidential
Sale Date: 9/15/1997 (Proposed Closing Date)
Sale Price: $6,490,000
Cash Equiv Price: $6,490,000
Terms: Cash to seller
Recorded: Sale Pending
Verified With: Scott Holcombe, Arlington Properties - Developer
(205) 328-9600
Verified By: Harris Hollans, H.J. Porter & Associates
Date Verified: 04/02/1997
Rights Conveyed: Leased fee
Land Size: 12.49 Acres
Access/Visibility: Good/Good
Highest & Best Use: Neighborhood shopping center
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 58
SALE #5 (CONTINUED)
Parking: 359 Spaces Parking Ratio: 4.63/1,000 sq. ft.
Building Size: 76,365 Sq. Ft.(NRA)
Land:Bldg Ratio 7.1:1
Year Built: 1997
Condition: Good
Building
Description: Red brick veneer front over concrete block walls.
Reinforced concrete slab. Single ply membrane
roof. Raised seam metal and canvas awning.
Anchors: Winn-Dixie (51,282 sq. ft.) and Revco Drugs (9,240
sq. ft.)
Anchor - Sq. Ft.: 60,522 Anchor %: 79.25
Local: Typical national, regional, and local tenants
Local - Sq. Ft.: 15,843 Local %: 20.75
Lease Information: Winn-Dixie rent is $8.00 per sq. ft.; Revco rent is
$8.00 per sq. ft.; local tenant rents are $12.50
per sq. ft. Anchor expense contributions were
estimated at $0.99 per sq. ft. with local tenants
at $1.38 per sq. ft.
ANALYSIS
(1|2|3) (*)Source TOTAL $ AMOUNT $ PER SF (GBA)
(S\A\P) Potential Gross Income $756,072 $9.90
(A\E\F) Vac & Credit Loss: $17,613 $0.23
------- -----
(A\E\F) Effec. Gross Income: $738,459 $9.67
(A\E\F) Less Expenses: $112,823 $1.48
-------- -----
(A\E\F) Net Oper. Income $625,636 $8.19
================================================================================
Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
================================================================================
INDICATORS OF VALUE: Price Per SF (NRA) $84.99
PGIM: 8.58
EGIM: 8.79
R(o): 9.64%
Expense Ratio: 15.28%
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 59
SALE #5 (CONTINUED)
Remarks: The total gross building area of the shopping center is 77,557
sq. ft. Local tenant space was projected to be 100% leased prior
to completion. The sale of the property was also negotiated prior
to completion. Estimated completion date was July, 1997. There
were five out-parcel lots at the center which were not included
in the transaction. Significant site work was necessary for
development. Estimated site work totalled $85,000 per acre.
Out-parcels were marketed to Wendy's, New York Bagel, and Boston
Market.
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
IMPROVED SALES MAP
MARKET APPROACH - (CONTINUED) 60
The sales detailed above are compared and adjusted to the subject for pertinent
items of difference as:
===============================================================================================================================
SUMMARY OF IMPROVED SALES AND ADJUSTMENTS
===============================================================================================================================
Comp. Number Subject #1 #2 #3 #4 $5
-------------------------------------------------------------------------------------------------------------------------------
Center Name Vill @ Lorna Vill @ Plaza North Hixson Hillcres+
Moody Center
Grantor Lorna Prop. FS Partners Plaza, Ltd North Hixson Hill. Ltd
Grantee Birm. Realty Birm Realty Amberjack. Amberjack. Conf
Ltd Ltd
Cash Eq. Sale Price $11,200,000 $4,485,000 $5,850,000 $4,760,000 $6,490,000
Date of Sale 8/6/97 5/26/96 2/14/96 12/21/94 3/4/96 7/1/97
Gross Leasable Area 25,350 141,444 60,800 79,400 63,270 76,365
Sale Price/Sq. Ft. $79.18 $73.77 $73.68 $75.23 $84.99
NOI $133,676 $1,107,768 $436,470 $560,113 $485,493 $625,636
NOI per Sq. Ft. $5.27 $7.83 $7.18 $7.05 $7.67 $8.19
EGIM 7.55 8.56 8.71 7.80 8.79
===============================================================================================================================
ADJUSTMENTS #1 #2 #3 #4 #5
-------------------------------------------------------------------------------------------------------------------------------
Conditions of Sale Normal Normal Normal Normal Normal
$0.00 $0.00 $0.00 $0.00 $0.00
Market Conditions/Time 5.00% 11.0% 7.4% 13.1% 7.1% 0.5%
Preliminary Adj. Price/Sq. Ft. $87.89 $79.21 $83.36 $80.59 $85.41
===============================================================================================================================
PHYSICAL DIFFERENCES #1 #2 #3 #4 #5
-------------------------------------------------------------------------------------------------------------------------------
NOI Adjustment -32.7% -26.5% -25.2% -31.3% -35.6%
Overall Adjustment ($25.87) ($19.58) ($18.60) $23.53 ($30.29)
===============================================================================================================================
FINAL ADJUSTED PRICE/SQ. FT. OF BLDG $62.02 $59.63 $64.75 $57.06 $55.12
===============================================================================================================================
The sales were adjusted to the subject for the following items:
CONDITION OF SALE: No adjustment indicated.
TIME: Considers an increase of 5% per year based on analysis of
the overall capitalization rates of the comparable sales and
range of rates from the five methods considered in the
Income Approach.
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 61
NET OPERATING INCOME: The comparable sales were adjusted to the subject
based on the difference in net operating income. As
indicated in the following table, there is a direct
relationship between the sale price per square foot
and net operating income per square foot.
===============================================
SALE NO. SP/SQ. FT. NOI/SQ. FT.
===============================================
1 $79.18 $7.83
2 $73.77 $7.18
3 $73.68 $7.05
4 $75.23 $7.67
5 $84.99 $7.64
===============================================
Subject NA $5.27
===============================================
The adjustment for NOI is based on the following
formula: the subject's NOI per square foot is
subtracted from the comparables estimated NOI per
square foot and the difference is divided by the
comparable's NOI per square foot.
The adjusted sales present an adjusted range of value from $55.12 to $64.75 per
square foot. Each of the sales was given relatively equal weight in the estimate
of value on a per sq. ft. basis. Based on these adjusted sales, the subject
property is valued by direct comparison as:
VALUE INDICATION - MARKET APPROACH
Price per Sq. Ft.: 25,350 Sq. Ft. x $58.00 per Sq. Ft.= $1,470,300
ROUNDED $1,470,000
H.J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 62
The Effective Gross Rent Multipliers (EGIM) derived from the above sales are
highlighted as:
=====================================================================
Sale No. EGIM Expense Ratio
=====================================================================
1 7.55 25.30%
2 8.56 16.70%
3 8.71 16.60%
4 7.80 20.40%
5 8.79 15.28%
Subject NA 18.71%
=====================================================================
The Effective Gross Income Multipliers of the four comparable sales range from
7.55 to 8.79. There is a direct correlation between operating expense ratios and
EGIM's. Sales 2, 3, and 5 have lower operating expense ratios; Sales 1 and 5
have higher operating expense ratios. As the subject's forecasted operating
expense ratio is 18.71 which is closer to Sales 2, 3 and 4, it would be
considered reasonable to assume it would have an EGIM near the higher end of the
range. The subject is part of a cross collateralized portfolio as discussed
previously and would enjoy the benefits of such an association hence, a EGIM
toward the higher end of the range would appear justified.
Based on these sales, the subject is valued by EGIM as:
VALUE INDICATION - MARKET APPROACH
Effective Gross Income Multiplier $164,445 PGI x 8.75 = $1,439,000
CONCLUSION
The two market indicators of value are correlated with greater weight given to
adjusted sale price per square foot for a value by Market Approach of
$1,460,000.
This approach is felt to be reliable, being based on a respected national cost
service's figures as well as actual cost of other centers and the Developer's
cost breakdown. The land value is based on commercial land sales from the
subject's market area and is felt to be well supported. However, this approach
does not mirror the actions of investors in properties similar to the subject.
Therefore, this approach is given little consideration in the final value
estimate.
Income Approach .................................................... $1,485,000
This approach is felt to be most indicative of the subject's value. It best
reflects current and projected market conditions as they relate to the subject
and mirrors the actions of investors in today's market. Overall, this approach
is afforded greatest consideration and is supported by the Market Approach.
This approach is based on the most recent sales of other neighborhood shopping
centers and is reliant upon the direct sales comparison on a price per square
foot basis, and the effective income multiplier method. This approach is
afforded less consideration than the Income Approach.
Based on the value indications summarized above, we are of the opinion that the
subject's leased fee interest, has a market value, as of August, 6, 1997, of:
ONE MILLION FOUR HUNDRED EIGHTY THOUSAND DOLLARS
($1,480,000)
Divided As: Improvements $1,413,400
Land $ 66,600
----------
Total $1,480,000
H.J. Porter & Associates, Inc.
64
CERTIFICATION
We certify that, to the best of our knowledge and belief,...
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions and conclusions.
3. Neither party signing this report has a present or prospective interest in
the property that is the subject of this report, nor do they have any
personal interest or bias with respect to the parties involved.
4. Our compensation is not contingent on an action or event resulting from the
analyses, opinions, or conclusions in, or the use of, this report. Our
compensation is not contingent upon the reporting of a predetermined value
or direction in value that favors the cause of the client, the amount of
the value estimate, the attainment of stipulated result, or the occurrence
of a subsequent event.
5. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute, and the Uniform Standards of Professional Appraisal
Practice as promulgated by the Appraisal Standards Board of the Appraisal
Foundation.
6. The use of this report is subject to the requirements of the Appraisal
Institute and the Alabama Real Estate Appraisers Board relating to review
by its duly authorized representatives.
7. This assignment was made subject to regulations of the State of Alabama
Real Estate Appraisers Board. The undersigned state certified appraiser has
met the requirements of the board that allow this report to be regarded as
a 'certified appraisal'.
8. Howard J. Porter, Jr., MAl, CCIM, is currently certified under the
continuing education program of the Appraisal Institute.
9. Howard J. Porter, Jr., MAl, CCIM, has not made a personal inspection of the
property that is the subject of this report.
H.J. Porter & Associates, Inc.
CERTIFICATION - (CONTINUED)
10. Glen E. Heinzelman, Associate, has made a personal inspection of the
property that is the subject of this report.
11. No one provided significant professional assistance to the persons signing
this report.
12. This appraisal assignment was not based on a requested minimum valuation, a
specific valuation, or the approval of a loan.
13. Based upon the foregoing investigations and analysis, it is our opinion
that the subject property has a market value estimate as of August 6, 1997:
ONE MILLION FOUR HUNDRED EIGHTY THOUSANDS DOLLARS
($1,480,000)
/s/Howard J. Porter 11/13/97
------------------------------------------ ---------
Howard J. Porter, Jr., MAI, CCIM Date
Certified General Real Property Appraiser
Alabama Certificate #G51
/s/Glen E. Heinzelman
------------------------------------------ ---------
Glen E. Heinzelman, Associate Date
Licensed Real Property Appraiser
Alabama Certificate #L12
H.J. Porter & Associates, Inc.
EXHIBITS
Location Map ................................................. Facing Page 4
Tax Map Segments ....................................... Facing Page 6 and 7
State Map .................................................... Facing Page 9
Site Plan ....................................................Facing Page 15
Subject Photographs ..........................................Facing Page 16
Land Sales Map ...............................................Facing Page 27
Improved Sales Map ...........................................Facing Page 60
REAR EXHIBITS
Korpacz Real Estate Investor Survey
Assumptions and Limiting Conditions
Qualifications
State of Alabama Certification
H.J. Porter & Associates, Inc.
LEASE SUMMARY NO. 1.
Tenant: B.C. Moore & Son's, Inc.
Term: 15 Years
Area: 16,900 Sq. Ft.
Renewal Options: One, five year option
Minimum Rent: $84,500 per year or $5.00 per Sq. Ft.
Percentage Rent: 2% of gross exceeding breakpoint
Expense Contributions: Tenant pays pro-rata share of taxes, insurance,
and common area maintenance.
Utilities: Paid by tenant
Repairs by Landlord: Common area and all structural repairs
Repairs by Tenant: HVAC, plumbing, electrical, sewage, and interior
repairs
Parking: Not less than 4.5 spaces per 1,000 sq. ft. NRA
Subletting: Allowed with written permission from landlord
Subordination: Lease is fully subordinated.
H.J. Porter & Associates, Inc.
LEASE SUMMARY NO. 2
Tenant: Harco Drugs, Inc.
Term: 15 Years
Area: 8,450Sq. Ft.
Renewal Options: Four, five year options
Minimum Rent: $63,375 per year or $7.50 per Sq. Ft.
Percentage Rent: 2% of gross exceeding breakpoint
Expense Contributions: Tenant pays pro-rata share of taxes, insurance,
and common area maintenance.
Utilities: Paid by tenant
Repairs by Landlord: Common area and all structural repairs
Repairs by Tenant: HVAC, plumbing, electrical, sewage, and interior
repairs
Parking: Not less than 4.5 spaces per 1,000 sq. ft. NRA
Subletting: Allowed with written permission from landlord
Subordination: Lease is fully subordinated.
H.J. Porter & Associates, Inc.
[KORPACZ - LETTERHEAD]
NATIONAL STRIP SHOPPING CENTER MARKET
The trend toward investors focusing on retail acquisitions continues this
quarter. They believe that since the prices of other property types have been
bid up, retail offers better relative values. "We're seeing the beginning of a
run up in retail again," says one participant. The major interest tends to be on
neighborhood and community centers.
The optimum size of the ideal strip shopping center is 100,000 square feet
to 130,000 square feet, but investors will also consider larger properties,
especially if there is the potential to put in other anchor stores, such as
Marshall's or T.J. Maxx. Although buyers prefer not to have centers that are
smaller than 100,000 square feet, some portfolios may have centers as small as
70,000 square feet and as large as 200,000 square feet. "But there you have to
take good with bad," comments a participant. The supply of available strip
centers is plentiful, but it is hard to find those of optimum size that are
anchored by a market-dominant grocery store.
The importance of the grocery anchor is based on its capability to generate
traffic in the center, which greatly enhances the landlord's ability to lease
the in-line stores. The traffic increases in-line store sales volume, which
mitigates the risk of ownership and provides the investor with the requisite
yield from such a center.
The size of the grocery anchor is also significant in its competitive
position. Although the optimum size varies by market, in major metropolitan
areas between 50,000 square feet and 75,000 square feet is ideal. In smaller
markets a 40,000-square-foot store can be successful. However, the older
25,000-square-foot stores are considered functionally obsolete.
Over the next 12 months, prices in the national strip shopping center
market are expected to remain stable or drop slightly. Survey participants put
the average decrease at 1.78%.
Key indicators in the national strip shopping center market support the
expectation of stagnant values for the year. Again this quarter, the changes in
indicators are small. The average discount rate (IRR) increased 2 basis points
(see Table 7). This follows a 10-basis-point decrease last quarter.
The average overall cap rate (OAR) decreased 1 basis point to 9.84%. Highly
desirable centers trade at cap rates between 8.00% and 10.00%, but most close at
cap rates between 10.00% and 11.00%.
Strip shopping centers have long been perceived to pose higher investment
risk than regional malls, and both IRRs and going-in cap rates have reflected a
premium for the higher risk. In fourth quarter 1996, however for the first time
since we began tracking the national strip shopping center market in fourth
quarter 1991, the average IRR fell below the national regional mall market
average IRR. This quarter the rates are 11.55% and 11.75%, respectively.
The strip shopping center OAR is still considerably higher than the
regional mall rate. The spread between the two had narrowed during 1996.
However, last quarter's 7-basis-point increase in the strip shopping center OAR
widened the gap again. The current OAR premium is 127 basis points. It was 173
one year ago. By comparison, the national power center OAR is 9.58%, 26 basis
points lower than the strip shopping center rate.
Investors would like to acquire portfolios of neighborhood and community
shopping centers that are located in one region, thus presenting the opportunity
for management and leasing efficiencies. These are difficult to find, however,
and are priced at a premium.|_|
TABLE 7
NATIONAL STRIP SHOPPING CENTER MARKET
SECOND QUARTER 1997
CURRENT LAST YEAR
KEY INDICATORS QUARTER QUARTER AGO
================================ =================== ================ ===============
Discount Rate (IRR)(a)
================================ =================== ================ ===============
RANGE 10.00%-14.00% 10.00%-14.00% 10.00%-14.00%
AVERAGE 11.55% 11.53% 11.74%
CHANGE(Basis Points) -- +2 -19
================================ =================== ================ ===============
Overall Cap Rate (OAR)(a)
================================ =================== ================ ===============
RANGE 8.25%-13.00% 8.25%-13.00% 8.25%-13.00%
AVERAGE 9.84% 9.85% 9.90%
CHANGE (Basis Points) -- -1 -6
================================ =================== ================ ===============
Market Rent Change Rate(b)
================================ =================== ================ ===============
RANGE 0.00%-6.00% 0.00%-6.00% 0.00%-6.00%
AVERAGE 2.83% 2.73% 2.60%
CHANGE (Basis Points) -- +10 +23
================================ =================== ================ ===============
Expense Change Rate(b)
================================ =================== ================ ===============
RANGE 0.00%-5.00% 0.00%-5.00% 2.00%-5.00%
AVERAGE 3.58% 3.67% 3.99%
CHANGE (Basis Points) -- -9 -41
================================ =================== ================ ===============
Residual Cap Rate
================================ =================== ================ ===============
RANGE 8.25%-12.00% 8.25%-12.00% 8.25%-13.50%
AVERAGE 9.92% 9.92% 10.13%
CHANGE (Basis Points) -- 0 -21
a. Rate on unleveraged, all-cash transactions
b. Initial rate of change
First Alabama Bank
P.O. Box 511
Montgomery, Alabama 36134-0511
Attn: Mr. Spencer Knight
Newton, Oldacre & McDonald
725 East Main Street
Prattville, Alabama 36067
Attn: Mr. Tom Newton
Re: Site Assessment/Review
Winn Dixie/Harco Drugs Shopping Center
Opp, Alabama
Gentlemen;
CTE Environmental has completed the requested site visit and environmental
report review of the Phase 1 Environmental Assessment conducted jointly by
Associated Testing Laboratory and Gallett & Associates, Inc.
The purpose of this letter is to verify that the previously mentioned
report is still valid and that, since March 25, 1992, no environmental hazards
have been introduced onto the site or adjacent sites.
Our investigation began with a review of the existing site through a
personal visit by our engineer. The site has changed in physical appearance
since 1992. Many cubic yards of soil has been excavated and hauled away from the
site to prepare the construction site for a future Winn Dixie and Harco Drugs
Store. The preparation of the site has improved the overall environmental issue
since any potential surface contaminant has been removed leaving bare,
undisturbed earth. No off-site soils have been used at the site.
The parcel of land to the Northwest at the intersection of Perry Store Road
and U.S. Highway 331 is now occupied by a new Burger King Restaurant. A new
McDonald's Restaurant occupies the lot to the Southwest of the Winn Dixie parcel
and across U.S. 331.
All other references in the report of 1992, are basically correct as to
surrounding properties with the exception of the Independant Service Station to
the Southeast of the site. It could no longer be located.
State, County, and local files remain free of site related environmental
concerns. The Tom Thumb Amoco Convenience Store is currently registered on the
Alabama Department of Environmental Management Trust Fund Program (a State
Insurance program). No reported leaks or spills have occurred at this site. The
store is in basic compliance with Federal and State laws at this time.
Other paragraphs contained in the Associated Testing/Gallet & Associates
report concerning the Geology, Hydrogeology, Property Ownership, and Aerial
Photographs have not changed and are still applicable to a current sale of the
property.
It is our opinion that the site is environmentally clear of contamination.
Our survey is the result of conditions at the site on the date of this report
and does not extend to contamination introduced at a later date by other
parties.
Very Truly yours;
CTE Environmental
/s/Jerry W. Gilbert
-----------------------
Jerry W. Gilbert, P.E.
President
Attachment
cc: Ruston, Stakely, Johnson & Garrett
P.O. Box 270
Montgomery, Alabama 36101-0270
Attn: Mr. Jesse Williams, Attorney
[SEAL]
[ASSOCIATED TESTING LABORATORY, INC. - LETTERHEAD]
Montgomery, AL
PRELIMINARY ENVIRONMENTAL
SITE ASSESSMENT (PHASE I)
WINN DIXIE /HARCO DRUGS
SHOPPING CENTER
OPP, ALABAMA
JOB # 92-172
Prepared For:
NEWTON DEVELOPMENT CORP
725 East Main Street
Prattville, Alabama
ASSOCIATED TESTING LABORATORY, INC.
P.O. Box 250954
Montgomery, AL 36125-0954
PHONE: (205) 834-9861 3029 Fairwest Place
Voice Beeper 269-7361 March 25, 1992 Montgomery, AL 36108
NEWTON DEVELOPMENT CORP.
725 East Main Street
Prattville, Alabama 36067
Attn: Mr Tom Newton
Re: Preliminary Environmental Site Assessment (Phase I)
Winn Dixie/Harco Drugs Shopping Center
Opp, Alabama
Dear Mr Newton:
ASSOCIATED TESTING LABORATORY, INC. AND GALLETT & ASSOCIATES, INC. jointly
have completed the authorized environmental site assessment for above
referenced site. This report describes our study and presents our findings.
The site was inspected by an ATL Engineering Technician for the purpose of
evaluating any past or present environmental liabilities which may be associated
with the present ownership of the subject property and with the surrounding
area. In addition, regulatory and historical information was reviewed to
determine past site conditions and usage.
Specifically, potential enviromental liabilities which were addressed in this
study include: local past and present waste disposal practices, presence of
underground storage tanks or electrical equipment, unusual storage conditions,
and stressed vegitation growth.
Based on our inspection and data review, we found no evidence to suggest the
presendence of hazardous materials or the past disposal of hazardous materials
on the site.
We appreciate the opportunity to be of service to you on this project. If you
have any questions pertaining to this report or if we may be of service to you
in the future, please do not hesitate to contact us.
Very truly yours,
/s/H.W. Carr, Jr. /s/William W. Cooch
--------------------------------- ------------------------
ASSOCIATED TESTING LABORATORY, INC. GALLET & ASSOCIATES, INC.
H.W. Carr, Jr. William W. Cooch
President Manager, Environmental
Services
Materials Testing and Inspection
Environmental Site Studies / Geo Technical Investigations
TABLE OF CONTENTS
1.0 INTRODUCTION
1.1 PURPOSE, SCOPE, AND AUTHORIZATION.......................................................
1.2 INFORMATION SOURCES.....................................................................
2.0 SITE DESCRIPTION.................................................................................
3.0 GEOLOGY AND HYDROGEOLOGY AND SUBSURFACE INVESTIGATION............................................
3.1 GEOLOGY.................................................................................
3.2 HYDROGEOLOGY............................................................................
3.3 GEOTECHNICAL INVESTIGATION RESULTS......................................................
4.0 ASSESSMENT PROCEDURES............................................................................
4.1 PROPERTY OWNERSHIP RECORDS REVIEW.......................................................
4.2 GOVERNMENT REGULATORY/EMERGENCY RESPONSE RECORDS REVIEW
4.3 AERIAL PHOTOGRAPH REVIEW................................................................
4.4 INTERVIEWS..............................................................................
4.5 WALKING SURVEY..........................................................................
5.0 SUMMARY AND CONCLUSIONS..........................................................................
6.0 QUALIFICATIONS...................................................................................
The purpose of this assessment was to investigate potential liabilities
associated with the site and/or surrounding property. The scope of our study
included review of available information and records, visual inspection of the
site and surrounding property, and preparation of this report. This work was
authorized by Mr. Tom Newton, NEWTON DEVELOPMENT CORP., 725 E. Main Street,
Prattville, Alabama.
1.2 INFORMATION SOURCES
Research of land use and environmental conditions of the site and
surrounding property included utilization of the following sources:
(1) Geological and hydrogeological information obtained from publications of
Geological Survey of Alabama.
(2) Records of past ownership obtained from Title Information prepared by Mr.
Mark Murphy, MURPHY, MURPHY & BUSH, 5 E. Court Square, Andalusia, Alabama,
Attorneys.
(3) United States Environmental Protection Agency (EPA) National Priority List
(NPL) of known environmentally contaminated sites which will be or are
receiving federal assistance in remediation.
(4) United States Environmental Protection Agency (EPA) Comprehensive
Environmental Response, Compensation and Liability List (CERCLIS) of sites
suspected to contain contamination.
(5) United States Environmental Protection Agency (EPA) Hazardous Waste Data
Management System (HWDMS) List of facilities involved in the treatment,
storage and disposal of hazardous waste.
(6) United States Environmental Protection Agency (EPA) Facility Index System
(FINDS) List of sites or facilities subject to EPA regulations.
(7) 1975 aerial photographs of the study area examined at Covington County
Mapping Office and 1985 aerial photographs examined at USDA Soil
Conservation Service, Andalusia, Alabama.
(8) Personal interviews with the following:
a. Mr. Lawrence Bowden, Deputy Director of State of Alabama Emergency
Management Agency
b. Mr. Gary Morrison, Covington County Director of Emergency Management
c. Mr. G. Waltney, Opp Fire Chief, Opp, Alabama
d. Mr. Charles McGowan, Opp Utilities Board
e. Mr. Rick Moore, Amoco Oil Co. Distributor, owner of adjacent property
f. Mr. Breedlowe, OPP BUILDING MATERIALS, current owner of property
g. Mr. Rigas Logiotatos, owner of adjacent property including service
station.
(9) A walking survey and inspection of the site and surrounding area by an ATL
professional.
2.0 SITE DESCRIPTION
STATE OF ALABAMA
COVINGTON COUNTY
Tract No. 1 Description
Commence at the Southwest corner of the Southeast 1/4 of the Southeast 1/4
of Section 28, Township 4 North, Range 18 East, Covington County, Alabama,
said point being the point of beginning.
Thence North 00 degrees 09' 54" East a distance of 470.70 feet to an iron
pin lying on the South right-of-way line of Perry Store Road; thence along
said South right-of-way line South 84 degrees 55' 00" East a distance of
210.00 feet to an iron pin; thence leaving said right-of-way line South 00
degrees 14' 22" West a distance of 679.33 feet to an iron pin; thence.
North 85 degrees 16' 12" West a distance of 209.01 feet to an iron pin;
thence North 00 degrees 09' 54" East a distance of 210.00 feet to an iron
pin and the point of beginning; said Tract No. 1 lying in the Southeast 1/4
of the Southeast 1/4 of Section 28, and the Northeast 1/4 of the Northeast
1/4 of Section 33, Township 14 North, Range 18 East, Covington County,
Alabama and containing 3.26 acres, more or less.
STATE OF ALABAMA
COVINGTON COUNTY
Tract No. 2 Description
Commence at the Southwest corner of the Southeast 1/4 of the Southeast 1/4
of Section 28, Township 4 North, Range 18 East, Covington County, Alabama,
said point being the point of beginning.
Thence North 89 degrees 57' 06" West a distance of 163.66 feet to an iron
pin lying on the East right-of-way line of U.S. Highway 331; thence along
said East right-of-way line North 13 degrees 26' 41" West a distance of
55.70 feet to an iron pin and P.C. of a curve to the left; thence along the
chord bearing of said curve to the left North 23 degrees 19' 53" West a
chord distance of
249.58 feet to an iron pin lying on the East right-of-way line of U.S.
Highway 331; thence leaving said right-of-way line North 54 degrees 25' 00"
East a distance of 42.24 feet to an iron pin; thence North 04 degrees 06'
00" West a distance of 97.50 feet to an iron pin; thence North 08 degrees
25' 00" West a distance of 89.71 feet to an iron pin lying on the South
right-of-way line of Perry Store Road; thence along said right-of-way line
South 84 degrees 55' 00" East a distance of 263.60 feet to an iron pin;
thence leaving said right-of-way line South 00 degrees 09' 54" West a
distance of 470.70 feet to an iron pin and the point of beginning, said
Tract No. 2 lying in the Southwest 1/4 of the Southeast 1/4 of Section 28,
Township 4 North, Range 18 East, covington County, Alabama and containing
2.51 acres, more or less.
3.1 GEOLOGY
The project site is underlain by Residuum, which consists of white to
moderate reddish-orange sandy clay and clay with scattered layers of gravelly
medium to coarse sand, fossiliferous chert and limestone boulders, and limonitic
sand masses. The Residuum was derived from the solution and collapse of
limestone in the Jackson Group and Oligocene Series and the slumping of Miocene
sediments.
3.2 HYDROGEOLOGY
The site slopes from east to west generally with a drainage slough running
along the south property line. The north side is bounded by Perry Store Road. A
drainage swell runs between survey site and small parcel on northwest corner.
3.3 GEOTECHNICAL INVESTIGATION REPORT
There was a Geo-Technical Study made for the proposed Shopping Center
performed by ASSOCIATED TESTING LABORATORY, INC., on June 17, 1991. A review of
this report does not indicate the presence of any contamination on the site.
4.0 ASSESSMENT PROCEDURES
4.1 PROPERTY OWNERSHIP REVIEW
The study site is currently owned by OPP BUILDING & SUPPLY INC. which has
owned the site since 1977. Ownership of a portion of the property came from J.
M. Breedlowe Estate while another portion of the property was acquired from
Marie Helms who obtained her portion of the property from Helms, Reiser &
Williams in 1900. This information does not indicate any commercial use of the
property even though present owner is a business firm. The adjoining property is
a mixture of undeveloped farm land, residential and commercial property with one
light manufacturing business (textile) within 1/2 mile of site.
4.2 GOVERNMENT REGULATORY/EMERGENCY RESPONSE RECORDS REVIEW
Following are the pertinent data obtained from the government
regulatory/emergency response records:
(1) EPA NPL List - No NPL sites listed in Opp within one-half mile of the study
site.
(2) EPA CERCLIS List - No CERCLIS sites listed in Opp within one-half mile of
the study site.
(3) EPA HWDMS List - HWDMS lists no sites in Opp within one-half mile of the
study site.
(4) Facilities located within one-half mile of the study site which are not
currently shown on EPA HWDMS and FINDS Lists that may generate
contaminants:
a. TOM THUMB AMOCO CONVENIENCE STORE adjacent to southeast corner of site
b. INDEPENDENT SERVICE STATION adjacent to southeast corner of site
c. HELMS OIL CO. (TEXACO DISTRIBUTOR) west of site 1/4 mile on north side
of Highway 331 South
d. FINA OIL CO. DISTRIBUTOR west of site 1/4 mile on south side of
Highway 331 South
4.3 AERIAL PHOTOGRAPH REVIEW
Aerial photographs taken in 1975 on file at the Covington County Mapping
Office and photographs taken in 1985 on file at USDA Soil Conservation Service,
Andalusia, Alabama, were examined and no indication of any widespread dumping of
contaminants was found either on the site or the surrounding property.
4.4 WALKING SURVEY
The project site is located in the southeast quadrant of U.S. 331 and Perry
Store Road in Opp, Alabama. The site generally slopes from east (E1 325) to west
(E1-295).
Proposed for construction is a Winn Dixie and Harco Drugs along with
smaller retail shops and associated parking and drive areas. The site is bounded
on the east by undeveloped farm land, residential and commercial property. On
the south is an Amoco Service Station adjacent to the southwest corner and
commercial and residential property. The west is bounded by Highway 331 South
and commercial property. On the north is undeveloped land, residential and
commercial property. Adjacent to the site at the northwest corner is an
independent service station and other small commercial sites. Further to the
west is a small textile manufacturing facility as well as two oil company
distributors with above ground storage tanks. Our investigation did not indicate
the presence of any contamination on the site or on the adjoining property.
5.0 SUMMARY CONCLUSION
The site location, as described in Section 4.4 above, in Opp, Alabama was
evaluated for environmental liabilities in a Phase I Environmental Site
Assessment at the request of Mr. Tom Newton of NEWTON DEVELOPMENT CORP., 725
East Main Street, Prattville, Alabama. The evaluation was
accomplished by maps, aerial photographs, historical data, by reviewing
pertinent environmental regulatory records, personal interviews and a physical
inspection of the site and surrounding areas. Our evaluation focused on
potential liabilities associated with the past and present usage.
Personal property owners of adjacent service stations state that there have
been no spills on their property and that the underground storage tanks are
checked for leaks as directed by ADEM and the tanks are in compliance with
current ADEM Regulations.
Based on this assessment, we have found no evidence to suggest that the
subject property or the surrounding properties were used for hazardous waste
disposal or for industrial purposes nor that any environmentally regulated or
investigated sites have adversely affected the site, thereby making it
unnecessary to perform further investigation (Phase II Study).
6.0 QUALIFICATIONS
Our evaluation of the environmental conditions at this site is based on the
previously available information and the data obtained during research and field
study. These services have been performed in accordance with generally accepted
standards of performance for this level of assessment. Our conclusions are
limited to the surface conditions only and the subsurface soil and/or
groundwater
concerning contamination from hazardous substances are unknown.
ATL is not responsible for the conclusions or opinions made by others based
on the findings of this report.
Tenant: B.C. Moore & Son's, Inc.
Term: 15 Years
Area: 16,900 Sq. Ft.
Renewal Options: One, five year option
Minimum Rent: $84,500 per year or $5.00 per Sq. Ft.
Percentage Rent: 2% of gross exceeding breakpoint
Expense Contributions: Tenant pays pro-rata share of taxes,
insurance, and common area maintenance.
Utilities: Paid by tenant
Repairs by Landlord: Common area and all structural repairs
Repairs by Tenant: HVAC, plumbing, electrical, sewage, and
interior repairs
Parking: Not less than 4.5 spaces per 1,000 sq.
ft. NRA
Subletting: Allowed with written permission from
landlord
Subordination: Lease is fully subordinated.
LEASE SUMMARY NO. 2
Tenant: Harco Drugs, Inc.
Term: 5 Years
Area: 8,450Sq. Ft.
Renewal Options: Four, five year options
Minimum Rent: $63,375 per year or $7.50 per Sq. Ft.
Percentage Rent: 2% of gross exceeding breakpoint
Expense Contributions: Tenant pays pro-rata share of taxes,
insurance, and common area maintenance.
Utilities: Paid by tenant
Repairs by Landlord: Common area and all structural repairs
Repairs by Tenant: HVAC, plumbing, electrical, sewage, and
interior repairs.
Parking: Not less than 4.5 spaces per 1,000 sq. ft.
NRA
Subletting: Allowed with written permission from landlord
Subordination: Lease is fully subordinated.
ASSUMPTIONS AND LIMITING CONDITIONS
1. COPIES, PUBLICATION, DISTRIBUTION, USE OF REPORT:
Possession of this report or any copy thereof does not carry with the right
of publication, nor may it be used for other than its intended use. The
report may not be used for any purpose by any persons or corporation other
than the client or the party to whom it is addressed or copied without the
written consent of the appraiser, and then only in its entirety.
Neither all nor any part of the contents of this report shall be conveyed
to the public through advertising, public relations efforts, news, sales,
or other media, without the written consent and approval of the appraiser,
nor may any reference be made in such a public communication to the
Appraisal Institute or the MAI designation.
2. CONFIDENTIALITY:
The appraiser may not divulge the material (evaluation) contents of the
report, analytical findings or conclusions, or give a copy of the report to
anyone other than the client or his designee as specified in writing except
as may be required by the Appraisal Institute as they may request in
confidence for ethics enforcement, or by a court of law or body with the
power of subpoena.
This appraisal is to be used only in its entirety and no part is to be used
without the whole report. All conclusions and opinion concerning the
analysis are set forth in the report and were prepared by the Appraiser
whose signature appears on the appraisal report, unless indicated as
"Review Appraiser". No change of any item in the report shall be made by
anyone other than the Appraiser and/or officer of the firm. The Appraiser
and firm shall have no responsibility if any such unauthorized change is
made.
3. INFORMATION USED:
No responsibility is assumed for accuracy of information furnished by or
from others, the client, his designee, or public records. We are not liable
for such information or the work of possible subcontractors. The comparable
data relied upon in this report has been confirmed with one or more parties
familiar with the transaction or from affidavit; all are considered
appropriate for inclusion to the best of our factual judgement and
knowledge.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
4. TESTIMONY, CONSULTATION, COMPLETION OF CONTRACT FOR APPRAISAL SERVICES:
The contract for appraisal, consultation or analytical service, are
fulfilled and the total fee payable upon completion of the report. The
appraiser or those assisting in the preparation of the report will not be
asked or required to give testimony in court or hearing because of having
made the appraisal, in full or in part, nor engage in post appraisal
consultation with client or third parties except under separate and special
arrangement and at additional fee.
5. EXHIBITS:
The sketches and maps in this report are included to assist the reader in
visualizing the property and are not necessarily to scale. Various photos,
if any, are included for the same purpose and are not intended to represent
the property in other than actual status, as of the date of the photos.
Site plans are not surveys unless shown from separate surveyor.
No responsibility is assumed for matters legal in character or nature, nor
matters of survey, nor of any architectural, structural, mechanical, or
engineering nature. No opinion is rendered as to the title, which is
presumed to be good and merchantable. The property is appraised as if free
and clear, unless otherwise stated in particular parts of the report.
The legal description is assumed to be correct as used in this report as
furnished by the client, his designee, or as derived by the appraiser.
The appraiser has inspected as far as possible, by observation, the land
and the improvements thereon; however it was not possible to personally
observe conditions beneath the soil or structural, or other components. We
have not critically inspected mechanical components within the improvements
and no representations are made herein as to these matters unless
specifically stated and considered in the report. The value estimate
considers there being no such conditions that would cause a loss of value.
The land or the soil of the area being appraised firm, however subsidence
in the area is unknown. The appraiser does not warrant against this
condition or occurrence of problems arising from soil conditions.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
The appraisal is based on there being no hidden, unapparent, or apparent
conditions of the property site, subsoil, or responsibility is assumed for
any such conditions or for any expertise or engineering to discover them.
All mechanical components are assumed to be in operable condition and
status standard for properties of the subject type. Conditions of heating,
cooling, ventilating, electrical and plumbing equipment is considered to be
commensurate with the condition of the balance of the improvements unless
otherwise stated. No judgement is made as to adequacy of insulation, type
of insulation, or energy efficiency of the improvements or equipment.
7. RELATING TO THE AMERICAN WITH DISABILITIES ACT:
The Americans with Disabilities Act ("ADA") became effective January 26,
1992. The appraisers have not made a specific compliance survey and
analysis of this property to determine whether or not it is in conformity
with the various detailed requirements of the ADA. It is possible that a
compliance survey of the property together with a detailed analysis of the
requirements of the ADA could reveal that the property is not in compliance
with one or more of the requirements of the Act. If so, this fact could
have a negative effect upon the value of the property. Since there is no
direct evidence relating to this issue, possible non-compliance with the
requirements of ADA in estimating the value of the property has not been
considered.
8. LEGALITY OF USE:
The appraisal is based on the premise that, there is full compliance with
all applicable federal, state and local environmental regulations and laws
unless otherwise stated in the report; further that all applicable zoning,
building, and use regulations and restrictions of all types have been
complied with unless otherwise stated in the report; further, that all
applicable zoning, building, and use regulations and restrictions of all
types have been complied with unless otherwise stated in the report;
further, it is assumed that all required licenses, consents, permits, or
other legislative or administrative authority, local, state, federal and/or
private entity or organization have been or can be obtained or renewed for
any use considered in the value estimate.
9. COMPONENT VALUES:
The distribution of the total valuation in this report between land and
improvements applies only under the existing program of utilization. The
separate valuations for land and building must not be used in conjunction
with any other appraisal and are invalid if so used.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
10. AUXILIARY AND RELATED STUDIES:
No environmental or impact studies, special market study or analysis,
highest and best use analysis study or feasibility study has been requested
or made unless otherwise specified in an agreement for services or in the
report. The appraiser reserves the unlimited right to alter, amend, revise
or rescind any of the statements, findings, opinions, values, estimates, or
conclusions upon any subsequent study or analysis or previous study or
analysis subsequently becoming known to him.
11. DOLLAR VALUES, PURCHASING POWER:
The market value estimated, and the costs used, are as of the date estimate
of value. All dollar amounts are based on the purchasing power and price of
the dollar as of the date of the value estimate.
12. INCLUSIONS:
Furnishings and equipment of business operations except as specifically
indicated and typically considered as a part of real estate, have been
disregarded with only the real estate being considered in the value
estimate unless otherwise state.
13. PROPOSED IMPROVEMENTS, CONDITIONED VALUE:
Improvements proposed, if any, on or off-site, as well as any repairs
required are considered, for purpose of this appraisal to be completed in
good and workmanlike manner according to information submitted and/or
considered by the appraiser. In cases of proposed construction, the
appraisal is subject to change inspection of property after construction is
completed. This estimate of market value is as of the date shown, as
proposed, as if completed and operating at levels shown and projected.
14. VALUE CHANGE, DYNAMIC MARKET, INFLUENCES:
The estimated market value is subject to change with market changes over
time; value is highly related to exposure, time, promotional effort, terms
motivation, and conditions surrounding the offering. The value estimate
considers the productivity and relative attractiveness of the property
physically and economically in the marketplace. The "Estimate of Market
Value" in the appraisal report is not based in whole or in part upon the
race, color or national origin of the present owners or occupants of the
properties in the vicinity of the property appraised.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
In cases of appraisals involving the capitalization of income benefits, the
estimate of market value is a reflection of such benefits and appraiser's
interpretation of income and yields and other factors derived from general
and specific market information. Such estimates are as of the date of the
estimate of value; they are thus subject to change if the market is
naturally dynamic.
15. MANAGEMENT OF THE PROPERTY:
It is assumed that the property which is the subject of this report will be
under prudent and competent ownership and management; neither inefficient
nor super efficient.
16. CONTINUING EDUCATION CURRENT:
The Appraisal Institute conducts a voluntary program of continuing
education for its designated members. MAIs and RMs who meet the minimum of
this program are awarded periodic certification. I am currently certified
under the Appraisal Institute Voluntary Continuing Education Program.
17. FEE:
The fee for this appraisal or study is for the service rendered and not for
the time spent on the physical report.
18. AUTHENTIC COPIES:
The authentic copies of this report are signed in blue ink. Any copy that
does not have an original signature is unauthorized and may have been
altered.
19. HAZARDOUS MATERIALS:
Unless otherwise stated in this report, the appraiser signing this report
has no knowledge concerning the presence of urea-formaldehyde foam
insulation or asbestos containing material in existing improvements; if
such materials are present the value of the property may be adversely
affected and reappraisal at additional cost necessary to estimate the
effects of such material.
20. Unless otherwise noted within the attached report, there are no items of
FF&E included in the reported value. Any equipment included with the
property in the value are only those items that are considered as an
integral part of the realty, even though technically they could be legally
considered as personalty.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
21. NOTE:
ACCEPTANCE OF, AND/OR USE OF, THIS APPRAISAL REPORT CONSTITUTES ACCEPTANCE
OF THE ABOVE CONDITIONS.
H.J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS
OF
GLEN E. HEINZELMAN
CURRENT STATUS
Glen E. Heinzelman is involved in the appraisal of and consulting with owners of
income producing real estate. He is an Associate Appraiser with H. J. Porter &
Associates, Inc. with offices located at:
H. J. Porter & Assoc., Inc.
631 Stage Road/P.O. Box 28
Auburn, AL 36830
(205)826-8682
H. J. Porter & Assoc. of Birmingham
#14 Office Park Circle Suite 230
Birmingham, AL 35223
(205) 871-3600
H. J. Porter & Assoc. of Montgomery
235 S. Court Street
Montgomery, AL 36104
(205) 262-8331
PROFESSIONAL AFFILIATIONS
Mr. Heinzelman is an MAI candidate for membership in the Appraisal Institute;
Candidate No. M-921950.
Alabama Licenced Real Property Appraiser - Certificate No. L12
Georgia Licenced Real Property Appraiser - Certificate No. 6165
Licenced Real Estate Salesperson - State of Alabama
PROFESSIONAL EDUCATION STATUS
These courses include:
Course Sponsor Location
------ ------- --------
Real Estate Appraisal AIREA Arizona State University
Principles
Basic Valuation Procedures AIREA Arizona State University
Capitalization Theory & AIREA Arizona State University
Techniques
Advanced Capitalization Appraisal Institute Birmingham, Alabama
USPAP Parts A & B Appraisal Institute Birmingham, Alabama
Advanced Applications Appraisal Institute Tuscaloosa, Alabama
Report Writing & Valuation Appraisal Institute Plano, Texas
Analysis
Mr. Heinzelman has also taken various seminars offered by the AIREA, IR/WA, and
others.
PROFESSIONAL EXPERIENCE
The scope of Mr. Heinzelman's experience includes the appraisal of commercial,
multi-family residential, industrial, farm, condemnation, special use
properties, marketability, feasibility, and reuse analysis, appraisal review,
and consulting. Geographic areas of experience include the States of Alabama,
Arizona, California, Florida, Georgia, Mississippi, Nevada, and Tennessee.
Qualified as expert witness in Federal and Circuit Courts in the States of
Arizona, California, and Nevada.
H.J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS
OF
HOWARD J. PORTER, JR., MAI, CCIM
CURRENT STATUS
Howard J. Porter, Jr., is involved in the appraisal of and consulting with
owners of income producing real estate. He is President of H J Porter &
Associates, Inc. with offices located at:
H. J. Porter & Assoc., Inc.
631 Stage Road/P.O. Box 28
Auburn, AL 36830
(205)826-8682
H. J. Porter & Assoc. of Birmingham
#14 Office Park Circle Suite 230
Birmingham, AL 35223
(205) 871-3600
H. J. Porter & Assoc. of Montgomery
235 S. Court Street
Montgomery, AL 36104
(205) 262-8331
PROFESSIONAL AFFILIATIONS
Mr. Porter is a member of the Appraisal Institute and holds the MAI Designation
(Certificate Number 5924). He has served as a member of the SREA Young Advisory
Council (1977 & 1978). He served as President of the Birmingham SREA Chapter
#106 (1983) and the Montgomery SREA Chapter #127 as President (1986-1987). He is
a Realtor(R) Member and past Vice-President of the Lee County Association of
Realtors(R), Lee County, AL. He holds the CCIM designation conferred by the
Commercial Investment Real Estate Council of the National Association of
Realtors(R). He is a member of the International Right of Way Association
(Alabama Chapter #26) and is a panel member of the American Arbitration
Association.
PROFESSIONAL EDUCATION STATUS
Mr. Porter has taken courses leading to professional designation as offered by
the Appraisal Institute (AIREA) and the Society of Real Estate Appraisers (SREA)
now merged as The Appraisal Institute. Additionally, he has credit for courses
offered by the Real Estate Securities and Syndication Institute (RESSI) the
Urban Land Institute (ULI), and the International Right of Way Association
(IR/WA), and the Commercial Investment Real Estate Institute. Mr. Porter has
also taken various seminars offered by SREA, AIREA, RESSI, IR/WA, Institute of
Real Estate Management, and others.
The Appraisal Institute conducts a voluntary program of continuing education for
its designated members. MAIs and RMs who meet the minimum standards of this
program are awarded periodic educational certification. He is currently
certified under the Institute's voluntary continuing education program. Mr.
Porter is currently a Certified General Real Property Appraiser in Alabama
(Certificate #CG51) and a Certified Real Estate Appraiser in Georgia
(Certificate #182).
HISTORICAL DATA
Howard J. Porter, Jr., was born in Birmingham, Alabama. He was educated in the
Jefferson County School System and graduated from Auburn University. His major
fields of study were Economics and Finance with a B.S. Degree in Business
Administration.
H.J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS OF HOWARD J. PORTER, JR.
Mr. Porter has been a licensed Real Estate Broker in Alabama since 1972 and is a
Realtor(R) Member of the Lee County Association of Realtors(R). From 1974
through 1983 he was involved with appraisals, market research, syndication and
consulting on various types of real estate. From 1983 through 1985 he was
President of a regionally active development company headquartered in Auburn,
Alabama. In 1985, H.J. Porter & Associates, Inc. was re-established in Auburn,
Alabama with affiliate offices in Birmingham and Montgomery, Alabama.
He has taught college level courses on appraisal principles and practices and
USPAP, has served as an adjunct faculty member in the Auburn University
Department of Community Planning, and is an appraisal instructor for the
International Right of Way Association. He also has given talks to various real
estate related groups throughout Alabama. Mr. Porter has developed, constructed,
owned, and managed investment real estate for his own and affiliated
partnership's account.
Governmental Corporate
------------ ---------
U. S. Internal Revenue Service Chrysler Realty Corp.
Jefferson County, AL McDonald's Corporation
Montgomery County, AL Norfolk Southern Railroad
State of Alabama DOT South Central Bell
U.S. Government Services Admin. Diversified Products
Corporation
U.S. Department of the Interior INOUE SAKAE Co. (Japan)
U.S. Postal Service TIME/LIFE Corporation
Farmers Home Administration Baptist Medical Center
(B'ham)
Birmingham Airport Authority Alabama Power Company
Auburn University Southern Natural Gas
State of Alabama Department of Revenue
Lenders Development
------- -----------
South Trust Bank Colonial Properties, Inc.
Federal National Mortgage Association Helms-Roark Development
New York Life Insurance Co. Beisel-Moss Development
Provident Mutual Life Shannon, Strobel & Weaver
Washington Mortgage Financial Polar-BEK, Inc.
Columbus Bank & Trust Co. Southern Investment
Properties
1st Interstate Mortgage (Chicago) McWhorter & Co.
Nations Bank
AmSouth Bank
First Union Bank
Mr. Porter has appeared as an expert witness in Federal Court and Circuit Courts
in various Alabama counties. He has served as a Probate Commissioner for the
Jefferson County and Lee County Probate Courts.
H.J. Porter & Associates, Inc.
STATE OF ALABAMA
[SEAL]
This is to certify that
GLEN E. HEINZELMAN
having given satisfactory evidence of the necessary
qualifications required by the laws of the State of Alabama
is licensed to transact business in Alabama as a
LICENSED REAL PROPERTY APPRAISER
With all the rights, privileges and obligations
appurtenant thereto.
LICENSE NUMBER: L00012 /s/Illegible Executive Director
EXPIRATION DATE: SEPT. 30,1997 ALABAMA REAL ESTATE APPRAISERS BOARD
================================================================================
STATE OF ALABAMA
[SEAL]
This is to certify that
HOWWARD J. PORTER, JR.
having given satisfactory evidence of the necessary
qualifications required by the laws of the State of Alabama
is licensed to transact business in Alabama as a
LICENSED REAL PROPERTY APPRAISER
With all the rights, privileges and obligations
appurtenant thereto.
LICENSE NUMBER: L00012 /s/Illegible Executive Director
EXPIRATION DATE: SEPT. 30,1997 ALABAMA REAL ESTATE APPRAISERS BOARD
================================================================================
APPRAISAL REPORT
OF
PARKER CENTER
208 S. TYNDALL PARKWAY
PARKER, FLORIDA
(C97-151)
FOR
MR. LARRY MILLER
MERRILL LYNCH & COMPANY
WORLD FINANCIAL CENTER - NORTH TOWER
NEW YORK, NY 10281
AS OF
AUGUST 9, 1997
OCTOBER 17, 1997
BY
HOWARD J. PORTER, JR., MAI, CCIM
MATTHEW S. RICE, ASSOCIATE APPRAISER
H. J. PORTER & ASSOCIATES
631 STAGE ROAD
P.O. BOX 28
AUBURN, ALABAMA 36831-0028
(334) 826-8682
[LOGO]
H.J. Porter & Associates
[LOGO]
[H.J. PORTER & ASSOCIATES - LETTERHEAD]
September 11, 1997
Mr. Larry Miller
Merrill Lynch and Company
World Financial Center - North Tower
New York, NY 10281
Re: Parker Center Shopping Center
208 S. Tyndall Parkway,
Parker, Florida
Dear Mr. Miller:
At your request, the undersigned Associate has inspected and we have made an
appraisal of the above referenced property. The purpose of this appraisal was to
determine the "As Is" market value of the leased fee interest and the
Prospective Market Value "At Stabilized Occupancy" of the leased fee interest in
the subject property, one of fifteen shopping centers to be included in a
portfolio of retail shopping centers that will be cross collateralized, under
single management, and subject to stringent release provisions. As such, the
estimated values of the subject property are subject to the above conditions.
This complete appraisal, communicated in a self contained narrative report, has
been prepared in accordance with the Uniform Standards of Professional Appraisal
Practice (USPAP) as amended by the Comptroller of the Currency.
The property was valued at two points in time: "As Is", as of the date of
inspection by the Associate Appraiser and "At Stabilized Occupancy", as of the
projected lease commencement date for Movie Gallery. Based on information found
in the lease agreement, the Movie Gallery lease is projected to commence on
October 17, 1997. Thus, there is an approximate two month rent loss to bring the
property to a stabilized occupancy level. Also, the landlord is providing a
tenant improvement allowance that is payable within ten days from lease
commencement.
Based upon our investigation into the subject property, and its current economic
environment, we are of the opinion that the subject's leased fee interest has
market values as follows:
123 N. College St., Ste. 100 o P.O. Box 28 o Auburn, Alabama 36830 o
(334)826-8682 o Fax (334)826-3827
14 Office Park Circle, Suite 230 o Birmingham, Alabama 35223 o (205)871-3600 o
Fax (205)879-3762
418 Scott Street o Montgomery, Alabama 36104 o (334)262-8331 o Fax (334)262-8325
Real Estate Research, Appraisal & Counseling
Mr. Larry Miller
September 11, 1997
Page #2
PROSPECTIVE MARKET VALUE ESTIMATE
"AT STABILIZED OCCUPANCY"
AS OF OCTOBER 17, 1997
FIVE MILLION SIX HUNDRED THOUSAND DOLLARS
($5,600,000)
"AS IS" MARKET VALUE ESTIMATE
AS OF AUGUST 9, 1997
FIVE MILLION FIVE HUNDRED SIXTY THOUSAND DOLLARS
($5,560,000)
Please note that this report is subject to the contingent and limiting
conditions as found in the addendum. It should be noted that our employment was
not conditional upon our producing a specific value with a given range. Future
employment prospects with Merrill Lynch and Co. are not dependent upon our
producing a specified value. Also, neither payment of our fee, nor our
employment are/were based upon whether a loan application is approved or
disapproved. We appreciate the opportunity to be of service to you in this
matter.
The attached report is submitted in support of these conclusions.
Yours very truly,
/s/ Howard J. Porter
Howard J. Porter, Jr., MAI, CCIM
Certified General Real Property Appraiser
Alabama Certificate #G51
/s/ Matthew S. Rice
Matthew S. Rice, Associate
Certified General Real Property Appraiser
Florida Temporary Practice Permit #0001152
[LOGO]
H.J. Porter & Associates
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
PROPERTY IDENTIFICATION: Parker Center
208 S. Tyndall Parkway
Parker, Fl.
PROPERTY RIGHT APPRAISED: Leased Fee Estate
HIGHEST AND BEST USE
AS VACANT AND IMPROVED: Neighborhood Shopping Center
DATES OF VALUE:
"As Is": August 9, 1997
"At Stabilized Occupancy": October 17, 1997
SITE DATA: 7.33 Acres or 319,309 Sq. Ft.
BUILDING DATA: 71,995 Sq. Ft. - GBA
68,680 Sq. Ft. - NLA divided as:
Winn Dixie - 44,000 Sq. Ft.
Scotty's - 19,880 Sq. Ft.
Movie Gallery - 4,800 Sq. Ft.
ESTIMATED LAND VALUE: $806,000
PROSPECTIVE MARKET VALUE INDICATIONS
"AT STABILIZED OCCUPANCY":
Intended Use of Appraisal ................................................. 1
Environmental Considerations .............................................. 1
Scope of the Assignment ................................................... 1
Type Appraisal/Type Report ................................................ 2
Date of Value Estimate .................................................... 2
Exposure Time ............................................................. 2
Property Ownership ........................................................ 3
Property Location ......................................................... 3
Zoning/Public Utilities ................................................... 4
Legal Description/Land Size ............................................... 4
Ad Valorem Tax Analysis ................................................... 6
Purpose of Appraisal/Definition of Value .................................. 8
Rights Appraised .......................................................... 8
Area Analysis - Pensacola, Florida ........................................ 9
Neighborhood Analysis ..................................................... 13
Site Analysis ............................................................. 15
Description of Improvements ............................................... 17
Highest and Best Use ...................................................... 19
The Appraisal Process ..................................................... 21
Land Value - Direct Comparison ............................................ 24
Cost Approach to Value .................................................... 30
Income Approach to Value .................................................. 34
Sales Comparison Approach ................................................. 52
Reconciliation and Final Value Estimate ................................... 66
Valuation - "As Is" ....................................................... 67
Certification ............................................................. 70
EXHIBITS
Location Map ........................................... Facing Page 3
Area Map ............................................... Facing Page 9
Subject Photographs .................................... Facing Page 13
Site Plan .............................................. Facing Page 15
Land Sales Map ......................................... Facing Page 28
Rental Map ............................................. Facing Page 35
Improved Sales Map ..................................... Facing Page 63
ADDENDUM II
Korpacz Real Estate Investor Survey
Engagement Letter
Assumptions and Limiting Conditions
Qualifications
H.J. Porter & Associates, Inc.
INTENDED USE OF APPRAISAL 1
This appraisal has been requested to function as an underwriting guide for
mortgage loan purposes and for use in securitization of mortgages. Accordingly,
this appraisal may be provided by Merrill Lynch & Co. to potential investors in
a securitization or other sale of mortgage loans.
The appraisal is undertaken without departure in accordance with USPAP as
promulgated by the Appraisal Foundation.
ENVIRONMENTAL CONSIDERATIONS
No current Environmental Site Assessment was provided to the appraisers.
According to a Phase I Environmental Site Assessment conducted June 2, 1995 by
Southern Earth Sciences, Inc., no evidence of recognized adverse environmental
conditions in connection with the subject property was noted, except for
asbestos containing materials identified in a previous asbestos survey. No
current asbestos survey was provided. The appraised value contained herein
assumes that the subject is free of any environmental contamination or atypical
soil conditions.
SCOPE OF THE ASSIGNMENT
The subject property, a neighborhood shopping center, is one of fifteen shopping
centers to be included in a portfolio of retail shopping centers that will be
cross collateralized, under one management, and subject to stringent release
provisions.
The scope of the assignment includes undertaking the three traditional
approaches to value with consideration given to the current status of the retail
market in Parker, Florida and the surrounding market area. In the Cost Approach,
local real estate professionals and appraisers were contacted and a search of
public records undertaken to locate comparable land sales. A detailed inspection
of the site and improvements was made by the Associate Appraiser. Construction
details were obtained from the physical inspection and a site plan prepared by
Holmes - Wilkens Architects dated April 10, 1995. Current cost estimates were
obtained from the Marshall Valuation Service, a nationally recognized cost
service indexed to the Panama City, Florida market. Parker, Florida is located
approximately two miles east of the city limits of Panama City in Bay County.
In the Income Approach to Value, a survey of local retail market conditions was
made by interviewing local leasing and management agents to determine if the
contract rents for the local shop space was competitive and market oriented.
Expense comparables were studied and local management companies were interviewed
to estimate the appropriate expense deductions. The resulting net operating
income was then capitalized into a present value estimate by direct
capitalization. Where information was provided, the comparable improved sales
found in the market approach sold on direct capitalization of stabilized net
operating income rather than
H.J. Porter & Associates, Inc.
SCOPE OF THE APPRAISAL - (CONTINUED) 2
discounted cash flow analysis. The overall capitalization rate was derived from
market sales, built-up rates using current market rates for debt and equity, and
from published investor surveys.
The Sales Comparison Approach was developed after a search for sales of similar
shopping centers. To locate appropriate sale comparables, Realtors(R),
appraisers, mortgage lenders, and developers were interviewed. The sales located
were compared to the subject with adjustments made for items of difference.
After development of the three approaches, the value indications derived were
reconciled to provide a value estimate for the subject property as of the
effective date of appraisal.
TYPE APPRAISAL/TYPE REPORT
In accordance with the Uniform Standard of Profession Appraisal Practice, the
appraisers have performed a "Complete" appraisal according to Standard Rule 1
and the communication to the client is a "Self-Contained Appraisal Report" in
accordance with Standard Rule 2-2a.
DATE OF VALUE ESTIMATE
The subject was valued at two points in time: "As Is", as of the date of
inspection by the Associate Appraiser and "At Stabilized Occupancy", as of the
estimated date of stabilized occupancy - October 17, 1997. The "At Stabilized
Occupancy" value represents a prospective market value estimate. The data
utilized in preparing this appraisal was researched, gathered, and/or updated
during the period August 9 through September 10, 1997. The Date of the Report is
September 11, 1997, which is the date of the transmittal letter.
The Dictionary of Real Estate Appraisal, 3rd Edition. Page 283, defines
Prospective Value Estimate as:
"A forecast of the value expected at a specified future date. A
prospective value estimate is most frequently sought in
connection with real estate projects that are proposed, under
construction, or under conversion to a new use, or those that
have not achieved sellout or a stabilized level of long-term
occupancy at the time the appraisal report is written."
EXPOSURE TIME
The estimated exposure time for the subject property, to obtain the values
communicated herein, is estimated to have been one year or less. This exposure
period assumes competent sales and marketing efforts, the property
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
Location Map
3
PROPERTY OWNERSHIP
The subject property is under the ownership of:
59 West Partners, Ltd.
P.O. Box 680176
250 Washington Street
Prattville, AL 36067-3603
The 8.125 acre property was purchased by the current owners on June 2, 1995 from
Rhodonite Investments, N.V. for $1,068,000. According to Woody Camp, a
representative with the Grantee, at the time of purchase the property contained
a net rentable area of approximately 61,820 square feet. At the time of
purchase, the center was mostly vacant and in poor overall condition. Since the
purchase, the shopping center was renovated, and the space now occupied by Winn
Dixie was completely re-built. Also, substantial site improvements have been
performed since the purchase. It should be noted that the sale on June 2, 1995
included an approximate 34,612 square foot out-parcel that is not included as a
part of the collateral and thus is not included as a part of this appraisal.
To the best of our knowledge, no other transactions involving the subject
property have occurred in the five years prior to the date of appraisal.
Additionally, to the best of our knowledge, there are no pending offers to
purchase the subject property nor is it currently listed for sale.
PROPERTY LOCATION
The subject property is located on the west side of U.S. Highway 98,
approximately 228 feet south of Cherry Street. The subject property also has
53.20 feet of frontage along Cherry Street. The property is within the city
limits of Parker, Florida in Bay County. It is located by street address as:
Parker Center
208 S. Tyndall Parkway
Parker, Florida
H.J. Porter & Associates, Inc.
4
ZONING/PUBLIC UTILITIES
The subject property is located in the city limits of Parker, Florida and is
subject to Parker's zoning regulations. The site is currently zoned GC, General
Commercial. The purpose of this district is to provide areas for high intensity
commercial development including retail sales and services, wholesale sales,
shopping centers, office complexes, and other compatible land uses.
This zoning classification calls for a minimum side yard setback of 7 feet,
minimum rear yard setback of 5 feet, minimum setback of 20 feet from the road
right-of-way, and minimum space of 10 feet between buildings. The maximum
allowed building height is 25 feet. There is no maximum floor area ratio. The
parking requirement is one space per 300 square feet of gross floor area. Based
on an inspection of the property, the improvements appear in conformance with
the current zoning requirements.
The subject has all necessary utilities including electricity, gas, water,
sanitary sewer, and telephone in sufficient quantities to sustain commercial
development. Public services such as police and fire protection are provided by
the City of Parker.
LEGAL DESCRIPTION/LAND SIZE
The legal description for the subject was obtained from the owners, 59 West
Partners, Ltd. The subject property is legally described as:
Commencing at the northeast corner of Lot 3, Block "E", William
L. Wilson Plat, as per plat recorded in the Office of the Clerk
of the Circuit Court of Bay County, Florida, run in 89 degrees
52' W along the northern boundary of said Lot 3, a distance of 37
feet to a point on the west R/W line of U.S Highway 98, said
point being the POINT OF BEGINNING of the property herein
described; thence continuing N 89 degrees 52' W along said
northern boundary of Lot 3, a distance of 125 feet to a point;
thence run S 00 degrees 01' E, 100 feet to a point; thence run N
89 degrees 52' W478.45 feet to a point on the western boundary of
aforementioned Lot 3; thence run N 00 degrees 14'36" E along said
western boundary of Lot 3, and the western boundary of Lots 1 and
2 of said Block "E", William L. Wilson Plat, 727 feet to a point
on the south R/W line of Cherry Street; thence run S 89 degrees
52' E along said South line of Sherry Street, 284 feet to a
point; thence run S 89 degrees 52' E, 227.25 feet to a point on
the aforementioned west R/W line of U.S. Highway 98; thence along
said west line of U.S. Highway 98, as follows: S 00 degrees 01'
E, 95 feet, S 89 degrees 59' W, 10 feet; thence S 00 degrees 01'
E, 304.40 feet to the POINT OF BEGINNING containing 353,920.96
square feet or 8.125 acres.
NOTE: AN OUT-PARCEL LOCATED AT THE EXTREME NORTHWEST PORTION OF
THE PROPERTY ALONG CHERRY STREET IS INCLUDED AS A PART OF THE
ABOVE LEGAL DESCRIPTION. THE OUT-PARCEL, WHICH CONTAINS 34,612
SQUARE FEET, OR .79 ACRES, IS NOT A PART OF THE COLLATERAL,
ACCORDING TO DISCUSSIONS WITH REPRESENTATIVES WITH THE OWNER OF
THE PROPERTY. THUS, THE SUBJECT SITE BEING APPRAISED CONSISTS OF
319,309 SQUARE FEET, WHICH EXCLUDES THE AREA WITHIN THE
OUT-PARCEL.
H.J. Porter & Associates, Inc.
LEGAL DESCRIPTION/LAND SIZE - (CONTINUED) 5
The subject property is irregular in shape and contains a total land area of
7.33 acres. The subject parcel has approximately 399 feet of frontage on the
west side of Tyndall Parkway (U.S. Highway 98) and 53.20 feet along Cherry
Street.
As indicated previously, the subject property is one of fifteen shopping centers
to be included in a portfolio of retail shopping centers that will be cross
collateralized, under single management, and subject to stringent release
provisions. The other shopping centers included in the portfolio are listed as
follows:
Greenbrier Station Shopping Center
Anniston, AL
Clanton Marketplace
Clanton, AL
Betts Crossing Shopping Center
Opelika, AL
Opp Marketplace
Opp, AL
Russell Crossing Shopping Center
Phenix City, AL
29 North Shopping Center
Cantonment, FL
Nine Mile Plaza Shopping Center
Pensacola, FL
59 West Shopping Center
Bessemer, AL
The "Y" Shopping Center
Panama City Beach, FL
Mandeville Marketplace
Mandeville, LA
Brownsville Place Shopping Center
Brownsville, TN
H.J. Porter & Associates, Inc.
LEGAL DESCRIPTION/LAND SIZE - (CONTINUED) 6
Chicot Crossing Shopping Center
Pascagoula, MS
Delchamps Plaza
Long Beach, MS
One Main Place
Moss Point, MS
AD VALOREM TAX ANALYSIS
The subject parcel is under the taxing authority of the Bay County Property
Appraiser's Office. The 1997 millage rate has not yet been determined. The
property was found on the 1996 tax rolls as:
Assessed to: 59 West Partners
725 East Main Street
Prattville, AL 36067
Parcel I.D. #: 24920-020-000*
Value: Land: $203,750
Improvements: $708,973
--------
Total: $912,723
Assessment Ratio: 100%
Local Millage Rate: $15.1402 per $1,000 of assessed value
Annual Tax: $13,819
* This tax parcel includes a 34,490 square foot out-parcel that is not a part of
the property being appraised.
The subject property was renovated in 1995 and the Winn Dixie portion of the
shopping center was completely rebuilt in 1996. Considering the recent property
upgrades and overall property improvements, it is anticipated that the
assessment on the subject property will increase. The comparable properties used
to estimate the subject's assessed value are illustrated in the following table.
H.J. Porter & Associates, Inc.
AD VALOREM TAX ANALYSIS - (CONTINUED) 7
AD VALOREM TAX COMPARABLES
Comparable Name Yr. Built Size- SF App. Value Value/SF
23rd Street Plaza 1986 99,806 $3,307,529 $33.14
Middle Beach Shop. Cntr. 1994 69,877 $3,320,453 $47.52
================================================================================
The 23rd Street Plaza is an older center that is in good overall condition.
Middle Beach Shopping Center is one of the newer shopping centers constructed in
Bay County. The subject's assessment, considering the recent expansion and
renovations, is estimated to fall near the upper end of the tax comparable
range. Based on these comparables, the tax assessor's value is estimated to be
$42.00 per square foot. From this estimate of value, the subject's taxes are
calculated in the following table, which shows a division of taxes between Winn
Dixie and the remainder of the shopping center. Winn Dixie's size estimate is
based upon the gross building area.
SUBJECT'S ESTIMATED TAX
Total Winn Dixie Remainder
Building Area 71,995 47,315 24,680
Estimated Value Per SF $42.00 $42.00 $42.00
------ ------ ------
Total Estimated Assessed Value $3,023,790 $1,987,230 $1,036,560
1996 Millage Rate .0151402 .0151402 .0151402
Estimated Tax $45,781 $30,087 $15,694
Estimated Tax Per SF $0.64 $0.64 $0.64
========================================================================
H.J. Porter & Associates, Inc.
8
PURPOSE OF APPRAISAL/DEFINITION OF VALUE
The purpose of the appraisal is to estimate the market value of the leased fee
interest in the subject property. Market Value is defined by the Appraisal
Standards Board of the Appraisal Foundation in the Glossary to the Uniform
Standards of Professional Appraisal Practice (1997), as:
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 best interest;
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.
RIGHTS APPRAISED
The ownership interest in the subject property appraised is the "Leased Fee
Estate." The Dictionary of Real Estate Appraisal, 3rd Edition, Page 204, defines
Leased Fee Estate as, " an ownership interest held by a Landlord with the right
of use and occupancy conveyed by lease to others. The rights of lessor "the
leased fee owner" and the leased fee are specified by contract terms contained
within the lease." A lease Synopsis for each of the subject's tenant leases is
found in the addendum.
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
AREA MAP
9
AREA ANALYSIS - PANAMA CITY/BAY COUNTY, FL
The four basic factors which must be considered in analyzing an area are:
(1) Physical and Locational Factors;
(2) Economic and Financial Factors;
(3) Political and Governmental Factors; and
(4) Sociological Factors
Each of these factors is discussed briefly with conclusions as to their effect
on the subject property.
PHYSICAL AND LOCATIONAL FACTORS
The subject property is located in Parker, Florida. Parker, Florida is located
approximately two miles east of the city limits of Panama City in Bay County.
The Bay County-Panama City area of Florida is located on the Gulf of Mexico in
the Panhandle region of northwest Florida. Panama City, the county seat and
principal city of Bay County, is located approximately 98 miles southwest of
Tallahassee, 81 miles south of Dothan, Alabama, 103 miles east of Pensacola, 300
miles southwest of Atlanta, 270 miles west of Jacksonville, Florida, and
approximately 315 miles east of New Orleans, Louisiana. The average annual
temperature is 68.8 degrees. Average summer temperature is 81.9 and the average
winter temperature is 53.2. Annual precipitation average is 57.86 inches.
Prevailing winds are southerly in the summer and northerly in the winter. The
topography of the area is level.
Panama City is well-known for its beaches and popular tourist attractions. St.
Andrews Bay surrounds much of Panama City providing protected harbor for
facilities at the growing port of Panama City complex. Located in Bay County are
Tyndall Air Force Base and the Naval Coastal Systems Center.
Bay County's local highway network includes U.S. Highways 98 and 231, and
Florida Routes 20, 22, 77 and 79. Interstate Highway 10 is located 13 miles from
the northern portion of Bay County. From Panama City, Interstate 10 is
approximately 40 miles.
Commercial airline service at the Panama City/Bay County International Airport
is provided by Northwest Airlink to Memphis, USAir Express to Tampa/Orlando, and
Atlantic Southeast Airlines to Atlanta. A 55,000 square foot airport terminal
was opened in 1995. Intercity bus service is provided by Southern Greyhound. The
Bay Line Railroad provides freight service to Panama City business and industry
and to Port Panama City. The "Bay Line" provides direct service to major
industries and industrial parks in the area and interconnects with the CSX
Transportation Company. Norfolk Southern Railroad in Dothan, Alabama. Port
Panama City, a deepwater port (32 feet), is located directly on the Gulf
Intra-Coastal Waterway and provides barge facilities as well as deep water
berthing. Port Panama City was awarded Foreign Trade Zone status and is listed
as Zone #65.
H.J. Porter & Associates, Inc.
AREA ANALYSIS-PANAMA CITY/BAY COUNTY, FL - (CONTINUED) 10
ECONOMIC AND FINANCIAL FACTORS
Total employment in Bay County in May 1996 reached approximately 62,131. Because
Panama City is a leading tourist location, they have large swings in their
unemployment rates. According to the Florida Department of Labor and Employment
Security, the January unemployment rate ranged from 10.4% to 12.9% between 1994
and 1996. By comparison, the June rate, during the same period ranged from 5.0%
to 7.4%. The average annual unemployment rate in 1996 was 6.3%, an improvement
from the 1995 average annual rate of 6.8%.
Leading economic sectors, based on relative employment levels, include:
1. Government
2. Retail and wholesale trade
3. Services
4. Manufacturing
Two of the primary factors of the area's economy are Tyndall Air Force Base and
the Coastal Systems Station. Tyndall, located on a 29,000 acre reservation in
southeastern Bay County, houses the 325th Fighter Wing, Headquarters 1st Air
Force, Southeast Air Defense Sector, Weapons Evaluation Group and United State
Air Force Civil Engineering Support Agency. Approximately 6,469 military and
civilian personnel are employed at Tyndall. The base also services 8,476
military retirees in the area. The total economic impact in the local area was
340.4 million in fiscal 1996.
The Coastal System Station, located on 648 acres along St. Andrew Bay, is a
major research and development facility in support of naval operations that take
place primarily in coastal regions, such as amphibious missions, swimmer
operations, diving and salvage, and mine countermeasures. The U. S. Navy School
of Diving and Salvage is headquartered at NCSC. The base employs 1,369 civilian
and military personnel. The total economic impact of the Naval Coast System is
estimated at about 272 million annually.
Bay County is home of some 132 small and large manufacturers. Many are located
in the industrial park sites which include the Hugh Nelson Industrial Park, Port
Panama City Industrial Park, Bay Line Industrial Park and the Bay Industrial
Park. All these parks feature complete utilities and offer easy access to the
county's transportation network.
According to the Florida Statistical Abstract/1996, the population of Bay County
increased from 126,994 in 1980 to 142,159 in 1996, an increase of 11.9%. The
county population is projected to reach 150,242 by the year 2000 and 171,420 by
the year 2010. Regardless of which population figures are used, the growth rate
has been above the national average and is expected to continue into the next
decade. The table below illustrates the population growth of Bay County from
1970 to 1996 and is based on the US Census count, as well as estimates obtained
form the Florida Statistical Abstract/1996.
H.J. Porter & Associates, Inc.
AREA ANALYSIS-PANAMA CITY/BAY COUNTY, FL - (CONTINUED) 11
ECONOMIC AND FINANCIAL FACTORS
===================================================
YEAR POPULATION
---- ----------
1970 75,283
1975 89,900
1980 97,740
1985 119,503
1990 126,994
1996 142,159
===================================================
According to the Department of Revenue, Florida Department of Commerce, taxable
sales in Bay County has increased annually since 1990. The table below
illustrates this growth.
Bay County has eight incorporated municipal governmental jurisdictions, with
unincorporated areas governed by the Board of Bay County Commissioners. Each
municipality has a mayor/commissioner form of government.
Florida has no personal state income tax or inheritance tax. There is a state
corporate tax of 5.5% of net income with an exemption on the first $5,000 of
corporate profit and a retail sales tax of 6.5%. The city of Panama City has a
1% sales tax. Ad valorem taxes combine city, county, and school district levies,
plus the special assessments.
H.J. Porter & Associates, Inc.
AREA ANALYSIS-PANAMA CITY/BAY COUNTY, FL - (CONTINUED) 12
POLITICAL AND GOVERNMENTAL FACTORS - (CONTINUED)
Bay County District Public Schools serve a population of more than 136,000
people within a geographic area of 758 square miles. The school district is the
21st largest in Florida, with an enrollment in excess of 26,500 students. Area
students attend 33 school centers throughout the county. These schools include
20 elementary, 6 middle schools, 4 senior high schools, 3 special purpose
schools and 1 vocational-technical facility. Higher education opportunities
include the Gulf Coast Community College and the Florida State University,
Panama City Campus.
SOCIOLOGICAL FACTORS
Bay County has a wide variety of cultural organizations that enhance the quality
of life for county and area residents. They include the Music Association, Art
Association, Friends of the Library and the Historical Society. Bay County also
houses the Diving Museum, the only deepwater diving museum in the United States.
Spiritual needs are net by over 150 churches with most denominations
represented.
The Gulf of Mexico, Deer Point Lake, and other waterways and mild year-round
climate combine to make Bay County one of the most popular recreational areas in
the Southeast. It is nationally known for the sugar-white sand beaches and
resort attractions.
Bay Medical Center has 302 beds and 187 physicians in 28 fields of specialized
medicine and a total personnel count in excess of 1,600. In addition to this
facility, the Columbia Gulf Coast Medical Center serves the Bay County area with
176 acute care hospital beds.
CONCLUSIONS
In summary, the Bay County and Panama City area has experienced substantial
growth in population, jobs and resort popularity over the past twenty years, and
continued economic and population growth is projected. The population of the
county is projected to increase by between 20.6% between 1996 and 2010.
Sustained by the importance of Tyndall Air Force Base and the Coastal System
Station and the economic importance of the deepwater port, Bay County has been a
draw for many non-military industries.
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
1. Front View of Subject
2. Front View of Subject Shop Space
3. Side View of Subject
4. Rear View of Subject
5. Neighborhood View Looking North on Tyndall Parkway
6. Neighborhood View Looking South on Tyndall Parkway
7. Neighborhood View Looking East on Cherry St.
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
1. Front View of Subject
2. Front View of Subject Shop Space
3. Side View of Subject
4. Rear View of Subject
5. Neighborhood View Looking North on Tyndall Parkway
6. Neighborhood View Looking South on Tyndall Parkway
7. Neighborhood View Looking East on Cherry St.
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
1. Front View of Subject
2. Front View of Subject Shop Space
3. Side View of Subject
4. Rear View of Subject
5. Neighborhood View Looking North on Tyndall Parkway
6. Neighborhood View Looking South on Tyndall Parkway
7. Neighborhood View Looking East on Cherry St.
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
1. Front View of Subject
2. Front View of Subject Shop Space
3. Side View of Subject
4. Rear View of Subject
5. Neighborhood View Looking North on Tyndall Parkway
6. Neighborhood View Looking South on Tyndall Parkway
7. Neighborhood View Looking East on Cherry St.
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
1. Front View of Subject
2. Front View of Subject Shop Space
3. Side View of Subject
4. Rear View of Subject
5. Neighborhood View Looking North on Tyndall Parkway
6. Neighborhood View Looking South on Tyndall Parkway
7. Neighborhood View Looking East on Cherry St.
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
1. Front View of Subject
2. Front View of Subject Shop Space
3. Side View of Subject
4. Rear View of Subject
5. Neighborhood View Looking North on Tyndall Parkway
6. Neighborhood View Looking South on Tyndall Parkway
7. Neighborhood View Looking East on Cherry St.
H.J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
1. Front View of Subject
2. Front View of Subject Shop Space
3. Side View of Subject
4. Rear View of Subject
5. Neighborhood View Looking North on Tyndall Parkway
6. Neighborhood View Looking South on Tyndall Parkway
7. Neighborhood View Looking East on Cherry St.
H.J. Porter & Associates, Inc.
13
NEIGHBORHOOD ANALYSIS
The term neighborhood is defined in "The Appraisal of Real Estate" 11th Ed.
at page 189 as "a group of complementary land uses."
The four basic factors which must be considered in analyzing a neighborhood or
district, as in an area analysis are:
(1) Physical and Locational Factors
(2) Economic and Financial Factors
(3) Political and Governmental Factors
(4) Sociological Factors
Each of these factors is discussed briefly with conclusions as to their effect
on the subject property.
PHYSICAL AND LOCATIONAL FACTORS
The subject is located near the intersection of Tyndall Parkway (U.S. Highway
98) and Cherry Street in the northern portion of Parker, Florida. Neighborhood
boundaries are generally described as 15th Street to the north, St. Andrews Bay
and East Bay to the south, East Avenue to the west, and Callaway Bayou to the
east. The neighborhood encompasses all of Parker, Calloway, and Springfield,
Florida, as well as portions of Cedar Grove, Panama City and unincorporated Bay
County, Florida.
The subject property is located along Tyndall Parkway, a four-lane primary
highway that serves as the major commercial arterial within the neighborhood.
Cherry Street is a two-lane secondary arterial. The subject property is
conveniently located with easy access from any location within Parker and the
surrounding area.
Land uses within the neighborhood include a variety of commercial and service
oriented uses along Tyndall Parkway. The area immediately surrounding the
subject property consists of the Callaway Plaza Shopping Center, anchored by
Food World and K-Mart, restaurants, bank branches, and a variety of retail uses.
The area east and west of Tyndall Parkway is primarily developed with
single-family residential homes.
ECONOMIC AND FINANCIAL FACTORS
Neighborhood trends are upward. The population of the neighborhood area has
increased in recent years. The combined populations of Parker and Calloway have
increased from 16,851 in 1990 to 19,020 in 1996, a 12.9% increase since 1990.
The population growth has spurned retail and commercial development within the
area. For instance, Wal-Mart has recently constructed a super center within
H.J. Porter & Associates, Inc.
NEIGHBORHOOD ANALYSIS - (CONTINUED) 14
ECONOMIC AND FINANCIAL FACTORS
the neighborhood at the intersection of Tyndall Parkway and 7th Street, and
Albertson's built a food center in 1996 at the intersection of Tyndall Parkway
and Highway 22.
Tyndall Air Force Base, which is located to the south of the subject property
across the New Dupont Bridge, has the biggest economic Impact on the subject
neighborhood. Tyndall Air Fore Base, which is located on a 29,000 acre reserve,
employs approximately 6,469 military and civilian personnel and services
approximately 8,476 military retirees in Bay County. The total economic impact
of the base on the local areas was 340.4 million in fiscal 1996. Based on
discussions with a public affairs official with the base, Tyndall Air Force Base
is not on any base closing list.
POLITICAL AND GOVERNMENTAL FACTORS
Land within the neighborhood is zoned by several different municipalities,
including Parker, Calloway, Springfield, Panama City, and unincorporated Bay
County. There are a wide variety of zonings and allowed land uses; however, land
along Tyndall Parkway in the vicinity of the subject property is
primarily zoned commercial.
All necessary public utilities are available to the site, including electricity,
sanitary sewer, natural gas, and water. Police and fire protection are provided
by the various municipalities within the neighborhood.
SOCIOLOGICAL FACTORS
The neighborhood is well located with regard to the quality and availability of
services, including medical, educational, recreational, cultural, and
commercial. These services are readily accessible within and near the subject
neighborhood.
CONCLUSIONS
In conclusion, the subject neighborhood consists of a variety of commercial,
service and residential land uses. Neighborhood trends appear upward, as their
is vacant land for continued residential and commercial development. The
population within the neighborhood has increased in recent years. It is located
in close proximity to the recreational amenities of the area, including beaches
and St. Andrews Bay. These factors make it an attractive place to live and
should have a stabilizing effect on the neighborhood.
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
SITE PLAN
H.J. Porter & Associates, Inc.
15
SITE ANALYSIS
The subject property is located on the west side of Tyndall Parkway (U.S.
Highway 98) approximately 228 feet south of the Cherry Street. As indicated on
the site plan on the facing page, the subject property is irregular in shape.
The individual site characteristics of the shopping center site are as follows:
Size: 319,309 Sq. Ft. or 7.33 Acres
Shape: Irregular
Street Frontage: 399 feet on the west side of Tyndall Parkway
53.20 feet along the south side of Cherry Street
Curb-Cuts: There is one curb cut along Tyndall Parkway, and
there are two curb cuts along Cherry Street. Also,
the site is accessible from Suddoth Place.
Topography: Relatively level and at grade with the frontage
streets
Access: Overall accessibility is good. The site is
accessible from both northbound and southbound
lanes of Tyndall Parkway, a primary four-lane
arterial. Also, the site is accessible from both
directions along Cherry Street, a two-lane
secondary arterial. Additionally, Suddoth Road, a
two-lane secondary street, feeds into the subject
property providing additional street access.
Drainage/Flood
Hazard: According to the FEMA Flood Insurance Rate Map,
Community Panel No. 120011 0001 B, effective April
30, 1988, the subject property is not located in a
flood hazard zone. The subject property was
identified as being within Zone C, which is defined
as areas of minimal flooding. Flood insurance is
typically not required within Zone C for lending
purposes.
Soils: Considered typical and adequate for development as
evidenced by the surrounding development. No soil
analysis was provided to the appraisers.
Utilities: All necessary public utilities are available in
sufficient quantities development.
Easements: The property appears to feature standard easements
associated with utility use. No easements or
encroachments were discovered that would negatively
impact the marketability or utilization of the
subject property.
H.J. Porter & Associates, Inc.
SITE ANALYSIS - (CONTINUED) 16
Site Improvements: There are approximately 222,000 square feet of
asphalt and 3,000 square feet of concrete paving
which accommodates 373 parking spaces, drive lanes
and loading areas. Other improvements include
concrete curbing, pylon side and parking lot light
standards.
Surrounding Uses: Commercial and residential uses
H.J. Porter & Associates
17
DESCRIPTION OF IMPROVEMENTS
The subject property is a neighborhood shopping center that was originally built
in 1975. Based on discussions with representatives of the owner, In 1995, the
southern portion of the shopping center now occupied by Scotty's was renovated.
In 1996, a portion of the center was demolished and a building addition now
housing Winn Dixie was constructed.
The center is comprised of two buildings containing 4,800 and 67,195 gross
square feet, respectively. The total gross building area of the shopping center
is 71,995 square feet, with 68,680 square feet of stated lease area. The
difference between gross building area and stated lease area is due to the
Winn-Dixie lease. Their building contains approximately 47,315 square feet, but
the rent roll states a demised area of 44,000 square feet, with the difference
being the loading and rear storage areas. Other divisions of space include
19,880 square feet leased to Scotty's, Inc. and 4,800 square feet leased to
Movie Gallery.
The basic construction details that follow were obtained from the physical
inspection of the property by the Associate Appraiser on August 12, 1997. The
subject's basic construction details are as follows:
Property Type: Neighborhood shopping center
Roof: Built-up roof system over rigid insulation and
metal decking. The metal decking is supported by
steel trusses.
Walls: Exterior walls are brick veneer over concrete
block on the building front and painted concrete
block on the sides and rear. The 4,800 square foot
building has a partial wood exterior along the
store front.
Canopy: Canopies are a combination of brick veneer and
raised metal seam awnings built on a combination of
either metal or brick and block columns.
Doors: Anodized aluminum store front doors. Interior rest
room doors are hollow-core wood. Winn-Dixie is
equipped with two 8'x 10' truck high loading doors
in the rear building area and Scotty's is equipped
with a rear drive-in loading door.
Windows: Anodized aluminum store fronts with single glazing
Floor Covering: Either tile or carpet floor covering
Insulation: Rigid insulation in built-up roof system
H.J. Porter & Associates, Inc.
DESCRIPTION OF IMPROVEMENTS 18
Ceilings: Suspended lay-in acoustic tile with fluorescent
light fixtures
HVAC: Individual roof mounted electric central heating
and cooling for each unit. Make unknown.
Plumbing: Winn Dixie is equipped with seven fixture men's
restroom and a women's restroom. Scotty's is also
equipped with a four-fixture mens restroom and a
six fixture women's restroom. The build-out for
Movie Galley has not yet begun. It is assumed that
this tenant space will be equipped with two
restrooms.
Fire Safety: The shopping center is equipped with a wet
sprinkler system.
Remarks: The shopping center is in good overall condition.
The 4,800 square that will be occupied by Movie
Gallery contains no tenant finish at present.
Based on the lease agreement, the shopping center
owners will pay a $31,500 tenant improvement
allowance to Movie Gallery.
H.J. Porter & Associates, Inc.
19
HIGHEST AND BEST USE
Highest and best Use is defined in the Dictionary of Real Estate Appraisal, 3rd
edition, page 171, as:
"The reasonably probable and legal use of vacant land or an
improved property, which is physically possible,
appropriately supported, financially feasible, and that
results in the highest value. The four criteria the highest
and best use must meet are LEGAL PERMISSIBILITY, PHYSICAL
POSSIBILITY, FINANCIAL FEASIBILITY, and MAXIMUM
PROFITABILITY."
Based on this definition, consideration must be given to both the subject land
site as if vacant, and the total property as improved.
HIGHEST & BEST USE - AS VACANT
PHYSICALLY POSSIBLE - The 7.33 acre size of the subject would support a wide
range of uses. All of the necessary utilities and other public services are
available in sufficient quantities to support development. The shape and
configuration is well suited for a neighborhood shopping center. The site has
good access and exposure. The physical characteristics of the site allow for a
wide variety of potential land uses.
LEGALLY PERMISSIBLE - The subject site is zoned GC, General Commercial. The
purpose of this district is to provide areas for high intensity commercial
development including retail sales and services, wholesale sales, shopping
centers, office complexes, and other compatible land uses.
FINANCIALLY FEASIBLE - The subject's immediate area is developed with primarily
commercial and service uses. Considering the physical characteristics of the
subject property, including its good access and exposure, the most feasible use
of the subject site, if vacant, would be for retail use, including shopping
center development.
MAXIMALLY PRODUCTIVE - In determining the highest and best use of the subject
site, "as if vacant and available", the use which is maximally productive
generally becomes the deciding factor. Maximally productive uses are limited by
the current real estate market, the availability of substitute property for
development, and the growth stage of the area. To be maximally productive, that
use which provides the most return to the land must be selected.
It has previously been determined that it would be physically possible, legally
permissible, and financially feasible to develop the site with a retail use
compatible with the current zoning classification and adjacent use. Therefore,
as of the effective date of appraisal, retail use, including shopping center
development, is considered to be maximally productive and therefore the highest
and best use of the subject site, as if vacant and available.
H.J. Porter & Associates, Inc.
HIGHEST AND BEST USE - (CONTINUED) 20
HIGHEST AND BEST USE - AS IMPROVED
The same criteria utilized to determine the highest and best use of the subject
site, as if vacant and available for development, is utilized to determine the
highest and best use of the property, as improved.
As stated throughout this report, as of the date of appraisal, the subject site
is currently improved with a neighborhood shopping center with a gross building
area of 71,995 square feet. The subject improvements are considered to be in
good condition and functionally designed for their intended use.
PHYSICALLY POSSIBLE - The subject buildings are well located on the site with
parking conveniently located near the retail shops. The existing building's
contribution to total value is substantial and appears to provide the highest
return to the land. The total size and design of the building appears to be
consistent with highest and best use.
LEGALLY PERMISSIBLE - The subject improvements appear in conformance with
current zoning regulations.
FINANCIALLY FEASIBLE - No items were noted which would necessitate renovation or
improvement to command a higher rental rate.
MAXIMALLY PRODUCTIVE - The subject property represents a viable functioning
entity. The property is currently 100% leased and the improvements significantly
add to the property value as a whole. No other use or development option, as of
the effective date of value, would appear to generate a higher return to the
land. There is no other use that can economically substantiate the removal or
renovation of the existing improvements. Based on these factors, the existing
improvements are recognized as the highest and best use of the site as currently
improved.
H.J. Porter & Associates, Inc.
21
THE APPRAISAL PROCESS
The appraisal process is a procedure for estimating the market value of real
property. This process involves gathering all pertinent information available
from the market which may influence the value of the subject property. This data
is then utilized in forming an estimate of value based upon the three generally
accepted approaches to value. These three approaches are the Cost Approach, the
Income Approach, and the Direct Sales Comparison Approach.
COST APPROACH
The Cost Approach is defined as that approach in appraisal analysis which is
based upon the proposition that an informed purchaser would pay no more than the
cost of producing a substitute property with the same utility as the subject
property. It is assumed that the potential purchaser considers producing a
substitute property with the same utility as the property being appraised.
The application of the Cost Approach involves the following steps:
1. Estimating value of the site as if vacant and available to be put to its
highest and best use.
2. Estimating the replacement cost new of the improvements.
3. Estimating all elements of accrued depreciation.
4. Subtracting the total accrued depreciation from the replacement cost new of
the improvements (resulting in an estimate of the present worth of the
improvements).
5. Adding the present worth of all the improvements (including site
improvements) to the estimated site value.
6. Rounding the figure to an appropriate indication of value.
The major limitations of the Cost Approach is its reliance upon an estimation of
accrued depreciation. Generally, the older the property and the higher the
estimate of accrued depreciation, the less reliable becomes the value indication
from this approach. This is particularly critical in the valuation of older
properties that normally incur greater amounts of depreciation. The Cost
Approach is particularly appropriate when the property being appraised involves
relatively new improvements which represent the highest and best use of the site
or when the improvements are relatively unique or specialized and there is
limited or a total lack of comparable properties which have sold recently.
H.J. Porter & Associates, Inc.
THE APPRAISAL PROCESS - (CONTINUED) 22
INCOME ANALYSIS
The Income Analysis is defined as that procedure in appraisal analysis which
converts anticipated benefits (dollar income or amenities) to be derived from
the ownership of property into a value estimate. Anticipated future income
and/or reversions are discounted to a present-worth figure through the
capitalization process.
This analysis requires an estimate of market rent based upon comparable rent of
leased properties. This rental estimate is a gross amount and all expenses to
real estate are deducted. These expenses include vacancy and rent loss which,
when subtracted from the gross income, produces the effective gross income.
Other expenses include real estate taxes, management cost, insurance cost, and
maintenance expense. If applicable, a reduction would also be made for services
and utilities. All expense estimates are obtained from the market by comparison
to similar structures.
After all expenses have been subtracted from the gross income, the resulting
figure is the net operating income, which will be capitalized into value. The
capitalization rate is derived from actual sales that have occurred in the
market place. The sales are analyzed in order to estimate the net operating
income of the property. After the net operating income is estimated, it is
divided by the sales price to provide an indication of the overall
capitalization rate. Capitalization rates can also be built up from the market
factors considered most applicable to income-producing properties. After the net
operating income and the capitalization rate are estimated, the net income is
then capitalized into a value indication by the applicable capitalization
technique.
SALES COMPARISON APPROACH
The Sales Comparison Approach is defined as that approach in an appraisal
analysis which is based upon the proposition that an informed purchaser would
pay no more for the property than the cost to him of acquiring an existing
property with the same utility. Presumably, the potential purchaser considers
the alternatives that are available to him and then makes a rational decision
based upon the information he has about those alternatives that are available to
him and then makes a rational decision based upon the information he has about
those alternatives.
The application of the Sales Comparison Approach involves selecting a number of
competitive properties which have recently sold on the market. The information
derived from this section is analyzed through an adjustment process which
develops indications of what the competitive properties would have sold for if
they possessed all the important characteristics of the subject property. These
indications fall into a pattern surrounding one figure which, when appropriately
rounded, is an indication of the market value of the subject property as of the
date of the appraisal.
H.J. Porter & Associates, Inc.
THE APPRAISAL PROCESS - (CONTINUED) 23
The reliability of this approach is dependent upon the availability and
verification of the comparable sales data. The degree of comparability between
the competitive properties and the subject, and the absence of non-typical
conditions affecting the sales price of those properties are also important
items that are considered. Therefore, this approach is particularly applicable
when an active market provides sufficient quantities of reliable data which can
be verified from authoritative sources.
RECONCILIATION ANALYSIS
The reconciliation analysis is an evaluation process where the appraiser
carefully evaluates value indications from each of the three approaches. The
reliability of each approach to the present appraisal problem is examined and
weight is given to the accuracy, reliability, quantity of data available for use
in each approach, and the approach in which the market participant typically has
the greatest confidence.
H.J. Porter & Associates, Inc.
24
LAND VALUE - DIRECT COMPARISON
The subject site is valued by direct comparison with recent sales of other
similarly zoned commercial sites in Bay County, Florida. The sales are analyzed
on the basis of their location and utility relative to the subject.
Sales considered include:
SALE #1
Address/Location: Northwest corner of Tyndall Parkway and U.S.
Highway 22,Callaway, Bay County, Florida
Grantor: Daniel & Deborah Fioramonti, A.J. & Beatrice
Trawick, and Roy Ostertag, under separate
transactions that closed simultaneously
andassembled from three parcels.
Grantee: Albertsons, Inc.
Sale Date: July 24 & July 27, 1995
Sale Price: $900,000
Cash Equiv Price: $900,000
Terms: Cash to seller
Recorded: O.R. Book 1577 Pages 20, 1500, 1501. Bay County
Verified By: Walter Abbott, MAI
Rights Conveyed: Fee simple title
Land Size: Acres: 6.5 Square Feet: 283,140
Zoning: General Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Generally level
Access/Visibility: Good/Good
Utilities: All available
Remarks: This parcel is a prime, corner, commercial parcel
in the north section of the Tyndall
Parkway Corridor. The assemblage of
three parcels from three different
owners was necessary to obtain
enough land for the Albertson's
Grocery Store. The site has
approximately 440 feet of frontage
on Tyndall Parkway and 500 feet
along Highway 22.
Indicators of Value: PRICE PER ACRE: $138,462
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 25
SALE #2
Address/Location: 3621 U.S. Highway 231, Bay County, Florida
Grantor: Bauman Chiropractic Clinic, PA
Grantee: Transmitter Crossing, LLC
Sale Date: May 28, 1996
Sale Price: $625,000
Cash Equiv Price: $625,000
Terms: Cash to seller
Recorded: O.R. Book 1635 Page 1779 Bay County
Verified By: Walter Abbott, MAI
Rights Conveyed: Fee simple title
Land Size: Acres: 6.45 Square Feet: 280,962
Zoning: General Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Level; typical of the area
Access/Visibility: Good; Good
Utilities: All available
Remarks: This site has approximately 516 feet of frontage on
Highway 231 and about 510 feet of
frontage on Transmitter Road. This
site does not include the immediate
corner of Transmitter Road and
Highway 231. This property included
two small, old residential
structures which did not contribute
to the value of the property. The
site has been developed with a
Winn-Dixie Marketplace.
Indicators of Value: PRICE PER ACRE: $96,899
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 26
SALE #3
Address/Location: Northwest corner of Middle Beach Road and Beckrich
Road, Bay
County, Florida
Grantor: Bennetts Reef, Inc. & Mary Sue Wells, Leclere
Eubanks & Madelene Coggin Culpepeer, Co-Trustee
Grantee: Sembler Family Partnership #8, Ltd.
Sale Date: September 1993
Sale Price: $850,100
Cash Equiv Price: $850,100
Terms: Cash to seller
Recorded: O.R. Book 1453 Page 768 & 772 Bay County
Verified By: Walter Abbott, MAI
Rights Conveyed: Fee simple title
Land Size: Acres: 9.45 Square Feet: 411,642
Zoning: General Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: level; Adequate
Access/Visibility: Good; good
Utilities: All available
Remarks: The property has 640 feet of frontage along Middle
Beach Road and 666 feet on Bechrich
Road. It is presently improved with
a Publix anchored shopping center.
Indicators of Value: PRICE PER ACRE: $89,958
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 27
Sale #4
Address/Location: East side of Tyndall Parkway, just south of 7th
Street, Callaway and Bay County, Florida.
Grantor: N/A
Grantee: N/A
Sale Date: Current Listing
Asking Price: $675,000
Cash Equiv Price: $675,000
Terms: Cash to seller
Verified With: Selling Agent (850) 763-3994
Verified By: Matt Rice, H.J. Porter & Associates
Date Verified: 08\18\1997
Rights Conveyed: Fee simple title
Land Size: Acres: 9.24 Square Feet: 402,548
Zoning: A portion of the site is zoned commercial and a
portion is zoned residential. The
owner is in the process of
requesting a zoning change to
commercial for the entire parcel.
The asking price is contingent on
the zoning change.
Highest & Best Use: Commercial
Use At Sale: A small single-family dwelling that does not
contribute to value.
Topo/Drainage: Level/adequate
Access/Visibility: Good/Good
Utilities: All available
Remarks: According to the agent, the site is
rectangular with 641 feet of
frontage along Tyndall Parkway and
a depth of 628 feet. Portions of
this property are within the city
limits of Callaway and a portion is
within Bay County.
Indicators of Value: PRICE PER ACRE: $73,052
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
LAND SALES MAP
LAND VALUE - DIRECT COMPARISON (CONTINUED) 28
Land Sales 1 through 4 detailed above are compared to the subject's shopping
center site and adjusted to the subject for notable differences. These
adjustments are made in the adjustment grid below:
=====================================================================================
LAND SALES COMPARISON GRID
=====================================================================================
Comp. Number Subject #1 #2 #3 #4
Grantor Ostertag, Et Al Bauman Bennetts N/A
Grantee Albertsons Transmitter Sembler N/A
Location Parker, FL Callaway, FL Bay Co., FL Bay Co., FL Callaway, FL
Cash. Eq. Price $900,000 $625,000 $850,100 $675,000
Date of Sale 8/12/97 6/27/95 5/28/96 9/15/93 8/12/97
Land Size (ACRE) 7.33 6.50 6.45 9.45 9.24
=====================================================================================
ADJUSTMENTS #1 #2 #3 #4
Conditions of Sales Normal Normal Normal Normal
Net Adjustment $0 $0 $0 $0
Market Conditions 6.39% 3.62% 11.73% 0.00%
(Time) @ 3% /year
=====================================================================================
Preliminary Adj. Price $957,510 $647,625 $949,817 $675,000
Preliminary Adj.
Price/ ACRE $147,309 $100,407 $100,510 $73,052
=====================================================================================
PHYSICAL DIFFERENCES #1 #2 #3 #4
Location 0% 10% 0% 20%
Access/Exposure -15% 0% 0% 0%
Listing Status 0% 0% 0% -10%
-- -- - --
Subtotal-Physical -15% 10% 0% 10%
=====================================================================================
Adjusted Price $813,884 $712,388 $949,817 $742,500
Adjusted Price/Acre $125,213 $110,448 $100,510 $80,357
Size 0.94 0.94 1.16 1.16
Adjusted Price Per Acre $117,700 $103,821 $116,591 $92,411
=====================================================================================
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 29
The comparable sales listed above were adjusted to the subject for:
Conditions of Sale: All sales were normal arm's length transactions
that required no adjustments.
Time: Considers an increase in value of 3% per year over
the past several years. This is based on general
trends as there were no sales/resales found with
which to compare.
Location: Sales No.2 and No.4 are inferior in location
requiring upward adjustments. Both of these sales
are located in areas of less intense commercial
development.
Access/Exposure: Sale No.1 is superior to the subject in corner
influence. No other adjustments for access/exposure
were required.
Size: All sales were adjusted using the Dilmore Size
adjustment table. This table is based on the fact
that a property's price per unit is generally
inversely related to its size.
The comparable sales after adjustment, indicate a range of value from $92,411 to
$117,700 per acre. Most emphasis was placed on Sales No.1 and No. 2 due to the
recent sale dates and similarity with the subject property. Based on these
adjusted sales, the subject site, "As if Vacant", is valued as:
ESTIMATED LAND VALUE - AS IF VACANT
7.33 Acres @ $110,000 per Acre = $806,300
ROUNDED: $806,000
=========================================================
H.J. Porter & Associates, Inc.
30
COST APPROACH TO VALUE
The cost factors used are from the Marshall Valuation Service, a national cost
service indexed to the Panama City market and found to be reliable and
consistent with costs incurred by builders within the area. The cost factors
from this cost service are inclusive of architect/engineering fees, construction
period interest, contractors overhead and profit, and normal site prep costs.
Excluded are site improvements such as paving, landscaping, etc., land costs,
and indirect costs such as developers profit and permanent loan fees.
Calculations of total building replacement costs are:
Valuation - Cost Approach
Estimated Replacement Cost New - [MARKET]
Good Class "C" - Sec 13, Pg 19
Base Cost $56.83
Sprinkler System $1.80
Total Base Cost $58.63
Current Cost Multiplier x 1.04
Local Cost Multiplier x 0.85
Perimeter Multiplier x 0.84
GBA 47,315 Sq. Ft. @ $43.54 per Sq. Ft. = $2,059,920
Canopy @ 35% of Base Cost
2,640 Sq. Ft x $15.24 per Sq. Ft. = $40.228
-------
Estimated Replacement Cost New - [NEIGHBORHOOD SHOPPING CENTER]
Average Class "C" - Sec 13, Pg 27
Base Cost $46.08
Sprinkler System $1.80
Total Base Cost $47.88
Current Cost Multiplier x 1.04
Local Cost Multiplier x 0.85
Perimeter Multiplier x 0.90
GBA 24,680 Sq. Ft. @ $38.09 per Sq. Ft. = $940, 143
Canopy @ 25% of Base Cost
2,650 Sq. Ft x $9.52 per Sq. Ft. $25,237
-------
TOTAL REPLACEMENT COST NEW - ALL STRUCTURES $3,065,527
================================================================================
H.J. Porter & Associates, Inc.
COST APPROACH TO VALUE - (CONTINUED) 31
INDIRECT COST
Indirect costs including developer's entrepreneurial profit and permanent loan
fees are added to the subject's direct cost to estimate the total value of the
subject property via the Cost Approach. Developer's entrepreneurial profit is
added at 20% based upon sales of new shopping centers, discussions with
Developers and Brokers, and with consideration given to the cross
collateralization of the portfolio of retail properties to which the subject is
a part. Permanent loan fees are added at the amount typically charged by lenders
- 2% of the loan amount (1% construction - 1% permanent).
ACCRUED DEPRECIATION AND OBSOLESCENCE
The Winn Dixie portion of the improvements were recently completed, and the
remaining portion of the shopping center was recently renovated. Consequently,
there are no items of deferred maintenance. The subject's effective age is less
than its actual age due to the additions and renovations. Incurable physical
depreciation is estimated using the economic age/life method and calculated as:
Depreciation - Physical Incurable
Effective Age: 2 Years
Economic Life New: 40 Years
Percentage Depreciation (Effective Age/Life 5.0%
New)
--------------------------------------------------------------------------------
Dollar Depreciation - Incurable Long Lived Items
$3,065,527 x 5.0% $153,276
H.J. Porter & Associates, Inc.
COST APPROACH TO VALUE - (CONTINUED) 32
Based on inspection of the subject property and its neighborhood, there is no
functional or external obsolescence.
Site improvements are added at their depreciated values and the underlying
vacant shopping center site land value is added as arrived at previously by
comparison. The calculation of Value by the Cost Approach is presented in
tabular form on the following page.
H.J. Porter & Associates
COST APPROACH TO VALUE - (CONTINUED) 33
=============================================================================================
VALUATION - COST APPROACH
=============================================================================================
DIRECT COST
Total Replacement Cost New - Structures (from prior page) $3,065,527
LESS DEPRECIATION: Curable Incurable
------- ---------
Physical $0 $153,276
Functional $0 $0
External $0 $0
Total $0 $0 $153,276
--------
Depreciated Cost of Shopping Center $2,912,251
Add: Site Area Cost/Sq. Ft. % Dep. Cost New
---- ----------- ------ --------
Improvements
Asphalt Paving 222,000 $1.50 10% $299,700
Concrete Paving 3,000 $1.75 5% $4,988
Concrete Curbs 200 $7.50 10% $1,350
Light Poles Lump Sum $16,000
Landscaping Lump Sum $20,000
Total Site Improvements $342,038
--------
Total Depreciated Cost New $3,254,289
INDIRECT COST
Developer Profit 20% of Total Cost/Land $812,058
Permanent Loan Fees @ 2% of Loan Amount
(Loan basis = 75% of Land/Bldg Cost) $73,085
Marketing/Lease Commissions $30,000
TOTAL INDIRECT COST $915,143
--------
TOTAL REPRODUCTION COST NEW $4,169,432
LAND VALUE (from previous section) $806,000
--------
PRELIMINARY VALUE BY COST - $4,975,432
(Rounded) $4,980,000
=============================================================================================
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE 34
As a primary approach to value for the subject, the estimated net operating
income is capitalized into a value estimate by use of an overall capitalization
rate. In arriving at a net operating income, consideration is given to rentals
and expenses which are incurred in the operation of the property.
POTENTIAL GROSS INCOME
The subject property is anchored by Winn Dixie Marketplace containing 44,000
square feet of stated leased area, and Scotty's with 19,880 square feet. There
are 4,800 square feet of non-anchored shop space located in one building that is
leased to Movie Gallery for three years at $11.16 per square foot. Found in the
Addendum is a Lease Synopsis for each of the subject's tenants.
In order to determine if the subject's local shop space rent is competitive and
market oriented, and to estimate market vacancy, four comparable neighborhood
shopping centers within Bay County, Florida were inspected, surveyed, and
compared to the subject.
Comparable rentals considered for the subject's non-anchored space are shown on
the following pages.
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
RENTAL COMPARABLE MAP
INCOME APPROACH TO VALUE - (CONTINUED) 35
[GRAPHICS OMITTED]
RENT COMPARABLE 1
NAME: 23rd Street Plaza
LOCATION: 616-676 W. 23rd Street,
Panama City, FL
YEAR BUILT: 1986
SIZE: 99,756 Sq.Ft. GLA
ANCHORS TENANTS: 48,000 Sq.Ft. Publix
9,000 Sq.Ft. Party Universe
42,756 Sq.Ft. Local Shop
-------------
99,756 Sq.Ft. GLA
SHOP TENANTS: Professional Print Graphics, Transouth, Ice Cream,
Olan Mills, Heaven & Earth, Play It Again Sports,
CiCi's Pizza, 4th Dimension Hair, etc.
SHOP SPACE RENTS: $9.50 - $12.00 per Sq.Ft.
EXP. CONTRIBUTIONS: Taxes, CAM and Insurance
SHOP OCCUPANCY: 92%
VERIFIED WITH: Stan Farrell (leasing Agent) (800) 277-0606 -
8/18/97
REMARKS: The asking rate for a 3,600 square foot space is
$9.50 per square foot. Also, a 1,400 square foot
space was recently leased for $11.75 per square
foot. Only a rental range for the shop space was
given. The overall condition and quality of this
shopping center is good. According to management,
the total reimbursements are running $1.33 per
square foot annually.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 36
[GRAPHICS OMITTED]
RENT COMPARABLE 2
NAME: Stanford Station
LOCATION: 730 W. 23rd Street
Panama City, Florida
YEAR BUILT: 1983
SIZE: 88,687 Sq.Ft. GLA
ANCHORS TENANTS: 42,800 Sq.Ft. Food World
9,000 Sq.Ft. CVS Pharmacy
36,887 Sq.Ft. Local Shop
-------------
88,687 Sq.Ft. GLA
SHOP TENANTS: TCBY, Beepers Unlimited, Harrison Jewelers, Buster
Brown Shoes, MensFabricks, FL Linen Outlet, Mount
Olive Health Foods, MK Designs, etc.
SHOP SPACE RENTS: $10.00 - $12.00 per Sq.Ft.
EXP. CONTRIBUTIONS: Taxes, CAM, Insurance
SHOP OCCUPANCY: 89%
VERIFIED WITH: Faison Realty (904) 785-0350 8/18/97
REMARKS: The agent would not verify specific rents of the
tenants. Only a rental range for the shop space was
given. The asking rate for 1,200 and 2,800 square
foot vacant spaces are $11.50 and $10.50 per square
foot, respectively. According to the agent, costs
for taxes, insurance and CAM are running about
$1.75 per square foot annually.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 37
[GRAPHICS OMITTED]
RENT COMPARABLE 3
NAME: Callaway Plaza
LOCATION: 129-225 Tyndall Parkway
Callaway, FL
YEAR BUILT: 1983
SIZE: 155,040 Sq.Ft. GLA
ANCHORS TENANTS: 42,848 Sq.Ft. Food World
87,543 Sq.Ft. K-Mart
8,400 Sq.Ft. Eckerds (vacated but paying rent
until 1999)
16,249 Sq.Ft. Shop Space
-------------
155,040 Sq.Ft. GLA
SHOP TENANTS: H&R Block, Cost Cutters Hair, Baskin Robbins,
Blimpie, etc.
SHOP SPACE RENTS: $11.00 - $12.00 per Sq.Ft.
EXP. CONTRIBUTIONS: Cam, Tax and Insurance
SHOP OCCUPANCY: 100% (Movie gallery has vacated a 4,989 SF space
but paying through Sept.1997)
VERIFIED WITH: Cindy Highsmith - Property Manager (850) 233-9944,
8/18/97
REMARKS: The manager would not verify specific rents of the
tenants. Only a rental range for the shop space was
given. Currently vacancy is 0%. The manager
indicated that there was interest in the 4,989 SF
space coming available. The asking rate is $12.00
per square foot. Costs for taxes, CAM and insurance
are $1.50 square foot.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 38
[GRAPHICS OMITTED]
RENT COMPARABLE 4
NAME: Albertsons
LOCATION: Northwest corner of 23rd Street and U.S. Highway 77
Panama City, FL
YEAR BUILT: 1980 +/-
SIZE: Anchors: 45,000 Sq.Ft. +/-
Local Shop Space: 23,700 Sq.Ft.
-------------
Total 68,700 Sq.Ft +/-
ANCHOR Tenants: Albertson's
SPACE RENT: $9.50 per Sq.Ft. (Asking)
EXP. CONTRIBUTIONS: Pro rata share of taxes, insurance & CAM
SHOP OCCUPANCY: 88%
VERIFIED WITH: Marl Cummings (334) 476-6000, 8/19/97
REMARKS: This is an older center that is well located near
the Panama City Mall. The asking rate for a 2,800
square foot vacant space is about $9.50 per square
foot. Typical terms are 3-5 years flatwithin the
center. CAM charges have been running between
$1.58 and $1.64 per square foot in recent years.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 39
Rental rates for non-anchored shop space in the four comparables in the
surrounding areas of Parker, Florida range from $9.50 to $12.00 per square foot.
The most comparable center in terms of location is Rental No.3, Callaway Plaza.
The quoted rate within this center is $12.00 per square foot. Based on these
comparables, the subject's current rent for the 4,800 square feet of shop space
appears to be competitive and market oriented. As such, the subject's contract
rent of $11.16 per square foot is considered at market.
As with most modern neighborhood shopping centers, the shop space tenant pays
its pro rata share of taxes, insurance, and common area maintenance. No other
expense contributions are stated in the lease.
The contract rents for Winn Dixie and Scotty's, like most signature stores, are
a function of the development cost and negotiations between developer and
tenant. The Winn Dixie rent at $7.80 per square foot, and Scotty's at $6.25 per
square foot are within the range of rental rates for similar sized anchor as
illustrated in the following table.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 40
================================================================================
Tenant Location Year Size-Sq.Ft.Rent/Sq.Ft.
================================================================================
Winn Dixie Alabaster, AL 1993 44,000 $6.50
Winn Dixie Panama City, FL 1993 44,000 $7.15
Winn Dixie Moody, AL 1993 44,000 $7.00
Winn Dixie Chalkville, AL 1994 51,250 $6.50
Winn Dixie Alexander City, AL 1994 44,000 $6.75
Winn Dixie Chattanooga, TN 1994 44,000 $7.05
Winn Dixie Anniston, AL 1995 44,000 $7.70
Winn Dixie Birmingham, AL 1995 44,000 $6.95
Winn Dixie Mobile, AL 1996 51,282 $8.00
Winn Dixie Dalton, GA 1996 44,000 $9.26
Winn Dixie Trussville, AL 1996 44,000 $8.15
Winn Dixie Mobile, AL 1997 44,000 $9.00
Winn Dixie Pensacola, FL 1997 44,000 $8.60
Winn Dixie Cantonment, FL 1997 44,000 $7.75
WINN DIXIE PARKER, FL 1997 44,000 $7.80
Winn Dixie Mobile, AL 1997 44,000 $8.85
Winn Dixie Fairhope, AL 1997 51,282 $9.25
================================================================================
================================================================================
Drugs for Less Birmingham, AL 1993 18,000 $7.50
Harco Drugs Birmingham, AL 1993 12,876 $5.95
Harco Drugs Pell City, AL 1993 9,100 $7.50
Harco Drugs Alabaster, AL 1993 9,100 $8.50
Big B Drugs Chattanooga, TN 1994 8,470 $7.00
Harco Drugs Tuscaloosa, AL 1994 10,160 $7.90
Revco Anniston, AL 1995 9,240 $7.75
SCOTTY'S PARKER, FL 1995 19,880 $6.25
Revco Cantonment, FL 1997 9,240 $7.75
Drugs for Less Birmingham, AL 1995 18,000 $7.00
Revco Dalton, GA 1996 8,450 $9.75
Harco Drugs Mobile, AL 1997 10,125 $8.25
================================================================================
Scotty's pays their pro rata share of taxes, insurance, and common area
maintenance. Winn Dixie has their own identified parcel and will directly pay
all taxes, insurance, and building and grounds maintenance. Due to the nature of
the Winn Dixie lease terms, which is non-terminable, their lease is considered a
"Bond Lease."
The Winn Dixie and Scotty's leases call for percentage rents. It is unlikely
that these tenants will reach a level of sales requiring percentage rent until
they have become well established in this market. As such, no income from
percentage rent is estimated.
The Potential Gross Income is the sum of the subject's contract rents plus
expense reimbursements for the pro rata share of taxes, insurance, and common
area maintenance.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 41
No administrative fees, reserves or management fee reimbursements are
included in the current leases. The Potential Gross Income is calculated in
the following table.
================================================================================
POTENTIAL GROSS INCOME
================================================================================
Anchor Tenants
Winn Dixie 44,000 sq.ft. @ $7.80 = $343,200
Scotty's 19,880 sq.ft. @ $6.25 = $124,250
Subtotal 63,880 sq. ft $467,450
Non-Anchor Tenants
Movie Gallery 4,800 sq. ft. @ $11.16 = $53,568
Subtotal $53,568
-------
Total Rental Income 68,680 sq. ft. $521,018
Expense Contributions
Scotty's 19,880 sq. ft. @ $1.64 = $32,603
Non-Anchor Tenants
CAM Admin., St. Res., Mgt. $0
CAM, Tax, Ins. 4,800 sq. ft. @ $1.64 = $7,872
24,680 $40,475
-------
POTENTIAL GROSS INCOME $561,493
================================================================================
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 42
EFFECTIVE GROSS INCOME
Stabilized vacancy and collection loss is subtracted from Potential Gross Income
to estimate the Effective Gross Income. Winn Dixie and Scotty's have extended
lease terms and are considered credit anchor tenants. As such, no vacancy and
credit loss is calculated on their income. Local shop space in the four
comparable shopping centers ranged from 89% to 100%. There is good demand for
local shop space in food anchored shopping centers throughout the Bay County
area. Considering the size of the shop space, the strength of the market and the
subject's anchor tenants, the stabilized vacancy and collection loss for the
subject's non-anchored shop space is estimated to be 5% ($61,440 x 5% = $3,072)
of rent and expense reimbursements. The effective gross income is calculated as
follows.
$561,493 Potential Gross Income
$3,072 Vacancy and Collection Loss
------
$558,421 Effective Gross Income
OPERATING EXPENSES
After estimating Effective Gross Income, all applicable expenses are deducted to
arrive at Net Operating Income. No operating history was provided by management.
The shopping center was purchased by the current owners in 1995. Since that
time, major renovations and additions to the center have taken place. Thus, no
recent stabilized income/expense history is available. To estimate the
appropriate expense levels, statements from similar shopping centers in the
southeast are analyzed and representatives with local management companies were
interviewed.
The expense comparables are presented below and on the following pages.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 43
COMPARABLE #1
Project Name: Delchamps Plaza North
Location: McFarland & Watermelon Road
Tuscaloosa, AL
Year Built: 1986 GLA: 59,389 SF
Source: Year End Statement
Type Center: Neighborhood
Analysis Year: 1995 Analysis By: DPM
Item Total $/SF %PGR
---- ----- ---- ----
Potential Gross Rent: $459,768 $7.74 100.0%
Less Vac/Credit Loss: $-603 $-0.01 -0.1%
----- ------ ----
Effecfive Gross Rent: $459,165 $7.73 99.9%
+ CAM/Reimbursements: $41,120 $0.69 8.9%
+ Misc Income: $3,439 $0.06 0.7%
------ ----- ---
Effec. Gross Income: $503,724 $8.48 100.0%
Item Total $/SF %EGI
---- ----- ---- ----
Less Expenses:
Management: $30,762 $0.52 6.1%
Ad Valorem Tax: $33,939 $0.57 6.7%
Insurance: $4,915 $0.08 1.0%
Administration Expense: $1,391 $0.02 0.3%
CAM: $41,892 $0.71 8.3%
Miscellaneous: $8,765 $0.15 1.7%
------ ----- ---
Total Expenses: $121,664 $2.05 24.2%
-------- ----- ----
Net Operating Income: $382,060 $6.43 75.8%
======== ===== ====
Comments: Utilities expense included in CAM. Miscellaneous expense is
non-pass through expense for building repair.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 44
COMPARABLE #2
Project Name: Delchamps Plaza South
Location: Skyland Blvd.
Tuscaloosa, AL
Year Built: 1986 GLA: 108,903 SF
Source: Year end operating statement
Type Center: Neighborhood Shopping Center
Analysis Year: 1996 Analysis By: LHH
Item Total $/SF %PGR
---- ----- ---- ----
Effecfive Gross Rent: $751,676 $6.90 %
+ CAM/Reimbursements: $61,400 $0.56 %
+ Misc Income: $300 $0.00 %
---- ----- --
Effec. Gross Income: $813,376 $7.47 100.0%
Item Total $/SF %PGR
---- ----- ---- ----
Less Expenses:
Management: $42,686 $0.39 5.2%
Ad Valorem Tax: $39,174 $0.36 4.8%
Insurance: $13,588 $0.12 1.7%
Administration Expense: $17,144 $0.16 2.1%
CAM: $25,322 $0.23 3.1%
Utilities: $6,564 $0.06 0.8%
Miscellaneous: $5,071 $0.05 0.6%
------ ----- ---
Total Expenses: $149,549 $1.37 18.4%
-------- ----- ----
Net Operating Income: $663,827 $6.10 81.6%
======== ===== ====
Comments: Misc. Expense is travel and structural repair.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 45
COMPARABLE # 3
Project Name: Stratford Square
Location: East Boulevard
Montgomery, AL
Year Built: 1987 GLA: 121,236 SF
Source: Year End Statement
Type Center: Community Shopping Center
Analysis Year: 1995 Analysis By: Philip Minor
Comments: Miscellaneous expense is building repair and maintenance.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 47
Based on these expense comparables, the pertinent expense categories in
appropriate amounts are estimated below. Because Winn Dixie is responsible for
paying all operating expenses associated with their store, the following expense
estimates reflect expenses for Scotty's and the non-anchored tenant only.
Management/Leasing: The management fee of the comparable properties
ranged from 3.8% to 6.1%. As indicated previously,
the subject property is one of fifteen shopping
centers in a cross collateralized portfolio of
retail properties under single management.
Considering economies of scale, the subject's
management fee is estimated at the low end of the
range at 4% of effective rental income.
Ad Valorem tax: The subject's ad valorem tax, as previously
discussed, is estimated at $15,694 per year.
Insurance: According to Robb Newton, a representative of the
owner, the current insurance costs are $16,051 per
year, or $.65 per square foot annually for the area
of the shopping center excluding Winn Dixie. The
1996 insurance expense at the subject property was
$14,820. Based on discussions with local management
companies, the insurance amount appears reasonable.
For instance, a nearby 143,808 square foot center
had 1996 insurance costs of $.44 per square foot
with an anticipation of a significant increase for
the upcoming year.
Common Area Maintenance: Based on the expense comparables, which range from
$.23 to $.71 per square foot, as well as
discussions with local shopping center managers,
Common area maintenance and repair expense is
estimated at $8,600 per year or $.35 per square
foot.
Structural Maintenance: Structural maintenance is estimated to be $.07 per
square foot for a total annual amount of $1,700.
The comparables ranged from $.03 to $.15 per square
foot.
Administrative: This expense is estimated to be $500 per year or
$.02 per square foot, and is based on the expense
comparables.
Total operating expenses are estimated to be $49,551 per year or $2.01 per
square foot for the Scotty's and non-anchor tenant space.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 48
NET OPERATING INCOME
The subject's stabilized net operating income is calculated by subtracting the
Operating Expenses from the Effective Gross Income and illustrated as:
$558,421 Effective Gross Income
$49,551 Operating Expenses
-------
$508,870 Net Operating Income
OVERALL CAPITALIZATION RATE
To estimate the subject's value via the Income Approach, the subject's
stabilized net operating income is capitalized with an overall capitalization
rate of 9.00%. The selected overall capitalization rate is based on several
methods of capitalization rate development with consideration given to the
non-terminable Winn-Dixie lease and cross collateralization of the subject
property with the other fourteen shopping centers in the securitized portfolio
of retail properties. The cap rate development methods, which are presented
following the Income Approach Summary on the following page, includes rates
extracted from comparable sales, recently published investor surveys, and three
methods using mortgage and equity positions which include the Ellwood, Band of
Investment, and Debt Coverage Ratio Methods.
Rates extracted from the comparable sales, ranged from 9.64% to 10.53%, with an
average of 10.04%. Published rates from the Korpacz Second Quarter 1997 Investor
Survey ranged from 8.25% to 13.00% with an average rate of 9.84%. The most
likely rates from the three mortgage/equity methods ranged from 8.87% to 9.14%.
The rates developed with mortgage/equity factors reflect current condition and
declining interest rates. The criteria used for these methods was taken from the
above investor survey and from interviews with mortgage brokers.
The High, Middle, and Low average of the five methods of cap rate development
are 10.32%, 9.36%, and 8.72%, respectively. Based on this analysis and the above
considerations, the subject's overall capitalization rate is estimated to fall
between the Middle and Low range of the five methods.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 49
ESTIMATED VALUE BY INCOME APPROACH
The subject's stabilized net operating income of $508,870 is capitalized with an
overall capitalization rate of 9.0% for an estimated prospective market value
"At Stabilized Occupancy" of $5,654,111, which is rounded to $5,650,000. A
summary of the Income Approach to Value is presented below.
==========================================================================================
VALUATION - INCOME APPROACH
==========================================================================================
POTENTIAL GROSS INCOME
Anchor Tenants
Winn Dixie 44,000 sq.ft. @ $7.80 = $343,200
Scotty's 19,880 sq.ft. @ $6.25 = $124,250
Subtotal 63,880 sq.ft. $467,450
Non-Anchor Tenants
Movie Gallery 4,800 sq.ft. @ $11.16 = $53,568
Subtotal $53,568
-------
Total Rental 68,680 sq.ft. $521,018
Income
Expense Contributions
Scotty's 19,880 sq.ft. @ $1.64 = $32,603
Non-Anchor Tenants
CAM Admin., St. Res., Mgt. $0
CAM, Tax, Ins. 4,800 sq.ft. @ $1.64 = $7,872
24,680 $40,475
-------
POTENTIAL GROSS INCOME $561,493
Less Vacancy and Collection Loss
Non-Anchor 5% Rent + Exp. Cont. = $3,072
Tenants
EFFECTIVE GROSS INCOME $558,421
% of $ per
Less Expenses: E.G.I S.F.
----- ----
Management: $7,006 4.0% $0.28
Ad.Val.Tax $15,694 2.8% $0.64
Insurance $16,051 2.9% $0.65
CAM $8,600 1.5% $0.35
St. Maint. $1,700 0.3% $0.07
Misc. Admin. $500 0.1% $0.07
Total Expenses 8.9% $2.01 $49,551
NET OPERATING INCOME
$508,870
--------
Capitalized at 9.0% $5,654,111
TOTAL INDICATED VALUE - "At Stabilized Occupancy" (Rounded) $5,650,000
============================================================================================
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 50
=======================================================================================================================
Property Capitalization
Rate Justification
=======================================================================================================================
High Middle Low
---- ------ ---
--------------------------------------------
1. Market extracted rates for 10.53% 10.04% 9.64%
similar local properties --------------------------------------------
--------------------------------------------
2. Recent published cap rates 13.00% 9.84% 8.25%
--------------------------------------------
used by institutional investors - Source: Korpacz Report 2nd Quarter 1997
3. Ellwood method calculated rates
11.55% = Eqty yield before tax
% Property appreciation (income) over hold period = -5.00% 0.00% 5.00%
75% = Mortgage percent of value
7.75% = Mortgage interest rate
20.0 = Mortgage term in years
10.0 = Investment holding period
9.85% = Rm = Mortgage constant
14.4% = Rmp = Mortgage constant over holding period
31.6% = P = Percent of mortgage paid off over hold period
5.8% = SFF = Sink fund factor
37.2% = J factor
--------------------------------------------
Calculated cap rate = 9.36% 8.90% 8.45%
--------------------------------------------
4. Band of Investment Method
Mortgage percent to value 70.00% 75.00% 80.00%
Mortgage constant 10.35% 9.85% 9.35%
Equity percent to value 30.00% 25.00% 20.00%
Eqty cash on cash rate 8.00% 7.00% 6.00%
--------------------------------------------
Calculated cap rate 9.65% 9.14% 8.68%
--------------------------------------------
5. Debt Coverage Ratio Method
Req'd debt coverage ratio 1.35 1.20 1.15
Mortgage percent to value 70.00% 75.00% 80.00%
Mortgage constant 10.35% 9.85% 9.35%
--------------------------------------------
Calculated cap rate 9.06% 8.87% 8.60%
--------------------------------------------
Average of Five Methods 10.32% 9.36% 8.72%
=======================================================================================================================
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 51
Explanatory Notes
Capitalization Rate Evidence
The accompanying chart illustrates 5 different sets of data or evidence as to
appropriate current property capitalization rates.
Item #1 Reflects the current range in capitalization rates in the
southeast based on actual sales - this information is historical in
nature although there has been a fairly consistent pattern evident in
this market over the years.
Item #2 Reflects actual cap rates used by large financial institutions
in the acquisition and financing of major real estate projects. These
rates are also historical in nature, but are based on properties of a
magnitude atypical in this market area. Properties that would appeal to
at least a regional and perhaps a national market of potential buyers.
Item #3 Reflects a calculated cap rate utilizing the Ellwood model
based on future expectations in income and property value growth and
equity yield rates - explicit input assumptions are listed. This method
is compelling when market mortgage and equity yield returns are
predictable and property and income changes can be reliably predicted.
Item #4 Analyzes required capital outlays to service both the debt (ie
mortgage payment) and the equity (cash on cash or before tax cash flow
or equity dividend). The weighted average of these required returns is,
by definition, equal to the capitalization rate. It should be noted
that the mortgage interest rate and equity yield rate are NOT part of
this calculation.
Item #5 Provides another method often used by lenders. The debt
coverage ratio is a factor equal to the net operating income divided by
the annual debt service - in other words, it is an estimate of the
"cushion" or excess of net operating income over and above debt
service. The calculated cap can be solved for by the following formula
R(o) = R(m) x DCR x M.
The actual cap rate used by appraisers in this analysis is bracketed by this
information. Further, this chart illustrates the implicit market expectations of
the various investment parameters that are reflected by the specific
capitalization rate used.
H. J. Porter & Associates, Inc.
52
SALES COMPARISON APPROACH
To estimate the subject property's value by the Sales Comparison Approach, a
direct comparison is made with actual sales of other neighborhood shopping
center properties. These sales are analyzed on the basis of price per square
foot of gross leasable area (GLA) and their effective gross income multiplier
(EGIM).
While the subject property is part of a large portfolio of retail properties
which would most likely be marketed as a total package, no sales of similar
portfolio of properties were found with which to compare. The market for retail
properties is national, and purchases are made on the strength and reliability
of the income stream. Similar shopping center sales were located in the
Southeast United States. Each sale is adjusted to the subject for pertinent
items, including unusual financing or conditions of sale, time lapsed since
sale, and physical differences such as age, condition, and construction quality
and location as reflected in the net operating income.
The sales considered are detailed on the following pages with a comparison and
adjustment following the presentation of the sales data.
H. J. Porter & Associates, Inc.
[GRAPHIC OMITTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 53
Sale #1
Address/Location: Village At Moody
US Highway 411
Moody, AL
Grantor: FS Partnership, Ltd.
Grantee: Birmingham Realty
Sale Date: 02/14/1996
Sale Price: $4,485,000
Cash Equiv Price: $4,485,000
Equity: $1,485,000
Debt: $3,000,000
Terms: $1,485,000 cash plus assumption of $3,000,000
mortgage at market rates and terms.
Recorded: Book 261, Page 313; St. Clair County
Verified With: Paul Spina, Grantor (205) 733-1131
Verified By: David Mullins, H.J. Porter & Associates
Date Verified: 04/10/1996
Rights Conveyed: Leased Fee
Land Size: 8.43 Acres
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood Shopping Center
Parking: 396 Parking Ratio: 6.51
Building Size: 60,800 SF(NRA)
Land:Bldg Ratio: 6.0
Year Built: 1995
Condition: Good
Building Description: In-line, one story masonry construction with brick
exterior on front and sides, and CCB on rear. Flat
built-up roof system.
Anchors: Winn Dixie - 44,000 SF
Anchor - Sq. Ft.: 44,000 Anchor %: 72.37
Local: J&E Ent., Head Start, Movie Gallery, Open Book,
Vulcan Rehab, Moody Cleaners, Vill. Beverage, Merle
Norman, Nail Shop
Local - Sq. Ft.: 16,800 Local %: 27.63
Lease Information: Winn Dixie - $7.00 PSF, Local tenant rent range
$10.50 to $11.50 PSF with average of
$10.67 PSF. All tenants pay pro-rata
share of CAM, tax, and insurance.
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 54
Sale #1 (Continued)
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- --------------
(A\E\F) Potential Gross Income: $533,922 $8.78
(A\E\F) Vac & Credit Loss: $9,920 $0.16
-------- -----
(A\E\F) Effec. Gross Income: $524,002 $8.62
(A\E\F) Less Expenses: $87,532 $1.44
------- -----
(A\E\F) Net Oper. Income $436,470 $7.18
==========================================================================
* Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
==========================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $73.77
PGIM: 8.40
EGIM: 8.56
R(o): 9.73%
Expense Ratio: 16.70
Remarks: At time of sale this center was less than one year old and did not
have a complete year of operating history. PGI includes contract rent
plus estimated expense contributions. Market vacancy estimated at 5%
of local tenant rent and expense contributions. Expenses include 4%
management fee, taxes at $.58 PSF, insurance at $.10 PSF, CAM at $.40
PSF, and St. Maintenance at $.05 PSF. This center is located at the
northeast corner of I-20 and US Highway 411 in Moody, Alabama. This
area is a rapidly growing commercial district in the
Birmingham/Atlanta interstate corridor.
H. J. Porter & Associates, Inc.
[GRAPHIC OMITTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 55
Sale #2
Address/Location: Middle Beach Shopping Center
Middle Beach Road and Bechrich Road
Bay County, Florida
Grantor: Sembler Family Partnership #8.
Grantee: Secured Properties Investors XII, L.P.
Sale Date: 9/9/1994
Sale Price: $5,775,000
Cash Equiv Price: $5,775,000
Terms: Cash to Seller
Recorded: O.R. Book 1523 Page 1166; Bay County
Verified By: Lee Weaver - Pardue, Heid, Church, Smith & Waller
Rights Conveyed: Leased Fee
Land Size: 8.57 Acres
Access/Visibility: Good/Good
Highest & Best Use: Shopping Center
Building Size: 69,877 SF(NRA)
Land:Bldg Ratio: 5.34
Year Built: 1994
Condition: Good
Building Description: One Story masonry construction neighborhood
shopping center. Built up flat roof.
Anchors: Publix
Anchor - Sq. Ft.: 56,077 Anchor %: 80.3
Local: Movie Gallery, Jane's Hallmark, Jan's Pizza, Far
Horizon's Travel, Baskin Robbins, Office Express
Classique Hair Styles, Herb Shop.
Local - Sq. Ft.: 13,800 Local %: 19.7
Lease Information: All tenants pay a pro-rata share of CAM, Taxes, and
Insurance.
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 56
Sale #2 (Continued)
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- -------------
(A\E\F) Potential Gross Income: $747,600 $10.70
(A\E\F) Vac & Credit Loss: $16,754 $0.24
------- -----
(A\E\F) Effec. Gross Income: $730,846 $10.46
(A\E\F) Less Expenses: $148,846 $2.13
-------- -----
(A\E\F) Net Oper. Income $582,000 $8.33
======================================================================
* Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
======================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $82.65
PGIM: 7.73
EGIM: 7.90
R(o): 10.08%
Expense Ratio: 20.4%
H. J. Porter & Associates, Inc.
[GRAPHIC OMITTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 57
Sale #3
Address/Location: North Hixson Marketplace
Hixson Pike and Camp Columbus Road
Chattanooga, TN
Grantor: North Hixson, L.L.C.
Grantee: Amberjack Ltd.
Sale Date: 03/04/1996
Sale Price: $4,760,000
Cash Equiv Price: $4,760,000
Terms: Cash to seller
Recorded: Hamilton County
Verified With: Dick Schmalz, with Grantor (205) 871-2617
Verified By: David Mullins, H.J. Porter & Associates
Date Verified: 03/15/1996
Rights Conveyed: Leased Fee
Land Size: 9.24 Acres
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood Shopping Center
Parking: 405 Parking Ratio: 5.88
Building Size: 63,270 SF(NRA)
Land:Bldg Ratio: 6.4
Year Built: 1995
Condition: Good
Building Description: One story neighborhood shopping center with split
face block exterior walks and synthetic stucco on
steel stud canopy.
Anchors: Winn Dixie (49,600 sf GBA & 44,000 sf(NRA); Big B
Drugs 8,470 sf
Anchor - Sq. Ft.: 52,470 Anchor %: 82.93
Local: Movie Gallery, Sally's Beauty and other local
tenants
Local - Sq. Ft.: 10,800 Local %: 17.07
Lease Information: Anchor and Local: CAM, Taxes and Insurance
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 58
Sale #3 (Continued)
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- --------------
(S\A\F) Potential Gross Income: $623,083 $9.85
(A\E\F) Vac & Credit Loss: $13,057 $0.21
------- -----
(A\E\F) Effec. Gross Income: $610,026 $9.64
(A\E\F) Less Expenses: $124,533 $1.97
-------- -----
(A\E\F) Net Oper. Income $485,493 $7.67
==============================================================
* Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
==============================================================
INDICATORS OF VALUE: Price Per SF (NRA): $75.23
PGIM: 7.64
EGIM: 7.80
R(o): 10.2%
Expense Ratio: 20.41%
Remarks: At time of sale, there were two vacant local shops containing 2,400
sq.ft. Expense contribution included in PGI and local vacancy. Vacancy
based on 10% of local shop income plus expense contributions. Expenses
based on 4% management, excluding expense contributions, $1.59 for
taxes, CAM and insurance plus $.05 for structural reserves. The
estimated expenses were consistent with Grantor's proforma. Average
local shop space rent for leased space was $10.45/sf.
H. J. Porter & Associates, Inc.
[GRAPHIC OMITTTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 59
Sale #4
Address/Location: Hillcrest Marketplace
Hillcrest Road @ Grelot Road
Mobile, Alabama
Grantor: Hillcrest Marketplace, Ltd.
Grantee: Confidential
Proposed Sale Date: 9/15/97
Sale Price: $6,490,000
Cash Equiv Price: $6,490,000
Terms: Cash to seller
Recorded: Sale Pending
Verified With: Scott Holcombe, Arlington Properties -Developer
(205) 328-9600
Verified By: Harris Hollans, H.J. Porter & Associates
Date Verified: 04/02/1997
Rights Conveyed: Leased Fee Interest
Land Size: 12.49 Acres
Access/Visibility: Good/Good
Highest & Best Use: Neighborhood Shopping Center
Parking: 359 Parking Ratio: 4.63
Building Size: 76,365 SF(NRA)
Land:Bldg Ratio: 7.1
Year Built: 1997
Condition: New
Building Description: Red brick veneer front over concrete block wall.
Reinforced concrete slab. Single ply membrane roof.
Raised seam metal and canvas awning.
Anchors: Winn Dixie (51,282 sq.ft.), Revco (9,240 sq.ft.)
Anchor - Sq. Ft.: 60,522 Anchor %: 79.25
Local: Various regional, national, & local
Local - Sq. Ft.: 15,843 Local %: 20.75
Lease Information: Winn Dixie rent was $8.00 per sq.ft. Revco rent was
$8.00 per sq.ft. Local rents were pro-forma $11.50,
actual was $12.50 per sq.ft. Anchor expense
contributions were estimated at $.99 per sq.ft.
with local tenants at $1.38 per sq.ft.
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 60
Sale #4 (Continued)
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- --------------
(A\E\F) Potential Gross Income: $756,072 $9.90
(A\E\F) Vac & Credit Loss: $17,613 $0.23
------- -----
(A\E\F) Effec. Gross Income: $738,459 $9.67
(A\E\F) Less Expenses: $112,823 $1.48
-------- -----
(S\E\F) Net Oper. Income $625,636 $8.19
==========================================================================
* Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
==========================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $84.99
PGIM: 8.58
EGIM: 8.79
R(o): 9.6400%
Expense Ratio: 15.28%
Remarks: The total Gross Building Area of the shopping center was 77,557 sq.ft.
Local tenant space was projected to be 100% leased prior to
completion. The sale of the property was also negotiated prior to
completion. Estimated completion date was July 1997. There were five
out-parcel lots at the center which were not included in the
transaction. Significant site work was necessary for development.
Estimated site work totaled $85,000 per acre. Out-parcels were
marketed to Wendy's, New York Bagel, and Boston Market.
H. J. Porter & Associates, Inc.
[GRAPHIC OMITTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 61
Sale #5
Address/Location: Ensley Square Shopping Center
Northeast Corner of Nine Mile Road and Palofax Highway
Pensacola, Florida
Grantor: Noro - Ensley Square Holdings BV
Grantee: Branch / HOP Associates, L.P.
Sale Date: 11/15/1995
Sale Price: $3,450,000
Cash Equiv Price: $3,450,000
Terms: Cash Buyer assumed loan of $1,518,700 at a reported
market level rate.
No known affect on sale price.
Recorded: O.R. Book 3872 Page 477; Escambia County
Verified By: Terry Hoffman, MAI - Hoffman & Associates
Rights Conveyed: Leased Fee
Land Size: 6.41 Acres
Access/Visibility: Good/Good
Highest & Best Use: Shopping Center
Building Size: 60,630 SF(NRA)
Land:Bldg Ratio: 4.61
Year Built: 1976
Condition: Average
Building Description: One story masonry and wood exterior neighborhood
shopping center.
Built up flat roof.
Anchors: Delchamps
Anchor - Sq. Ft.: 38,427 Anchor %: 63.4
Local: Radio Shack, GTE Mobile Net, Vick's Cleaners, Isey's
Pet Center, Ann's Hallmark, Northwest Financial,
Delchamp's Liquor, etc.
Local - Sq. Ft.: 22,203 Local %: 36.6
Lease Information: Tenants pay a pro-rata share of CAM, Taxes, and
Insurance.
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 62
Sale #5 (Continued)
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- --------------
(A\E\F) Effective Gross Income $454,218 $7.49
(A\E\F) Expenses $90,843 $1.50
------- -----
(A\E\F) Net Oper. Income $363,375 $5.99
==========================================================================
* Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
==========================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $56.90
PGIM: N/A
EGIM: 7.60
R(o): 10.53%
Expense Ratio: 20%
Remarks: Verification of effective gross income was through the purchaser's
agent. Net income was estimated based on discussions with the agent.
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
IMPROVED SALES MAP
SALES COMPARISON APPROACH - (CONTINUED) 63
The sales detailed above are compared and adjusted to the subject for pertinent
items of difference as:
=========================================================================================================
SUMMARY OF IMPROVED SALES AND ADJUSTMENTS
=========================================================================================================
Comp. Number Subject #1 #2 #3 #4 #5
Center Name Vill @ Middle North Hixson Hillcrest Ensley Square
Moody Beach
Grantor FS Partners Sembler North Hixon Hill. Ltd Noro
Grantee Birm.Realty Secured Amberjack. Conf. Branch
Ltd
Cash Eq.Sale Price $4,485,000 $5,777,000 $4,760,000 $6,490,000 $3.450,000
10/17/97 2/14/96 9/9/94 3/4/96 7/1/97 11/15/95
Gross Leasable Area 68,680 60,800 69,877 63,270 76,365 60,630
Sale Price/Sq.Ft. $73.77 $82.65 $75.23 $84.99 $56.90
NOI $508,870 $436,470 $582,000 $485,493 $625,636 $363,375
NOI per Sq. Ft. $7.41 $7.18 $8.33 $7.67 $8.19 $5.99
EGIM 8.56 7.90 7.80 8.79 7.60
==========================================================================================================
ADJUSTMENTS #1 #2 #3 #4 #5
Conditions of Sale Normal Normal Normal Normal Normal
$0.00 $0.00 $0.00 $0.00 $0.00
Market Conditions/Time 8.4% 15.5% 8.1% 1.5% 9.6%
@ 5% Per Year
==========================================================================================================
Preliminary Adj.Price/Sq.Ft. $79.96 $95.46 $81.33 $86.26 $62.37
==========================================================================================================
PHYSICAL DIFFERENCES #1 #2 #3 #4 #5
NOI Adjustment 3.2% -11.0% -3.4% -9.6% 23.6%
Overall Adjustment $2.56 ($10.50) ($2.77) ($8.28) $14.72
Final Adjusted Price/Sq. Ft. of Bldg $82.52 $84.96 $78.56 $77.98 $77.09
==========================================================================================================
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 64
The sales were adjusted to the subject for the following items:
CONDITION OF SALE: No adjustment indicated.
TIME: Considers an increase of 5% per year based on
analysis of the overall capitalization rates of the
comparable sales and range of rates from the five
methods considered in the Income Approach.
NET OPERATING INCOME: The comparable sales were adjusted to the subject
based on the difference in net operating income.
The physical and economic characteristics such as
condition, age, vacancy, size, and location are
reflected in a property's net operating income. As
indicated in the following table, there is a direct
relationship between the sale price per square foot
and net operating income per square foot.
===================
SP/SF NOI/SF
-------------------
$73.77 $7.18
$82.65 $8.33
$75.23 $7.67
$84.99 $8.19
$56.90 $5.99
===================
The adjustment for NOI is based on the following
formula: the comparable sales NOI per square foot
is subtracted from the subject's estimated NOI per
square foot and the difference is divided by the
comparable's NOI per square foot.
The comparable sales present an adjusted range of value from $77.09 to $84.96
per square foot. Most emphasis was placed on Sales No.1 through No.4, as they
are most similar in terms of overall effective age. Based on this analysis, with
consideration given to the non-terminability of the Winn Dixie lease and the
subject's cross collateralization, the subject's value is estimated at $80.00
per square foot.
Based on these adjusted sales, the subject property is valued by direct
comparison as:
68,680 Sq.Ft. GLA @ $80.00 = $5,494,400
Rounded $5,490,000
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 65
The Effective Gross Income Multipliers (EGIM) derived from the above sales are
highlighted as:
The Effective Gross Income Multipliers of the five comparable sales range from
7.6 to 8.79. Based on these sales, with consideration given to declining
interest rates, the subject's EGIM is estimated at the high end of the range.
The subject is valued by EGIM as:
$558,421 EGIM x 8.70 = $4,858,263
Rounded $4,860,000
Due to discrepancies between the sales and the subject property with regard to
expense collections, expense ratios and reimbursement income, the price per
square foot technique is considered the most reliable in this instance.
Considering this factor, the concluded prospective market value estimate "At
Stabilized Occupancy" by the Sales Comparison Approach is $5,450,000.
This approach is felt to be reliable, being based on a respected national cost
service's figures as well as actual cost of other centers. The land value is
based on recent commercial land sales from the subject's market area and is felt
to be well supported. This approach is given secondary consideration to the
Income Approach.
Income Approach..................................................... $5,650,000
This approach is felt to be most indicative of the subject's value. It best
reflects current and projected market conditions as they relate to the subject
and mirrors the actions of investors in today's market. Overall, this approach
is afforded greatest consideration.
This approach is based on recent sales of other neighborhood shopping centers.
Due to discrepancies between the sales and the subject property with regard to
expense collections, expense ratios and reimbursement income, the price per
square foot technique is considered the most reliable in this instance. This
approach is afforded less consideration than the Income Approach.
Based on the value indications summarized above, we are of the opinion that the
subject's leased fee interest, has a prospective market value "At Stabilized
Occupancy", as of October 17, 1997, of:
FIVE MILLION SIX HUNDRED THOUSAND DOLLARS
($5,600,000)
Divided As: Improvements $4,794,000
Land $ 806.000
----------
Total $5,600,000
H. J. Porter & Associates, Inc.
67
VALUATION - "AS IS"
The value "As Is" is calculated by subtracting the estimated value loss due to
rent loss and the costs associated with the outstanding tenant improvement
allowance from the prospective market value "At Stabilized Occupancy". The
subject property is currently 100% leased. However, it will be approximately two
months before the Movie Gallery lease commences. Thus, there is a rent loss
associated with this lease. Also, the landlord is providing Movie Gallery with a
$31,500 tenant improvement allowance to be paid within 10 days from when tenant
opens for business.
Considering the two month period before commencement, the first year vacancy on
the shop space equates to 17% (2 months vacant/12 months). The rent loss is
estimated by comparing the net operating income "At Stabilized Occupancy" with
the estimated net operating income considering the two month rent loss. The
value loss due to rent loss and the outstanding tenant improvement allowance is
presented on the following page.
H. J. Porter & Associates, Inc.
VALUATION - "AS IS" - (CONTINUED) 68
================================================================================
VALUE LOSS DUE TO RENT LOSS AND OUTSTANDING TENANT IMPROVEMENTS
================================================================================
POTENTIAL GROSS INCOME Income/Expenses Income/Expenses
At Stabilized Occupancy As Is
----------------------- -----
Anchor Tenants
Winn Dixie $343,200 $343,200
Scotty's $124,250 $124,250
Subtotal $467,450 $467,450
Non-Anchor Tenants
Movie Gallery $53,568 $53,568
Subtotal
Total Rental Income $521,018 $521,018
Expense Contributions
Scotty's $32,603 $32,603
Non-Anchor Tenants
CAM Admin., St. Res., Mgt. $0 $0
CAM, Tax, Ins. $7,872 $7,872
$40,475 $40,475
POTENTIAL GROSS INCOME $561,493 $561,493
Less Vacancy and Collection Loss
Non-Anchor Tenants Rent
+ Exp. Contributions @ 5% $3,072 17% $10,445
EFFECTIVE GROSS INCOME $558,421 $551,048
Less Expenses:
Management: 4.0% $7,006 $6,748
Ad. Val. Tax $15,694 $15,694
Insurance $16,051 $16,051
CAM $8,600 $8,600
St. Maint. $1,700 $1,700
Misc. Admin. $500 $500
Total Expenses $49,551 $49,293
NET OPERATING INCOME $508,870 $501,755
Value Loss Due to Rent Loss: $7,116
Add: Outstanding Tenant
Improvement Allowance: $31,500
Total Value Loss $38,616
Rounded: $40,000
H. J. Porter & Associates, Inc.
VALUATION - "AS IS" - (CONTINUED) 69
Based on the above analysis, it is concluded that the subject has an "As Is"
market value estimate as of August 9, 1997, of:
CONCLUDED PROSPECTIVE MARKET VALUE
"AT STABILIZED OCCUPANCY: $5,600,000
LESS: VALUE LOSS ASSOCIATED WITH RENT LOSS
AND OUTSTANDING TENANT IMPROVEMENT ALLOWANCE: $ 40,000
----------
CONCLUDED "AS IS" MARKET VALUE ESTIMATE: $5,560,000
H. J. Porter & Associates, Inc.
70
CERTIFICATION
We certify that, to the best of our knowledge and belief,...
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions and conclusions.
3. Neither party signing this report has a present or prospective interest
in the property that is the subject of this report, nor do they have
any personal interest or bias with respect to the parties involved.
4. Our compensation is not contingent on an action or event resulting from
the analyses, opinions, or conclusions in, or the use of; this report.
Our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of stipulated
result, or the occurrence of a subsequent event.
5. Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute, and the Uniform Standards of Professional
Appraisal Practice as promulgated by the Appraisal Standards Board of
the Appraisal Foundation.
6. The use of this report is subject to the requirements of the Appraisal
Institute and the applicable Real Estate Appraisers Board relating to
review by its duly authorized representatives.
7. This assignment was made subject to regulations of the applicable State
Real Estate Appraisers Board. The undersigned state certified appraiser
has met the requirements of the board that allow this report to be
regarded as a 'certified appraisal'.
8. Howard J. Porter, Jr., MAI, CCIM, is currently certified under the
continuing education program of the Appraisal Institute.
9. Howard J. Porter, Jr., MAI, CCIM, has not made a personal inspection of
the property that is the subject of this report.
H. J. Porter & Associates, Inc.
71
CERTIFICATION - (CONTINUED)
10. Matthew S. Rice, Associate, has made a personal inspection of the
property that is the subject of this report.
11. No one provided significant professional assistance to the persons
signing this report.
12. This appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
13. Based upon the foregoing investigations and analysis, it is our opinion
that the subject property has leased fee market value estimates as
follows:
Prospective Market Value Estimate
"At Stabilized Occupancy"
As of October 17, 1997
FIVE MILLION SIX HUNDRED THOUSAND DOLLARS
($5,600,000)
"As Is" Market Value Estimate:
As of August 9, 1997
FIVE MILLION FIVE HUNDRED SIXTY THOUSAND DOLLARS
($5,560,000)
/s/ Howard J. Porter 11/13/97
----------------------------------------- --------
Howard J. Porter, Jr., MAI, CCIM Date
Certified General Real Property Appraiser
Alabama Certificate #G51
/s/ Matthew S. Rice 11/13/97
----------------------------------------- --------
Matthew S. Rice, Associate Date
Certified General Real Property Appraiser
Florida Temporary Practice Permit #0001152
H. J. Porter & Associates, Inc.
72
EXHIBITS
Location Map................................................ Facing Page 3
Area Map.................................................... Facing Page 9
Subject Photographs......................................... Facing Page 13
Site Plan................................................... Facing Page 15
Land Sales Map.............................................. Facing Page 28
Rental Comparable Map....................................... Facing Page 35
Improved Sales Map.......................................... Facing Page 63
ADDENDUM II
Korpacz Real Estate Investor Survey
Engagement Letter
Assumptions and Limiting Conditions
Qualifications
H. J. Porter & Associates, Inc.
LEASE SYNOPSIS
Tenant: Winn-Dixie Montgomery, Inc.
Area: 44,000 Sq. Ft.
Term: 20 years
Lease Expiration: 08/20/15 (According to rent roll)
Renewal Options: 6 option for 5 years each at same rent and terms
Minimum Rental: $343,200/year, or $7.80/sf
Percentage Rent: 1% over natural breakpoint
Expenses: Winn-Dixie will be responsible for
building and grounds maintenance, ad
valorem taxes, and property
insurance on their delineated area.
This is a triple net lease wherein
the tenant is responsible for a
expenses associated with the
operation of the property.
Repairs by Landlord: None
Repairs by Tenant: All
Subletting: Tenant has right to use, vacate, assigned, sublet
in whole or part for retail food store or any other
lawful use.
Subordination: Yes
Non-Terminability: This lease shall not terminate and the Tenant shall
not have any right to terminate this lease during
the Term. Basic rent and all other sums payable by
Tenant shall be paid without notice or demand, and
without set-off, counterclaim, recoupment,
abatement, suspension, deferment, diminution,
deduction, or defense.
It is the intention of this lease
that the obligations of the Tenant
shall be separate and independent
covenants and agreements, and that
Basic Rent and all other sums
payable by Tenant shall continue to
be payable in all events, and that
the obligations of Tenant shall
continue unaffected.
H. J. Porter & Associates, Inc.
LEASE SYNOPSIS
Tenant: Scotty's
Area: 19,880 Sq. Ft.
Term: 10 years
Lease Expiration: 02/28/06 (according to rent roll)
Renewal Options: Three, five year renewal options
Minimum Rental: $6.25/Sq. Ft.
Percentage Rent: 2% of gross receipts over $3,500,000.
Expense Contributions:
C.A.M. Pro-rata share
Tax Pro-rata share
Insurance Pro-rata share
Structural Res. None
Management Fee None
Utilities Paid By: Tenant
Repairs by Landlord: Roof, outer walls, structural portions of the
building, water, gas, and electrical lines leading
to the leased premises, and replacement of HVAC
equipment in the event said equipment can not be
satisfactorily repaired due to ordinary wear and
tear and requires replacement. Also, landlord is
responsible for repairs caused by natural disaster
such as fire, flood windstorm, etc.
Repairs by Tenant: All maintenance
replacement and repairs necessary to
keep leased premises in good state
of repair except for the above
mentioned items that are the
landlord's responsibility.
Parking: 5 spaces per 1,000 sf of leasable area
Subletting: Yes, with Lessor's written permission
Subordination: Yes
H. J. Porter & Associates, Inc.
LEASE SYNOPSIS
Tenant: M.G.A., Inc. (Movie Gallery)
Area: 4,800 Sq. Ft.
Term: 5 Years
Lease Commencement: Projected for October 17, 1997 (60 Days from
turnover date of 8/18/97)
Renewal Options: Two, three-year options
Minimum Rent: Years 1-3 - $11.16 per Sq. Ft.
Years 4-5 - $12.25 per Sq. Ft.
Option Period One: $13.50 per Sq. Ft.
Percentage Rent: None
Expense Contributions:
C.A.M. Pro-rata share
Tax Pro-rata share
Insurance: Pro-rata share
Structural Res. None
Management Fee None
Repairs by Landlord: Roof, exterior walls, foundation, sprinkler
systems, exterior canopies, and structural
components. Landlord warrants HVAC equipment for 1
yr.
Repairs by Tenant: HVAC repairs and interior repairs. Tenant's HVAC
repairs shall be limited to $250 per occurance and
$500 per year. However, if new HVAC units are
installed by landlord, the above repair limits
shall not apply.
Parking: No requirement
Subletting: Requires written permission from landlord
Remarks: Tenant has the right to terminate the lease by
giving 30 days written notice if Winn Dixie closes
for business. Landlord agrees to contribute $31,500
for tenant improvement allowance to be paid within
10 days from when tenant opens for business. The
sprinkler system is not currently in working order.
If tenant's ability to obtain necessary city or
other governmental permits or approvals requires
any sprinkler improvements, landlord will take such
steps as to bring the sprinkler system to good
working order.
H. J. Porter & Associates, Inc.
========
KORPACZ
NATIONAL STRIP SHOPPING CENTER MARKET
The trend toward investors focusing on retail acquisitions continues this
quarter. They believe that since the prices of other property types have been
bid up, retail offers better relative values. "We're seeing the beginning of a
run up in retail again," says one participant. The major interest tends to be on
neighborhood and community centers.
The optimum size of the ideal strip shopping center is 100,000 square feet
to 130,000 square feet, but investors will also consider larger properties,
especially if there is the potential to put in other anchor stores such as
Marshall's or T.J. Maxx. Although buyers prefer not to have centers that are
smaller than 100,000 square feet, some portfolios may have centers as small as
70,000 square feet and as large as 200,000 square feet. "But there you have to
take good with bad," comments a participant. The supply of available strip
centers is plentiful, but is hard to find those of optimum size that are
anchored by a market-dominant grocery store.
The importance of the grocery anchor is based on its capability to generate
traffic in the center, which greatly enhances the landlord's ability to lease
the in-line stores. The traffic increases in-line store sales volume, which
mitigates the risk of ownership and provides the investor with the requisite
yield from such a center.
The size of the grocery anchor is also significant in its competitive
position. Although the optimum size varies by market in major metropolitan areas
between 50,000 square feet and 75,000 square feet ideal. In smaller markets a
40,000-square-foot store can be successful. However, the older
25,000-square-foot stores are considered functionally obsolete.
Over the next 12 months, prices in the national strip center market are
expected to remain stable or drop slightly. Survey participants put the average
decrease at 1.78%.
TABLE 7
NATIONAL STRIP SHOPPING CENTER MARKET
SECOND QUARTER 1997
Key indicators in the national strip shopping center market support the
expectation of stagnant values for the year. Again this quarter, the changes in
indicators are small. The average discount rate (IRR) increased 2 basis points
(see Table 7). This follows a 10 basis-point decrease last quarter.
The average overall cap rate (OAR) decreased 1 basis point to 9.84%. Highly
desirable centers trade at cap rates between 8.00% and 10.00%, but most close at
cap rates between 10.00% and 11.00%.
Strip shopping centers have long been perceived to pose higher investment
risk than regional malls, and both IRRs and going-in cap rates have reflected a
premium for the higher risk. In fourth quarter 1996, however, for the first time
since we began tracking the national strip shooting center market in fourth
quarter 1991, the average IRR fell below the national regional mall market
average IRR. This quarter the rates are 11.55% and 11.75%, respectively.
The strip shopping center OAR is still considerably higher than the
regional mall rate. The spread between the two had narrowed during 1996.
However, last quarter's 7-basis-point increase in the strip shopping center OAR
widened the gap again. The current OAR premium is 127 basis points. It was 173
one year ago. By comparison, the national power center OAR is 9.58%, 26 basis
points lower than the strip shopping center rate.
Investors would like to acquire portfolios of neighborhood and community
shopping centers are that located in one region, thus presenting the opportunity
for management and leasing efficiencies. These are difficult to find, however,
and are priced at a premium. |_|
CURRENT LAST YEAR
KEY INDICATORS QUARTER QUARTER AGO
=========================== =============== =============== ================
Discount Rate (IRR)(a)
=========================== =============== =============== ================
RANGE 10.00%-14.00% 10.00%-14.00% 10.00%-14.00%
AVERAGE 11.55% 11.53% 11.74%
CHANGE (Basis Points) -- +2. -19
=========================== =============== =============== ================
Overall Cap Rate (OAR)(a)
=========================== =============== =============== ================
RANGE 8.25%-13.00% 8.25%-13.00% 8.25%-13.00%
AVERAGE 9.84% 9.85% 9.90%
CHANGE (Basis Points) -- -1 -6
=========================== =============== =============== ================
Market Rent Change Rate(b)
=========================== =============== =============== ================
RANGE 0.00%-6.00% 0.00%-6.00% 0.00%-6.00%
AVERAGE 2.83% 2.73% 2.60%
CHANGE (Basis Points) -- +10 +23
=========================== =============== =============== ================
Expense Change Rate(b)
=========================== =============== =============== ================
RANGE 0.00%-5.00% 0.00%-5.00% 2.00%-5.00%
AVERAGE 3.58% 3.67% 3.99%
CHANGE (Basis Points) -- -9 -41
=========================== =============== =============== ================
Residual Cap Rate
=========================== =============== =============== ================
RANGE 8.25%-12.00% 8.25%-12.00% 8.25%-13.50%
AVERAGE 9.92% 9.92% 10.13%
CHANGE (Basis Points) -- 0 -21
a. Rate on unleveraged, all-cash transactions
b. Initial rate of change
H. J. Porter & Associates, Inc.
[H.J. PORTER ASSOCIATES - LETTERHEAD]
July 31, 1997
Mr. Anthony Rokovich
Merrill Lynch
World Financial Center - North Tower
New York, NY 10281
Re: Agreement for Appraisal Services
Dear Mr. Rokovich:
Please allow this to serve as our proposal and agreement for appraisal services
on the properties described below.
Property To Be Appraised
The real estate to be appraised is briefly described as:
59 West Shopping Center 29 North Shopping Center
700 Academy Drive 1550 South U.S. Highway 29
Bessemer, AL Cantonment, FL
Clanton Marketplace Nine Mile Plaza Shopping Center
Highway 31 & Ollie Avenue 312 East Nine Mile Road
Clanton, AL Pensacola, FL
Betts Crossing Shopping Center Parker Shopping Center
1441 Fox Run Parkway 208 South Tyndal Parkway
Opelika, AL Parker, FL
Opp Marketplace The "T" Shopping Center
507 E. Cummings Road 17184 Front Beach Road
Opp, AL Panama City Beach, FL
Greenbrier Station Shopping Center Mandeville Marketplace
1408 Golden Springs Road 619 N. Causeway Blvd.
Anniston, AL Mandeville, LA
Russell Crossing Shopping Center
U.S. Highway 280 and Stadium Drive
Phenix City, AL
123 N. College St., Ste. 100 o P.O. Box 28 o Auburn, Alabama 36830 o
(334)826-8682 o Fax (334)826-3827
14 Office Park Circle, Suite 230 o Birmingham, Alabama 35223 o (205)871-3600 o
Fax (205)879-3762
418 Scott Street o Montgomery, Alabama 36104 o (334)262-8331 o Fax (334)262-8325
Real Estate Research, Appraisal & Counseling
Mr. Rokovich
July 31, 1997
page 2
Purpose Of The Appraisal
These appraisals will be made to determine the market value of the leased fee
interest of the subject real estate. The term "market value" is as defined in
the Uniform Standards of Professional Appraisal Practice as promulgated by the
Appraisal Standards Board of the Appraisal Foundation.
Function Of The Appraisal
It is understood that these appraisals have been requested to function as an
underwriting guide for mortgage loan purposes and for use in the securitization
of the mortgage. Accordingly, these appraisals may be provided by Merrill Lynch
to potential investors in a securitization or other sale of the mortgage
loan(s).
Scope Of The Appraisal
The scope of this assignment shall include, but not be limited to:
1) Personal contact with the owner or his representative to arrange an
on-site inspection.
2) On-site inspection of the site and improvements.
3) Review of public records pertaining to the subject.
4) Research into public records and interviews with Realtors(R),
management agents, owners, developers, and other appraisers as deemed
pertinent, to locate comparable data.
5) Analysis of comparable data and completion of the Cost, Market, and
Income Approaches to value as may be deemed applicable.
Report and Delivery
The appraisals will be complete analyses communicated in self-contained
narrative reports with all supporting information and exhibits included.
The appraisals will be made in conformance with the Standards of Professional
Practice and Code of Ethics of the Appraisal Institute. As such, the reports
shall be subject to their review. The appraisals shall also conform to the
Uniform Standards of Professional Appraisal Practice as set by the Appraisal
Standards Board of the Appraisal Foundation.
The date of appraisals shall be made effective as of the dates of inspection.
The reports will be addressed to Mr. Anthony-Rokovich, Merrill Lynch.
Additionally, the properties will be valued as of the estimated dates of
completion of improvements and as of the estimated date of stabilized occupancy,
as may be applicable.
Three (3) copies of the completed reports will be delivered within four weeks of
receipt of your authorization to proceed and the required information
noted below.
Fee
Our fee for this assignment shall be Forty Six Thousand Dollars ($46,000.00) due
and payable on delivery of the completed reports. Any amount past due over
thirty (60) days shall be subject to a late charge of 1-1/2% per month.
H.J. Porter & Associates
Mr. Rokovich
July 31, 1997
page 3
The fee charged is for the appraisal reports requested. Should revisions be
requested due to a change in basic requirements by the client, an additional fee
will be charged. Consultations and, if requested in advance, court testimony,
stand by, depositions or pre-trial conferences will be charged at a per diem
rate of One Thousand Dollars ($1,000.00). Should additional copies of the report
be required, they will be made available on reasonable notice at a charge of One
Hundred Dollars ($100.00) per copy.
Client Relationship
It is understood that Merrill Lynch is considered to be the Client of H. J.
Porter & Associates. Accordingly, it shall be responsible for payment of all
fees due hereunder. Unless authorized in writing, the personnel of H. J.
Porter & Associates are not authorized to, nor will they divulge or discuss
any of the findings or conclusions of the appraisal with anyone other than
the client.
Information Required
In order to undertake this assignment we will need the following items for each
property to begin work. It is my understanding that the borrower, Newton,
Oldacre, McDonald will provide this information.
o Legal name and address of owner
o Copy of all current leases on the subject property.
o Transaction data on any sales of the subject (or a portion thereof)
during the past five (5) years.
o Ad Valorem tax information.
o Insurance information including limits of coverage, carrier, annual
premium, and agent.
o Current year to date and prior three years income and expense history.
o Survey and legal description of property to be appraised.
o Plot plan.
o Results of any environmental site assessments or testing for hazardous
materials.
Upon receipt of the information noted above and an executed copy of the
agreement, we will begin work on this assignment. This proposal shall remain
open for a period of one week from the above date. If not executed by that date
the delivery time and fee quoted are subject to change.
Your choice of us for this assignment is appreciated.
Yours very truly,
/s/ David P. Mullins
-------------------------
David P. Mullins, MAI
H. J. Porter & Associates
The above terms and conditions are acceptable and you are authorized to proceed
as of this ____ day of ______, 1997. It is understood that the fee agreed upon
is due and payable on delivery of the report and by executing this agreement
agree to responsibility for this fee.
Client:
By: /s/ Lawrence Milli
----------------------
Its: Director
H.J. Porter & Associates
ASSUMPTIONS AND LIMITING CONDITIONS
1. COPIES, PUBLICATION, DISTRIBUTION, USE OF REPORT:
Possession of this report or any copy thereof does not carry with the
right of publication, nor may it be used for other than its intended
use. The report may not be used for any purpose by any person or
corporation other than the client or the party to whom it is addressed
or copied without the written consent of the appraiser, and then only
in its entirety.
Neither all nor any part of the contents of this report shall be
conveyed to the public through advertising, public relations efforts,
news, sales, or other media, without the written consent and approval
of the appraiser, nor may any reference be made in such a public
communication to the Appraisal Institute or the MAI designation.
2. CONFIDENTIALITY:
The appraiser may not divulge the material (evaluation) contents of the
report, analytical findings or conclusions, or give a copy of the
report to anyone other than the client or his designee as specified in
writing except as may be required by the Appraisal Institute as they
may request in confidence for ethics enforcement, or by a court of law
or body with the power of subpoena.
This appraisal is to be used only in its entirety and no part is to be
used without the whole report. All conclusions and opinion concerning
the analysis are set forth in the report and were prepared by the
Appraiser whose signature appears on the appraisal report, unless
indicated as "Review Appraiser". No change of any item in the report
shall be made by anyone other than the Appraiser and/or officer of the
firm. The Appraiser and firm shall have no responsibility if any such
unauthorized change is made.
3. INFORMATION USED:
No responsibility is assumed for accuracy of information furnished by
or from others, the client, his designee, or public records. We are not
liable for such information or the work of possible subcontractors. The
comparable data relied upon in this report has been confirmed with one
or more parties familiar with the transaction or from affidavit; all
are considered appropriate for inclusion to the best of our factual
judgement and knowledge.
H. J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
4. TESTIMONY, CONSULTATION, COMPLETION OF CONTRACT FOR APPRAISAL SERVICES:
The contract for appraisal, consultation or analytical service, are
fulfilled and the total fee payable upon completion of the report. The
appraiser or those assisting in the preparation of the report will not
be asked or required to give testimony in court or hearing because of
having made the appraisal, in full or in part, nor engage in post
appraisal consultation with client or third parties except under
separate and special arrangement and at additional fee.
5. EXHIBITS:
The sketches and maps in this report are included to assist the reader
in visualizing the property and are not necessarily to scale. Various
photos, if any, are included for the same purpose and are not intended
to represent the property in other than actual status, as of the date
of the photos. Site plans are not surveys unless shown from separate
surveyor.
No responsibility is assumed for matters legal in character or nature,
nor matters of survey, nor of any architectural, structural,
mechanical, or engineering nature. No opinion is rendered as to the
title, which is presumed to be good and merchantable. The property is
appraised as if free and clear, unless otherwise stated in particular
parts of the report.
The legal description is assumed to be correct as used in this report
as furnished by the client, his designee, or as derived by the
appraiser.
The appraiser has inspected as far as possible, by observation, the
land and the improvements thereon; however it was not possible to
personally observe conditions beneath the soil or hidden structural, or
other components. We have not critically inspected mechanical
components within the improvements and no representations are made
herein as to these matters unless specifically stated and considered in
the report. The value estimate considers there being no such conditions
that would cause a loss of value. The land or the soil of the area
being appraised appears firm, however subsidence in the area is
unknown. The appraiser does not warrant against this condition or
occurrence of problems arising from soil conditions.
H.J. Porter & Associates
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
The appraisal is based on there being no hidden, unapparent, or
apparent conditions of the property site, subsoil, or responsibility is
assumed for any such conditions or for any expertise or engineering to
discover them. All mechanical components are assumed to be in operable
condition and status standard for properties of the subject type.
Conditions of heating, cooling, ventilating, electrical and plumbing
equipment is considered to be commensurate with the condition of the
balance of the improvements unless otherwise stated. No judgement is
made as to adequacy of insulation, type of insulation, or energy
efficiency of the improvements or equipment.
7. RELATING TO THE AMERICAN WITH DISABILITIES ACT:
The Americans with Disabilities Act ("ADA") became effective January
26, 1992. The appraisers have not made a specific compliance survey and
analysis of this property to determine whether or not it is in
conformity with the various detailed requirements of the ADA. It is
possible that a compliance survey of the property together with a
detailed analysis of the requirements of the ADA could reveal that the
property is not in compliance with one or more of the requirements of
the Act. If so, this fact could have a negative effect upon the value
of the property. Since there is no direct evidence relating to this
issue, possible non-compliance with the requirements of ADA in
estimating the value of the property has not been considered.
8. LEGALITY OF USE:
The appraisal is based on the premise that, there is full compliance
with all applicable federal, state and local environmental regulations
and laws unless otherwise stated in the report; further that all
applicable zoning, building, and use regulations and restrictions of
all types have been complied with unless otherwise stated in the
report; further that all applicable zoning, building, and use
regulations and restrictions of all types have been complied with
unless otherwise stated in the report; further, it is assumed that all
required licenses, consents, permits, or other legislative or
administrative authority, local, state, federal and/or private entity
or organization have been or can be obtained or renewed for any use
considered in the value estimate.
9. COMPONENT VALUES:
The distribution of the total valuation in this report between land and
improvements applies only under the existing program of utilization.
The separate valuations for land and building must not be used in
conjunction with any other appraisal and are invalid if so used.
H.J. Porter & Associates
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
10. AUXILIARY AND RELATED STUDIES:
No environmental or impact studies, special market study or analysis,
highest and best use analysis study or feasibility study has been
requested or made unless otherwise specified in an agreement for
services or in the report. The appraiser reserves the unlimited right
to alter, amend, revise or rescind any of the statements, findings,
opinions, values, estimates, or conclusions upon any subsequent study
or analysis or previous study or analysis subsequently becoming known
to him.
11. DOLLAR VALUES, PURCHASING POWER:
The market value estimated, and the costs used, are as of the date of
the estimate of value. All dollar amounts are based on the purchasing
power and price of the dollar as of the date of the value estimate.
12. INCLUSIONS:
Furnishings and equipment of business operations except as specifically
indicated and typically considered as a part of real estate, have been
disregarded with only the real estate being considered in the value
estimate unless otherwise stated.
13. PROPOSED IMPROVEMENTS, CONDITIONED VALUE:
Improvements proposed, if any, on or off-site, as well as any repairs
required are considered, for purpose of this appraisal to be completed
in good and workmanlike manner according to information submitted
and/or considered by the appraiser. In cases of proposed construction,
the appraisal is subject to change upon inspection of property after
construction is completed. This estimate of market value is as of the
date shown, as proposed, as if completed and operating at levels shown
and projected.
14. VALUE CHANGE, DYNAMIC MARKET, INFLUENCES:
The estimated market value is subject to change with market changes
over time; value is highly related to exposure, time, promotional
effort, terms motivation, and conditions surrounding the offering. The
value estimate considers the productivity and relative attractiveness
of the property physically and economically in the marketplace. The
"Estimate of Market Value" in the appraisal report is not based in
whole or in part upon the race, color or national origin of the present
owners or occupants of the properties in the vicinity of the property
appraised.
H. J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
In cases of appraisals involving the capitalization of income benefits,
the estimate of market value is a reflection of such benefits and
appraiser's interpretation of income and yields and other factors
derived from general and specific market information. Such estimates
are as of the date of the estimate of value; they are thus subject to
change if the market is naturally dynamic.
15. MANAGEMENT OF THE PROPERTY:
It is assumed that the property which is the subject of this report
will be under prudent and competent ownership and management; neither
inefficient nor super efficient.
16. CONTINUING EDUCATION CURRENT:
The Appraisal Institute conducts a voluntary program of continuing
education for its designated members. MAIs and RMs who meet the minimum
of this program are awarded periodic certification. I am currently
certified under the Appraisal Institute Voluntary Continuing Education
Program.
17. FEE:
The fee for this appraisal or study is for the service rendered and not
for the time spent on the physical report.
18. AUTHENTIC COPIES:
The authentic copies of this report are signed in blue ink. Any copy
that does not have an original signature is unauthorized and may have
been altered.
19. HAZARDOUS MATERIALS:
Unless otherwise stated in this report, the appraiser signing this
report has no knowledge concerning the presence or absence of
urea-formaldehyde foam insulation or asbestos containing material in
existing improvements; if such materials are present the value of the
property may be adversely affected and reappraisal at additional cost
necessary to estimate the effects of such material.
20. Unless otherwise noted within the attached report, there are no items
of FF&E included in the reported value. Any equipment included with the
property in the value are only those items that are considered as an
integral part of the realty, even though technically they could be
legally considered as personalty.
H. J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
21. NOTE:
ACCEPTANCE OF, AND/OR USE OF, THIS APPRAISAL REPORT CONSTITUTES
ACCEPTANCE OF THE ABOVE CONDITIONS.
H. J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS
OF
HOWARD J. PORTER, JR., MAI, CCIM
CURRENT STATUS
Howard J. Porter, Jr., is involved in the appraisal of and consulting with
owners of income producing real estate. He is President of H J Porter &
Associates, Inc. with offices located at:
H. J. Porter & Assoc., Inc.
631 Stage Road/P.O. Box 28
Auburn, AL 36830
(334) 826-8682
H. J. Porter & Assoc. of Birmingham
#14 Office Park Circle Suite 230
Birmingham, AL 35223
(205) 871-3600
H. J. Porter & Assoc. of Montgomery
235 S. Court Street
Montgomery, AL 36104
(334) 262-8331
PROFESSIONAL AFFILIATIONS
Mr. Porter is a member of the Appraisal Institute and holds the MAI Designation
(Certificate Number 5924). He has served as a member of the SREA Young Advisory
Council (1977 & 1978). He served as President of the Birmingham SREA Chapter
#106 (1983) and the Montgomery SREA Chapter #127 as President (1986-1987). He is
a Realtor(R) Member and past Vice-President of the Lee County Association of
Realtors(R), Lee County, AL. He holds the CCIM designation conferred by the
Commercial Investment Real Estate Council of the National Association of
Realtors(R). He is a member of the International Right of Way Association
(Alabama Chapter #26) and is a panel member of the American Arbitration
Association.
PROFESSIONAL EDUCATION STATUS
Mr. Porter has taken courses leading to professional designation as offered by
the Appraisal Institute (AIREA) and the Society of Real Estate Appraisers (SREA)
now merged as The Appraisal Institute. Additionally, he has credit for courses
offered by the Real Estate Securities and Syndication Institute (RESSI) the
Urban Land Institute (ULI), and the International Right of Way Association
(IR/WA), and the Commercial Investment Real Estate Institute. Mr. Porter has
also taken various seminars offered by SREA, AIREA, RESSI, IR/WA, Institute of
Real Estate Management, and others.
The Appraisal Institute conducts a voluntary program of continuing education for
its designated members. MAIs and RMs who meet the minimum standards of this
program are awarded periodic educational certification. He is currently
certified under the Institute's voluntary continuing education program. Mr.
Porter is currently a Certified General Real Property Appraiser in Alabama
(Certificate #CG51) and a Certified Real Estate Appraiser in Georgia
(Certificate #182).
HISTORICAL DATA
Howard J. Porter, Jr., was born in Birmingham, Alabama. He was educated in
the Jefferson County School System and graduated from Auburn University. His
major fields of study were Economics and Finance with a B.S. Degree in
Business Administration.
H. J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS OF HOWARD J. PORTER, JR.
Mr. Porter has been a licensed Real Estate Broker in Alabama since 1972 and is a
Realtor(R) Member of the Lee County Association of Realtors(R). From 1974
through 1983 he was involved with appraisals, market research, syndication and
consulting on various types of real estate. From 1983 through 1985 he was
President of a regionally active development company headquartered in Auburn,
Alabama. In 1985, H.J. Porter & Associates, Inc. was re-established in Auburn,
Alabama with affiliate offices in Birmingham and Montgomery, Alabama.
He has taught college level courses on appraisal principles and practices and
USPAP, has served as an adjunct faculty member in the Auburn University
Department of Community Planning, and is an appraisal instructor for the
International Right of Way Association. He also has given talks to various real
estate related groups throughout Alabama. Mr. Porter has developed, constructed,
owned, and managed investment real estate for his own and affiliated
partnership's account.
GOVERNMENTAL CORPORATE
------------ ---------
U. S. Internal Revenue Service Chrysler Realty Corp.
Jefferson County, AL McDonald's Corporation
Montgomery County, AL Norfolk Southern Railroad
State of Alabama DOT South Central Bell
U.S. Government Services Admin. Diversified Products Corporation
U.S. Department of the Interior INOUE SAKAE Co. (Japan)
U.S. Postal Service TIME/LIFE Corporation
Farmers Home Administration Baptist Medical Center (B'ham)
Birmingham Airport Authority Alabama Power Company
Auburn University Southern Natural Gas
State of Alabama Department of Revenue
LENDERS DEVELOPMENT
------- -----------
South Trust Bank Colonial Properties, Inc.
Federal National Mortgage Association Helms-Roark Development
New York Life Insurance Co. Beisel-Moss Development
Provident Mutual Life Shannon, Strobel & Weaver
Washington Mortgage Financial Polar-BEK, Inc.
Columbus Bank & Trust Co. Southern Investment Properties
1st Interstate Mortgage (Chicago) McWhorter & Co.
Nations Bank
AmSouth Bank
First Union Bank
Mr. Porter has appeared as an expert witness in Federal Court and Circuit
Courts in various Alabama counties. He has served as a Probate Commissioner
for the Jefferson County and Lee County Probate Courts.
H. J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS
OF
MATTHEW S. RICE
CURRENT STATUS
Matthew S. Rice is involved in the appraisal of and consulting with owners of
income producing real estate. He is an Associate Appraiser with H.J. Porter
& Associates, Inc., with offices located at:
H.J. Porter & Assoc., Inc.
631 Stage Road/Box 28
Auburn, AL 36830
(334) 826-8682
H.J. Porter & Assoc. of Birmingham
#14 Office Park Circle, Suite 230
Birmingham, AL 35223
(334) 871-3600
H.J. Porter & Assoc. Of Montgomery
235 S. Court Street
Montgomery, AL 36104
(334) 262-8331
CERTIFICATION
Mr. Rice is currently a Certified General Real Property Appraiser in the
State of Georgia (Certificate #4139) and the State of Alabama (Certificate
#463).
EDUCATION
Mr. Rice is a 1985 graduate of the University of Georgia, with a degree in
Economics. Professional education includes:
Course Sponsor Location
------ ------- --------
Real Estate Appraisal Principles Appraisal Institute Atlanta, GA
Standards of Professional Practice Appraisal Institute Atlanta, GA
Appraisal Procedures Appraisal Institute Athens, GA
Basic Income Capitalization Appraisal Institute Chicago, IL
PROFESSIONAL EXPERIENCE
Assignments include the valuation of commercial properties in twenty-five states
throughout the Nation. The scope of Mr. Rice's experience includes the appraisal
of office buildings, industrial properties, retail buildings, single-family
subdivisions, mobile home parks, vacant land, self storage facilities, and
multi-family developments. Additionally, Mr. Rice has performed market studies
to determine demand for potential self storage development, and market studies
to determine subdivision lot pricing and absorption.
APPRAISAL REPORT
OF
RUSSELL CROSSING SHOPPING CENTER
U.S. HIGHWAY 280 AND TWENTIETH STREET
PHENIX CITY, ALABAMA
(CZ97-146R)
FOR
MR. LARRY MILLER
MERRILL LYNCH & CO.
WORLD FINANCIAL CENTER - NORTH TOWER
NEW YORK, NY 10281
AS OF
AUGUST 5, 1997
BY
HOWARD J. PORTER, JR., MAI, CCIM
GLEN E. HEINZELMAN, ASSOCIATE APPRAISER
H. J. PORTER & ASSOCIATES
1214 FIRST AVENUE, SUITE 130
COLUMBUS, GEORGIA 31901
(706) 324-4990
[LOGO]
H.J. Porter & Associates
[LOGO]
[H.J. PORTER & ASSOCIATES-LETTERHEAD]
August 20, 1997
Mr. Larry Miller
Merrill Lynch & Co.
World Financial Center- North Tower
New York, NY 10281
Re: Russell Crossing Shopping Center
U.S. Highway 280 and Twentieth Street
Phenix City, Alabama
Dear Mr. Miller:
At your request, the undersigned Associate has inspected and we have made an
appraisal of the above referenced property. The purpose of this appraisal was to
determine the market value of the leased fee interest in the subject property,
one of fifteen shopping centers to be included in a portfolio of retail shopping
centers cross collateralized, under single management, and subject to stringent
release provisions. As such, the estimated value of the subject property is
subject to the above conditions. This complete appraisal communicated in a self
contained narrative report has been prepared in accordance with the Uniform
Standards of Professional Appraisal Practice (USPAP).
Based upon our investigation into the subject property, and its current economic
environment, we are of the opinion that the market value of the leased fee
interest in the subject property as of, August 5, 1997, is:
FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS
($5,500,000)
Divided as: Improvements $4,157,000
Land $1,340,000
----------
Total $5,500,000
Please note that this report is subject to the contingent and limiting
conditions as found in the addendum. It should be noted that our employment was
not conditional upon our producing a specific value with a given range. Future
employment prospects with Merrill Lynch are not
Real Estate Research, Appraisal & Counseling
Birmingham, AL; Columbus, GA; Montgomery, AL; Auburn, AL
Mr. Larry Miller
August 20, 1997
Page #2
dependent upon our producing a specified value. Also, neither payment of our
fee, nor our employment are/were based upon whether a loan application is
approved or disapproved. We appreciate the opportunity to be of service to you
in this matter.
The attached report is submitted in support of these conclusions.
Yours very truly,
/s/ Howard J. Porter, Jr. /s/ Glen E. Heinzelman
Howard J. Porter, Jr., MAI, CCIM Glen E. Heinzelman, Associate
Certified General Real Property Appraiser Licensed Real Property Appraiser
Alabama Certificate #G51 Alabama Certificate #L12
[LOGO]
H.J. Porter & Associates
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
Property Identification: Russell Crossing Shopping Center
U.S. Highway 280 and Twentieth Street
Phenix City, Alabama
Property Right Appraised: Leased Fee Estate
Highest and Best Use
As Vacant and Improved: Neighborhood Shopping Center
Date of Value: August 5, 1996
Site Data: 7.71 Acres or 335,848 Sq. Ft.
Building Data: 72,312 Sq. Ft. Divided As:
Winn-Dixie - 45,500 Sq. Ft.
Big B Drugs - 9,000 Sq. Ft.
Shops 1-13 - 17,812 Sq. Ft.
Estimated Land Value: $1,343,000
Value Indications:
Cost Approach $5,100,000
Income Approach $5,510,000
Market Approach $5,450,000
Market Value: $5,500,000
H.J. Porter & Associates, Inc.
TABLE OF CONTENTS
Intended Use of Appraisal ................................................. 1
Environmental Considerations .............................................. 1
Scope of the Assignment ................................................... 1
Date of Value Estimate .................................................... 2
Exposure Period ........................................................... 2
Type Appraisal/Type Report ................................................ 2
Property Ownership ........................................................ 3
Property Location ......................................................... 3
Zoning/Public Utilities ................................................... 3
Legal Description/Land Size ............................................... 4
Ad Valorem Tax Analysis ................................................... 5
Purpose of Appraisal/Definition of Value .................................. 6
Rights Appraised .......................................................... 6
Area Analysis - Columbus, Georgia/Phenix City, Alabama .................... 7
Neighborhood Analysis ..................................................... 13
Site Analysis ............................................................. 15
Description of Subject Improvements ....................................... 16
Highest and Best Use ...................................................... 18
The Appraisal Process ..................................................... 20
Land Value- Direct Comparison ............................................. 23
Cost Approach to Value .................................................... 28
Income Approach to Value .................................................. 31
Market Approach ........................................................... 52
Reconciliation and Final Value Estimate ................................... 70
Certification ............................................................. 71
EXHIBITS
Location Map ............................................ Facing Page 3
State Map ............................................... Facing Page 7
Site Plan ............................................... Facing Page 15
Subject Photographs ..................................... Facing Page 16
Land Sales Map .......................................... Facing Page 26
Rental Map .............................................. Facing Page 38
Improved Sales Map ...................................... Facing Page 67
REAR EXHIBITS
Korpacz Real Estate Investor Survey
Assumptions and Limiting Conditions
Qualifications
Stale of Alabama Certification
H.J. Porter & Associates, Inc.
INTENDED USE OF APPRAISAL 1
This appraisal has been requested to function as an underwriting guide for
mortgage loan purposes and for use in securitization of mortgages. Accordingly,
this appraisal may be provided by Merrill Lynch & Co. to potential investors in
a securitization or other sale of mortgage loans.
ENVIRONMENTAL CONSIDERATIONS
According to a Phase I Environmental Site Assessment conducted August 7, 1987 by
ATEC Associates, Inc., Consulting Engineers, there was no evidence of
environmental hazards or liabilities at the subject sate or adjacent properties
at that time. An inspection of the property on August 5, 1997 by the Associate
Appraiser did not reveal any overt evidence of environmental contamination. A
copy of the Environment Site Assessment is included in the rear exhibits. The
appraised value contained herein assumes that the subject is free of any
environmental contamination.
SCOPE OF THE ASSIGNMENT
The subject property, a neighborhood shopping center, is one of fifteen shopping
centers to be included in a portfolio of retail properties which are cross
collateralized, under single management, and subject to stringent release
provisions.
The scope of the assignment includes undertaking the three traditional
approaches to value with consideration given to the current status of the retail
market in Phenix City, Alabama and the surrounding market area. In the Cost
Approach, local real estate professionals and appraisers were contacted and a
search of public records undertaken to locate comparable land sales. A detailed
inspection of the site and improvements was made by the Associate Appraiser.
Construction details were obtained from the physical inspection by the Associate
and from plans prepared by Sanford Bell & Associates, Inc. dated June 3, 1993.
Current cost estimates were obtained from the Marshall Valuation Service, a
nationally recognized cost service indexed to the local market.
In the Income Approach to Value, a survey of local retail market conditions was
made by interviews with local leasing and management agents to determine if the
contract rents for the local tenant shop space was competitive and market
oriented. Expense comparables were studied to estimate appropriate expense
deductions. The resulting net operating income was capitalized into a value
estimate with an overall capitalization rate. The comparable improved sales
found in the Market Approach sold on direct capitalization of stabilized net
operating income rather than discounted cash flow analysis. The overall
capitalization rate was derived from market sales, built-up rates using current
market rates for debt and equity, and from published investor surveys.
H.J. Porter & Associates, Inc.
SCOPE OF THE APPRAISAL- (CONTINUED) 2
The Sales Comparison or Market Approach was developed after a search for sales
of similar shopping centers. To locate appropriate sale comparables, local
realtors, appraisers, mortgage lenders, and developers were interviewed. The
sales located were compared to the subject with adjustments made for items of
differences.
After development of the three approaches, the value indications derived were
reconciled to provide a value estimate for the subject property as of the
effective date of appraisal.
DATE OF VALUE ESTIMATE
The subject property is valued as of August 5, 1997 which is the date the
subject was physically inspected by the Associate Appraiser. The date utilized
in preparing this appraisal was researched, gathered, and/or updated during the
period August 5 through August 15, 1997. The date of the appraisal is August 20,
1997 the date of the transmittal letter.
EXPOSURE PERIOD
The estimated exposure time for the subject property, to obtain the values
communicated herein, is estimated to have been within one year or less. This
exposure period assumes competent sales and marketing efforts, the property is
maintained in a marketable condition, and that the property is sold for "market
value" as defined herein. The estimated exposure period is based upon the
marketing period for the Comparable Improved Sales found in the Market Approach.
TYPE APPRAISAL/TYPE REPORT
In accordance with the Uniform Standard of Profession Appraisal Practice, the
appraisers have performed a "Complete" appraisal according to Standard Rule 1
and the communicated to the client in a "Self-contained Appraisal Report" in
accordance with Standard Rule 2-2a.
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
Location Map
PROPERTY OWNERSHIP 3
The subject property is under the ownership of:
Newton Development, Inc.
250 Washington Street
P.O. Box 680176
Prattville, AL 36067
To the best of our knowledge no other transactions involving the subject have
occurred in the three years prior to the date of appraisal. Additionally, to the
best of our knowledge, there are no offered pending to purchase the subject nor
is it currently listed for sale.
PROPERTY LOCATION
The subject property is located at the northeast corner of U.S. Highway 280 and
Twentieth Street within the corporate limits of Phenix City, Russell County,
Alabama It is located by street address as:
Russell Crossing Shopping Center
2000 U.S. Highway 280
Phenix City, Alabama
ZONING/PUBLIC UTILITIES
The subject property is located in the city limits of Phenix City, Alabama and
is subject to that city's zoning jurisdiction. The site is currently zoned C-4,
Highway Commercial District, which allows shopping center use. This zoning
classification calls for a minimum lot size of 15,000 sq. ft., minimum lot width
of 75', maximum coverage ratio of 25 %, maximum height of 65' or five stories,
and minimum setback requirements of 20 feet on the front, street side, and rear.
This classification also calls for a minimum on-site parking ratio of 4 parking
spaces for each 1,000 sq. ft. of floor area. Based on an inspection of the
property and plans provided, the existing improvements appear to conform to the
current zoning ordinance.
The subject has all utilities including electricity, gas, water, sewage, and
telephone in sufficient quantities to sustain commercial development. Public
services such as police and fire protection are provided by the City of Phenix
City.
H.J. Porter & Associates, Inc.
LEGAL DESCRIPTION/LAND SIZE 4
The legal description for the subject was obtained from the owners, Newton
Development, Inc.. The subject property is legally described as:
Commencing at the Southeast corner of the Northeast quarter
of Section 9, Township 17 North, Range 30 East in Phenix
City, Russell County, Alabama; thence South 86 degrees 25
minutes 31 seconds West, 896.3 feet to the Westerly
right-of-way line of Opelika Road, said point being the true
point of beginning of the parcel of land herein described;
thence South 34 degrees 04 minutes 35 seconds East, 150
feet; thence South 21 degrees 24 minutes 42 seconds West,
209..18 feet; thence South 34 degrees 04 minutes 35 seconds
East 335.54 feet; thence North 86 degrees 25 minutes 33
seconds West 57.91 feet; thence South 34 degrees 29 minutes
00 seconds East, 135.53 feet; thence North 55 degrees 31
minutes 00 seconds East, 130.58 feet; thence North 31
degrees 40 minutes 16 seconds Wet, 19.04 feet; thence North
82 degrees 12 minutes 25 seconds East, 189.0 feet; thence
North 07 degrees 47 minutes 35 seconds West 528.12 feet;
thence North 50 degrees 41 minutes 02 seconds West 146.58
feet; thence South 86 degrees 25 minutes 31 seconds West
430.99 feet to the Point of beginning. Said parcel of land
being a portion of Lots 41-46, T. T. Edmonds Survey and a
portion or Block "A", Godwind Davis Subdivision containing
7. 71 acres, more or less.
Based on this description, the subject property is irregular shaped and contains
a total land area of 7.71 acres. The subject parcel has approximately 528 feet
of frontage on the east side of U.S. Highway 280 frontage road, approximately
430 feet on the north side of Twentieth Street, and approximately 470 feet on
the west side of Opelika Road.
As indicated previously, the subject property is one of fifteen shopping centers
to be included in a portfolio of retail properties which are cross
collateralized, under single management, and subject to stringent release
provisions. The other shopping centers contained in the portfolio are listed as
follows:
================================================================================
Greenbrier Station Shopping Center The "Y" Shopping Center
Anniston, Alabama Panama City Beach, Florida
--------------------------------------------------------------------------------
Clanton Marketplace Mandelville Marketplace
Clanton, Alabama Pandelville, Louisiana
--------------------------------------------------------------------------------
Opp Marketplace Brownsville Place Shopping Center
Opp, Alabama Brownsville, Tennessee
--------------------------------------------------------------------------------
Betts Crossing Shopping Center Chicot Crossing Shopping Center
Opelika, Alabama Pascagoula, Mississippi
--------------------------------------------------------------------------------
29 North Shopping Center Delchamps Plaza
Cantonment, Florida Long Beach, Mississippi
--------------------------------------------------------------------------------
Nine Mile Plaza Shopping Center One Main Place
Pensacola, Florida Moss Point, Mississippi
--------------------------------------------------------------------------------
Parker Shopping Center
Parker, Florida
================================================================================
H.J. Porter & Associates, Inc.
5
AD VALOREM TAX ANALYSIS
The subject parcel is under the taxing authority of the Russell County Tax
Assessor's Office and is found on the tax rolls as:
Assessed to: Newton Development, Inc.
250 Washington Street
P.O. Box 680176
Prattville, AL 36067
Parcel I.D.#:57-05-02-09-1-4-003.000
57-05-02-09-4-2-002.000
Value: Land: $1,215,950
Improvements: $3,134.000
----------
Total: $4,349,950
Assessment Ratio: 20%
Local Millage Rate: $0.059 per $1,000 of assessed value
Annual Tax: $51,329.41
To test the reasonableness of the taxes levied against the subject, the taxes
levied against several other anchored shopping centers in Phenix City were
investigated. The result of that investigation is contained in the following
chart.
================================================================================
Property Name Size (Sq. Ft.) Tax Valuation Valuation/Sq Ft.
================================================================================
Stadium Plaza 74,075 $4,091,200 $55.23
Food World Center 182,361 $8,518,050 $46.71
Phenix Plaza 98,424 $1,948,400 $19.80
================================================================================
Subject 72,312 $4,349,950 $60.15
================================================================================
Stadium Plaza and the Food World Center are considered to be most comparable to
the subject with similar physical characteristics and rents. Phenix Plaza is an
older shopping center located in downtown Phenix City. It has less parking than
a modern center and lower rents relative to the other two comparables and the
subject. Based on this investigation, the taxes levied against the subject
appear to be appropriate.
H.J. Porter & Associates, Inc.
PURPOSE OF APPRAISAL/DEFINITION OF VALUE 6
The purpose of the appraisal is to estimate the market value of the leased fee
interest in the subject property as of the effective date of appraisal, August
5, 1997.
Market Value is defined by the Appraisal Standards Board of the Appraisal
Foundation in the 1997 Glossary - Uniform Standards of Professional Appraisal
Practice, page 155 as:
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 best interest;
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.
RIGHTS APPRAISED
The ownership interest in the subject property appraised is the "Leased Fee
Estate." The Dictionary of Real Estate Appraisal, 3rd Edition, Page 204, defines
Leased Fee Estate as, "an ownership interest held by a Landlord with the right
of use and occupancy conveyed by lease to others. The rights of lessor "the
leased fee owner" and the leased fee are specified by contract terms contained
within the lease."
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
AREA MAP
7
AREA ANALYSIS- COLUMBUS, GEORGIA/PHENIX CITY, ALABAMA
The four basic factors which should be considered in analyzing an area are: (1)
Physical- Location factors; (2) Economic-Financial factors; (3)
Political-Governmental factors; and (4) Sociological factors. Each of these
factors are briefly analyzed with conclusions as to their affect on the subject
property.
Physical-Location Factors
Phenix City, Alabama is located in the southeastern most corner of Lee County,
and the northeastern most corner of Russell County. It is the seat of Russell
County's government. Russell County is located in east central Alabama, and
adjoins the Alabama/Georgia state line. Columbus, Georgia is Phenix City's
sister city and lies across the Chattahoochee River, which separates the two
states.
Distance To:
Atlanta, Georgia Northeast 109 miles
Augusta, Georgia Northeast 220 miles
Montgomery, Alabama West 95 miles
Birmingham, Alabama Northwest 152 miles
Jacksonville, Florida Southeast 286 miles
Orlando, Florida Southeast 408 miles
Greenville, South Carolina Northeast 273 miles
Charlotte, North Carolina Northeast 325 miles
Located at the end of the Appalachian plateau, approximately 200 miles North of
the Florida Gulf Coast, the topography in the area ranges from nearly level to
gently rolling. The average elevation above mean sea level is 221 feet. Climate
is temperate with a mean temperature 46.2 degrees in January and 78.5 degrees in
July. Average annual rainfall is 52 inches.
Economic-Financial Factors
Columbus/Phenix City Area Population (U.S. Census)
=====================================================
YEAR POPULATION %CHANGE
=====================================================
1970 238,584 NA
1980 239,196 + .26%
1990 243,072 + 1.6%
=====================================================
H.J. Porter & Associates, Inc.
8
AREA ANALYSIS- COLUMBUS, GA/PHENIX CITY, ALABAMA - (CONTINUED)
Economic-Financial Factors - (Continued)
The Columbus/Phenix City MSA's population has grown at a steady rate over
the last couple decades, whereas the population of Phenix City itself has
dropped slightly from 26,928 in 1980 to 25,312 in 1990. The civilian labor
force in Russell County, however, has increased as illustrated in the table
below.
* Source: Alabama Department of Industrial Relations
As the previous table illustrates, there has been an overall increase in
the Civilian Labor force over the past ten years with slight fluctuations
in the early 1990's. The unemployment rate has decreased significantly over
the same period from 9.4% in 1986 to a current (May 1997) rate of 3.5%. The
Columbus/Phenix City MSA has a civilian labor force of 119,014 and an
unemployment rate of 2.7%.
The population of Russell County was reported to be 46,286 in 1990 (U.S.
Census) with 17,499 households and 2.65 persons per household. The 1989 per
capita income was $10,981 or $29,100 per household.
Fort Benning is located adjacent to the City of Columbus, in the southeast
direction, and is the United States Army Infantry Center. It is also the
home of the United States Army Infantry School, Airborne School, Ranger
School, and basic training center for all initial entry infantry soldiers.
The military reservation encompasses more than 285 square miles, and serves
approximately 100,000 military personnel, and employs more than 35,721
civilians and military personnel. Fort Benning channels approximately $60
million per month into the Columbus/Phenix City economy through
disbursements and payroll. Additionally, this base has won the Army
Community of Excellence Award 1994 and 1995.
H.J. Porter & Associates, Inc.
9
AREA ANALYSIS - COLUMBUS, GA/PHENIX CITY, ALABAMA-(CONTINUED)
Economic-Financial Factors- (Continued)
The largest private employers in the area are:
=====================================================
NAME EMPLOYMENT
---- ----------
Synovous Financial Corp. 2,933
Field Crest Cannon Inc. 1,900
AFLAC Inc. 1,650
The Bradley Company 1,507
The Medical Center Inc. 1,500
St. Francis Hospital 1,222
Columbus Mills Inc. 1,104
Swift Textiles Inc. 1,100
Tom's Foods 1,100
Blue Cross & Blue Shield 1,020
=====================================================
Each of these companies is listed in Georgia. The five main employers in
Phenix City are listed below.
The area has a diversified employment base, in terms of job distribution,
with approximately 20% of the work force employed in the service and
manufacturing industries. Since 1980 manufacturing and agricultural
employment has dropped, and employment in the service sector and the
federal government has increased. The growth in federal government
employment is directly related to the growth of Ft. Benning, and the growth
in the area's service industry correlates with that of the nation.
H.J. Porter & Associates, Inc.
AREA ANALYSIS - COLUMBUS, GA/PHENIX CITY, ALABAMA - (CONTINUED) 10
Economic-Financial Factors - (Continued)
Income levels as taken from the 1990 estimates are charted as:
Household bv Income: Columbus/Phenix City MSA(1)
Total Households: 88,493
===========================================================
$75,000+ 4.96%
$50,000-74,999 10.43%
$35,000-49,999 15.6%
$25,000-34,999 15.46%
$15,000-24,999 20.58%
$7,500-14,999 17.19%
Under $7,500 15.78%
----------------------------------------------------------
Average Income $30,343
Median Income $25,148
===========================================================
The area is well located in regards to distribution, with easy access to
major markets via I-185 which runs northerly to link Columbus to Atlanta
and Montgomery via I-85, and Corridor Z, a 251 mile four-lane highway which
connects Columbus with I-95 on the Georgia coast and I-75 which runs
north/south through central Georgia. Highways 280, 431, and 80 are Phenix
City's main transportation routs linking the city to Auburn/Opelika via
280/431 and Eufaula by way of 431. Highway 80 connects the area to I-85 in
Macon County, Alabama.
There are 22 motor carrier terminals, and two rail lines serving the area.
The Chattahoochee River and Georgia Ports Authority Dock, and Phenix City
Docks provide barge access along a 9 foot deep navigable channel which
connects with the Apalachicola River and flows through Florida into the
Gulf of Mexico.
The Columbus Metro Airport has currently finished construction of a $7
million passenger terminal. There are 15 flights daily to Atlanta's
Hartsfield Airport providing national and international connections.
(1)Source: National Decision Systems
H.J. Porter & Associates, Inc.
AREA ANALYSIS - COLUMBUS, GA/PHENIX CITY, ALABAMA- (CONTINUED) 11
Political-Governmental Factors
Columbus is effectively governed under a combined City-County form of
government, one of only 18 in the nation. Phenix City's government is run
by five City Council members and has a mayor and a city manager.
The consolidated form of government (Columbus, GA) is run by an elected
mayor, 10 elected council members and an appointed city manager. Both
cities have an NB3 fire insurance rating. The area has an effective police
force which totals over 400 full time uniformed officers with Phenix City
employing 57 full time officers. Both cities also has an active Planning
and Zoning Commission.
A primary force influencing the development in the area is the 1996 Olympic
Committee's choice of the softball venue to be located in Columbus. The
location of this venue is south of the Central Business District. Much new
construction has occurred on both sides of the river with the coming of the
softball venue as well as the new Civic Center and the renovation of the
Columbus Red Stix Ball Park. Both the Civic Center and the Red Stix Park
are located adjacent to the softball venue just south of the Central
Business District.
The Columbus/Phenix City MSA, which consists of Muscogee and Chattahoochee
Counties in Georgia, and Russell County in Alabama, is expected to continue
expanding into the adjacent counties of Harris and Lee.
Sociological Factors
The Columbus/Phenix City area is in an area with a multitude of cultural
and recreational opportunities. The area is host to a wide range of
attractions including The Columbus Museum, Springer Opera House, The Three
Arts Theatre, The National Infantry Museum, and Callaway Gardens. Annual
events include A Taste of Columbus, the Salisbury Arts and Crafts Fair, the
Southern Open PGA Golf Tournament, the Miss Georgia Pageant, and the
Columbus Steeplechase.
The Columbus/Phenix City area has established good reputations as a good
place to live and raise children. Educational opportunities are abundant
and include the 48 school Muscogee County school system, public schools of
Phenix City as well as Russell and Lee County, seven private K12 schools,
four colleges and universities, and three nearby technical schools.
H.J. Porter & Associates, Inc.
AREA ANALYSIS - COLUMBUS. GA/PHENIX CITY. ALABAMA - (CONTINUED) 12
Conclusion
In summary, the Columbus/Phenix City MSA represents a strong economy with a
broad economic base and history of steady growth. The diversity of
employment, ranging from government to manufacturing, adds stability to the
area. As the population grows at a steady rate, the age distribution weighs
more to the middle-age and mature populations. This age distribution is
conducive to real estate investment and property values, due to its level
of effective purchasing power as consumers, and their effective demand it
creates in the housing markets.
H.J. Porter & Associates, Inc.
NEIGHBORHOOD ANALYSIS 13
The term neighborhood is defined in "The Appraisal of Real Estate" 11th Ed. at
page 189 as "a group of complementary land uses."
The four basic factors which must be considered in analyzing a neighborhood or
district, as in an area analysis are:
(1) Physical and Locational Factors
(2) Economic and Financial Factors
(3) Political and Governmental Factors
(4) Sociological Factors
Each of these factors is discussed briefly with conclusions as to their effect
on the subject property.
Physical and Locational Factors
The subject property is located at the northeast comer of U.S. Highway 280 and
20th Street within the corporate limits of the City of Phenix City, Russell
County, Alabama. The boundaries of the subject neighborhood is defined as the
highway commercial area along the east and west sides of the U.S. Highway 280
By-Pass bounded on the north by the Phenix City corporate limits on the north
and on the south by U.S. Highway 431 (Martin Luther King Jr. Parkway) on the
south.
Access to the neighborhood is via U.S. Highway 280 from the north and southeast;
U.S. Highway 431 from the southwest, U.S. Highway 80 from the east, and Alabama
190/Georgia 22 from the east/northeast. All of these major roadways connect the
neighborhood to the Columbus area to the east and other populated areas and
employment centers in the State of Alabama to the northwest, west, and
southwest. At its junction with the subject, there are service or access
roadways on either side of the U.S. Highway 280/431 By-Pass making the actual
roadway a limited access roadway. The terrain of the area is generally level to
rolling. In many respects the neighborhood can be considered the commercial
gateway to the Columbus MSA and Fort Benning lying to the east across the
Chattahoochee River.
Overall, since the construction of the U.S. Highway 280/431 By-Pass, the subject
neighborhood has become the commercial hub of the City of Phenix City.
H.J. Porter & Associates, Inc.
NEIGHBORHOOD ANALYSIS- (CONTINUED) 14
Economic and Financial Factors
Land uses within the neighborhood are primarily commercial in nature. The
primary stimulus for commercial development in the neighborhood was the
completion of the U.S. Highway 280/431 By-Pass was completed approximately 20
years ago. The roadway was constructed to by-pass the downtown area of Phenix
City and provide for easy access to the City of Columbus and Fort Benning to the
east across the Chattahoochee River. The commercial development is a mixture of
three types of uses. The first is primarily highway traveler type commercial
developments such as automotive repair and replacement shops, fast food and
sit-down restaurants, and motels. The second is regional type destination
commercial uses such as a WalMart Superstore and Kmart. The third is local user
oriented commercial and retail development such as locally and regionally
grocery store anchored retail shopping centers. The ages of these developments
ranges from new to approximately 20 years old. An inspection of the area reveals
that there are still several desirable vacant parcels available for development
and that development is not limited to vacant parcels available on an in-fill
basis.
Political and Governmental Factors
The subject is located within the City of Phenix City and is influenced by the
land use regulations set by the municipality's planning commission. The policies
of the commission have been liberal for the most part regarding new development.
Especially when that development creates additional employment opportunities.
The subject site is zoned for commercial use as is most of the surrounding land
and land located within the confines of the neighborhood.
The property tax rate is $5.90 per $100 of assessed value for property within
the neighborhood. Commercial property is assessed at 20% of the ad valorem tax
valuation.
Sociological Factors
The neighborhood can be categorized as one that is commercial in nature with a
few scattered residential homesites many of these are awaiting redevelopment to
commercial uses. All essential services are to be found outside the immediate
neighborhood.
Conclusion
The subject is located in what is considered to be the commercial hub of the
City of Phenix City. The areas economic importance as the commercial center of
the city, as well as a gateway to Columbus and a regional shopping center for
eastern southcentral Alabama is anticipated to continue into the foreseeable
future.
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
SITE PLAN
SITE ANALYSIS 15
The subject site is located at the northeast comer of U.S. Highway 280 and 20th
Street within the corporate limits of Phenix City, Russell County, Alabama. The
individual site characteristics are as follows:
Size: 7.71 Acres or 335,848 Sq. Ft.
Shape: Irregular
Street Frontage: Approximately 528 feet of frontage on the
east side of U.S. Highway 280 frontage road,
approximately 430 feet on the north side of
Twentieth Street, and approximately 470 feet
on the west side of Opelika Road.
Average Depth: Approximately 674 Ln. Ft.
Topography: Relatively level and at grade with the
fronting roadway
Access: Good from all fronting streets.
Drainage/Flood
Hazard: According to the FEMA Flood Insurance Rate
Map, Community Panel No. 10184 004B,
effective September 16, 1981, the subject
property is located in a Zone C flood hazard
area. This is an area designated as being one
with minimal flooding and flood insurance is
typically not required for lending purposes.
Soils: Considered typical and adequate for
development as evidenced by the surrounding
development.
Utilities: All utilities are available in sufficient
quantities development.
Site Improvements: Neighborhood shopping center and all
associated site improvements.
Street
Improvements: U.S. Highway 280 is a four-lane roadway
divided by a center grass median with curbs,
gutters, and street lights installed.
Twentieth Street is a two-lane residential
feeder street. The U.S. Highway 280 service
road is a two lane road serving the subject.
Surrounding Uses: Retail, commercial, and residential uses.
H.J. Porter & Associates, Inc.
74
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPH]
1) Front View of Subject looking East
2) Side View of Subject looking Southeast
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Northwest
5) View of U.S. Hwy 280 looking South (Subject on Left)
H.J. Porter & Associates, Inc.
74
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPH]
1) Front View of Subject looking East
2) Side View of Subject looking Sourest
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Northwest
5) View of U.S. Hwy 280 looking South (Subject on Left)
H.J. Porter & Associates, Inc.
74
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPH]
1) Front View of Subject looking East
2) Side View of Subject looking Sourest
3) Side View of Subject looking
4) Rear View of Subject looking Northwest
5) View of U.S. Hwy 280 looking South (Subject on Left)
H.J. Porter & Associates, Inc.
74
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPH]
1) Front View of Subject looking East
2) Side View of Subject looking Sourest
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Northwest.
5) View of U.S. Hwy 280 looking South (Subject on Left)
H.J. Porter & Associates, Inc.
74
SUBJECT PHOTOGRAPHS
[GRAPHICS OMITTED]
[PHOTOGRAPH]
1) Front View of Subject looking East
2) Side View of Subject looking Southeast
3) Side View of Subject looking Northeast
4) Rear View of Subject looking Northwest
5) View of U.S. Hwy 280 looking South (Subject on Left)
H.J. Porter & Associates, Inc.
16
DESCRIPTION OF SUBJECT IMPROVEMENTS
The subject is a neighborhood shopping center anchored by Winn-Dixie, contains a
total gross leasable area of 72,312 square feet. In addition to the Winn-Dixie
anchor (45,500 Sq. Ft.), the center is occupied by Revco Drugs (9,000 Sq. Ft.)
and 13 local shop spaces totalling 17,812 square feet. The shopping center has
been well maintained and appears to be functionally designed for its intended
purpose. No significant degree of deferred maintenance was observed upon
physically inspecting the improvements.
It is beyond the scope to narratively discuss all of the pertinent construction
derails that comprise the subject improvements. The basic construction details
that follow were obtained from the physical inspection of the property by the
Associate Appraiser on August 5, 1997. The subject's basic construction derails
are as follows:
Property Type: Neighborhood shopping center
Total NLA: 72,312
Year Built: 1988
Effective Age: 5 years
Roof: Built up tar and gravel over rigid insulation
on metal decking. Steel truss support system
Walls: Concrete block and brick veneer over concrete
block on the from. Painted concrete block at
rear and sides. Partition walls between
tenant spaces are metal studs covered with
sheetrock.
Doors: Anodized aluminum store front doors. Interior
(rest room) doors hollow core wood.
Windows: Anodized broke aluminum store fronts with
single glazing.
Floors: Reinforced 4" connie slab with resilient tile
cove.
Insulation: Rigid insulation in built-up roof system.
Ceilings: Suspended lay-in acoustic tile with recessed
fluorescent light fixtures.
HVAC: Individual roof mourned electric central
heating and cooling for each unit.
H.J. Porter & Associates, Inc.
17
DESCRIPTION OF SUBJECT IMPROVEMENTS - (CONTINUED)
Plumbing: One and two-two fixture restrooms in each
shop space.
Miscellaneous: Approximately 210,175 sq. ft. of asphalt
paving, 1,670 ln. R. of concrete curbing,
18,775 sq. ft. of concrete paving, 10 metal
light poles and fixtures, and landscaping.
There are 282 parking spaces on the site
equating to a parking ratio of 4.0 spaces for
each 1,000 sq. ft. of floor area.
H.J. Porter & Associates, Inc.
18
HIGHEST AND BEST USE
Highest and best Use is defined in the Dictionary of Real Estate Appraisal, 3rd
edition, page 171, as:
"The reasonably probable and legal use of vacant land or an
improved property, which is physically possible,
appropriately supported, financially feasible, and that
results in the highest value. The four criteria the highest
and best use must meet are legal permissibility, physical
possibility, financial feasibility, and maximum
profitability."
Based on this definition, consideration must be given to both the subject land
site as if vacant, and the total property as improved.
Highest & Best Use - As If Vacant
PHYSICALLY POSSIBLE - The 7.71 acre size of the subject would support a wide
range of uses including residential, commercial, and some light industrial uses.
All the necessary utilities and other public services are available in
sufficient quantities to support development. Further, there are no other
physical site characteristics that would negatively impact the development
potential of the site.
LEGALLY PERMISSIBLE - The subject site is zoned C-4, Highway Commercial
District, by the City of Phenix City. The current zoning allows for office or
retail use as well as certain governmental and non-profit related uses such as
schools and churches.
FINANCIALLY FEASIBLE - An inspection of the area surrounding the subject,
including the central business district of Phenix City, suggests that there is
no effective demand for office use. Almost all of the office development in
Phenix City is concentrated in the downtown area in older storefront buildings
or converted residences. The pattern of commercial development in the area, and
that which is also considered the most financially feasible, is for retail or
commercial service uses along U.S. Highway 280 to serve Phenix City and outlying
areas in Russell and Lee Counties as well as the traveling public. Therefore, it
would appear that development of the site with a retail use to take maximum
advantage of the traffic generated by U.S. Highway 280 would meet the test of
being financially feasible.
MAXIMALLY PRODUCTIVE - In determining the highest and best use of the subject
site, "as if vacant and available", the use which is maximally productive
generally becomes the deciding factor. Maximally productive uses are limited by
the current real estate market, the availability of substitute property for
development, and the growth stage of the area. To be maximally productive, that
use which provides the most return to the land must be selected.
H.J. Porter & Associates, Inc.
HIGHEST AND BEST USE - (CONTINUED) 19
Highest and Best Use-As If Vacant - (Continued)
It has previously been determined that it would be physically possible, legally
permissible, and financially feasible to develop the site with a retail use
compatible with the current zoning classification and adjacent use. Therefore,
as of the effective date of appraisal, retail use is considered to be maximally
productive and therefore the highest and best use of the subject site, as if
vacant and available.
Highest and Best Use - As Improved
The same criteria utilized to determine the highest and best use of the subject
site, as if vacant and available for development, is utilized to determine the
highest and best use of the property, as improved.
As stated throughout this report, as of the date of appraisal, the subject site
is currently improved with a neighborhood shopping center containing a total of
72,312 sq. ft of gross leasable area and associated site improvements. The
shopping center is considered to be in good condition and functionally designed
for their intended use.
PHYSICALLY POSSIBLE AND LEGALLY PERMISSIBLE - The subject improvements are
situated on a site containing 7.71 acres or 335,848 sq. ft. of land. The
improvements generate a land-to-building ratio of 4.64:1 based on the total
gross leaseable area. The land-to-building ratio allows for an ample amount of
on-site parking. Additionally, a retail use, such as the existing improvements
is allowable without exception under the sites current C-4 zoning
classification.
FINANCIALLY FEASIBLE AND MAXIMALLY PRODUCTIVE - Subsequent sections of this
report indicate a site value of $1,343,000 as if vacant and developable to its
highest and best use. The three approaches to value produced indications of
value from $5,100,000 to $5,510,000. Hence, the existing improvements appear to
contribute significantly to overall property value. Therefore, the focus of this
analysis will be on the property "as improved". No other use or development
option, as of the effective date of value, would appear to generate a higher
return to the land.
H.J. Porter & Associates, Inc.
20
THE APPRAISAL PROCESS
The appraisal process is a procedure for estimating the market value of real
property. This process involves gathering all pertinent information available
from the market which may influence the value of the subject property. This data
is then utilized in forming an estimate of value based upon the three generally
accepted approaches to value. These three approaches are the Cost Approach, the
Income Approach, and the Direct Sales Comparison Approach.
Cost Approach
The Cost Approach is defined as that approach in appraisal analysis which is
based upon the proposition that an informed purchaser would pay no more than the
cost of producing a substitute property with the same utility as the subject
property. It is assumed that the potential purchaser considers producing a
substitute property with the same utility as the property being appraised. This
analysis involves the cost to buyer of producing an exact replica of the subject
property, in the same location and condition as the subject property, as of the
effective date of the appraisal.
The application of the Cost Approach involves the following steps:
1. Estimating value of the site as if vacant and available to be put to its
highest and best use.
2. Estimating the reproduction cost new of the improvements.
3. Estimating all elements of accrued depreciation.
4. Subtracting the total accrued depreciation from the reproduction cost new
of the improvements (resulting in an estimate of the present worth of the
improvements).
5. Adding the present worth of all the improvements (including site
improvements) to the estimated site value.
6. Rounding the figure to an appropriate indication of value.
The major limitations of the Cost Approach is its reliance upon an estimation of
accrued depreciation. Generally, the older the property and the higher the
estimate of accrued depreciation, the less reliable becomes the value indication
from this approach. This is particularly critical in the valuation of older
properties that normally incur greater amounts of depreciation. The Cost
Approach is particularly appropriate when the property being appraised involves
relatively new improvements which represent the highest and best use of the site
or when the improvements are relatively unique or specialized and there is
limited or a total lack of comparable properties which have sold recently.
H.J. Porter & Associates, Inc.
THE APPRAISAL PROCESS - (CONTINUED) 21
Income Analysis
The Income Analysis is defined as that procedure in appraisal analysis which
converts anticipated benefits (dollar income or amenities) to be derived from
the ownership of property into a value estimate. Anticipated future income
and/or reversions are discounted to a present-worth figure through the
capitalization process.
This analysis requires an estimate of market rent based upon comparable rent of
leased properties. This rental estimate is a gross amount and all expenses to
real estate are deducted. These expenses include vacancy and rent loss which,
when subtracted from the gross income, produces the effective gross income.
Other expenses include real estate taxes, management cost, insurance cost, and
maintenance expense. If applicable, a reduction would also be made for services
and utilities. All expense estimates are obtained from the market by comparison
to similar structures.
After all expenses have been subtracted from the gross income, the resulting
figure is the net operating income, which will be capitalized into value. The
capitalization rate is derived from actual sales that have occurred in the
market place. The sales are analyzed in order to estimate the net operating
income of the property. After the net operating income is estimated, it is
divided by the sales price to provide an indication of the overall
capitalization rate. Capitalization rates can also be built up from the market
factors considered most applicable to income-producing properties. After the net
operating income and the capitalization rate are estimated, the net income is
then capitalized into a value indication by the applicable capitalization
technique.
Direct Sales Comparison Approach
The Direct Sales Comparison Approach is defined as that approach in an appraisal
analysis which is based upon the proposition that an informed purchaser would
pay no more for the property than the cost to him of acquiring an existing
property with the same utility. Presumably, the potential purchaser considers
the alternatives that are available to him and then makes a rational decision
based upon the information he has about those alternatives that are available to
him and then makes a rational decision based upon the information he has about
those alternatives.
The application of the Direct Sales Comparison Approach involves selecting a
number of competitive properties which have recently sold on the market. The
information derived from this section is analyzed through an adjustment process
which develops indications of what the competitive properties would have sold
for if they possessed all the important characteristics of the subject property.
These indications fall into a pattern surrounding one figure which, when
appropriately rounded, is an indication of the market value of the subject
property as of the date of the appraisal.
H.J. Porter & Associates, Inc.
THE APPRAISAL PROCESS - (CONTINUED) 22
The reliability of this approach is dependent upon the availability and
verification of the comparable sales data. The degree of comparability between
the competitive properties and the subject, and the absence of non-typical
conditions affecting the sales price of those properties are also important
items that are considered. Therefore, this approach is particularly applicable
when an active market provides sufficient quantities of reliable data which can
be verified from authoritative sources.
Reconciliation Analysis
The reconciliation analysis is an evaluation process where the appraiser
carefully evaluates value indications from each of the three approaches. The
reliability of each approach to the present appraisal problem is examined and
weight is given to the accuracy, reliability, quantity of data available for use
in each approach, and the approach in which the market participant typically has
the greatest confidence.
H.J. Porter & Associates, Inc.
23
LAND VALUE - DIRECT COMPARISON
The subject site is valued by direct comparison with recent sales of other
commercial sites. Two of the sales are located in the mostly undeveloped U.S.
Highway 431 corridor with the third sale located on U.S. Highway 280. An
extensive search of the public records and conversations with local real estate
brokers and appraisers did not uncover any other significant sales in the
previous seven years. Each of the sales analyzed on the basis of their location
and utility relative to the subject. Sales considered include:
SALE #1
Address/Location: U.S. Highway 431 South @ U.S. Highway 280
Pheinx City, Alabama
Grantor: Steve Argo
Grantee: Atlantic Holding Corporation (Victory
Development)
Sale Date: 5/29/97
Sale Price: $1,074,000
Cash Equiv Price: $1,074,000
Terms: Cash to seller
Recorded: Deed Book 847, Page 175 Russell County
Verified With: Kent Cost, Principal, Victory Development
Verified By: Glen Heinzelman, H. J. Porter & Associates
Date Verified: 08\15\1997
Rights Conveyed: Fee simple title
Land Size: Acres: 8.3 Square Feet: 361,548
Zoning: C-4, Highway Commercial District
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Level/Typical of the area
Access/Visibility: Good/Good
Utilities: All available
Remarks: This property is located on the north side
of U.S. Highway 431 just west of U.S.
Highway 280. The site is to be developed
with a Winn-Dixie Marketplace containing
40,000 sq. ft. and 7,000 sq. ft. of local
shop space.
Indicators of PRICE PER SQ. FT.:$3.00
Value:
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 24
SALE #2
Address/Location: U.S. Highway 280 South @ Boone Street
Phenix City, Alabama
Grantor: Gerald H. Prior
Grantee: Hilyler & Jefferson
Development Corp.
Sale Date: 09\07\1996
Sale Price: $148,000
Cash Equiv Price: $148,000
Terms: Cash to seller
Recorded: Deed Book 830 Page 72 Russell County
Verified With: Howard Jefferson, Grantee
Verified By: Glen Heinzelman
Date Verified: 08\19\1997
Rights Conveyed: Fee simple title
Land Size: Acres: 0.69Square Feet:
30,100
Zoning: C-4, Highway Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Slightly above street grade; typical
of the area
Access/Visibility: Good; Good
Utilities: All except sewer
Remarks: This property is located to the south of
the WalMart Store and has been developed
with a free-standing Video Warehouse
store.
Indicators of Value: PRICE PER SQ. FT.: $4.92
H.J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 25
SALE #3
Address/Location: U.S. Highway 431 west
of U.S. Highway 280
Phenix City, Alabama
Grantor: Crowder Development
Grantee: Greggs, Inc.
Sale Date: 06\18\1996
Sale Price: $200,000
Cash Equiv Price: $200,000
Terms: Cash to seller.
Recorded: Deed Book 828 Page 288
Russell County
Verified With: Bill Bowden, Bowden Realty
Verified By: Glen E. Heinzelman,
H.J. Porter &
Associates
Date Verified: 08\19\1997
Rights Conveyed: Fee simple rifle
Land Size: Acres: 1.3 Square Feet: 56,628
Zoning: C-4, Highway Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Level; Adequate
Access/Visibility: Good; good
Utilities: All available
Remarks: This property will be adjacent to a
Winn-Dixie Marketplace to be developed in
late 1997. It was purchased for the
development of a convenience store.
Indicators of Value: PRICE PER SQ. FT.:$3.53
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
Land Sales Map
LAND VALUE - DIRECT COMPARISON (CONTINUED) 26
Land Sales 1 through 3 detailed above are compared to the subject's shopping
center site and adjusted to the subject for notable differences. These
adjustments are made in the adjustment grid below.
===========================================================================================
LAND SATES COMPARISON GRID
===========================================================================================
Comp. Number Subject #1 #2 #3
-------------------------------------------------------------------------------------------
Grantor Argo Hilyler Crowder
Grantee Atl.Holding Prior Greggs
Location U.S. 431 S U.S. 431 U.S 431
City Phx City Phx City Phx City
Sale Price $1,074,000 $148,000 $200,000
Date of Sale 8/5/97 5/29/97 9/1/96 6/1/96
Size (Sq. Ft.) 335,848 361,548 30,100 56,628
Price/Unit $3.00 $4.92 $3.53
===========================================================================================
ADJUSTMENTS #1 #2 #3
===========================================================================================
Conditions of Sale Normal Normal Normal
Market Conditions $0.00 $0.00 $0.00
Preliminary Adj.Unit Price $3.00 $4.92 $3.53
===========================================================================================
PHYSICAL DIFFERENCES #1 #2 #3
===========================================================================================
Location 20.0% 10.0% 20.0%
Size 0.0% -20.0% -15.0%
--- ---- ----
Subtotal-Physical 20.0% -10.0% 5.0%
===========================================================================================
Final Adj. Unit Price $3.60 $4.43 $3.71
===========================================================================================
The comparable sales listed above were adjusted to the subject for:
Conditions of Sale: All sales were normal arm's length
transactions that required no adjustments.
Time: Conversations with local real estate
professionals and the county tax appraiser
indicate that land values in Pheinx City
have remained stable over the past five
years. Therefore, no adjustment for market
conditions or time was considered
appropriate.
H.J. Porter & Associates, Inc.
LAND VALUE- DIRECT COMPARISON (CONTINUED) 27
Location: Comparable Land Sales No. 1 and 3 are
located on U.S. Highway 431 South which is
less developed than the U.S. Highway 280
corridor. These locations are considered
to be significantly inferior relative to
the subject. Upward adjustments of 20%
were applied to these comparables for
location. Comparable Land Sale No. 2 is
located on U.S. Highway 280 South
approximately 4 miles south of the
subject. The subject's location on U.S.
Highway 280 North on the "going home" side
of the highway to the population growth
areas of Lee County is considered to be
superior relative to the locations to the
south. An upward adjustment of 10% was
applied to Comparable Land Sale No. 2 for
location.
Size: All sales were adjusted to a 90% curve
using the Dilmore Size adjustment table.
This table is based on the fact that a
property's price per unit is generally
inversely related to its size.
The comparable sales after adjustment, indicate a range of value from $3.60 to
$4.43 per square foot. Each of the adjusted sales were given relatively equal
consideration in the value estimate of the subject site, as if vacant.
Based on these adjusted sales, the subject site, "As if Vacant", is valued as:
Estimated Land Value - As if Vacant
335,848 Sq. Ft. @ $4.00 per Acre = $1,343,390
ROUNDED: $1,340,000
================================================================================
H.J. Porter & Associates, Inc.
28
COST APPROACH TO VALUE
The cost factors used are from the Marshall Valuation Service, a national cost
service indexed to the Phenix City market and found to be reliable and
consistent with costs incurred by builders within the area. The cost factors
from this cost service are inclusive of architect/engineering fees, construction
period interest, contractors overhead and profit, and normal site prep costs.
Excluded are site improvements such as paving, landscaping, etc., land costs,
and indirect costs such as developers profit and permanent loan fees.
Calculations of total building reproduction costs are:
ESTIMATED REPRODUCTION COSTS
Estimated Reproduction Cost New - Markets
Average Class "C" - Sec. 13, Pg 19
Base Cost $45.19
Current Cost Multiplier x 1.050
Local Cost Multiplier x 0.850
Perimeter Multiplier x 1.000
-----
54,500 Sq. Ft. @ $40.33 per Sq. Ft. = $2,197,985
Estimated Reproduction Cost New - Neighborhood Shopping Center
Good Class "C" - See 13, Pg 27
Base Coast $46.08
Current Cost Multiplier x 1.050
Local Cost Multiplier x 0.900
Perimeter Multiplier x 0.915
-----
17,852 Sq. Ft. @ $39.84 per Sq. Ft. = $711,224
----------
Total Estimated Reproduction Cost $2,909,209
================================================================================
INDIRECT COST
Indirect costs including developer's fee/entrepreneurial profit and permanent
loan fees are added to the subject's direct cost to estimate the total value of
the subject property via the Cost Approach. Developer's fee/Entrepreneurial
profit is added at 20% based upon sales of new
H.J. Porter & Associates, Inc.
INDIRECT COST (CONTINUED) 29
shopping centers, discussions with Developers and Brokers, and with
consideration given to the cross collateralization of the portfolio of retail
properties of which the subject is a part. Permanent loan fees are added at the
amount typically charged by lenders - 2 % of the loan amount (1% construction -
1% permanent).
DEPRECIATION AND OBSOLESCENCE
Incurable physical deterioration identifies items of deterioration that cannot
be practically or economically corrected at present. For the purposes of this
analysis, incurable physical deterioration has not been classified as being
either long or short lived. A long-lived item is a building component that is
expected to have a remaining economic life that is the same as the remaining
economic life of the structure. A short-lived item is a building component that
is expected to have a remaining economic life that is shorter than the remaining
life of the structure. In this instance separating the items of incurable
physical deterioration into long and short lived items would serve little or no
useful appraisal purpose because of the overall age of the improvements.
In the case of the subject improvements, incurable physical deterioration has
been estimated using the age/life concept in that we estimate the improvements
to have an effective age of approximately 5 years, from a total estimated
economic life of approximately 40 years. Therefore, it is estimated that the
improvements suffer from incurable physical deterioration, both long and
short-lived, of approximately 12.5 percent (5 years/40 years = 12.5 percent) of
the estimated Reproduction Cost New.
Functional obsolescence is a loss in value resulting from defects in design. The
defect may be curable or incurable. Curable functional obsolescence is measured
by the cost to cure the condition. Incurable functional obsolescence may be
caused by a deficiency or a superadequacy. A deficiency may be a component or
system that should be in the property but is not, or it may be a substandard or
defective component or system in the property that does not work properly. A
superadequacy is a component or system in the property that exceeds market
requirements and does not contribute to value an amount equal to its cost. Upon
inspection of the subject, no degree of functional obsolescence, either curable
or incurable, was noted.
External obsolescence is the diminished utility of a structure or project due to
negative influences from outside the site and can be caused by a variety of
factors, i.e., neighborhood declined, the property's location in a community,
state, or region; or market conditions. No degree of external obsolescence is
believed to be present in the subject improvements as of the effective date of
appraisal.
H.J. Porter & Associates, Inc.
COST APPROACH TO VALUE - (CONTINUED) 30
CONCLUSION TO COST APPROACH
The calculation of value by the Cost Approach is presented in tabular form
below.
=====================================================================================================
VALUATION - COST APPROACH
=====================================================================================================
DIRECT COST
Market Price 54,500 Sq. Ft. x $40.33 per Sq. Ft. = $2,197,985
Local Space 17,852 Sq. Ft. x $39.84 per Sq. Ft. = $711,200
----------
Total Reproduction Cost of Structures $2,909,185
LESS DEPRECIATION: Curable Incurable
------- ---------
Physical $0 $363,648
Functional $0 $0
External $0 $0
Total $0 $0 $363,648
------ -------- ----------
Depreciated Cost of Shopping Center $2,545,537
Add: Site Improvements Area Cost/Sq. Ft. % Dep. Cost New
---- ------------ ----- --------
Asphalt Paving 210,175 $1.50 10.0% $283,736
Concrete Paving 18,775 $1.75 10.0% $29,571
Concrete Curbs 1,670 $7.50 10.0% $11,273
Light Poles 10 $2,500 10.0% $22,500
Landscaping $2,500
-------
Total Site Improvements $349,580
----------
Total Depreciated Cost $2,895,117
INDIRECT COST
Developer's Fee 20.0% of Total Cost/Land $847,623
Permanent Loan Fees @ 2.0% of Loan Amount
(Loan basis = 80.0% of Land/Bldg Cost) $67,810
-------
TOTAL INDIRECT COST $915,433
----------
TOTAL REPRODUCTION $3,810,550
LAND VALUE (from previous section) $1,343,000
----------
PRELIMINARY VALUE BY COST - $5,153,550
(Rounded) $5,150,000
=====================================================================================================
H.J. Porter & Associates, Inc.
31
INCOME APPROACH TO VALUE
As a primary approach to value for the subject, the subject's net operating
income is capitalized into a value estimate by use of an overall capitalization
rate. In arriving at a net operating income, consideration is given to rentals
and expenses which are incurred in the operation of the property.
CONTRACT INCOME
The subject property is currently occupied by Winn-Dixie (45,500 Sq. Ft.), Revco
Drugs (9,000 Sq. Ft.), and all but 1,756 sq. ft. of the 17,812 sq. ft. of local
shop space. The vacancy amounts to an overall occupancy rate of 97.6% and a
local shop vacancy of 7.3%. The following chart contains a summary of the
contract rents generated by the subject property as of the date of appraisal.
Summaries of each lease are included as exhibits in the Addendum of this report.
SUMMARY OF CONTRACT RENT
Tenant Sq. Ft. Rent/Sq. Ft. Annual Rent
--------------------------------------------------------------------------------
Winn-Dixie 45,500 $6.77 $308,035
Revco Drugs 9,000 $6.75 $60,750
H & R Block 1,300 $9.96 $12,948
First Family Financial 1,300 $9.62 $12,506
Hair Designs 1,300 $10.11 $13,143
Vacant 0 NA NA
Movie Gallery 4,681 $12.00 $56,172
Little Caesars Pizza 1,300 $9.66 $12,558
Subway 1,300 $10.00 $13,000
Hollis Eye Institute 1,300 $9.14 $11,882
One Price Clothing 3,575 $10.00 $35,750
------ --------
Total 70,556 $535,744
================================================================================
The two anchors, Winn-Dixie and Revco Drug, lease space in the subject for $6.77
and $6.75 per sq. ft. respectively. To determine whether the anchor leases are
representative of market rents for similar food and drug store anchors, the
contract rents were compared to other food and drug
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 32
CONTRACT RENT (CONTINUED)
store leases in the States of Alabama, Georgia, and Tennessee. A summary of
those leases appears in the following chart.
=======================================================================================================================
SUMMARY OF RENT COMPARABLES - SUPERMARKETS
=======================================================================================================================
Tenant Location Year Leased Size (Sq. Ft.) Rent/Sq. Ft.
-----------------------------------------------------------------------------------------------------------------------
Winn-Dixie Alabaster, AL 1993 44,000 $6.50
Winn-Dixie Panama City, FL 1993 44,000 $7.15
Winn-Dixie Moody, AL 1993 44,000 $7.00
Winn-Dixie Chalkville, AL 1994 51,250 $6.50
Winn-Dixie Alexcander City, AL 1994 44,000 $6.75
Winn-Dixie Chattanooga, TN 1994 44,000 $7.05
Winn-Dixie Anniston, AL 1995 44,000 $7.70
Winn-Dixie Birmingham, AL 1995 44,000 $6.95
Winn-Dixie Mobile, AL 1996 51,282 $8.00
Winn-Dixie Dalton, GA 1996 44,000 $9.26
Winn-Dixie Trussville, AL 1996 44,000 $8.15
Winn-Dixie Mobile, AL 1997 44,000 $9.00
Winn-Dixie Mobile, AL 1997 44,000 $8.85
Winn-Dixie Fairhope, AL 1997 44,000 $9.25
=======================================================================================================================
Winn-Dixie Phenix City, AL 1987 51,282 $6.77
=======================================================================================================================
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE- (CONTINUED) 33
CONTRACT RENT (CONTINUED)
=============================================================================================================
SUMMARY OF RENT COMPARABLES - DRUG STORE RENTS
=============================================================================================================
Tenant Location Year Leased Size (sq. Ft.) Rent/sq. Ft.
-------------------------------------------------------------------------------------------------------------
Drugs For Less Birmingham, AL 1993 18,000 $7.50
Harco Drugs Birmingham, AL 1993 12,876 $5.95
Harco Drugs Pell City, AL 1993 9,100 $7.50
Harco Drugs Albaster, AL 1993 9,100 $8.50
Big B Drugs Chattanooga, TN 1994 8,470 $7.00
Harco Drugs Tuscaloosa, AL 1994 10,160 $7.90
Big B Drugs Phenix City, AL 1995 15,500 $4.75
Revco Drugs Anniston, AL 1995 9,240 $7.75
Drugs For Less Birmingham, AL 1995 18,000 $7.00
Revco Drugs Dalton, GA 1996 8,450 $9.75
Harco Drugs Mobile, AL 1997 10,125 $8.25
Harco Drugs Opp, AL 1997 10,125 $8.25
Big B Drugs Phenix City, AL 1998 10,950 $8.00
=============================================================================================================
Revco Drug Phenix City, AL 1998 9,000 $6.75
=============================================================================================================
The contract rents for Winn-Dixie and Revco Drugs, like most signature stores,
are a function of the development cost and negotiations between the developer
and tenant. The Winn-Dixie rent at $6.77 per sq. ft. and Revco Drug rent at
$6.75 are within the range of similar food and drug tenant rental rates as
illustrated in the previously presented tables. Therefore, they are considered
to be commensurate with current market rents.
LOCAL SHOP RENT
To determine whether the current shop space rents are commensurate with local
market rents as well as to determine the market rent for the 1,756 sq. ft.
currently vacant. A survey of four shopping centers in the Phenix City area were
surveyed. The results of that survey are contained on the following pages.
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[PHOTOGRAPH]
INCOME APPROACH TO VALUE- (CONTINUED) 34
LOCAL RENT COMPARABLE NO. 1
PROJECT: Kmart/Food Max Center SURVEY DATE: 08\15\1997
LOCATION: U.S. Hwy 280 & Opelika Rd PHYSICAL INSPECTION: 08/13/97
SECTOR: Phenix City, AL SURVEYED BY: Glen E. Heinzelman
TYPE CENTER: Community Center PHOTO DATE: 08\13\1997
COMPANY: Selig Enterprises
AGENT: Bill Stogner PHONE: (404) 876-5511
BUILDING AREA: 182,361
LEASABLE AREA: 182,361 MAJOR: 150,000 SF
NON-MAJOR: 32,361 SF
CONDITION: Good
#PARKING SPACES: Ukn
VISIBILITY: Excellent
ACCESSIBILITY: Excellent
MAJOR TENANT: 1. K-Mart 2. Food Mart
NON-MAJOR TENANT: 1. Tri-City Cleaners 8. Radio Shack
2. One-Hour Photo 9. Rent-A-Center
3. Pappa John's Pizza 10. Just-A-Buck
4. Regency Jewelers 11. Headstart
5. China Garden 12. Fashion Cents
6. Avco Financial 13. Shoe City
7. Linda's Health Foods
SF AVAIL: MAJOR 0 SF 0.00%
NON-MAJOR: 1,400 SF 0.08%
LEASE TERMS: 3 - 5 years
TAX: Pass thru
INSURANCE: Pas thru
CAM: Pass thru
TI ALLOWANCEA: Negotiable (Vanilla base)
PERCENTAGE RENTS: Varies
CPI: Varies
CONCESSIONS: None
STEP RENT: Ukn
RENT RANGE ASKING: Non-Anchor: $12.00
RENT RANGE EXISTING: Non-Anchor: $10.50 to $11.50
AVERAGE LEASE TERM Non-Anchor: 3 - 5 years Anchor: 20 years
OWNERSHIP/NAME: Selig Enterprises, Inc.
YEAR CONSTRUCTED: 1986
YEAR OCCUPIED: 1986
OUTPARCELS 1. Wendy's
2. Taco Bell
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[PHOTOGRAPH]
INCOME APPROACH TO VALUE- CONTINUED 35
Local Rent Comparable No.2
PROJECT: Stadium Plaza SC SURVEY DATE: 08\15\1997
LOCATION: U.S. 80 & Summerhill Rd. PHYSICAL INSPECTION: 08/13/97
SECTOR: Phenix City, AL SURVEYED BY: Glen E. Heinzelman
TYPE CENTER: Neighborhood Center PHOTO DATE: 08\13\1997
COMPANY: IRT Properties
AGENT: Thornton Anderson PHONE: (770) 995-4406
BUILDING AREA: 73,075
LEASABLE AREA: 73,075 MAJOR: 47,575 SF
NON-MAJOR: 25,500 SF
CONDITION: Good
#PARKING SPACES: Ukn
VISIBILITY: Excellent
ACCESSIBILITY: Excellent
MAJOR TENANT: 1. Piggy Wiggly 2. Revco Drugs
NON-MAJOR TENANT: 1. Video Wonderland 8. TCBY
2. Hobo Pizza & Subs 9. B.J=s Kut & Kurl
3. Angel Nails 10. Peachtree Natural Foods
4. Athletic Dept. 11. Tri-City Cleaners
5. Norwest Finance 12. Fletchers
6. Frames 13. Animal Hospital
7. Tanning
SF AVAIL: MAJOR O SF 0.00%
NON-MAJOR: O SF 0.00%
LEASE TERMS: 3 - 5 years
TAX: Pass thru
INSURANCE: Pass thru
CAM: Pass thru
TI ALLOWANCEA: Negotiable (Vanilla base)
PERCENTAGE RENTS: Varies
CPI: Varies
CONCESSIONS: None
STEP RENT: Ukn
RENT RANGE ASKING: Non-Anchor: NA
RENT RANGE EXISTING: Non-Anchor: $8.00
AVERAGE LEASE TERM Non-Anchor: 3 - 5 years Anchor: 20 years
OWNERSHIP/NAME: IRT Properties, Inc.
YEAR CONSTRUCTED: Late 1970's
YEAR OCCUPIED: Late 1970's 2. Phenix-Girard Bank
OUTPARCELS 1. McDonalds's
2. Waffle House
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[PHOTOGRAPH]
INCOME APPROACH TO VALUE- (CONTINUED) 36
Local rent Comparable No.3
PROJECT: Phenix Square SURVEY DATE: 08\15\1997
LOCATION: U.S. Hwy 280 PHYSICAL INSPECTION: 08/13/97
SECTOR: Phenix City, AL SURVEYED BY: Glen E. Heinzelman
TYPE CENTER: Neighborhood Center PHOTO DATE: 08\13\1997
COMPANY: Maxwell Properties
AGENT: Courtney Bell PHONE: (800) 883-8846
BUILDING AREA: 50,500
LEASABLE AREA: 73,075 MAJOR: 35,000 SF
NON-MAJOR: 15,000 SF
CONDITION: Average
#PARKING SPACES: Ukn
VISIBILITY: Average
ACCESSIBILITY: Fair
MAJOR TENANT: 1. Revco 2. Big Lots
NON-MAJOR TENANT: 1. Tri-City Cleaners 4. Family Dollar
2. Laundrymat Plus 5. Sally Beauty Supply
3. New Life Bookstore 6. Renter's Choice
SF AVAIL: MAJOR 0 SF 0.00%
NON-MAJOR: 0 SF 0.00%
LEASE TERMS: 3 - 5 years
TAX: Pass thru to local only
INSURANCE: Pass thru to local only
CAM: Pass thru to local only
TI ALLOWANCEA: None
PERCENTAGE RENTS: Varies for anchors
CPI: None
CONCESSIONS: None
STEP RENT: None
RENT RANGE ASKING: Non-Anchor: NA
RENT RANGE EXISTING: Non-Anchor: $6.25 Average
AVERAGE LEASE TERM Non-Anchor: 3 years Anchor: 15 years
OWNERSHIP/NAME: Maxwell Properties, Inc.
YEAR CONSTRUCTED: 1975
YEAR OCCUPIED: 1975
OUTPARCELS None
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[PHOTOGRAPH]
INCOME APPROACH TO VALUE- (CONTINUED) 37
Local Rent Comparable No. 4
PROJECT: Village Green SURVEY DATE: 08\15\1997
LOCATION: U.S. Hwy 280 PHYSICAL INSPECTION: 08/13/97
SECTOR: Phenix City, AL SURVEYED BY: Glen E. Heinzelman
TYPE CENTER: Neighborhood Center PHOTO DATE: 08\13\1997
COMPANY: Talbot realty
AGENT: Jim Talbot PHONE: (334) 297-5706
BUILDING AREA:
LEASABLE AREA: 70,000 MAJOR: 16,000 SF
NON-MAJOR: 54,000 SF
CONDITION: Fair
#PARKING SPACES: Ukn
VISIBILITY: Average
ACCESSIBILITY: Average
MAJOR TENANT: 1. Bargain Town
NON-MAJOR TENANT: 1. Shoe City 9. Gene's Gym
2. Alfa Insurance 10. Heaven Sent Gift
3. The Crate 11. Wynn's Barber Shop
4. China Eagle 12. Arkay Rent to Own
5. Merle Norman 13. T.G. Discount Fashions
6. Kim's Beauty Supply 14. Tombos Seafood
7. Angels Nail Salon 15. Alabama Employment Center
8. BMC Audio 16. Shirt Shack
SF AVAIL: MAJOR 0 SF 0.00%
NON-MAJOR: 3,5000 SF 5.0%
LEASE TERMS: 3 years
TAX: Owner
INSURANCE: Owner
CAM: Owner
TI ALLOWANCEA: None
PERCENTAGE RENTS: None
CPI: None
CONCESSIONS: None
STEP RENT: None
RENT RANGE ASKING: Non-Anchor: NA
RENT RANGE EXISTING: Non-Anchor: $6.50
AVERAGE LEASE TERM Non-Anchor: $6.50 Average Anchor: 10 years
OWNERSHIP/NAME: Selig Enterprises, Inc.
YEAR CONSTRUCTED: 1960's
YEAR OCCUPIED: 1960's
OUTPARCELS 1. Pizza Hut 2. Unneda Pawn
3. Hartz Chicken 4. Region's Bank ATM
H.J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
Comparable Rentals
INCOME APPROACH TO VALUE- (CONTINUED) 38
Local Shop Rein (Continued)
The local shop space rein comparables presented previously are adjusted to the
local shop space contained in the subject based on their individual
characteristics. The characteristics adjusted in the four properties are
location, age/condition, and anchor draw. The market rein comparison grid is
presented below.
===========================================================================================================
COMPARISON OF LOCAL SHOP RENT
===========================================================================================================
Local Rein No. #1 #2 #3 #4
-----------------------------------------------------------------------------------------------------------
Center Name K-Mart Stadium Plaza Phenix Sq. Village Gr.
Local Shop Space 32,361 25,500 15,500 54,000
Local Space Available 1,400 0 0 3,500
Overall Vacancy 0.80 % 0.00 % 0.00 % 5.00 %
Average Shop Rent/Sq. Ft. $12.00 $8.00 $6.25 $6.50
===========================================================================================================
ADJUSTMENTS #1 #2 #3 #4
-----------------------------------------------------------------------------------------------------------
Location $0.00 $1.00 $1.00 $1.00
Age/Condition $0.00 $1.00 $1.00 $1.00
Anchor Draw ($1.50) $0.50 $2.00 $2.00
------ ----- ----- -----
Total Adjustment ($1. 50) $2.50 $4.00 $4.00
===========================================================================================================
Adjusted Rent/Sq. Ft. $10.50 $10.50 $10.25 $10.50
===========================================================================================================
Location: Local Rent Comparable No. 1 is located across U.S.
Highway 280 from the subject. No adjustment for
location was considered appropriate. Local Rent
Comparable No. 2 is located at the Summerhill Road
exist of the U.S. 80 Bypass approximately 3 miles
east of the subject. Inasmuch as the traffic count
along this roadway is significantly lower than the
subject, its location is considered to be
inferior. An upward adjustment of $1.00 per sq.
ft. was applied to this comparable for location.
Local Rent Comparables No. 3 and 4 are located on
the east and west side of U.S. Highway 280
respectively approximately two miles south of the
subject. Both of these properties are set back
from the roadway and accessible only at
intersections controlled by traffic signals. Both
locations are considered to be inferior relative
to the subject. Upward adjustments of $1.00 per
sq. ft. were applied to these comparables for
location.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE- (CONTINUED) 39
LOCAL SHOP RENT (CONTINUED)
Age/Condition: Local Rent Comparable No. 1 is considered to be
similar in overall age/condition as the subject.
No adjustment age/condition was considered
appropriate. Local Rent Comparables No. 2, 3, and
4 were all considered to be inferior to the
subject in terms of their overall age/condition.
Upward adjustments of $1.00 per sq. ft. were
applied to these comparables.
Anchor Draw: Local Rent Comparable No. 1 is anchored by Kmart
and Foodworld. Both these anchors draw a
significant amount of retail traffic superior to
what the subject's anchors draw. A downward
adjustment of $1.50 per sq. ft. was applied to
this comparable for anchor drawing power. Local
Rent Comparable No. 2 is anchored by Piggly Wiggly
an older supermarket chain. According to
knowledgeable sources, Piggly Wiggly, usually
occupied second generation grocery store space and
tends to draw less retail traffic than Winn-Dixie
or Foodworld. An upward adjustment of $0.50 per
sq. ft. was applied to this comparable for
inferior anchor draw. Local Rent Comparables No. 3
and 4 are anchored by Bargain Town and Big Lots
respectively. These anchors draw significantly
less retail traffic than grocery store chins or
mass market retailers. Upward adjustments of $1.00
per sq. ft. were applied to these comparables for
inferior anchor drawing power.
The previously discussed local rent comparables produced a range of probable
market rents for the vacant 1,756 sq. ft. of local space in the subject from
$10.25 to $10.50 per sq. ft. Local Rent Comparables No. 1 and 2 were given the
greatest weight because they are considered to be the most similar to the
subject and required the least overall adjustment. From this narrow range the
most probable market rent for the subject's vacant local space is determined to
be $10.50 per sq. ft. Similar to the other local tenants in addition to the base
market rent, the tenant will be responsible for its pro-rata share of property
taxes, insurance, and common area maintenance charges.
EXPENSE CONTRIBUTIONS
Each tenant is contractually obligated to contribute to the expenses incurred in
the operation of the shopping center. Their contributions amount to their
pro-rata share of the taxes, property insurance, and common area maintenance
expenses. These expenses have been estimated later in this report and summarized
in the chart on the following page.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 40
EXPENSE CONTRIBUTIONS (CONTINUED)
================================================================================
Estimate of Expense Contributions
================================================================================
Taxes $51,329
Insurance $7,231
Common Area Maintenance $32,540
-------
Total Reimbursable $91,101
Total Sq. Ft. $72,312
-------
Reimbursement/Sq. Ft. $1.26
================================================================================
VACANCY AND COLLECTION LOSS
The subject is 97.6% leased as of the effective date of appraisal. As of the
date of appraisal one local shop space containing 1,756 sq. ft. is currently
vacant resulting in a local vacancy of 9.9% (1,756 sq. ft./17,812 sq. ft.). The
subject is considered to operating at a stabilized occupancy based on other
comparable properties in the Phenix City area. For the purposes of this
analysis, given the credit quality of the existing tenants, a vacancy and
collection loss factor of 10% of the total potential gross income for the
non-anchor tenants, including expense contributions, has been incorporated into
this analysis.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE- (CONTINUED) 41
Effective Gross Income
Given the preceding discussion, the Effective Gross Income for the subject is
estimated as follows:
===============================================================================================================
ESTIMATE OF EFFICTIVE GROSS INCOME
===============================================================================================================
Potential Gross Income 45,500 Sq. Ft. @ $6.77 per Sq. Ft.= $308,035
Winn-Dixie 9,000 Sq. Ft. @ $6.75 per Sq. Ft.= $60,750
Revco Drug 16,056 Sq. Ft. @ $10.46 per Sq. Ft.= $167,959
Local Contrat Rent 1,756 Sq. Ft. @ $10.50 per Sq. Ft.= $18,438
-------
Market Rent $555,182
Potential Gross Rental Income
Expenses Contributions
Winn-Dixie 45,500 Sq. Ft. @ $1.26 per Sq. Ft.= $57,330
Revco Drug 9,000 Sq. Ft. @ $1.26 per Sq. Ft.= $11,340
Local Shops 17,842 Sq. Ft. @ $1.26 per Sq. Ft.= $22,481
-------
Total Expenses Contributions $91,151
-------
Total Potential Gross Income $646,333
Less Vacancy & Collection Loss
10% of Non Anchor Potential Gross Income $20,888
-------
Effective Gross Income $625,445
===============================================================================================================
OPERATING EXPENSES
After estimating Effective Gross Income, all applicable expends are deducted to
arrive at Net Operating Income. To estimate the appropriate expense levels,
statements from similar shopping centers are analyzed. The expense comparables
are presented on the following page.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 42
COMPARABLE #1
Project Name: Delchamps Plaza South
Location: Skyland Boulevard
Tuscaloosa, Alabama
Year Built: 1986 GLA: 180,903 SF
Source: Yearn end statements
Type Center: Neighborhood Shopping Center
Analysis Year: 1996 Analysis By: LHH
Item Total $/SF %PGR
---- ----- ---- ----
Effective Gross Rent: $751,676 $6.90 %
+ CAM/Reimbursement $61,400 $0.56 %
+ Misc Income: $300 $0.00 %
---- ----- --
Effec. Gross Income: $813,376 $7.47 100.0%
Less Expenses:
Management: $42,686 $0.39 5.2%
Ad Valorem Tax: $39,174 $0.36 4.8%
Insurance: $13,588 $0.12 1.7%
Administration Expense: $17,144 $0.16 2.1%
CAM: $25,322 $0.23 3.1%
Utilities: $6,564 $0.06 0.8%
Miscellanous: $5,071 $0.05 0.6%
-------- ----- ----
Total Expenses: $149,549 $1.37 18.4%
-------- ----- ----
Net Operating Income: $663,827 $6.10 81.6%
======== ===== ====
Comments: Miscellaneous expense consists of travel and structural repair
expenses
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE- (CONTINUED) 43
Comparable #2
Project Name: Delchamps Plaza North
Location: MacFarland & Watermelon Road
Tuscaloosa, Alabama
Year Built: 1986 GLA: 59,389 SF
Source: Year end statements
Type Center: Neighborhood Shopping Center
Analysis Year: 1995 Analysis By: DPM
Item Total $/SF %PGR
---- ----- ---- ----
Effective Gross Rent: $459,768 $7.74 100%
Less Vat/Credit Loss $603 $0.01 0.1%
---- ----- ---
Effective Gross Rent $459,165 $7.73 99.9%
+ CAM/Reimbursements: $42,120 $0.69 8.9%
+ Misc Income: $3.439 $0.06 0.7%
------ ----- ---
Effec. Gross Income: $503,724 $8.48 100.0%
Less Expenses:
Management: $30,762 $0.52 6.1%
Ad Valorem Tax: $33,939 $0.57 6.7%
Insurance: $4,915 $0.08 1.0%
Administration Expense: $1,391 $0.02 0.3%
CAM: $41,892 $0.71 8.3%
Utilities: $0 $0.00 0.0%
Miscellaneous: $8,765 $0.15 1.7%
------ ----- ---
Total Expenses: $121,664 $2.05 24.2%
-------- ----- ----
Net Operating Income: $382,060 $6.43 75.8%
======== ===== ====
Comments: Utilities expense is included in CAM. Miscellaneous expense is
non-pass through expense for building repair.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 44
COMPARABLE #3
Project Name: Stratford Square
Location: East Boulevard
Montgomery, Alabama
Year Built: 1987 GLA: 121,236 SF
Source: Year end statement
Type Center: Community Shopping Center
Analysis Year: 1995 Analysis By: PJM
Item Total $/SF %PGR
---- ----- ---- ----
Effective Gross Rent: $771,843 $6.37 %
+ CAM/Reimbursement $118,804 $0.98 %
+ Misc Income: $412 $0.00 %
---- ----- --
Effec. Gross Income: $891,079 $7.35 100.0%
Less Expenses:
Management: $43,173 $0.36 4.8%
Ad Valorem Tax: $47,541 $0.39 5.3%
Insurance: $12,987 $0.11 1.5%
Administration Expense: $13,769 $0.11 1.5%
CAM: $53,488 $0.44 6.0%
Utilities: $0 $0.00 0.0%
Miscellanous: $5,650 $0.05 0.6%
------ ----- ---
Total Expenses: $176,608 $1.46 19.8%
-------- ----- ----
Net Operating Income: $714,471 $5.89 80.2%
======== ===== ====
Comments: Miscellaneous expense includes $3,762 for on-site management and
$1,888 for advertising and promotional expenses.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 45
COMPARABLE #4
Project Name: Confidential
Location: Central Alabama
Year Built: 1978 GLA: 62,510 SF
Source: Year end Statement
Type Center: Neighborhood Shopping Center
Analysis Year: 1995 Analysis By: PJM
Item Total $/SF %PGR
---- ----- ---- ----
Effective Gross Rent: $260,657 $4.17 100%
+ CAM/Reimbursement $22,347 $0.36 %
+ Misc Income: $83 $0.00 %
--- ----- --
Effec. Gross Income: $283,087 $4.53 100.0%
Less Expenses:
Management: $10,663 $0.17 3.8%
Ad Valorem Tax: $21,172 $0.34 7.5%
Insurance: $4,405 $0.07 1.6%
Administration Expense: $3,556 $0.06 1.3%
CAM: $25,305 $0.40 8.9%
Utilities: $332 $0.01 0.1%
Miscellanous: $1,718 $0.03 0.6%
------ ----- ---
Total Expenses: $67,151 $1.07 23.7%
------- ----- ----
Net Operating Income: $215,936 $3.45 76.3%
======== ===== ====
Comments: Miscellaneous expense is for building repair and maintenance not
passed through to tenants.
H.J. Porter & Associates, Inc.
Based on these expense comparables, the pertinent expense categories in
appropriate amounts are estimated below.
Management/Leasing: The management fees of the comparable properties
ranged from 3.89% to 6.1%. As indicated
previously, the subject property is one of fifteen
shopping centers in a cross collateralized
portfolio of retail properties under single
management. Considering the economics of scal, the
subject's management fee is estimated at the low
end of the range at 4% of effective rental income.
Ad Valorem tax: The actual ad valorem taxes levied against the
subject obtained from the Russell County Tax
Assessor's office have been deemed appropr iate
and include d in this analysi s.
Insurance: Based upon the expense comparable information
included herein, the cost of insuring the
subject's improvements and the cost of liability
insurance is estimated to be $7,231 per year or
$0.10 per square foot of net leasable area.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE- (CONTINUED) 47
OPERATING EXPENSES (CONTINUED)
Common Area Maintenance: The common area maintenance expense, including
utility expense for the parking and walkway areas,
based on the expense comparables expense
comparables has been estimated to be $32,540 per
year or $0.45 per sq. ft. of net leasable area.
Structural Maintenance: Structural maintenance is estimated to be $.10 per
square foot for a total annual amount of $7,231
which is found to be similar to other neighborhood
shopping centers as well as typical requirements
by permanent lenders.
Miscellaneous Expenses: Miscellaneous expenses for legal and accounting
services has been estimated to amount to 1.09% of
the effective gross income.
Based on the preceding, the total operating expenses are estimated to be
$129,604 per year or $1.79 per square foot of net leasable area. The total
expense estimate results in an operating expense ratio of 21.6% which is
supported by the expense comparables.
Net Operating Income
The Net Operating Income is calculated by subtracting the Operating Expenses
from the Effective Gross Income and is estimated at $495,841. The table on the
following page is a reconstructed operating statement for the subject
illustrating the previously discussed calculation of income and expenses.
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 48
NET OPERATING INCOME (CONTINUED)
==========================================================================================================
VALUATION - INCOME APPROACH
==========================================================================================================
Total Potential Gross Income $646,333
Less Vacancy & Collection Loss
10% of Non-Anchor Potential Gross Income $20,888
-------
EFFECTIVE GROSS INCOME $625,445
Less Expenses: % of EGI Per Sq. Ft. Total
-------- ----------- -----
Management 4.0% $0.55 $25,018
Ad Valorem Taxes 8.0% $0.71 $51,329
Property Insurance 1.1% $0.10 $7,231
Common Area Maintenance 5.1% $0.45 $32,540
Structural Maintenance/Reserves 1.1% $0.10 $7,231
Miscellaneous 1.0% $0.25 $6,302
--- ----- ------
Total Expenses $129,604
--------
Net Operating Income $495,841
==========================================================================================================
CAPITALIZATION RATE
To estimate the subject's value via the Income Approach, the subject's
stabilized net operating income is capitalized with an overall capitalization
rate of 9.0%. The selected overall capitalization rate is based on several
methods of capitalization rate development with consideration given to the
non-terminable Winn Dixie leases, and the cross collateralization of the subject
property with the other fourteen shopping centers in the securitized portfolio
of retail properties. The capitalization rate development methods, which are
presented following the Income Approach Summary on the following page, includes
rates extracted from comparable sales, recently published investor surveys, and
three methods using mortgage and equity positions which include the Ellwood,
Band of Investment, and Debt Coverage Ratio methods.
Rates extracted from the comparable sales, none of which had non-terminable
leases, ranged from 9.57% to 10.20% with an average of 9,81% and the most recent
sale being at 9.64%. Published rates from the Second Quarter 1997. Korpacz Real
Estate Investor Survey for National Strip Shopping Centers, ranged from 8.25% to
13.00% with an average rate of 9.84% which is similar to the market extracted
rates. The mid range rates from the three mortgage/equity methods ranged from
8.90% to 9.24%. The rates developed with mortgage equity factors reflect current
conditions and declining
H.J. Porter & Associates, Inc.
CAPITALIZATION RATE - (CONTINUED) 49
interest rates. The criteria used for these methods was taken from the above
mentioned investor survey and from interviews with mortgage brokers.
The High, Middle, and Low average of the five methods of capitalization rate
development are 10.25%, 9.31%, and 8.71% respectively. Based on this analysis
and the above considerations, the subject's overall capitalization rate is
estimated to fall between the Middle and Low range of the five methods.
Given the preceding, the value indication provided by the Income Approach can be
expressed as follows:
VALUE INDICATION
Net Operating Income $495,841 Capitalized at 9.0% $5,509,345
(Rounded) $5,510,000
================================================================================
H.J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE- (CONTINUED) 50
=======================================================================================================================
Property Capitalization Rate Justification
=======================================================================================================================
PROPERTY: Russell Crossing Shopping Center
ADDRESS: Phenix City, Alabama
DATE: August 4, 1997
Pessimistic Most Likely Optimistic
----------- ----------- ----------
============================================
1. Market extracted rates for 10.20% 9.81% 9.57%
similar local properties ============================================
============================================
2. Recent published cap rates 13.00% 9.84% 8.25%
============================================
used by institutional investors
Source: Korpacz Report 2nd Quarter 1997
3. Ellwood method calculated rates
11.55% = Eqty yield before tax
% Property appreciation (income) over hold period = -5.00% 0.00% 5.00%
75.00% = Mortgage percent of value
7.75% = Mortgage interest rate
20 = Mortgage term in years
10 = Investment holding period
9.85% = Rm = Mortgage constant
14.40% = Rmp = Mortgage constant over holding period
31.59% = P = Percent of mortgage paid off over hold period
5.82% = SFF = Sink fund factor
37.18% = J factor
============================================
Calculated cap rate = 9.36% 8.90% 8.45%
============================================
4. Band of Investment Method
Mortgage percent to value 70.00% 75.00% 80.00%
Mortgage constant 10.35% 9.85% 9.35%
Equity percent to value 30.00% 25.00% 20.00%
Eqty cash on cash rate (Re) 8.00% 7.00% 6.00%
============================================
Calculated cap rate = 9.65% 9.14% 8.68%
============================================
5. Debt Coverage Ratio Method
Req'd debt coverage ratio 1.25 1.20 1.15
Mortgage percent to value 70.00% 75.00% 80.00%
Mortgage constant 10.35% 9.85% 9.35%
============================================
Calculated cap rate 9.06% 8.87% 8.60%
============================================
=======================================================================================================================
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE- (CONTINUED) 51
Explanatory Notes
Capitalization Rate Evidence
The accompanying chart illustrates 5 different sets of data or evidence as to
appropriate current property capitalization rates.
Item # 1 Reflects the current range in capitalization rates in the
local market based on actual sales - this information is historical in
nature although there has been a fairly consistent pattern evident in
this market over the years.
Item #2 Reflects actual cap rates used by large financial institutions
in the acquisition and financing of major real estate projects. These
rates are also historical in nature, but are based on properties of a
magnitude atypical in this market area. Properties that would appeal
to at least a regional and perhaps a national market of potential
buyers.
Item # 3 Reflects a calculated cap rate utilizing the Ellwood model
based on future expectations in income and property value growth and
equity yield rates explicit input assumptions are listed. This method
is compelling when market mortgage and equity yield returns are
predictable and property and income changes can be reliably predicted.
Item # 4 Analyzes required capital outlays to service both the debt
(ie mortgage payment) and the equity (cash on cash or before tax cash
flow or equity dividend). The weighted average of these required
returns is, by definition, equal to the capitalization rate. It should
be noted that the mortgage interest rate and equity yield rate are NOT
part of this calculation.
Item #5 Provides another method often used by lenders. The debt
coverage ratio is a factor equal to the net operating income divided
by the annual debt service in other words, it is an estimate of the
"cushion" or excess of net operating income over and above debt
service. The calculated cap can be solved for by the following formula
R(o) = R(m) X DCR X M.
The actual cap rate used by the appraisers in this analysis is bracketed by this
information. Further, this chart illustrates the implicit market expectations of
the various investment parameters that are reflected by the specific
capitalization rate used.
H. J. Porter & Associates, Inc.
52
MARKET APPROACH
To estimate the subject property's value by market comparison, a direct
comparison is made with actual sales of other shopping center properties. These
sales are analyzed on the basis of price per square foot of gross building area
(GBA) and their effective gross income multiplier (EGIM).
While the subject property is part of a large portfolio of retail properties
which would most likely be marketed as a total package, no sales of similar
portfolios of properties were found with which to compare. The market for retail
properties is national, with purchases made on the strength and reliability of
the income streams. Similar shopping center sales were located in Birmingham,
Madison, Moody, and Mobile, Alabama and Chattanooga, Tennessee.
Each sale is adjusted to the subject for pertinent items, including unusual
financing or conditions of sale, time lapsed since sale, and physical
differences such as age, condition, and construction quality and location as
reflected in the net operating income.
The sales considered axe detailed on the following pages with a comparison and
adjustment following the presentation of the sales data.
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 53
Comparable Improved Sites
[GRAPHICS OMITTED]
[PHOTOGRAPH]
Sale #1
Address/Location: The Village on Lorna
3001 Lorna Road
Hoover, Alabama
Grantor: Lorna Properties
Grantee: Village on Lorna Shopping Center, Ltd.
Sale Date: 05/26/1995
Sale Price: $11,200,000
Cash Equiv Price: $11,200,000
Equity: $2,240,000
Debt: $8,960,000 First Yr. Debt Service: $933,084
Terms: Cash to seller; equity, debt, and Yr. 1 debt service
estimated based on 80% LTV, 8.5% interest, and 20 year
amortization.
Recorded: Inst. No. 1995-61351, Jefferson County
Verified With: Hunter Keller, Engel Realty (205) 939-6800
Verified By: David Mullins, MAI, H.J. Porter & Associates
Date Verified: 04/18/1996
Rights Conveyed: Leased fee
Land Size: 12.6 Acres
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 54
Sale #1 (Continued)
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood shopping center
Parking: 728 spaces Parking Ratio: 5.15/1,000 Sq. Ft.
Building Size: 141,444 SF(NRA)
Land:Bldg Ratio: 3.9:1
Year Built: 1986
Condition: Average to Good
Building
Description: One story neighborhood shopping center containing
two separate building of masonry construction
Anchors: Delchamps (51,945 Sq. Ft.) and Drugs for Less
(14,500 Sq. Ft.)
Anchor - Sq. Ft.: 66,445 Anchor %: 46.98
Local: Typical local, regional, and national small
shop tenants
Local - Sq. Ft.: 74,999 Local %: 53.02
Lease Information: Anchor & Local: CAM, taxes and insurance.
Delchamps recently expanded and renovated their
space with an estimated expenditure of 2.5 to 3.0
million dollars. In conjunction, they signed a new
15 year lease with 3, five year options.
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (GBA)
-------------- --------------
(S\A\P) Potential Gross Income: $1,578,760 $11.16
(A\E\F) Vac & Credit Loss: $94.725 $ 0.67
------- ------
(A\E\F) Effec. Gross Income: $1,484,034 $10.49
(A\E\F) Less Expenses: $376.266 $ 2.66
-------- ------
(A\E\F) Net Oper. Income $1,107,768 $ 7.83
(A\E\F) Debt Semite (Yr. 1) $933.084 $ 6.60
-------- ------
(S\A\F) Cash Flow $174,684 $ 1.24
================================================================================
Field 1: S = Seller B = Buyer A = Appraiser
Field 2: A = Actual E = Estimated
Field 3: P = Prior Year F = Year Following
================================================================================
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 55
Sale #1 (Continued)
INDICATORS OF VALUE: Price Per SF (NR): $79.18
PGIM: 7.09
EGIM: 7.55
Ro: 9.89%
Expense Ratio: 25.35%
Remarks: PGI includes potential rent based on actual base
rent plus expense contributions and miscellaneous
income. The actual 1994 NOI was $901,481 and is
somewhat skewed due to vacancy of local space
during Delchamp's expansion and rent concessions
during this period. Also, leasing commissions and
tenant improvements were deducted as expenses
before the NOI calculation.
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 56
[GRAPHICS OMITTED]
[PHOTOGRAPH]
Sale #2
Address/Location: The Village at Moody
U.S. Highway 411
Moody, Alabama
Grantor: F.S. Partnership, Ltd.
Grantee: Birmingham Realty
Sale Date: 02/14/1996
Sale Price: $4,485,000
Cash Equiv Price: $4,485,000
Equity: $1,485,000
Debt: $3,000,000
Terms: $1,485,000 cash plus assumption of $3,000,000
mortgage at market rates and terms.
Recorded: Deed Book 261 at page 313, St. Clair County
Verified With: Paul Spina, Grantor (205) 733-1131
Verified By: David Mullins, MAI, H.J. Porter & Associates
Date Verified: 04/10/1996
Rights Conveyed: Leased fee
Land Size: 8.43 Acres
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 57
Sale #2 (Continued)
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood shopping center
Parking: 396 spaces Parking Ratio: 6.51/1,000 Sq. Ft.
Building Size: 60,800 SF(NRA)
Land:Bldg Ratio: 6.0:1
Year Built: 1995
Condition: Good
Building
Description: In-line, one story masonry construction with brick
exterior on front and sides, and CCB on rear. Flat
built-up roof system
Anchors: Winn-Dixie (44,000 Sq. Ft.)
Anchor - Sq. Ft.: 44,000 Anchor %: 72.37
Local: J&E Ent., Head Start, Movie Gallery, Open Book,
Vulcan Rehabilitation, Moody Cleaners, Village
Beverage, Merle Norman, and The Nail Shop
Local - Sq. Ft.: 16,800 Local %: 27.63
Lease Information: Winn-Dixie - $7.00 per Sq. Ft.; Local tenant rent
ranges from $10.50 to $11.50 per Sq. Ft. with an
average of $10.67 per sq. ft. All tenants pay
pro-rata share of CAM, taxes, and insurance.
ANALYSIS
(1\2\3) *Source TOTAL $ AMOUNT $ PER SF (GBA)
-------------- --------------
(S\A\P) Potential Gross Income: $533,922 $8.78
(A\E\F) Vac & Credit Loss: $9,920 $0.16
------ -----
(A\E\F) Effec. Gross Income: $524,002 $8.62
(A\E\F) Less Expenses: $87.532 $1.44
------- -----
(A\E\F) Net Oper. Income $436,470 $7.18
================================================================================
Field 1: S=Seller B=Buyer A=Appraiser
Field 2: A=Actual E=Estimated
Field 3: P=Prior Year F=Year Following
================================================================================
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 58
Sale #2 (Continued)
INDICATORS OF VALUE: Price Per SF (NRA): $73.77
PGIM: 8.40
EGIM: 8.24
R(o): 10.18%
Expense Ratio: 16.09%
Remarks: At the time of sale this center was less than one
year old and did not have a complete year of
operating history. PGI includes contract rent plus
estimated expense contributions. Market vacancy
was estimated at 5% of local tenant rent and
expense contributions. Expenses include 4%
management fee, taxes at $0.58 per sq. ft.,
insurance at $0.10 per sq. ft., CAM at $0.40 per
sq. ft., and structural maintenance at $0.50 per
sq. ft. This center is located at the northeast
corner of Interstate 10 and U.S. Highway 411 in
Moody, Alabama. This area is a rapidly growing
commercial district in the Birmingham/Atlanta
interstate corridor.
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 59
[GRAPHICS OMITTED]
[PHOTOGRAPH]
Sale #3
Address/Location: Plaza Center
Hughes Road at Old Madison Pike
Madison, Alabama
Grantor: Plaza, Ltd.
Grantee: Amberjack, Ltd.
Sale Date: 12/21/1994
Sale Price: $5,850,000
Cash Equiv Price: $5,850,000
Terms: Cash to seller
Recorded: Deed Book 846 at page 1097, Madison County
Verified With: Tommy Tillman, Broker, (205) 822-7116
Verified By: David Mullins, MAI, H.J. Porter & Associates
Date Verified: 01/11/1995
Rights Conveyed: Leased fee
Land Size: 9.08 Acres
Access/Visibility: Good/Good
Highest & Best Use Neighborhood shopping center
Building Size: 79,400 Sq. Ft.(NRA)
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 60
Sale#3 (Continued)
Land:Bldg Ratio: 5.0:1
Year Built: 1994
Condition: Good
Building
Description: One story masonry construction with brick veneer
and dryvit front. Flat built-up roof
Anchors: Kroger (62,800 Sq. Ft.)
Anchor - Sq. Ft.: 62,800 Anchor %: 79.09
Local: Sporting Edge, Cleaners, Papa John's Pizza,
Heavenly Hear, Baskin-Robbins, Cornerstone, Movie
Gallery, and Hallmark Cards
Local - Sq. Ft.: 16,600 Local %: 20.91
Lease Information: All tenants pay pro-rata share of CAM, taxes, and
insurance
ANALYSIS
(1|2|3) (*)Source TOTAL $ AMOUNT $ PER SF (GBA)
-------------- --------------
(S\A\P) Potential Gross Income: $689,320 $8.68
(S\A\P) Vac & Credit Loss: $17,750 $0.22
------- -----
(S\A\P) Effec. Gross Income: $671,570 $8.46
(S\A\P) Less Expenses: $111,457 $1.40
-------- -----
(S\A\P) Net Oper. Income $560,113 $7.05
================================================================================
Field 1: S = Seller B = Buyer A = Appraiser
Field 2: A= Actual E = Estimated
Field 3: P = Prior Year F = Year Following
================================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $37.68
PGIM: 8.49
EGIM: 8.71
R(o): 9.57%
Expense Ratio: 16.60%
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 61
[GRAPHICS OMITTED]
[PHOTOGRAPH]
Sale#4
Address/Location: North Hixson Marketplace
Hixson Pike and Camp Columbus Road
Chattanooga, TN
Grantor: North Hixson, L.L.C.
Grantee: Amberjack, Ltd.
Sale Date: 03/04/1996
Sale Price: $4,760,000
Cash Equiv Price: $4,760,000
Terms: Cash to seller
Recorded: Unknown, Hamilton County
Verified With: Dick Schmalz with Grantor (205) 871-2617
Verified By: David Mullins, MAI, H.J. Porter & Associates
Date Verified: 03/15/1996
Rights Conveyed: Leased fee
Land Size: 9.24 Acres
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood shopping center
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 62
Sale #4 (Continued)
Parking: 405 Spaces Parking Ratio: 5.88/1,000 sq. ft.
Building Size: 63,270 Sq. Ft.(NRA)
Land:Bldg Ratio: 6.4:1
Year Built: 1995
Condition: Good
Building
Description: One story neighborhood shopping center with split
face block exterior walls and synthetic stucco on
steel stud canopy.
Anchors: Winn-Dixie (49,600 sq. ft. GBA and 44,000 sq. ft.
NRA) and Big B Drugs (8,470 sq. ft.)
Anchor - Sq. Ft.: 52,470 Anchor %: 82.93
Local: Movie Gallery, Sally's Beauty, and other local
tenants
Local - Sq. Ft: 10,800 Local %: 17.07
Lease Information: All tenants pay pro-rata share of CAM, taxes,
and insurance.
ANALYSIS
(1|2|3) *Source TOTAL $ AMOUNT $ PER SF (GBA)
-------------- --------------
(S\A\P) Potential Gross Income: $623,083 $9.85
(A\E\F) Vac & Credit Loss: $13,057 $0.21
------- -----
(A\E\F) Effec. Gross Income: $610,026 $9.64
(A\E\F) Less Expenses: $124,533 $1.97
-------- -----
(A\E\F) Net Oper. Income $485,493 $7.67
================================================================================
Field 1: S = Seller B = Buyer A = Appraiser
Field 2: A = Actual E = Estimated
Field 3: P = Prior Year F = Year Following
================================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $75.23
PGIM: 7.64
EGIM: 7.80
R(o): 10.20%
Expense Ratio: 20.41%
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 63
SALE #4 (CONTINUED)
Remarks: At the time of sale there were two vacant local
shops containing 2,400 sq. ft. Expense
contribution included in PGI and local vacancy.
Vacancy based on 10% of local shop income plus
expense contributions. Expenses based on 4%
management, excluding expense contributions, $1.59
for taxes, CAM, and insurance, plus $0.05 for
structural reserves. The estimated expenses were
consistent with the Grantor's pro forma. Average
local shop space rent for leased space was $10.45
per sq. ft.
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 64
[GRAPHICS OMITTED]
[PHOTOGRAPH]
SALE #5
Address/Location: Hillcrest Marketplace
Hillcrest Road at Grelot Road
Mobile, Alabama
Grantor: Hillcrest Marketplace, Ltd.
Grantee: Confidential
Sales Date: 9/15/1997 (Proposed Closing Date)
Sales Price: $6,490,000
Cash Equiv Price: $6,490,000
Terms: Cash to seller
Recorded: Sale Pending
Verified With: Scott Holcombe, Arlington Properties - Developers
(205) 328-9600
Verified By: Harris Hollans, H.J. Porter & Associates
Date Verified: 04/02/1997
Rights Conveyed: Leased fee
Land Size: 12.49 Acres
Access/Visibility: Good/Good
Highest & Best Use:Neighborhood shopping center
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 65
SALE #5 (CONTINUED)
Parking: 359 Spaces Parking Ratio: 4.63/1,000 sq. ft.
Building Size: 76,365 Sq. Ft.(NRA)
Land:Bldg Ratio: 7.1: 1
Year Built: 1997
Condition: Good
Building
Description: Red brick veneer front over concrete block walls.
Reinforced concrete slab. Single ply membrane
roof. Raised seam metal and canvas awning.
Anchors: Winn-Dixie (51,282 sq. ft.) and Revco
Drugs (9,240 sq. ft.)
Anchor- Sq. Ft.: 60,522 Anchor %: 79.25
Local: Typical national, regional, and local tenants
Local- Sq. Ft.: 15,843 Local %: 20.75
Lease Information: Winn-Dixie rent is $8.00 per sq. ft.; Revco rent
is $8.00 per sq. ft.; local tenant rents are
$12.50 per sq. ft. Anchor expense contributions
were estimated at $0.99 per sq. ft. with local
tenants at $1.38 per sq. ft.
ANALYSIS
(1/2/3) *Source TOTAL $ AMOUNT $ PER SF (GBA)
-------------- --------------
(S\A\P) Potential Gross Income: $756,072 $9.90
(A\E\F) Vac & Credit Loss: $17,613 $0.23
-------- -----
(A\E\F) Effec. Gross Income: $738,459 $9.67
(A\E\F) Less Expenses: $112,823 $1.48
-------- -----
(A\E\F) Net Oper. Income $625,636 $8.19
================================================================================
Field 1: S = Seller B = Buyer A = Appraiser
Field 2: A = Actual E = Estimated
Field 3: P = Prior Year F = Year Following
================================================================================
INDICATORS OF VALUE: Price Per SF (NRA) $84.99
PGIM: 8.58
EGIM: 8.79
R(o): 9.64%
Expense Ratio: 15.28%
H. J. Porter & Associates, Inc.
MARKET APPROACH- (CONTINUED) 66
SALE #5 (CONTINUED)
Remarks: The total gross building area of the shopping
center is 77,557 sq. ft. Local tenant space was
projected to be 100% leased prior to completion.
The sale of the property was also negotiated prior
to completion. Estimated completion date was July,
1997. There were five out-parcel lots at the
center which were not included in the transaction.
Significant site work was necessary for
development.Estimated site work totalled $85,000
per acre. Out-parcels were marketed to Wendy's,
New York Bagel, and Boston Market.
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
IMPROVED SALES MAP
H. J. Porter & Associates, Inc.
MARKET APPROACH- (CONTINUED) 67
The sales detailed above are compared and adjusted to the subject for pertinent
items of difference as:
====================================================================================================================================
SUMMARY OF IMPROVED SALES AND ADJUSTMENTS
====================================================================================================================================
Comp. Number Subject #1 #2 #3 #4 #5
------------------------------------------------------------------------------------------------------------------------------------
Center Name Vill@ Lorna Vill @ Moody Plaza Center North Hixson Hillcrest
Grantor Lorna Prop. FS Partners Plaza, Ltd North Hixon Hill. Ltd
Grantee Vill, Ltd. Birm.Realty Amberjack. Lltd Amberjack. Lltd Conf.
Cash Eq.Sale Price $11,200,000 $4,485,000 $5,850,000 $4,760,000 $6,490,000
Date of Sale 8/5/97 5/26/95 2/14/96 12/21/94 3/4/96 7/1/97
Gross Leasable Area 72,312 141,444 60,800 79,400 63,270 76,365
Sale Price/Sq.Ft. $79.18 $73.77 $73.68 $75.23 $84.99
NOI $495,841 $1,107,768 $436,470 $560,113 $485,493 $625,636
NOI per Sq. Ft. $6.86 $7.83 $7.18 $7.05 $7.67 $8.19
EGIM 7.55 8.56 8.71 7.80 8.79
====================================================================================================================================
ADJUSTMENTS #1 #2 #3 #4 #5
------------------------------------------------------------------------------------------------------------------------------------
Conditions of Sale Normal Normal Normal Normal Normal
$0.00 $0.00 $0.00 $0.00 $0.00
Market Conditions/ Time @ 5.0% 11.0% 7.4% 13.1% 7.1% 0.5%
Preliminary Adj.Price/Sq.Ft. $87.88 $79.20 $83.35 $80.58 $85.39
====================================================================================================================================
PHYSICAL DIFFERENCES #1 #2 #3 #4 #5
------------------------------------------------------------------------------------------------------------------------------------
NOI Adjustment ($0.14) ($0.05) ($0.03) ($0.12) ($0.19)
------ ------ ------ ------ ------
Overall Adjustment ($11.26) ($3.46) ($2.12) ($8.96) ($16.56)
====================================================================================================================================
Final Adjusted Price/Sq. Ft. of Bldg $76.62 $75.74 $81.23 $71.62 $68.84
====================================================================================================================================
The sales were adjusted to the subject for the following items:
CONDITION OF SALE: No adjustment indicated.
TIME: Considers an increase of 5% per year based on
analysis of the overall capitalization rates of
the comparable sales and range of rates from the
five methods considered in the Income Approach.
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 68
NET OPERATING INCOME: The comparable sales were adjusted to the subject
based on the difference in net operating income.
As indicated in the following table, there is a
direct relationship between the sale price per
square foot and net operating income per square
foot.
======================================================
Sale No. SP/Sq.Ft. NOI/Sq. Ft.
======================================================
1 $79.18 $7.83
2 $73.77 $7.18
3 $73.68 $7.05
4 $75.23 $7.67
5 $84.99 $7.64
======================================================
Subject NA $6.86
======================================================
The adjustment for NOI is based on the following
formula: the comparable sales NOI per square foot
is subtracted from the subject's estimated NOI per
square foot and the difference is divided by the
comparable's NOI per square foot.
The adjusted sales present an adjusted range of value from $71.62 to $81.23 per
square foot. Each of the comparables were given relatively equal weigh in the
value estimate by the direct comparison. Based on these adjusted sales, the
subject property is valued by direct comparison as:
VALUE INDICATION - MARKET APPROACH
Price per Sq. Ft.: 72,312 Sq.Ft. X $75.00 per Sq.Ft. = $5,423,400
ROUNDED $5,423,000
================================================================================
H. J. Porter & Associates, Inc.
MARKET APPROACH - (CONTINUED) 69
The Effective Gross Rent Multipliers (EGIM) derived from the above sales are
highlighted as:
========================================================
Sale No. EGIM Expense Ratio
========================================================
1 7.55 25.30%
2 8.56 16.70%
3 8.71 16.60%
4 7.80 20.40%
5 8.79 15.28%
========================================================
Subject NA 20.70%
========================================================
The Effective Gross Income Multipliers of the four comparable sales range from
7.55 to 8.79. There is a direct correlation between operating expense ratios and
EGIM's. Sales 2, 3, 4, and 5 have lower operating expense ratios; Sale 1 has a
higher operating expense ratios. As the subject's forecasted operating expense
ratio is 20.7 which is closer to Sales 1 and 4, it would be considered
reasonable to assume it would have an EGIM near the lower end of the range.
However, because the subject is part of a cross collateralized portfolio as
discussed previously and would enjoy the benefits of such an association, a EGIM
toward the higher end of the range would appear justified.
Based on these sales, the subject is valued by EGIM as:
VALUE INDICATION - MARKET APPROACH
Effective Gross Income Multiplier $625,445 PGI x 8.75 = $5,473,000
The two market indicators of value are correlated with slightly greater weight
given to adjusted sale price per square foot for a value by Market Approach of
$5,450,000.
This approach is felt to be reliable, being based on a respected national cost
service's figures as well as actual cost of other centers and the Developer's
cost breakdown. The land value is based on commercial land sales from the
subject's market area and is felt to be well supported. However, this approach
does not mirror the actions of investors in properties similar to the subject.
Therefore, this approach is given little consideration in the final value
estimate.
Income Approach ................................................... $5,510,000
This approach is felt to be most indicative of the subject's value. It best
reflects current and projected market conditions as they relate to the subject
and mirrors the actions of investors in today's market. Overall, this approach
is afforded greatest consideration and is supported by the Market Approach.
This approach is based on the most recent sales of other neighborhood shopping
centers and is reliant upon the direct sales comparison on a price per square
foot basis, and the effective income multiplier method. This approach is
afforded less consideration than the Income Approach.
Based on the value indications summarized above, we are of the opinion that the
subject's leased fee interest, has a market value, as of August, 5, 1997, of:
FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS
($5,500,000)
Divided As: Improvements $4,157,000
Land $1,340,000
----------
Total $5,500,000
H. J. Porter & Associates, Inc.
71
CERTIFICATION
We certify that, to the best of our knowledge and belief,...
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions and conclusions.
3. Neither party signing this report has a present or prospective interest in
the property that is the subject of this report, nor do they have any
personal interest or bias with respect to the parties involved.
4. Our compensation is not contingent on an action or event resulting from the
analyses, opinions, or conclusions in, or the use of, this report. Our
compensation is not contingent upon the reporting of a predetermined value
or direction in value that favors the cause of the client, the amount of
the value estimate, the attainment of stipulated result, or the occurrence
of a subsequent event.
5. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute, and the Uniform Standards of Professional Appraisal
Practice as promulgated by the Appraisal Standards Board of the Appraisal
Foundation.
6. The use of this report is subject to the requirements of the Appraisal
Institute and the Alabama Real Estate Appraisers Board relating to review
by its duly authorized representatives.
7. This assignment was made subject to regulations of the State of Alabama
Real Estate Appraisers Board. The undersigned state certified appraiser has
met the requirements of the board that allow this report to be regarded as
a 'certified appraisal'.
8. Howard J. Porter, Jr., MAI, CCIM, is currently certified under the
continuing education program of the Appraisal Institute.
9. Howard J. Porter, Jr., MAI, CCIM, has not made a personal inspection of the
property that is the subject of this report.
H.J. Porter & Associates, Inc.
72
CERTIFICATION- (CONTINUED)
10. Glen E. Heinzelman, Associate, has made a personal inspection of the
property that is the subject of this report.
11. No one provided significant professional assistance to the persons signing
this report.
12. This appraisal assignment was not based on a requested minimum valuation, a
specific valuation, or the approval of a loan.
13. Based upon the foregoing investigations and analysis, it is our opinion
that the subject property has a market value estimate as:
(As of August 5, 1997)
FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS
($5,500,000)
/s/ Howard J. Porter, Jr. 11/13/97
----------------------------------------- --------
Howard J. Porter, Jr., MAI, CCIM Date
Certified General Real Property Appraiser
Alabama Certificate #G51
/s/ Glen E. Heinzelman
----------------------------------------- --------
Glen E. Heinzelman, Associate Date
Licensed Real Property Appraiser
Alabama Certificate #L12
H.J. Porter & Associates, Inc.
Korpacz Real Estate Investor Survey
Assumptions and Limiting Conditions
Qualifications
State of Alabama Certifications
H.J. Porter & Associates, Inc.
Korpacz
NATIONAL STRIP SHOPPING CENTER MARKET
The trend toward investors focusing on retail acquisitions continues this
quarter. They believe that since the prices of other property types have been
bid up retail offers better relative values. "We're seeing the beginning of a
run up in retail again," says one participant. The major interest tends to be on
neighborhood and community centers.
The optimum size of the ideal strip shopping center is 100,000 square feet
to 130,000 square feet, but investors will also consider larger properties,
especially if there is the potential to put in other anchor stores. such as
Marshall's or T.J. Maxx. Although buyers prefer not to have centers that are
smaller than 100.000 square feet some portfolios may have centers as small as
70,000 square feet and as large as 200.000 square feet. "But there you have to
take good with bad." comments a participant. The supply of available strip
centers is plentiful, but it is hard to find those of optimum size that are
anchored by a market-dominant grocery store.
The importance of the grocery anchor is based on its capability to generate
traffic in the center, which greatly enhances the landlord's ability to lease
the in-line stores. The traffic increases in-line store sales volume, which
mitigates the risk of ownership and provides the investor with the requisite
yield from such a center.
The size of the grocery anchor is also significant in its competitive
position. Although the optimum size varies by market, in major metropolitan
areas between 50,000 square feet and 75,000 square feet is ideal. In smaller
markets a 40,000-square-foot store can be successful. However, the older
25,000-square-foot stores are considered functionally obsolete.
Over the next 12 months, prices in the national strip shopping center
market are expected to remain stable or drop slightly. Survey participants put
the average decrease at 1.78%.
Key indicators in the national strip shopping center market support the
expectation of stagnant values for the year. Again this quarter, the changes in
indicators are small. The average discount rate (IRR)increased 2 basis points
(see Table 7). This follows a 10 basis-point decrease last quarter.
The average overall cap rate (OAR) decreased 1 basis point to 9.34%. Highly
desirable centers trade at cap rates between 8.00% and 10.00%, but most close at
cap rates between 10.00% and 11.00%.
Strip shopping centers have long been perceived to pose higher investment
risk than regional malls, and both IRRs and going-in cap rates have reflected a
premium for the higher risk. In fourth quarter 1996, however, for the first time
since we began tracking the national strip shopping center market in fourth
quarter 1991, the average IRR, fell below the national regional mall market
average IRR. This quarter the rates are 11.55% and 11.75% respectively.
The strip shopping center OAR is still considerably higher than the
regional mall rate. The spread between the two had narrowed during 1996.
However, last quarter's 7-basis-point increase in the strip shopping center OAR
widened the gap again. The current OAR premium is 127 basis points. It was 173
one year ago. By comparison, the national power center OAR is 9.58%, 26 basis
points lower than the strip shopping center rate.
Investors would like to acquire portfolios of neighborhood and community
shopping centers that are located in one region, thus presenting the opportunity
for management and leasing efficiencies. These are difficult to find, however,
and are priced at a premium.|_|
Table 7
National Strip Shopping Center Market
SECOND QUARTER 1997
KEY INDICATORS CURRENT QUARTER LAST QUARTER YEAR AGO
========================== ==================== ================= =============
Discount Rate (RR)(a)
=========================== ==================== ================= =============
RANGE 10.00%-14.00% 10.00%-14.00% 10.00%-14.00%
AVERAGE 11.55% 11.53% 11.74%
CHANGE (Basis Points) -- +2 -19
========================== ==================== ================= =============
Overall Cap Rate (OAR)(a)
========================== ==================== ================= =============
RANGE 8.25%-13.00% 8.25%-13.00% 8.25%-13.00%
AVERAGE 9.84% 9.85% 9.90%
CHANGE (Basis Points) -- -1 -6
========================== ==================== ================= =============
Market Rent Change Rate(b)
========================== ==================== ================= =============
RANGE 0.00%-6.00% 0.00%-6.00% 0.00%-6.00%
AVERAGE 2.83% 2.73% 2.60%
CHANGE (Basis -- +10 +23
Points)
========================== ==================== ================= =============
Expense Change Rate(b)
========================== ==================== ================= =============
RANGE 0.00%-5.00% 0.00%-5.00% 2.00%-5.00%
AVERAGE 3.58% 3.67% 3.99%
CHANGE (Basis Points) -- -9 -41
========================== ==================== ================= =============
Residual Cap Rate
========================== ==================== ================= =============
RANGE 8.25%-12.00% 8.25%-12.00% 8.25%-13.50%
AVERAGE 9.92% 9.92% 10.13%
CHANGE (Basis Points) -- 0 -21
a. Rate on unleveraged, all-cash transactions
b. Initial rate of change
Preliminary Environmental Site Assessment
Proposed Shopping Center Site
Phenix City, Alabama
ATEC Project No. 33-77419
Atec Associates, Inc.
[GRAPHICS OMITTED]
Consulting Geotechnical & Materials Engineers
Prelimenary Environmental Site Assessment
Proposed Shopping Center Site
Phenix City, Alabama
ATEC Project No 33-77419
[GRAPHICS OMITTED]
Prepared For:
The Newton Company
725 East Main Street
Prattville, Alabama 36067
Atten: Mr. Byron Trachte
[LETTERHEAD]
[ATEC Associates, Inc. / Southern Testing Laboratories]
Montgomery, Alabama
August 7, 1987
The Newton Company
725 East Main Street
Prattville, Alabama 36067
Atten: Mr. Byron Trachte
Subject: Preliminary Environmental Site
Assessment Proposed Shopping
Center Site Phenix City, Ala
ATEC Project No. 33-77419
Gentlemen:
Submitted herewith is our preliminary environmental site assessment for proposed
shopping center site in Phenix City, Alabama. This study was conducted in
accordance with our written proposal No. A-1599, dated July 16, 1987.
This report contains the results of our findings and an engineering
interpretation of these results with respect to the proposed development.
We appreciate the opportunity to be of service to you on this project. If we can
be of further assistance, or if you have any questions regarding this report,
please contact this office.
Very Truly Yours
ATEC Associates, Inc.
/s/ Wm. Carey Kelly /s/ H.W. Carr
Wm. Carey Kelly, P.E. H.W. Carr, Jr.
Engineering Manager Branch Manager
[SEAL]
TABLE OF CONTENTS
1.0 PURPOSE AND SCOPE..........................
2.0 SITE LOCATION..............................
3.0 LAND HISTORY AND PAST USAGE................
4.0 SITE INSPECTION............................
5.0 LIENS FOR HAZARDOUS WASTE CLEAN-UP ........
6.0 ENVIRONMENTAL SITE HISTORY.................
7.0 CONCLUSIONS AND RECOMMENDATIONS............
FIGURE 1
1.0 PURPOSE AND SCOPE
The purpose of this study was to perform a preliminary environmental site
assessment for the proposed shopping center site in Phenix City, Alabama. This
preliminary assessment was performed by investigating the following four (4)
items and evaluating the findings with respect to the proposed development:
(1) Review of land history and past usage.
(2) Physical inspection of the site.
(3) Review of records to determine if any hazardous waste clean-up liens exist
for the site .
(4) Consultation with Alabama Department of Environmental Management (ADEM)
Officials to determine the environmental history of the site.
Our findings for the above mentioned four (4) items are presented in following
sections of this report.
2.0 SITE LOCATION
The site is located in Phenix City, Alabama. More specifically, the site is
bound on the east by Opelika Road, on the south by Twentieth Street, on the west
by U.S. Highway 280/431, and on the north by Twenty Fifth Street and lies within
the NW 1/4 of the SE 1/4 and the SW 1/4 of the NE 1/4 of Section 9, Township 17
North, Range 30 East. Figure 1 shows the location of the site with respect to
the adjacent roads.
The portion of the site located between Twentieth and Twenty - Second Streets
slopes steeply from north and south toward the wet weather creek which runs
across the middle of the property from southwest to northeast. A review of the
United States Geological Survey topographic map of the area indicates that this
creek is a tributary of Mill Creek. The tributary flows beneath U.S. Highway
280/431 in a 4'x5' concrete culvert runs across the property and beneath the
Opelika Road in a 5'x5' concrete culvert.
The walking survey of the site revealed no evidence of any drum or tank storage
areas, underground tank locations, obvious past disposal areas, or areas showing
evidence of vegetative distress. The area around the existing onestory block
structure located at the southwest corner of the site had several small stained
spots adjacent to the structure where old automobile engines had been left and
motor oils have washed off the engines onto the ground. These areas are quite
small and no vegetative distress was observed around the building or behind the
building where the terrain drops off steeply. During our drilling operations, a
bull dozer was required to clear some areas and to pull our drill around because
of the steep and rough terrain. Therefore, it appears that very limited access
would have been available to dump any contaminants.
In addition to the walking survey, the soil samples obtained from the subsurface
investigation were examined for evidence of any environmental pollutants. The
soil samples did not indicate the presence of staining, pitting or foreign
matter such as glass, brick fragments, cinders or metal remnants which would be
indicative of previous landfilling activities. It should be noted that the test
boring logs depict subsurface conditions only at the specific boring locations
and at the particular time designated on the boring logs.
Soil conditions at other locations may differ from conditions occurring at the
boring locations. Copies of the boring logs are included in our subsurface
investigation report for this project.
5.0 LIENS FOR HAZARDOUS WASTE CLEAN-UP
According to Ms. Caroline Moore, with Phillips and Funderburk, Lawyers, the
title search for the subject project did not reveal any hazardous waste clean-up
liens against the subject property.
6.0 ENVIRONMENTAL SITE HISTORY
A review of records maintained by the Alabama Department of Environmental
Management (ADEM) indicate that the site has not been the subject of a state or
federal hazardous waste clean-up investigation. The records did not show any
past spills or disposal areas on the site.
7.0 CONCLUSIONS AND RECOMMENDATIONS
Based on findings of this study it appears that the possibility of hazardous
waste contaminants being present on the site is extremely remote. The oil stains
noted around the old garage on the Martin property are small and surficial and
should pose no environmental problems, nor require any special clean up
operations. Since environmental problems have not been indentified on this site,
we feel that additional environmental studies, (sampling and testing), are not
warranted.
[GRAPHICS OMITTED]
ATEC ASSOCIATES, INC.
FIGURE 1
SHOPPING CENTER SITE
PHENIX CITY, ALABAMA
ASSUMPTIONS AND LIMITING CONDITIONS
1. COPIES, PUBLICATION, DISTRIBUTION, USE OF REPORT:
Possession of this report or any copy thereof does not carry with the right
of publication, nor may it be used for other than its intended use. The
report may not be used for any purpose by any person or corporation other
than the client or the party to whom it is addressed or copied without the
written consent of the appraiser, and then only in its entirety.
Neither all nor any part of the contents of this report shall be conveyed
to the public through advertising, public relations efforts, news, sales,
or other media, without the written consent and approval of the appraiser,
nor may any reference be made in such a public communication to the
Appraisal Institute or the MAI designation.
2. CONFIDENTIALITY:
The appraiser may not divulge the material (evaluation) contents of the
report, analytical findings or conclusions, or give a copy of the report to
anyone other than the client or his designee as specified in writing except
as may be required by the Appraisal Institute as they may request in
confidence for ethics enforcement, or by a court of law or body with the
power of subpoena.
This appraisal is to be used only in its entirety and no part is to be used
without the whole report. All conclusions and opinion concerning the
analysis are set forth in the report and were prepared by the Appraiser
whose signature appears on the appraisal report, unless indicated as
"Review Appraiser". No change of any item in the report shall be made by
anyone other than the Appraiser and/or officer of the firm. The Appraiser
and firm shall have no responsibility if any such unauthorized change is
made.
3. INFORMATION USED:
No responsibility is assumed for accuracy of information furnished by or
from others, the client, his designee, or public records. We are not liable
for such information or the work of possible subcontractors. The comparable
data relied upon in this report has been confirmed with one or more parties
familiar with the transaction or from affidavit; all are considered
appropriate for inclusion to the best of our factual judgement and
knowledge.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
4. TESTIMONY, CONSULTATION, COMPLETION OF CONTRACT FOR APPRAISAL SERVICES:
The contract for appraisal, consultation or analytical service, are
fulfilled and the total fee payable upon completion of the report. The
appraiser or those assisting in the preparation of the report will not be
asked or required to give testimony in court or hearing because of having
made the appraisal, in full or in part, nor engage in post appraisal
consultation with client or third parties except under separate and special
arrangement and at additional fee.
5. EXHIBITS:
The sketches and maps in this report are included to assist the reader in
visualizing the property and are not necessarily to scale. Various photos,
if any, are included for the same purpose and are not intended to represent
the property in other than actual status, as of the date of the photos.
Site plans are not surveys unless shown from separate surveyor.
No responsibility is assumed for matters legal in character or nature, nor
matters of survey, nor of any architectural, structural, mechanical, or
engineering nature. No opinion is rendered as to the title, which is
presumed to be good and merchantable. The property is appraised as if free
and clear, unless otherwise stated in particular parts of the report.
The legal description is assumed to be correct as used in this report as
furnished by the client, his designee, or as derived by the appraiser.
The appraiser has inspected as far as possible, by observation, the land
and the improvements thereon; however it was not possible to personally
observe conditions beneath the soil or hidden structural, or other
components. We have not critically inspected mechanical components within
the improvements and no representations are made herein as to these matters
unless specifically stated and considered in the report. The value estimate
considers there being no such conditions that would cause a loss of value.
The land or the soil of the area being appraised appears firm, however
subsidence in the area is unknown. The appraiser does not warrant against
this condition or occurrence of problems arising from soil conditions.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
The appraisal is based on there being no hidden, unapparent, or apparent
conditions of the property site, subsoil, or responsibility is assumed for
any such conditions or for any expertise or engineering to discover them.
All mechanical components are assumed to be in operable condition and
status standard for properties of the subject type. Conditions of heating,
cooling, ventilating, electrical and plumbing equipment is considered to be
commensurate with the condition of the balance of the improvements unless
otherwise stated. No judgement is made as to adequacy of insulation, type
of insulation, or energy efficiency of the improvements or equipment.
7. RELATING TO THE AMERICAN WITH DISABILITIES ACT:
The Americans with Disabilities Act ("ADA") became effective January 26,
1992. The appraisers have not made a specific compliance survey and
analysis of this property to determine whether or not it is in conformity
with the various detailed requirements of the ADA. It is possible that a
compliance survey of the property together with a detailed analysis of the
requirements of the ADA could reveal that the property is not in compliance
with one or more of the requirements of the Act. If so, this fact could
have a negative effect upon the value of the property. Since there is no
direct evidence relating to this issue, possible non-compliance with the
requirements of ADA in estimating the value of the property has not been
considered.
8. LEGALITY OF USE:
The appraisal is based on the premise that, there is full compliance with
all applicable federal, state and local environmental regulations and laws
unless otherwise stated in the report; further that all applicable zoning,
building, and use regulations and restrictions of all types have been
complied with unless otherwise stated in the report; further that all
applicable zoning, building, and use regulations and restrictions of all
types have been complied with unless otherwise stated in the report;
further, it is assumed that all required licenses, consents, permits, or
other legislative or administrative authority, local, state, federal and/or
private entity or organization have been or can be obtained or renewed for
any use considered in the value estimate.
9. COMPONENT VALUES:
The distribution of the total valuation in this report between land and
improvements applies only under the existing program of utilization. The
separate valuations for land and building must not be used in conjunction
with any other appraisal and are invalid if so used.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
10. AUXILIARY AND RELATED STUDIES:
No environmental or impact studies, special market study or analysis,
highest and best use analysis study or feasibility study has been requested
or made unless otherwise specified in an agreement for services or in the
report. The appraiser reserves the unlimited right to alter, amend, revise
or rescind any of the statements, findings, opinions, values, estimates, or
conclusions upon any subsequent study or analysis or previous study or
analysis subsequently becoming known to him.
11. DOLLAR VALUES, PURCHASING POWER:
The market value estimated, and the costs used, are as of the date of the
estimate of value. All dollar amounts are based on the purchasing power and
price of the dollar as of the date of the value estimate.
12. INCLUSIONS:
Furnishings and equipment of business operations except as specifically
indicated and typically considered as a part of real estate, have been
disregarded with only the real estate being considered in the value
estimate unless otherwise stared.
13. PROPOSED IMPROVEMENTS, CONDITIONED VALUE:
Improvements proposed, if any, on or off-site, as well as any repairs
required are considered, for purpose of this appraisal to be completed in
good and workmanlike manner according to information submitted and/or
considered by the appraiser. In cases of proposed construction, the
appraisal is subject to change upon inspection of property after
construction is completed. This estimate of market value is as of the date
shown, as proposed, as if completed and operating at levels shown and
projected.
14. VALUE CHANGE, DYNAMIC MARKET, INFLUENCES:
The estimated market value is subject to change with market changes over
time; value is highly related to exposure, time, promotional effort, terms
motivation, and conditions surrounding the offering. The value estimate
considers the productivity and relative attractiveness of the property
physically and economically in the marketplace. The "Estimate of Market
Value" in the appraisal report is not based in whole or in part upon the
race, color or national origin of the present owners or occupants of the
properties in the vicinity of the property appraised.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
In cases of appraisals involving the capitalization of income benefits, the
estimate of market value is a reflection of such benefits and appraiser's
interpretation of income and yields and other factors derived from general
and specific market information. Such estimates are as of the date of the
estimate of value; they are thus subject to change if the market is
naturally dynamic.
15. MANAGEMENT OF THE PROPERTY:
It is assumed that the property which is the subject of this report will be
under prudent and competent ownership and management; neither inefficient
nor super efficient.
16. CONTINUING EDUCATION CURRENT:
The Appraisal Institute conducts a voluntary program of continuing
education for its designated members. MAIs and RMs who meet the minimum of
this program are awarded periodic certification. I am currently certified
under the Appraisal Institute Voluntary Continuing Education Program.
17. FEE:
The fee for this appraisal or study is for the service rendered and not for
the time spent on the physical report.
18. AUTHENTIC COPIES:
The authentic copies of this report are signed in blue ink. Any copy that
does not have an original signature is unauthorized and may have been
altered.
19. HAZARDOUS MATERIALS:
Unless otherwise stated in this report, the appraiser signing this report
has no knowledge concerning the presence or absence of urea-formaldehyde
foam insulation or asbestos containing material in existing improvements;
if such materials are present the value of the property may be adversely
affected and reappraisal at additional cost necessary to estimate the
effects of such material.
20. Unless otherwise noted within the attached report, there are no items of
FF&E included in the reported value. Any equipment included with the
property in the value are only those items that are considered as an
integral part of the realty, even though technically they could be legally
considered as personalty.
H.J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
21. NOTE
ACCEPTANCE OF, AND/OR USE OF, THIS APPRAISAL REPORT CONSTITUTES ACCEPTANCE
OF THE ABOVE CONDITIONS.
H.J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS
OF
GLEN E. HEINZELMAN
CURRENT STATUS
Glen E. Heinzelman is involved in the appraisal of and consulting with owners of
income producing real estate. He is an Associate Appraiser with H. J. Porter &
Associates, Inc. with offices located at:
H. J. Porter & Assoc., Inc
631 Stage Road P.O. Box 28
Auburn, AL 36830
(205) 826-8682
H.J. Porter & Assoc. of Birmingham
#14 Office Park Circle Suite 230
Birmingham, AL 35223
(205) 871-3600
H.J. Porter & Assoc. of Montgomery
235 S. Court Street:
Montgomery, AL 36104
(205) 262-8331
PROFESSIONAL AFFILIATIONS
Mr. Heinzelman is an MAI candidate for membership in the Appraisal Institute;
Candidate No. M921950.
Alabama Licenced Real Property Appraiser - Certificate No. L12 Georgia Licenced
Real Property Appraiser - Certificate No. 6165 Licenced Real Estate Salesperson
- State of Alabama
PROFESSIONAL EDUCATION STATUS
These courses include:
Course Sponsor Location
------ ------- --------
Real Estate Appraisal Principles AIREA Arizona State University
Basic Valuation Procedures AIREA Arizona State University
Capitalization Theory & Techniques AIREA Arizona State University
Advanced Capitalization Appraisal Institute Birmangham, Alabama
USPAP Parts A & B Appraisal Institute Birmangham, Alabama
Advanced Applications Appraisal Institute Tuscaloosa, Alabama
Report Writing & Valuation Analysis Appraisal Institute Plano, Texas
Mr. Heinzelman has also taken various seminars offered by the AIREA, IR/WA, and
others.
PROFESSIONAL EXPERIENCE
The scope of Mr. Heinzelman' s experience includes the appraisal of commercial,
multi-family residential, industrial, farm, condemnation, special use
properties, marketability, feasibility, and reuse analysis, appraisal review,
and consulting. Geographic areas of experience include the States of Alabama,
Arizona, California, Florida, Georgia, Mississippi, Nevada, and Tennessee.
Qualified as expert witness in Federal and Circuit Courts in the States of
Arizona, California, and Nevada.
H.J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS
OF
HOWARD J. PORTER, JR., MAI, CCIM
CURRENT STATUS
Howard J. Porter, Jr., is involved in the appraisal of and consulting with
owners of income producing real estate. He is President of H J Porter &
Associates, Inc. with offices located at:
H. J. Porter & Assoc. Inc.
631 Stage Road/p.O. Box 28
Auburn, AL 36830
(334) 826-8682
H. J. Porter & Assoc. Of Birmingham
#14 Office Park Circle Suite 230
Birmingham, AL 35223
(205) 871-3600
H. J. Porter & Assoc. of Montgomery
235 S. Court Street
Montgomery, AL 36104
(334) 262-8331
PROFESSIONAL AFFILIATIONS
Mr. Porter is a member of the Appraisal Institute and holds the MAI Designation
(Certificate Number 5924). He has served as a member of the SREA Young Advisory
Council (1977 & 1978). He served as President of the Birmingham SREA Chapter
#106 (1983) and the Montgomery SREA Chapter #127 as President (1986-1987). He is
a Realtor(R) Member and past Vice-President of the Lee County Association of
Realtors(R), Lee County, AL. He holds the CCIM designation conferred by the
Commercial Investment Real Estate Council of the National Association of
Realtors(R). He is a member of the International Right of Way Association
(Alabama Chapter #26) and is a panel member of the American Arbitration
Association.
PROFESSIONAL EDUCATION STATUS
Mr. Porter has taken courses leading to professional designation as offered by
the Appraisal institute (AIREA) and the Society of Real Estate Appraisers (SREA)
now merged as The Appraisal Institute. Additionally, he has credit for courses
offered by the Real Estate Securities and Syndication Institute (RESSI) the
Urban Land Institute (ULI), and the International Right of Way Association
(IR/WA), and the Commercial Investment Real Estate Institute. Mr. Porter has
also taken various seminars offered by SREA, AIREA, RESSI, IR/WA, Institute of
Real Estate Management, and others.
The Appraisal Institute conducts a voluntary program of continuing education for
its designated members. MAIs and RaMs who meet the minimum standards of this
program are awarded periodic educational certification. He is currently
certified under the Institute's voluntary continuing education program. Mr.
Porter is currently a Certified General Real Property Appraiser in Alabama
(Certificate #CG51) and a Certified Real Estate Appraiser in Georgia
(Certificate #182).
HISTORICAL DATA
Howard J. Porter, Jr., was born in Birmingham, Alabama. He was educated in the
Jefferson County School System and graduated from Auburn, University. His major
fields of study were Economics and Finance with a B.S. Degree in Business
Administration.
H.J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS OF HOWARD J. PORTER. JR.
Mr. Porter has been a licensed Real Estate Broker in Alabama since 1972 and is a
Realtor(R) Member of the Lee County Association of Realtors(R). From 1974
through 1983 he was involved with appraisals, market research, syndication and
consulting on various types of real estate. From 1983 through 1985 he was
President of a regionally active development company headquartered in Auburn,
Alabama. In 1985, H.J. Porter & Associates, Inc. was re-established in Auburn,
Alabama with affiliate offices in Birmingham and Montgomery, Alabama.
He has taught college level courses on appraisal principles and practices and
USPAP, has served as an adjunct faculty member in the Auburn University
Department of Community Planning, and is an appraisal instructor for the
International Right of Way Association. He also has given talks to various real
estate related groups throughout Alabama. Mr. Porter has developed, constructed,
owned, and managed investment real estate for his own and affiliated
partnership's account.
Governmental Corporate
------------ ---------
U.S. Internal Revenue Service Chrysler Realty Corp.
Jefferson County, Al McDonald's Corporation
Montgomery County, Al Norfolk Southern Railrod
State of Alabama DOT South Central Bell
U.S. Goverment Services Admin. Diversified Products Corporation
U.S. Department of the Interior INOUE SAKAE Co. (Japan)
U.S. Postal Service TIME/LIFE Corporation
Farmers Home Administration Baptist Medical Center (B'ham)
Birmingham Airport Authority Alabama Power Company
Auburn University Southern Natural Gas
State of Alabama Department of Revenue
Lenders Development
------- -----------
South Trust Bank Colonial Properties, Inc.
Federal National Mortagage Association Helms-Roark Development
New York Life Insurance Co. Beisel-Moss Development
Provident Mutual Life Shonnon, Strobel & Weaver
Washington Mortgage Financial Polar-BEK, Inc.
Columbus Bank & Trust Co. Southern Investment Properties
1st Interstate Mortgage (Chicago) McWhorter & Co.
Nations Bank
AmSouth Bank
First Union Bank
Mr. Porter has appeared as an expert witness in Federal Court and Circuit Courts
in various Alabama counties. He has served as a Probate Commissioner for the
Jefferson County and Lee County Probate Courts.
H.J. Porter & Associates, Inc.
STATE OF ALABAMA
[SEAL]
This is to certify that
GLEN E. HEINZELMAN
having given satisfactory evidence of the necessary
qualifications required by the laws of the State of Alabama
is licensed to transact business in Alabama as a
LICENSED REAL PROPERTY APPRAISER
With all the rights, privileges and obligations
appurtenant thereto.
LICENSE NUMBER: L00012 /s/ [ILLEGIBLE] Executive Director
EXPIRATION DATE: SEPT. 30, 1997 ALABAMA REAL ESTATE APPRAISERS BOARD
================================================================================
STATE OF ALABAMA
[SEAL]
This is to certify that
HOWARD J. PORTER, JR.
having given satisfactory evidence of the necessary
qualifications required by the laws of the State of Alabama
is licensed to transact business in Alabama as a
CERTIFIED GENERALR REAL PROPERTY APPRAISER
With all the rights, privileges and obligations
appurtenant thereto.
LICENSE NUMBER: G00051 /s/ [ILLEGIBLE] Executive Director
EXPIRATION DATE: SEPT. 30, 1997 ALABAMA REAL ESTATE APPRAISERS BOARD
================================================================================
APPRAISAL REPORT
OF
THE "Y" SHOPPING CENTER
17164 FRONT BEACH ROAD
PANAMA CITY BEACH, FLORIDA
(C97-152)
FOR
MR. LARRY MILLER
MERRILL LYNCH & COMPANY
WORLD FINANCIAL CENTER - NORTH TOWER
NEW YORK, NY 10281
AS OF
AUGUST 9, 1997
OCTOBER 28, 1997
FEBRUARY 8, 1998
BY
HOWARD J. PORTER, JR., MAI, CCIM
MATTHEW S. RICE, ASSOCIATE APPRAISER
H. J. PORTER & ASSOCIATES
631 STAGE ROAD
P.O. BOX 28
AUBURN, ALABAMA 36831-0028
(334) 826-8682
[LOGO]
H.J. Porter & Associates
[LOGO]
H.J. PORTER & ASSOCIATES - LETTERHEAD
August 28, 1997
Mr. Larry Miller
Merrill Lynch and Company
World Financial Center - North Tower
New York, NY 10281
Re: The "Y" Shopping Center
17164 Front Beach Road
Panama City, Florida
Dear Mr. Miller:
At your request, the undersigned Associate has inspected and we have made an
appraisal of the above referenced property. The purpose of this appraisal was to
estimate the "As Is" market value of the leased fee interest, the Prospective
Market Value "At Completion", and the Prospective Market Value "At Stabilized
Occupancy" in the subject property, one of fifteen shopping centers to be
included in a portfolio of retail shopping centers that will be cross
collateralized, under single management, and subject to stringent release
provisions. AS SUCH, THE ESTIMATED VALUES OF THE SUBJECT PROPERTY ARE SUBJECT TO
THE ABOVE CONDITIONS.
This complete appraisal, communicated in a self contained narrative report, has
been prepared in accordance with the Uniform Standards of Professional Appraisal
Practice (USPAP) as amended by the Comptroller of the Currency.
The property was valued at three points in time: "As Is", as of the date of
inspection by the Associate Appraiser, "At Completion", as of the developer's
estimated date of completion of the proposed renovation and building addition,
and "At Stabilized Occupancy", as of the estimated date of stabilized occupancy.
Based upon our investigation into the subject property, and its current economic
environment, we are of the opinion that the subject's leased fee interest has
market values as follows:
"AS IS" MARKET VALUE ESTIMATE
AS OF AUGUST 9, 1997
FOUR MILLION THREE HUNDRED THOUSAND DOLLARS
($4,300,000)
123 N. College St., Ste. 100 o P.O. Box 28 o Auburn, Alabama 36830 o
(334)826-8682 o Fax (334)826-3827
14 Office Park Circle, Suite 230 o Birmingham, Alabama 35223 o (205)871-3600 o
Fax (205)879-3762
418 Scott Street o Montgomery, Alabama 36104 o (334)262-8331 o Fax (334)262-8325
Real Estate Research, Appraisal & Counseling
Mr. Larry Miller
August 28, 1997
Page #2
PROSPECTIVE MARKET VALUE ESTIMATE
"AT COMPLETION"
AS OF OCTOBER 28, 1997
FOUR MILLION THREE HUNDRED EIGHTY FIVE THOUSAND DOLLARS
($4,385,000)
PROSPECTIVE MARKET VALUE ESTIMATE
"AT STABILIZED OCCUPANCY"
AS OF FEBRUARY 8, 1998
FOUR MILLION FOUR HUNDRED THOUSAND DOLLARS
($4,400,000)
Divided as: Improvements $3,733,000
Land 667,000
Total $4,400,000
Please note that this report is subject to the contingent and limiting
conditions as found in the addendum. It should be noted that our employment was
not conditional upon our producing a specific value with a given range. Future
employment prospects with Merrill Lynch and Co. are not dependent upon our
producing a specified value. Also, neither payment of our fee, nor our
employment are/were based upon whether a loan application is approved or
disapproved. We appreciate the opportunity to be of service to you in this
matter.
The attached report is submitted in support of these conclusions.
Yours very truly,
/s/ Howard J. Porter
---------------------
Howard J. Porter, Jr., MAI, CCIM
Certified General Real Property Appraiser
Alabama Certificate #G51
/s/ Matthew S. Rice
--------------------
Matthew S. Rice, Associates
Certified General Real Property Appraiser
State of Florida Temporary Practice Permit #0001154
[LOGO]
H.J. Porter & Associates
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
PROPERTY IDENTIFICATION: The "Y" Shopping Center
17164 Front Beach Road
Panama City, FL
PROPERTY RIGHT APPRAISED: Leased Fee Estate
HIGHEST AND BEST USE
AS VACANT AND IMPROVED: Neighborhood Shopping Center
DATES OF VALUE:
"As Is": August 9, 1997
"At Completion": October 28, 1997
"At Stabilized Occupancy": February 8, 1998
SITE DATA: 6.06 Acres or 263,974 Sq. Ft.
BUILDING DATA: 68,336 Sq. Ft. - Proposed GBA
66,048 Sq. Ft. - Proposed NLA
divided as:
Winn Dixie - 46,422 Sq. Ft.
Eckerd Drugs - 10,356 Sq. Ft.
Laundry (Harris) - 2,050 Sq. Ft.
Vacant - 1,200 Sq. Ft.
Vacant - 1,200 Sq. Ft.
Vacant - 1,820 Sq. Ft.
Express Laundry - 1,350 Sq. Ft.
Vacant -. 1,650 Sq. Ft
ESTIMATED LAND VALUE: $667,000
PROSPECTIVE MARKET VALUE INDICATIONS
"AT STABILIZED OCCUPANCY":
Cost Approach $3,950,000
Income Approach $4,420,000
Sales Comparison Approach $4,300,000
PROSPECTIVE MARKET VALUE
"AT STABILIZED OCCUPANCY": $4,400,000
PROSPECTIVE MARKET VALUE
"AT COMPLETION": $4,385,000
"AS IS" MARKET VALUE: $4,300,000
H. J. Porter & Associates, Inc.
TABLE OF CONTENTS
Intended Use of Appraisal......................................................1
Special Assumptions and Limiting Conditions....................................1
Environmental Considerations...................................................2
Scope of the Assignment........................................................2
Type Appraisal/Type Report.....................................................3
Date of Value Estimate.........................................................3
Exposure Time..................................................................3
Property Ownership.............................................................3
Property Location..............................................................4
Zoning/Public Utilities........................................................4
Legal Description/Land Size....................................................5
Ad Valorem Tax Analysis........................................................7
Purpose of Appraisal/Definition of Value ......................................9
Rights Appraised...............................................................9
Area Analysis - Panama City/Bay County, Florida...............................10
Neighborhood Analysis.........................................................14
Site Analysis.................................................................17
Description of Improvements...................................................18
Highest and Best Use..........................................................20
The Appraisal Process.........................................................23
Land Value - Direct Comparison................................................26
Cost Approach to Value........................................................32
Income Approach to Value......................................................36
Sales Comparison Approach.....................................................59
Reconciliation and Final Value Estimate.......................................73
Value "At Completion".........................................................74
Valuation - "As Is"...........................................................77
Certification.................................................................78
EXHIBITS
Location Map..................................................Facing Page 4
Area Map.....................................................Facing Page 10
Subject Photographs..........................................Facing Page 14
Site Plan....................................................Facing Page 17
Land Sales Map...............................................Facing Page 30
Rental Comparable Map........................................Facing Page 38
Improved Sales Map...........................................Facing Page 70
REAR EXHIBITS
Lease Synopsis
Korpacz Real Estate Investor Survey
Engagement Letter
Assumptions and Limiting Conditions
Qualifications
Certifications
H. J. Porter & Associates, Inc.
1
INTENDED USE OF APPRAISAL
This appraisal has been requested to function as an underwriting guide for
mortgage loan purposes and for use in securitization of mortgages. Accordingly,
this appraisal may be provided by Merrill Lynch & Co. to potential investors in
a securitization or other sale of mortgage loans.
The appraisal is undertaken without departure in accordance with USPAP as
promulgated by the Appraisal Foundation.
SPECIAL LIMITING CONDITIONS AND ASSUMPTIONS
The value estimates presented within this report are subject to the satisfactory
completion of the proposed renovation and building addition. Satisfactory
completion includes the development of the improvements without significant
changes or in size or construction quality from that reported herein. Complete
plans and specifications were not provided to the appraisers. Interviews with
representatives of the owners were used to determine the quality, extent and
costs of the proposed renovation and additions.
The subject property does not appear to meet the current parking requirements of
the City of Panama City Beach. No parking variance was found on file at the
building department. A building permit was recently issued by the city that
allowed for an expansion of the Winn Dixie Store, which indicates that the
property as it exists today is likely a legal non-conforming use in regards to
the current parking requirement. The subject property is proposed for an
addition of 1,200 square feet of shop space.
According to discussions with Jerry Smith with the building department, the
property would need to either be in conformance with parking requirements for an
expansion to be allowed, or have a variance permitting such non-conformance. Tom
Newton, a representative of the owner, indicated that the City has given a
verbal agreement to allow for the expansion. This appraisal specifically assumes
that a zoning variance can be obtained to allow for the 1,200 square foot
expansion, as proposed. The value estimates presented within this report are
subject to the completion of the addition to the shopping center as proposed. If
the proposed shop space expansion is not legally allowed, the appraisers reserve
the right to alter the value conclusions.
The Eckerd's lease stipulates that parking can not be less than 5.5 spaces per
1,000 square feet of gross building area. The current parking ratio falls below
this ratio. According to Woody Camp with Newton, Oldarcre, McDonald, Eckerd
Drugs signed an amendment to the lease allowing for the current parking ratio.
However, no copy of the lease amendment was provided. It is specifically assumed
that the proposed 1,200 square foot expansion will not effect the current agreed
upon parking ratio. The values estimates found herein are subject to Eckerd's
approval of the subject's parking ratio.
H. J. Porter & Associates, Inc.
2
ENVIRONMENTAL CONSIDERATIONS
No current Environmental Site Assessment was provided to the appraisers. The
appraised value contained herein assumes that the subject is free of any
environmental contamination or atypical soil conditions.
SCOPE OF THE ASSIGNMENT
The subject property, a neighborhood shopping center, is one of fifteen shopping
centers to be included in a portfolio of retail shopping centers that will be
cross collateralized, under one management, and subject to stringent release
provisions.
The scope of the assignment includes undertaking the three traditional
approaches to value with consideration given to the current status of the retail
market in Panama City Beach, Florida and the surrounding market area. In the
Cost Approach, local real estate professionals and appraisers were contacted and
a search of public records undertaken to locate comparable land sales. A
detailed inspection of the site and improvements was made by the Associate
Appraiser. Construction details were obtained from the physical inspection and
from site plans provided by the owners. Current cost estimates were obtained
from the Marshall Valuation Service, a nationally recognized cost service
indexed to the Panama City, Florida market.
In the Income Approach to Value, a survey of local retail market conditions was
made by interviewing local leasing and management agents to determine if the
contract rents for the local shop space was competitive and market oriented.
Expense comparables were studied and local management companies were interviewed
to estimate the appropriate expense deductions. The resulting net operating
income was then capitalized into a present value estimate by direct
capitalization. Where information was provided, the comparable improved sales
found in the market approach sold on direct capitalization of stabilized net
operating income rather than discounted cash flow analysis. The overall
capitalization rate was derived from market sales, built-up rates using current
market rates for debt and equity, and from published investor surveys.
The Sales Comparison Approach was developed after a search for sales of similar
shopping centers. To locate appropriate sale comparables, Realtors(R),
appraisers, mortgage lenders, and developers were interviewed. The sales located
were compared to the subject with adjustments made for items of difference.
After development of the three approaches, the value indications derived were
reconciled to provide a value estimate for the subject property as of the
effective date of appraisal.
H. J. Porter & Associates, Inc.
3
TYPE APPRAISAL/TYPE REPORT
In accordance with the Uniform Standard of Profession Appraisal Practice, the
appraisers have performed a "Complete" appraisal according to Standard Rule 1
and the communication to the client is a "Self-Contained Appraisal Report" in
accordance with Standard Rule 2-2a.
DATE OF VALUE ESTIMATE
The subject was valued at three points in time: "As Is", as of the date of
inspection by the Associate Appraiser, "At Completion", as of the developer's
estimated date of completion of the proposed renovation and building addition -
October 28, 1997, and "At Stabilized Occupancy", as of the estimated date of
stabilized occupancy - February 8, 1998.
The "At Completion" and "At Stabilized Occupancy" values represent prospective
market value estimates. The data utilized in preparing this appraisal was
researched, gathered, and/or updated during the period August 9 through August
26, 1997. The date of the appraisal is August 28, 1997, which is the date of the
transmittal letter.
The Dictionary of Real Estate Appraisal, 3rd Edition, Page 283, defines
Prospective Value Estimate as:
"A forecast of the value expected at a specified future date. A
prospective value estimate is most frequently sought in connection
with real estate projects that are proposed, under construction, or
under conversion to a new use, or those that have not achieved sellout
or a stabilized level of long-term occupancy at the time the appraisal
report is written."
EXPOSURE TIME
The estimated exposure time for the subject property, to obtain the values
communicated herein, is estimated to have been one year or less. This exposure
period assumes competent sales and marketing efforts, the property is maintained
in a marketable condition, and that the property is sold for "market value" as
defined herein. The estimated exposure period is based upon the marketing period
for the comparable sales found in the Sales Comparison Approach.
PROPERTY OWNERSHIP
The subject property is under the ownership of:
WYE Partners, Ltd.
P.O. Box 680176
250 Washington Street
Prattville, AL 36067-3603
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[ROAD MAP OF PANAMA CITY BEACH]
LOCATION MAP
PROPERTY OWNERSHIP - (CONTINUED) 4
The 6.06 acre property was purchased by the current owners on November 17, 1994
from The Lincoln National Life Insurance Company for $1,338,000. Several factors
influenced the sale price. At the time of purchase, the Winn Dixie lease was at
a significantly lower rate. Prior to the sale, negotiations were underway for an
expansion and renovation of Winn Dixie, but no deal was finalized. Also, all but
one of the shop spaces were vacant. According to Woody Camp, a representative
with the Grantee, Lincoln National had previously foreclosed on the property and
by so doing had inherited a pending lawsuit with an adjacent property owner.
Lincoln National did not want to litigate and sought to dispose of the property.
The current owners put the property under contract, settled the lawsuit, and
finalized the Winn Dixie lease amendment. This led to the expansion and
renovation under a new lease at a significantly higher rental rate. Since the
purchase, the Winn Dixie space was renovated and expanded and substantial site
improvements have been performed.
No other transactions involving the subject property have occurred in the five
years prior to the date of appraisal. Additionally, to the best of our
knowledge, there are no pending offers to purchase the subject property nor is
it currently listed for sale.
PROPERTY LOCATION
The subject property is located at the intersection of U.S. Highway 98 (Front
Beach Road) and State Road 79. The property fronts along the north side of these
intersecting streets. The property is within the city limits of Panama City
Beach, Florida in Bay County. It is located by street address as:
The "Y" Shopping Center
17164 Front Beach Road
Panama City, Florida
ZONING/PUBLIC UTILITIES
The subject property is located in the city limits of Panama City Beach, Florida
and is subject to that city's zoning regulations. The site is currently zoned T3
(Tourist District - Accommodations and Retail Sales). Allowed uses include
apartments, arcades and game rooms, hotels, motels, condominiums, churches,
clubs, lounges, lodges, parking lots, business uses, professional uses, personal
services, drive-in facilities, retail sales and services, and single-family
dwellings.
This zoning classification calls for a minimum side yard setback of 5 feet,
minimum rear yard setback of 10 feet, and a minimum setback of 25 feet from the
road right-of-way. The maximum allowed lot coverage is 80%. There is no maximum
building height.
According to Jerry Smith with the City of Panama City Beach Planning Department,
the parking requirement is two spaces per each 250 square feet of gross floor
area. Thus, considering the
H. J. Porter & Associates, Inc.
ZONING AND PUBLIC UTILITIES - (CONTINUED) 5
subject's gross size of 68,336 square feet, it appears that 547 parking spaces
are required. A site plan provided by management indicates that the subject
property has 331 parking spaces. The zoning office did not locate a parking
variance on file. However, a building permit was recently issued allowing for an
expansion of the Winn Dixie space, which would tend to indicate that the subject
property is a legal non-conforming use in regards to parking. Please see the
Special Assumptions and Limiting Conditions section of this report in regards to
parking and the proposed 1,200 square foot building addition.
The subject has all necessary utilities including electricity, gas, water,
sanitary sewer, and telephone in sufficient quantities to sustain commercial
development. Public services such as police and fire protection are provided by
the City of Panama City Beach, Florida.
LEGAL DESCRIPTION/LAND SIZE
The legal description for the subject property was obtained from a survey
prepared by County Wide Surveying, Inc., on November 11, 1994 and provided by
the owners, Wye Partners, Ltd. The subject property is legally described as:
Commence at the intersection of the west line of Section 18, Township
3 south, Range 16 West, Bay County, Florida and the north right of way
line of U.S. Highway 98; thence south 61 degrees 06'16" East along
said right of way 996.88 feet to the east right of way line of a
proposed 40 foot street and the point of beginning; thence North 01
degrees 18'24" East, 522.50 feet; thence South 88 degrees 50'22" East,
434.94 feet to the west boundary line of El Centro Beach; thence South
01 degrees 09'38" West along said line 630 feet to a point on a curve
on the North right of way line of Hwy. 98; thence on a chord bearing
of North 84 degrees 20'26" West, a distance of 273.39 feet to the P.C.
of said curve; thence North 61 degrees 06'16" West on the North right
of way of Hwy. 98, 184.92 feet to the Point of Beginning, containing
6.06 acres, more or less.
The subject property is irregular in shape and contains a total land area of
6.06 acres. The subject parcel has approximately 458 feet of frontage on the
north side of U.S. Highway 98 (Front Beach Road) and State Road 79.
As indicated previously, the subject property is one of fifteen shopping centers
to be included in a portfolio of retail shopping centers that will be cross
collateralized, under single management, and subject to stringent release
provisions. The other shopping centers included in the portfolio are listed as
follows:
Greenbrier Station Shopping Center
Anniston, AL
Clanton Marketplace
Clanton, AL
Betts Crossing Shopping Center
Opelika, AL
H. J. Porter & Associates, Inc.
LEGAL DESCRIPTION/LAND SIZE - (CONTINUED) 6
Opp Marketplace
Opp, AL
Russell Crossing Shopping Center
Phenix City, AL
29 North Shopping Center
Cantonment, FL
Nine Mile Plaza Shopping Center
Pensacola, FL
Parker Shopping Center
Parker, FL
59 West Shopping Center
Bessemer, AL
Mandeville Marketplace
Mandeville, LA
Brownsville Place Shopping Center
Brownsville, TN
Chicot Crossing Shopping Center
Pascagoula, MS
Delchamps Plaza
Long Beach, MS
One Main Place
Moss Point, MS
H. J. Porter & Associates, Inc.
7
AD VALOREM TAX ANALYSIS
The subject parcel is under the assessing authority of the Bay County Property
Appraiser's Office. The 1997 millage rate has not yet been determined. The
property was found on the 1996 tax rolls as:
Assessed to: WYE Partners, Ltd.
725 East Main Street
Prattville, AL 36067
Parcel I.D. #: 32746-100-000
Value: Land: $ 132,675
Improvements: $ 984,806
----------
Total: $1,117,481
Assessment Ratio: 100%
Local Millage Rate: $15.3330 per $1,000 of assessed value
Annual Tax: $17,134
The Winn Dixie portion of the subject property was renovated and an addition was
added that was completed in May 1996, according to information obtained at the
Panama City Beach, Florida building department. The majority of the shop space
is in poor condition and in need of the proposed renovation. The subject
property is also proposed for enclosure of 1,200 square feet located underneath
a roofed area that will add additional retail space to the property. Considering
the proposed addition and property upgrades, it is anticipated that the
assessment on the subject property will increase. The comparable properties used
to estimate the subject's assessed value are illustrated in the following table.
AD VALOREM TAX COMPARABLES
Comparable Name Yr. Built Size- SF App. Value Value/SF
--------------------------------------------------------------------------------
23rd Street Plaza 1986 99,806 $3,307,529 $33.14
Middle Beach Shop. Cntr. 1994 69,877 $3,320,453 $47.52
================================================================================
The 23rd Street Plaza is an older center that is in good overall condition.
Middle Beach Shopping Center is one of the newer shopping centers constructed in
Bay County. The subject's assessment, considering the recent and proposed
expansions and renovations, is estimated to fall near the middle portion of the
tax comparable range. Based on these comparables, the estimated value for tax
H. J. Porter & Associates, Inc.
AD VALOREM TAX ANALYSIS - (CONTINUED) 8
purposes is estimated at $38.00 per square foot. From this estimate of value,
the subject's taxes are calculated in the following table. The tax calculation
is based on the gross building area.
======================================================
SUBJECT'S ESTIMATED TAX
======================================================
Total
Building Area 68,336
Estimated Value Per SF $38.00
------
Total Estimated Assessed Value $2,596,768
1996 Millage Rate .0153330
Estimated Tax $39,816
Estimated Tax Per SF $0.58
======================================================
H. J. Porter & Associates, Inc.
9
PURPOSE OF APPRAISAL/DEFINITION OF VALUE
The purpose of the appraisal is to estimate the market value of the leased fee
interest in the subject property. Market Value is defined by the Appraisal
Standards Board of the Appraisal Foundation in the Glossary to the Uniform
Standards of Professional Appraisal Practice, as:
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 best interest;
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.
RIGHTS APPRAISED
The ownership interest in the subject property appraised is the "Leased Fee
Estate." The Dictionary of Real Estate Appraisal, 3rd Edition, Page 204, defines
Leased Fee Estate as, " an ownership interest held by a Landlord with the right
of use and occupancy conveyed by lease to others. The rights of lessor "the
leased fee owner" and the leased fee are specified by contract terms contained
within the lease. " A lease synopsis for each of the subject's tenant leases is
found in the addendum.
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[AREA MAP]
10
AREA ANALYSIS - PANAMA CITY/BAY COUNTY, FL
The four basic factors which must be considered in analyzing an area are:
(1) Physical and Locational Factors;
(2) Economic and Financial Factors;
(3) Political and Governmental Factors; and
(4) Sociological Factors
Each of these factors is discussed briefly with conclusions as to their effect
on the subject property.
PHYSICAL AND LOCATIONAL FACTORS
The subject property is located in Panama City Beach, Florida, which situates
the property within the Panama City/Bay County market area. The Bay
County-Panama City area of Florida is located on the Gulf of Mexico-in the
Panhandle region of northwest Florida. Panama City, the county seat and
principal city of Bay County, is located approximately 98 miles southwest of
Tallahassee, 81 miles south of Dothan, Alabama, 103 miles east of Pensacola, 300
miles southwest of Atlanta, 270 miles west of Jacksonville, Florida, and
approximately 315 miles east of New Orleans, Louisiana. The average annual
temperature is 68.8 degrees. Average summer temperature is 81.9 and the average
winter temperature is 53.2. Annual precipitation average is 57.86 inches.
Prevailing winds are southerly in the summer and northerly in the winter. The
topography of the area is level.
Panama City is well-known for its beaches and popular tourist attractions. St.
Andrews Bay surrounds much of Panama City providing protected harbor for
facilities at the growing port of Panama City complex. Located in Bay County are
Tyndall Air Force Base and the Naval Coastal Systems Center.
Bay County's local highway network includes U.S. Highways 98 and 231, and
Florida Routes 20, 22, 77 and 79. Interstate Highway 10 is located 13 miles from
the northern portion of Bay County. From Panama City, Interstate 10 is
approximately 40 miles.
Commercial airline service at the Panama City/Bay County International Airport
is provided by Northwest Airlink to Memphis, US Air Express to Tampa/Orlando,
and Atlantic Southeast Airlines to Atlanta. A 55,000 square foot airport
terminal was opened in 1995. Intercity bus service is provided by Southern
Greyhound. The Bay Line Railroad provides freight service to Panama City
business and industry and to Port Panama City. The "Bay Line" provides direct
service to major industries and industrial parks in the area and interconnects
with the CSX Transportation Company. Norfolk Southern Railroad in Dothan,
Alabama. Port Panama City, a deepwater port (32 feet), is located directly on
the Gulf Intra-Coastal Waterway and provides barge facilities as well as deep
water berthing. Port Panama City was awarded Foreign Trade Zone status and is
listed as Zone #65.
H. J. Porter & Associates, Inc.
AREA ANALYSIS-PANAMA CITY/BAY COUNTY, FL - (CONTINUED) 11
ECONOMIC AND FINANCIAL FACTORS
Total employment in Bay County in May 1996 reached approximately 62,131. Because
Panama City is a leading tourist location, they have large swings in their
unemployment rates. According to the Florida Department of Labor and Employment
Security, the January unemployment rate ranged from 10.4% to 12.9% between 1994
and 1996. By comparison, the June rate, during the same period ranged from 5.0%
to 7.4%. The average annual unemployment rate in 1996 was 6.3%, an improvement
from the 1995 average annual rate of 6.8%.
Leading economic sectors, based on relative employment levels, include:
1. Government
2. Retail and wholesale trade
3. Services
4. Manufacturing
Two of the primary factors of the area's economy are Tyndall Air Force Base and
the Coastal Systems Station. Tyndall, located on a 29,000 acre reservation in
southeastern Bay County, houses the 325th Fighter Wing, Headquarters 1st Air
Force, Southeast Air Defense Sector, Weapons Evaluation Group and United State
Air Force Civil Engineering Support Agency. Approximately 6,469 military and
civilian personnel are employed at Tyndall. The base also services 8,476
military retirees in the area. The total economic impact in the local area was
340.4 million in fiscal 1996.
The Coastal System Station, located on 648 acres along St. Andrew Bay, is a
major research and development facility in support of naval operations that take
place primarily in coastal regions, such as amphibious missions, swimmer
operations, diving and salvage, and mine countermeasures. The U. S. Navy School
of Diving and Salvage is headquartered at NCSC. The base employs 1,369 civilian
and military personnel. The total economic impact of the Naval Coast System is
estimated at about 272 million annually.
Bay County is home of some 132 small and large manufacturers. Many are located
in the industrial park sites which include the Hugh Nelson Industrial Park, Port
Panama City Industrial Park, Bay Line Industrial Park and the Bay Industrial
Park. All these parks feature complete utilities and offer easy access to the
county's transportation network.
According to the Florida Statistical Abstract/1996, the population of Bay County
increased from 126,994 in 1980 to 142,159 in 1996, an increase of 11.9%. The
county population is projected to reach 150,242 by the year 2000 and 171,420 by
the year 2010. Regardless of which population figures are used, the growth rate
has been above the national average and is expected to continue into the next
decade. The table below illustrates the population growth of Bay County from
1970 to 1996 and is based on the US Census count, as well as estimates obtained
form the Florida Statistical Abstract/1996.
H. J. Porter & Associates, Inc.
AREA ANALYSIS-PANAMA CITY/BAY COUNTY, FL - (CONTINUED) 12
ECONOMIC AND FINANCIAL FACTORS
=========================================
YEAR POPULATION
---- ----------
1970 75,283
1975 89,900
1980 97,740
1985 119,503
1990 126,994
1996 142,159
=========================================
According to the Department of Revenue, Florida Department of Commerce, taxable
sales in Bay County has increased annually since 1990. The table below
illustrates this growth.
Bay County has eight incorporated municipal governmental jurisdictions, with
unincorporated areas governed by the Board of Bay County Commissioners. Each
municipality has a mayor/commissioner form of government.
Florida has no personal state income tax or inheritance tax. There is a state
corporate tax of 5.5% of net income with an exemption on the first $5,000 of
corporate profit and a retail sales tax of 6.5%. The city of Panama City has a
1% sales tax. Ad valorem taxes combine city, county, and school district levies,
plus the special assessments.
H. J. Porter & Associates, Inc.
AREA ANALYSIS PANAMA CITY/BAY COUNTY, FL - (CONTINUED) 13
POLITICAL AND GOVERNMENTAL FACTORS
Bay County District Public Schools serve a population of more than 136,000
people within a geographic area of 758 square miles. The school district is the
21st largest in Florida, with an enrollment in excess of 26,500 students. Area
students attend 33 school centers throughout the county. These schools include
20 elementary, 6 middle schools, 4 senior high schools, 3 special purpose
schools and 1 vocational-technical facility. Higher education opportunities
include the Gulf Coast Community College and the Florida State University,
Panama City Campus.
SOCIOLOGICAL FACTORS
Bay County has a wide variety of cultural organizations that enhance the quality
of life for county and area residents. They include the Music Association, Art
Association, Friends of the Library and the Historical Society. Bay County also
houses the Diving Museum, the only deepwater diving museum in the United States.
Spiritual needs are net by over 150 churches with most denominations
represented.
The Gulf of Mexico, Deer Point Lake, and other waterways and mild year-round
climate combine to make Bay County one of the most popular recreational areas in
the Southeast. It is nationally known for the sugar-white sand beaches and
resort attractions.
Bay Medical Center has 302 beds and 187 physicians in 28 fields of specialized
medicine and a total personnel count in excess of 1,600. In addition to this
facility, the Columbia Gulf Coast Medical Center serves the Bay County area with
176 acute care hospital beds.
CONCLUSIONS
In summary, the Bay County and Panama City area has experienced substantial
growth in population, jobs and resort popularity over the past twenty years, and
continued economic and population growth is projected. The population of the
county is projected to increase by between 20.6% between 1996 and 2010.
Sustained by the importance of Tyndall Air Force Base and the Coastal System
Station and the economic importance of the deepwater port, Bay County has been a
draw for many non-military industries.
H. J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
[GRAPHICS OMITTED]
1. Front View of Subject
2. Side View of Subject
3. Rear View of Subject
4. View of Subject's 3,000 Square foot Shop Space Building
5. Neighborhood View Looking East on Front Beach Road
6. Neighborhood View Looking West on Front Beach Road
H. J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
[GRAPHICS OMITTED]
1. Front View of Subject
2. Side View of Subject
3. Rear View of Subject
4. View of Subject's 3,000 Square foot Shop Space Building
5. Neighborhood View Looking East on Front Beach Road
6. Neighborhood View Looking West on Front Beach Road
H. J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
[GRAPHICS OMITTED]
1. Front View of Subject
2. Side View of Subject
3. Rear View of Subject
4. View of Subject's 3,000 Square foot Shop Space Building
5. Neighborhood View Looking East on Front Beach Road
6. Neighborhood View Looking West on Front Beach Road
H. J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
[GRAPHICS OMITTED]
1. Front View of Subject
2. Side View of Subject
3. Rear View of Subject
4. View of Subject's 3,000 Square foot Shop Space Building
5. Neighborhood View Looking East on Front Beach Road
6. Neighborhood View Looking West on Front Beach Road
H. J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
[GRAPHICS OMITTED]
1. Front View of Subject
2. Side View of Subject
3. Rear View of Subject
4. View of Subject's 3,000 Square foot Shop Space Building
5. Neighborhood View Looking East on Front Beach Road
6. Neighborhood View Looking West on Front Beach Road
H. J. Porter & Associates, Inc.
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH]
[GRAPHICS OMITTED]
1. Front View of Subject
2. Side View of Subject
3. Rear View of Subject
4. View of Subject's 3,000 Square foot Shop Space Building
5. Neighborhood View Looking East on Front Beach Road
6. Neighborhood View Looking West on Front Beach Road
H. J. Porter & Associates, Inc.
14
NEIGHBORHOOD ANALYSIS
The term neighborhood is defined in "The Appraisal of Real Estate" 11th Ed. at
page 189 as "a group of complementary land uses."
The four basic factors which must be considered in analyzing a neighborhood or
district, as in an area analysis are:
(1) Physical and Locational Factors
(2) Economic and Financial Factors
(3) Political and Governmental Factors
(4) Sociological Factors
Each of these factors is discussed briefly with conclusions as to their effect
on the subject property.
PHYSICAL AND LOCATIONAL FACTORS
The subject is located at the intersection of and has frontage along both U.S.
Highway 98 (Front Beach Road) and State Road 79 within the City limits of Panama
City Beach, Florida.Neighborhood boundaries are generally described as Back
Beach Road to the north, the Gulf of Mexico to the south, Kelly Street to the
west, and Miracle Strip Parkway to the east.
The subject property is located along Front Beach Road, which is a heavily
traveled two-lane road that parallels the coastline of the Gulf of Mexico. Land
uses on the south side of Front Beach Road are primarily residential and service
oriented uses, such as restaurants, bars, and hotels, that benefit from the Gulf
of Mexico frontage. Land uses on the north side of Front Beach Road consist of
primarily retail oriented commercial uses as well service oriented and
recreational uses that do not require direct Gulf of Mexico frontage. State Road
77 is a two-lane highway that connects the neighborhood with Interstate Highway
10 approximately 45 miles to the north.
The seven-story Aqua Vista Condominium Complex is located across the street from
the subject property. This condominium complex blocks the subject property's
view of the Gulf of Mexico. Other land uses in the subject's immediate vicinity
consist of scattered commercial, residential and service uses along both Front
Beach Road and State Road 77.
The neighborhood is a popular location for tourists who come to enjoy the Gulf
of Mexico and all of the recreational amenities of Panama City Beach and Panama
City. There are also clusters of single-family homes and subdivisions located
between Front and Back Beach Roads, which contain both vacation homes and
permanent residents.
H. J. Porter & Associates, Inc.
NEIGHBORHOOD ANALYSIS - (CONTINUED) 15
ECONOMIC AND FINANCIAL FACTORS
Neighborhood trends are upward. According to the Florida Statistical Abstract,
the population of Panama City Beach, Florida has increased from 4,051 in 1990 to
4,554 in 1996, an increase of 12.4% during the six-year period. The subject
neighborhood will likely benefit from the projected population growth of Bay
County, which is projected to increase by 23% between 1995 and 2010.
Tourism is vital to the neighborhood economy. According to information compiled
by the Bay County Chamber of Commerce, the following table illustrates a Summary
of Total Rental Units available on Panama City beach, Florida.
SUMMARY OF TOTAL RENTAL UNITS AVAILABLE- PANAMA CITY BEACH
Type of Accommodation Total Number Total # of Units
--------------------- ------------ ----------------
Hotels/Motels 122 6,921
Condominiums/Townhomes 80 8,511
Campgrounds 12 1,994
Church Retreats 10 3,396
--------------------------------------------------------------------------------
Total 224 20,822
================================================================================
Source: Bay County Chamber of Commerce.
The above figures appear to include all condominium and townhome units, whether
available for rent or not. Also, the above figure includes 228 rental units that
are under construction for the 1998 tourist season. According to the 1996
Florida Statistical Abstract, 16.3% of all visitors to Florida visited Bay
County. This would result in 7,009,000 visitors to Bay County.
Including the subject property, there are currently only three direct
neighborhood shopping center competitors for local shop space within the
neighborhood. The two competitors are located approximately five miles to the
east of the subject property along Beckrich Road at Middle Beach and Front Beach
Roads. Both of these shopping centers are well occupied at present. In addition
to the competitive neighborhood shopping centers, the subject property competes
indirectly with non-anchored retail space along Front Beach Road.
POLITICAL AND GOVERNMENTAL FACTORS
Land within the neighborhood is zoned primarily by the city of Panama City
Beach, Florida. The majority of the land along Front Beach road is zoned Tourist
District, which allows for a wide variety of commercial, service and residential
land uses. Industrial, manufacturing, or processing uses, and the sales of
automobiles are prohibited in the Tourist Zoning Districts.
H. J. Porter & Associates, Inc.
NEIGHBORHOOD ANALYSIS - (CONTINUED) 16
All necessary public utilities are available to the site, including electricity,
sanitary sewer, natural gas, and water. Police and fire protection are provided
by the various municipalities within the neighborhood.
SOCIOLOGICAL FACTORS
The neighborhood is well located with regard to the quality and availability of
services, including medical, educational, recreational, cultural, and
commercial. These services are readily accessible within and near the subject
neighborhood.
CONCLUSIONS
In conclusion, the subject neighborhood consists of a variety of commercial,
service and residential land uses. The neighborhood is a popular tourist
location, and the neighborhood economy is heavily dependent on tourism.
Neighborhood trends appear upward.
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
SITE PLAN
17
SITE ANALYSIS
The subject property is located at the intersections of and has frontage along
both U.S. Highway 98 (Front Beach Road) and State Road 79. As indicated on the
site plan on the facing page, the subject property is irregular in shape. The
individual site characteristics of the shopping center site are as follows:
Size: 263,974 Sq. Ft. or 6.06 Acres
Shape: Irregular
Street Frontage: 458 feet along the north side of U.S Highway 98
and State Road 79.
Topography: Relatively level and at grade with the frontage
streets
Access: Overall accessibility is good. The site is
accessible from both directions along U.S. Highway
98, a heavily traveled two-lane arterial.
Drainage/Flood Hazard: According to the FEMA Flood Insurance Rate Map,
Community Panel No. 120013 0005 C, effective
January 3, 1986, the subject property is not
located in a special flood hazard area. The
subject property was identified as being within
Zone C, which is defined as areas of minimal
flooding.
Soils: Considered typical and adequate for development as
evidenced by the surrounding development. No soil
analysis was provided to the appraisers.
Utilities: All necessary public utilities are available in
sufficient quantities for development.
Easements: The property appears to feature standard easements
associated with utility use. No easements or
encroachments were discovered that would
negatively impact the marketability or utilization
of the subject property.
Site Improvements: The property consists of approximately 175,000
square feet of asphalt and concrete paving which
accommodates 331 parking spaces, according to a
site plan provided by the owners. Other
improvements include concrete curbing, pylon side
and parking lot light standards.
Surrounding Uses: Commercial and residential uses
H. J. Porter & Associates, Inc.
18
DESCRIPTION OF IMPROVEMENTS
The subject property is a neighborhood shopping center that is comprised of two
buildings containing 3,000 and 64,136 gross square feet, respectively. A
proposed building expansion will bring the larger building to a gross area of
approximately 65,336 square feet, and the overall size of the shopping center to
68,336 gross square feet.
The smaller retail building, which is located near the U.S. Highway 98 frontage,
was built in 1981, and the larger building was originally built in 1983. A
hurricane hit the Panama City area in late 1995 that did substantial damage to
the property. According to Woody Camp, the entire property was re-roofed after
the hurricane. Based on discussions with representatives of the owner and
information obtained at the Panama City Beach Building Department, the Winn
Dixie portion of the building underwent an addition and renovation that was
completed in May 1996. At that time, significant site improvements were
performed, which included a resurfacing of the parking lot.
A portion of the center is now in poor condition. There are 5,070 square feet of
shop space located adjacent to Eckerd Drugs within the primary building of the
shopping center. A 2,050 square foot space located at the rear of the center
with no primary exposure is leased to a laundry service company. This space
consists of minimal tenant finish with exposed concrete block walls and exposed
metal roofing as the ceiling. Management indicated that they have no renovation
plans for this space at this time. However, the owners are planning a renovation
of the remaining 3,020 square feet of vacant shop space as well as a building
expansion that will add 1,200 square feet of leasable area underneath an
existing roofed area. Information supplied by management indicates that the
projected date of completion of the proposed renovation and additions is October
27, 1997.
The shopping center will consist of approximately 68,336 gross square feet upon
completion of the proposed building addition. Including the 1,200 square feet of
proposed gross leasable area within the addition, there are 66,048 square feet
of stated lease area. The difference between gross building area and stated
lease area is due to the Winn-Dixie lease. Their space contains approximately
48,710 gross square feet, but the lease agreement and rent roll state a demised
area of 46,422 square feet.
The basic construction details that follow were obtained from the physical
inspection of the property by the Associate Appraiser on August 9, 1997. The
subject's basic construction details are as follows:
Property Type: Neighborhood shopping center
Roof: The larger building has an assumed built-up roof system over
rigid insulation and metal decking. The metal decking is
supported by steel trusses. The smaller building has a wood
truss and deck roof system with assumed built-up roof
covering.
H. J. Porter & Associates, Inc.
DESCRIPTION OF IMPROVEMENTS 19
Walls: Exterior walls are brick veneer over concrete block on the
building front and painted concrete block on the sides and
rear.
Canopy: The primary building has a combination of dryvit and raised
metal seam awnings built on a combination of brick and block
columns.
Doors: Anodized aluminum store front doors. Interior rest room
doors are hollow-core wood. Winn-Dixie is equipped with 8' x
10' truck high loading doors in the rear building area.
Windows: Anodized aluminum store fronts with single glazing
Floor Covering: Either tile or carpet floor covering
Insulation: Assumed rigid insulation in built-up roof system
Ceilings: Suspended lay-in acoustic tile with fluorescent light
fixtures
HVAC: Individual roof mounted electric central heating and cooling
for each unit. Make unknown.
Plumbing: At least one restroom in each shop space. Winn Dixie and
Eckerd Drugs's are equipped with men's and women's
restrooms.
Fire Safety: The large shopping center building containing Eckerd Drugs
and Winn Dixie has a wet sprinkler system. The separate
3,000 square foot shop space building is not equipped with a
sprinkler system.
Remarks: The current overall condition of the shop space ranges from
below average to poor. However, the majority of the shop
space will soon be renovated. The Winn Dixie and Eckerd
drugs's Drug spaces are each equipped with mezzanine areas
in their rear storage areas.
H. J. Porter & Associates, Inc.
20
HIGHEST AND BEST USE
Highest and best Use is defined in the Dictionary of Real Estate Appraisal, 3rd
edition, page 171, as:
"The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria the highest and best use must meet are LEGAL PERMISSIBILITY,
PHYSICAL POSSIBILITY, FINANCIAL FEASIBILITY, and MAXIMUM
PROFITABILITY."
Based on this definition, consideration must be given to both the subject land
site as if vacant, and the total property as improved.
HIGHEST & BEST USE - AS VACANT
PHYSICALLY POSSIBLE - The 6.06 acre size of the subject would support a wide
range of uses. All of the necessary utilities and other public services are
available in sufficient quantities to support development. The shape and
configuration is well suited for a neighborhood shopping center. The site has
good access and exposure. The physical characteristics of the site allow for a
wide variety of potential land uses.
LEGALLY PERMISSIBLE - The subject site is zoned The site is currently zoned T3
(Tourist District - Accommodations and Retail Sales). Allowed uses include
apartments, arcades and game rooms, hotels, motels, condominiums, churches,
clubs, lounges, lodges, parking lots, business uses, professional uses, personal
services, drive-in facilities, retail sales and services, and single-family
dwellings.
FINANCIALLY FEASIBLE - The subject's immediate area is developed with primarily
commercial and service uses. Considering the physical characteristics of the
subject property, including its good access and exposure, the most feasible use
of the subject site, if vacant, would be for retail use, including shopping
center development.
MAXIMALLY PRODUCTIVE - In determining the highest and best use of the subject
site, "as if vacant and available", the use which is maximally productive
generally becomes the deciding factor. Maximally productive uses are limited by
the current real estate market, the availability of substitute property for
development, and the growth stage of the area. To be maximally productive, that
use which provides the most return to the land must be selected.
It has previously been determined that it would be physically possible, legally
permissible, and financially feasible to develop the site with a retail use
compatible with the current zoning classification and adjacent use. Therefore,
as of the effective date of appraisal, retail use, including
H. J. Porter & Associates, Inc.
HIGHEST AND BEST USE-(CONTINUED) 21
shopping center development, is considered to be maximally productive and
therefore the highest and best use of the subject site, as if vacant and
available.
HIGHEST AND BEST USE - AS IMPROVED
The same criteria utilized to determine the highest and best use of the subject
site, as if vacant and available for development, is utilized to determine the
highest and best use of the property, as improved.
The subject site is currently improved with a two building neighborhood shopping
center that currently consists of a 67,136 gross square foot shopping center in
varying stages of condition. The anchor tenant spaces, Winn Dixie and Eckerd
Drugs, are in average to good overall condition. However, the existing 8,070
square feet of shop space is in average to poor overall condition. The owners
are planning to renovate 3,020 square feet of the shop space and to enclose an
additional 1,200 square feet of gross building area to the property, that will
bring the total gross building area to 68,336 square feet.
PHYSICALLY POSSIBLE - The subject buildings are well located on the site with
parking conveniently located near the retail shops. The existing buildings'
contribution to total value is substantial and appears to provide the highest
return to the land. The proposed enclosure of 1,200 square feet of gross
leasable area under an existing area that is roofed is physically possible.
LEGALLY PERMISSIBLE - One of the basic assumptions of this report is that the
subject property as proposed is legally allowed. Please see the Special
Assumptions and Limiting Conditions Section of this report.
FINANCIALLY FEASIBLE - The majority of the shop space within the center is in
below average condition. Approximately 3,020 square feet of shop space is
unleaseable at this time due to poor overall condition. A renovation of the
3,020 square feet of the existing shop space is planned, and a 1,200 square foot
shop space building addition is proposed. The subject's existing shop space is
currently 58% vacant. The high vacancy is mostly attributed to the poor overall
condition of the shop space. Our findings in the market indicate high occupancy
levels within food anchored neighborhood shopping centers. Based on proposed
renovation and addition costs provided by representatives of the owners and
current rental rates found within the market, the proposed renovation and
building addition appear feasible.
MAXIMALLY PRODUCTIVE - The subject property represents a viable functioning
entity. The high vacancy rate within the shop space can be mostly attributed to
the poor overall condition. Based on findings in the market, the current
condition of the shop space is considered an under utilization of the property.
Renovation of the shop space will enable the subject property to be competitive
with other shopping centers in the area. Also, a 1,200 square foot shop space
addition is proposed. Considering the strength of the local shopping center
market and current rental rates within the
H. J. Porter & Associates, Inc.
HIGHEST AND BEST USE - (CONTINUED) 22
market, the proposed building addition and renovation appears to be the
maximally productive use of the property at this time.
The existing improvements significantly add to the property value as a whole.
There is no other use that can economically substantiate the removal of the
existing improvements. However, the current condition of portions of the shop
space is considered an under utilization of the property. Considering the above
mentioned factors, the highest and best use of the subject property as improved
is for renovation of the 3,020 square feet of existing shop space that is
unleaseable at this time due to poor condition and for the enclosure of 1,200
square feet of gross leasable area under an existing area that is roofed, as
proposed.
H. J. Porter & Associates, Inc.
23
THE APPRAISAL PROCESS
The appraisal process is a procedure for estimating the market value of real
property. This process involves gathering all pertinent information available
from the market which may influence the value of the subject property. This data
is then utilized in forming an estimate of value based upon the three generally
accepted approaches to value. These three approaches are the Cost Approach, the
Income Approach, and the Direct Sales Comparison Approach.
COST APPROACH
The Cost Approach is defined as that approach in appraisal analysis which is
based upon the proposition that an informed purchaser would pay no more than the
cost of producing a substitute property with the same utility as the subject
property. It is assumed that the potential purchaser considers producing a
substitute property with the same utility as the property being appraised.
The application of the Cost Approach involves the following steps:
1. Estimating value of the site as if vacant and available to be put to its
highest and best use.
2. Estimating the replacement cost new of the improvements.
3. Estimating all elements of accrued depreciation.
4. Subtracting the total accrued depreciation from the replacement cost new of
the improvements (resulting in an estimate of the present worth of the
improvements).
5. Adding the present worth of all the improvements (including site
improvements) to the estimated site value.
6. Rounding the figure to an appropriate indication of value.
The major limitations of the Cost Approach is its reliance upon an estimation of
accrued depreciation. Generally, the older the property and the higher the
estimate of accrued depreciation, the less reliable becomes the value indication
from this approach. This is particularly critical in the valuation of older
properties that normally incur greater amounts of depreciation. The Cost
Approach is particularly appropriate when the property being appraised involves
relatively new improvements which represent the highest and best use of the site
or when the improvements are relatively unique or specialized and there is
limited or a total lack of comparable properties which have sold recently.
H. J. Porter & Associates, Inc.
THE APPRAISAL PROCESS - (CONTINUED) 24
INCOME ANALYSIS
The Income Analysis is defined as that procedure in appraisal analysis which
converts anticipated benefits (dollar income or amenities) to be derived from
the ownership of property into a value estimate. Anticipated future income
and/or reversions are discounted to a present-worth figure through the
capitalization process.
This analysis requires an estimate of market rent based upon comparable rent of
leased properties. This rental estimate is a gross amount and all expenses to
real estate are deducted. These expenses include vacancy and rent loss which,
when subtracted from the gross income, produces the effective gross income.
Other expenses include real estate taxes, management cost, insurance cost, and
maintenance expense. If applicable, a reduction would also be made for services
and utilities. All expense estimates are obtained from the market by comparison
to similar structures.
After all expenses have been subtracted from the gross income, the resulting
figure is the net operating income, which will be capitalized into value. The
capitalization rate is derived from actual sales that have occurred in the
market place. The sales are analyzed in order to estimate the net operating
income of the property. After the net operating income is estimated, it is
divided by the sales price to provide an indication of the overall
capitalization rate. Capitalization rates can also be built up from the market
factors considered most applicable to income-producing properties. After the net
operating income and the capitalization rate are estimated, the net income is
then capitalized into a value indication by the applicable capitalization
technique.
SALES COMPARISON APPROACH
The Sales Comparison Approach is defined as that approach in an appraisal
analysis which is based upon the proposition that an informed purchaser would
pay no more for the property than the cost to him of acquiring an existing
property with the same utility. Presumably, the potential purchaser considers
the alternatives that are available to him and then makes a rational decision
based upon the information he has about those alternatives that are available to
him and then makes a rational decision based upon the information he has about
those alternatives.
The application of the Sales Comparison Approach involves selecting a number of
competitive properties which have recently sold on the market. The information
derived from this section is analyzed through an adjustment process which
develops indications of what the competitive properties would have sold for if
they possessed all the important characteristics of the subject property. These
indications fall into a pattern surrounding one figure which, when appropriately
rounded, is an indication of the market value of the subject property as of the
date of the appraisal.
H. J. Porter & Associates, Inc.
THE APPRAISAL PROCESS - (CONTINUED) 25
The reliability of this approach is dependent upon the availability and
verification of the comparable sales data. The degree of comparability between
the competitive properties and the subject, and the absence of non-typical
conditions affecting the sales price of those properties are also important
items that are considered. Therefore, this approach is particularly applicable
when an active market provides sufficient quantities of reliable data which can
be verified from authoritative sources.
RECONCILIATION ANALYSIS
The reconciliation analysis is an evaluation process where the appraiser
carefully evaluates value indications from each of the three approaches. The
reliability of each approach to the present appraisal problem is examined and
weight is given to the accuracy, reliability, quantity of data available for use
in each approach, and the approach in which the market participant typically has
the greatest confidence.
H. J. Porter & Associates, Inc.
26
LAND VALUE - DIRECT COMPARISON
The subject site is valued by direct comparison with recent sales of other
similarly zoned commercial sites in Bay County, Florida. The sales are analyzed
on the basis of their location and utility relative to the subject. Sales
considered include:
SALE #1
Address/Location: Northwest corner of Tyndall Parkway and U.S. Highway 22,
Callaway, Bay County, Florida
Grantor: Daniel & Deborah Fioramonti, A.J. & Beatrice Trawick,
and Roy Ostertag, under separate transactions that
closed simultaneously and assembled from three parcels.
Grantee: Albertsons, Inc.
Sale Date: July 24 & July 27, 1995
Sale Price: $900,000
Cash Equiv Price: $900,000
Terms: Cash to seller
Recorded: O.R. Book 1577 Pages 20, 1500, 1501. Bay County
Verified By: Walter Abbott, MAI
Rights Conveyed: Fee simple title
Land Size: Acres: 6.5 Square Feet: 283,140
Zoning: General Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Generally level
Access/Visibility: Good/Good
Utilities: All available
Remarks: This parcel is a prime, corner, commercial parcel in the
north section of the Tyndall Parkway Corridor. The
assemblage of three parcels from three different owners
was necessary to obtain enough land for the Albertson's
Grocery Store. The site has approximately 440 feet of
frontage on Tyndall Parkway and 500 feet along Highway
22.
Indicators of Value: PRICE PER ACRE: $138,462
H. J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 27
SALE #2
Address/Location: 3621 U.S. Highway 231, Bay County, Florida
Grantor: Bauman Chiropractic Clinic, PA
Grantee: Transmitter Crossing, LLC
Sale Date: May 28, 1996
Sale Price: $625,000
Cash Equiv Price: $625,000
Terms: Cash to seller
Recorded: O.R. Book 1635 Page 1779 Bay County
Verified By: Walter Abbott, MAI
Rights Conveyed: Fee simple title
Land Size: Acres: 6.45 Square Feet: 280,962
Zoning: General Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Level; typical of the area
Access/Visibility: Good; Good
Utilities: All available
Remarks: This site has approximately 516 feet of frontage on
Highway 231 and about 510 feet of frontage on
Transmitter Road. This site does not include the
immediate corner of Transmitter Road and Highway 231.
This property included two small, old residential
structures which did not contribute to the value of the
property. The site has been developed with a Winn-Dixie
Marketplace.
Indicators of Value: PRICE PER ACRE: $96,899
H. J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 28
SALE #3
Address/Location: Northwest corner of Middle Beach Road and Beckrich Road,
Bay County, Florida
Grantor: Bennetts Reef, Inc. & Mary Sue Wells, Leclere Eubanks &
Madelene Coggin Culpepeer, Co-Trustee
Grantee: Sembler Family Partnership #8, Ltd.
Sale Date: September 1993
Sale Price: $850,100
Cash Equiv Price: $850,100
Terms: Cash to seller
Recorded: O.R. Book 1453 Page 768 & 772 Bay County
Verified By: Walter Abbott, MAI
Rights Conveyed: Fee simple title
Land Size: Acres: 9.45 Square Feet: 411,642
Zoning: General Commercial
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: level; Adequate
Access/Visibility: Good; good
Utilities: All available
Remarks: The property has 640 feet of frontage along Middle Beach
Road and 666 feet on Bechrich Road. It is presently
improved with a Publix anchored shopping center.
Indicators of Value: PRICE PER ACRE: $89,958
H. J. Porter & Associates, Inc.
LAND VALUE-DIRECT COMPARISON (CONTINUED) 29
Sale #4
Address/Location: North side of Middle Beach Road approximately 1/4 of a
mile east of Bechrich Road, Bay County, Florida
Grantor: N/A
Grantee: N/A
Sale Date: Current Listing
Asking Price: $600,000
Cash Equiv Price: $600,000
Terms: Cash to seller
Verified With: Selling Agent - Jason Oakes (850-233-9944)
Verified By: Matt Rice, H.J. Porter & Associates
Date Verified: 08\20\97
Rights Conveyed: Fee simple title
Land Size: Acres: 6.0 Square Feet: 261,360
Zoning: T-2 (Tourist District)
Highest & Best Use: Commercial
Use At Sale: Vacant
Topo/Drainage: Level/adequate
Access/Visibility: Good/Good
Utilities: All available
Remarks: According to the listing agent, the site is zoned T-2,
which allows for shopping center development. All
necessary utilities are available. The site has
approximately 600 feet of frontage on Middle Beach Road.
Indicators of Value: PRICE PER ACRE: $100,000
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[GENERAL HIGHWAY MAP OF BAY COUNTY FLORIDA]
LAND SALES MAP
LAND VALUE - DIRECT COMPARISON (CONTINUED) 30
Land Sales 1 through 4 detailed above are compared to the subject's shopping
center site and adjusted to the subject for notable differences. These
adjustments are made in the adjustment grid below.
=====================================================================================================================
LAND SALES COMPARISON GRID
=====================================================================================================================
Comp. Number Subject #1 #2 #3 #4
Grantor Ostertag, Et Al Bauman Bennetts N/A
Grantee Albertsons Transmitter Sembler N/A
Location Panama City Beach Callaway, FL Bay Co., FL Bay Co., FL Panama City
Beach
Cash Eq. Price $900,000 $625,000 $850,100 $600,000
Date of Sale 8/9/97 6/27/95 5/28/96 9/15/93 8/9/97
Land Size (ACRE) 6.06 6.50 6.45 9.45 6.00
=====================================================================================================================
ADJUSTMENTS #1 #2 #3 #4
Conditions of Sale Normal Normal Normal Normal
Net Adjustment $0 $0 $0 $0
Market Conditions 6.36% 3.60% 11.70% 0.00%
(Time) @ 3% /year
=====================================================================================================================
Preliminary Adj. Price $957,240 $647,500 $949,562 $600,000
Preliminary Adj. Price/ACRE $147,268 $100,388 $100,483 $100,000
=====================================================================================================================
PHYSICAL DIFFERENCES #1 #2 #3 #4
Location 0% 10% 0% 10%
Access/Exposure -15% 0% 0% 0%
Listing Status 0% 0% 0% -10%
Subtotal-Physical -15% 10% 0% 0%
=====================================================================================================================
Adjusted Price $813,654 $712,250 $949,562 $600,000
Adjusted Price/Acre $125,178 $110,426 $100,483 $100,000
Size 1.01 1.01 1.09 1.00
Adjusted Price Per Acre $126,429 $111,531 $109,526 $100,000
=====================================================================================================================
H. J. Porter & Associates, Inc.
LAND VALUE - DIRECT COMPARISON (CONTINUED) 31
The comparable sales listed above were adjusted to the subject for:
Conditions of Sale: All sales were normal arm's length transactions that
required no adjustments.
Time: Considers an increase in value of 3% per year over the
past several years. This is based on general trends as
there were no sales/resales found with which to compare.
Location: Sales No. 2 and No. 4 are inferior in location requiring
upward adjustments. Both of these sales are located in
areas of less intense commercial development.
Access/Exposure: Sale No. 1 is superior to the subject in corner
influence. No other adjustments for access/exposure were
required.
Listing Status: Sale No. 4 was adjusted downward for its listing status.
Size: All sales were adjusted using the Dilmore Size
adjustment table. This table is based on the fact that a
property's price per unit is generally inversely related
to its size.
The comparable sales after adjustment, indicate a range of value from $100,000
to $126,429 per acre. Most emphasis was placed on Sales No. 1 through No. 3.
Based on these adjusted sales, the subject site, "As if Vacant", is valued as:
The cost factors used are from the Marshall Valuation Service, a national cost
service indexed to the Panama City market and found to be reliable and
consistent with costs incurred by builders within the area. The cost factors
from this cost service are inclusive of architect/engineering fees, construction
period interest, contractors overhead and profit, and normal site prep costs.
Excluded are site improvements such as paving, landscaping, etc., land costs,
and indirect costs such as developers profit and permanent loan fees.
Calculations of total building replacement costs are:
Valuation - Cost Approach
Estimated Replacement Cost New - [MARKET]
Good Class "C" - Sec 13, Pg 19
Base Cost $56.83
Sprinkler System $1.80
Total Base Cost $58.63
Current Cost Multiplier X 1.04
Local Cost Multiplier X 0.85
Perimeter Multiplier X 0.83
GBA 48,710 Sq. Ft. @ $43.02 per Sq. Ft. = $2,095,407
Canopy @ 30% of Base Cost
3,120 Sq. Ft X $12.91 per Sq. Ft. = $40,265
Estimated Replacement Cost New - [NEIGHBORHOOD SHOPPING CENTER]
Average Class "C" - Sec 13, Pg 27
Base Cost $46.08
Sprinkler System $1.50
Total Base Cost $47.58
Current Cost Multiplier X 1.04
Local Cost Multiplier X 0.85
Perimeter Multiplier X 0.93
GBA 19,626 Sq. Ft. @ $39.12 per Sq. Ft. = $767,700
Canopy @ 25% of Base Cost
2,200 Sq. Ft X $9.78 per Sq. Ft. = $21,514
TOTAL REPLACEMENT COST NEW - ALL STRUCTURES $2,924,886
================================================================================
H. J. Porter & Associates, Inc.
COST APPROACH TO VALUE - (CONTINUED) 33
INDIRECT COST
Indirect costs including developer's entrepreneurial profit and permanent loan
fees are added to the subject's direct cost to estimate the total value of the
subject property via the Cost Approach. Developer's entrepreneurial profit is
added at 20% based upon sales of new shopping centers, discussions with
Developers and Brokers, and with consideration given to the cross
collateralization of the portfolio of retail properties to which the subject is
a part. Permanent loan fees are added at the amount typically charged by lenders
- 2% of the loan amount (1% construction - 1% permanent).
ACCRUED DEPRECIATION AND OBSOLESCENCE
The subject property is appraised assuming renovation of the shop space that is
in poor condition. Consequently, there are no items of deferred maintenance. The
subject's effective age is less than its actual age due to the recent and
proposed additions and renovations. Incurable physical depreciation is estimated
using the economic age/life method and calculated as:
=======================================================================
Depreciation - Physical Incurable
Effective Age: 9 Years
Economic Life New: 40 Years
Percentage Depreciation (Effective Age / Life New) 22.50%
-----------------------------------------------------------------------
Dollar Depreciation - Incurable Long Lived Items
$2,924,886 x 22.50% $658,099
H. J. Porter & Associates, Inc.
COST APPROACH TO VALUE - (CONTINUED) 34
Based on inspection of the subject property and its neighborhood, there is no
functional or external obsolescence.
Site improvements are added at their depreciated values and the underlying
vacant shopping center site land value is added as arrived at previously by
comparison. The calculation of Value by the Cost Approach is presented in
tabular form on the following page.
H. J. Porter & Associates, Inc.
COST APPROACH TO VALUE - (CONTINUED) 35
====================================================================================================================================
VALUATION - COST APPROACH
====================================================================================================================================
DIRECT COST
Total Replacement Cost New - Structures (from prior page) $2,924,886
LESS DEPRECIATION: Curable Incurable
------- ---------
Physical 0 $658,099
Functional 0 $0
External 0 $0
Total 0 $0 $658,099
--------
Depreciated Cost of Shopping Center $2,266,786
Add: Site Improvements Area Cost/Sq. Ft. % Dep. Cost New
---- ------------ ------ --------
Asphalt Paving 170,000 $2 10% $229,500
Concrete Paving 5,000 $2 5% $8,313
Concrete Curbs 1,000 $8 10% $6,750
Light Poles Lump Sum $16,000
Landscaping Lump Sum $20,000
Total Site Improvements $280,563
--------
Total Depreciated Cost New $2,547,349
INDIRECT COST
Developer Profit 20% of Total Cost/Land $642,870
Permanent Loan Fees@ 2% of Loan Amount
(Loan basis = 75% of Land/Bldg Cost) $57,858
Marketing/Lease Commission $30,000
TOTAL INDIRECT COST $730,728
--------
TOTAL REPRODUCTION COST NEW $3,278,078
LAND VALUE (from previous section) $667,000
--------
PRELIMINARY VALUE BY COST - $3,945,078
(Rounded) $3,950,000
====================================================================================================================================
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE 36
As a primary approach to value for the subject, the estimated net operating
income is capitalized into a value estimate by use of an overall capitalization
rate. In arriving at a net operating income, consideration is given to rentals
and expenses which are incurred in the operation of the property.
The shopping center currently consists of 64,848 square feet of rentable area.
Management is planning a renovation of 3,020 square feet of shop space, as well
as a building expansion that will add 1,200 square feet of leasable area. At
completion of the proposed addition and renovation, the subject property will
consist of a gross leasable area of 66,048 square feet. The following analysis
assumes completion of proposed property addition and renovation, as well as
stabilized occupancy.
CONTRACT RENT
There are currently four tenants at the subject property. The anchor tenant
space, which amounts to 56,778 square feet (46,422 Sq.Ft. - Winn Dixie and
10,356 Sq.Ft. - Eckerd Drugs's) is 100% occupied. Including the 1,200 square
foot proposed addition, the 9,270 square feet of shop space is currently 63%
vacant. A 2,050 square foot space is leased through March 31, 1999 to Helen
Harris who operates a laundry service and a 1,350 square foot space is leased on
a month to month basis to Express Coin Laundry. Summaries of each lease are
included in the Addendum of the report.
The subject property is anchored by Winn Dixie Marketplace containing 46,422
square feet of stated leased area, and Eckerd drugs's with 10,356 square feet.
Upon completion of proposed renovation and additions, the property will contain
9,270 square feet of gross leasable shop space.
In order to determine whether the current shop space rents are commensurate with
local market rents as well as to determine the market rents for the vacant
tenant spaces, six comparable neighborhood shopping centers within Bay County,
Florida were inspected, surveyed, and compared to the subject. Comparable
rentals considered for the subject's non-anchored space are shown on the
following pages.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 38
[GRAPHICS OMITTED]
[PHOTOGRAPH]
RENT COMPARABLE 1
NAME: Middle Beach Shopping Center
LOCATION: NWC of Middle Beach Road and Bechrich Road Panama
City, FL
YEAR BUILT: 1994
SIZE: 69,877 Sq.Ft. GLA
ANCHORS TENANTS: 56,077 Sq.Ft. Publix
13,800 Sq.Ft. Local Shop
69,877 Sq.Ft. GLA
SHOP TENANTS: Movie Gallery, Far Horizon's Travel, Office
Express, Classique Hair Styles, Jan's Pizza, Jane's
Hallmark, Herb Shop, Baskin Robbins, etc.
SHOP SPACE RENTS: $11.00 - $14.00 per Sq.Ft.
EXP. CONTRIBUTIONS: Taxes, CAM and Insurance
SHOP OCCUPANCY: 100%
VERIFIED WITH: Jamestown Management (770) 805-1000 - 8/19/97
REMARKS: The center is 100% occupied. It is located on
Middle Beach Road, one block south of
Front Beach Road. Management indicated
that actual rental rates for shop space
range from $11.00 - $14.00 per square
foot, annually. It is located in a busy
tourist area.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 39
[GRAPHICS OMITTED]
[PHOTOGRAPH]
RENT COMPARABLE 2
NAME: Shoppes at Edgewater
LOCATION: NEC of Front Beach Road and Bechrich Road Panama
City Beach, FL
YEAR BUILT: 1985
SIZE: 143,808 Sq.Ft. GLA
ANCHORS TENANTS: 45,520 Sq.Ft. Food World
26,929 Sq.Ft. Cinema 10
8,640 Sq. Ft. Eckerds
62,719 Sq.Ft. Local Shop
143,808 Sq.Ft. GLA
SHOP TENANTS: Food World, Cinema 10, Eckerd drugs's, Subway, Post
net, Q-Zar, Rainforest trading Co., Dakota Grill,
Granny's ice Cream, Montego Bay, Beach Scene, etc.
SHOP SPACE RENTS: $10.00 - $12.00 per Sq.Ft.
EXP. CONTRIBUTIONS: Taxes, CAM and Insurance
SHOP OCCUPANCY: 94%
VERIFIED WITH: Seltzer Management (904) 233-9944 - 8/19/97
REMARKS: Management quoted asking rates on vacant space from
$10.00 to $12.00 per square foot. The
asking rate for a 2,270 square foot
vacant space is $12.00 per square foot.
The asking rate for a 1,600 square foot
vacant space, which lacks direct
exposure, is $10.00 per square foot.
This shopping center is well located in
a busy tourist area. Management
indicated that reimbursements are
running $1.71, including $.44 per square
foot annually for insurance.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 40
[GRAPHICS OMITTED]
[PHOTOGRAPH]
RENT COMPARABLE 3
NAME: Magnolia Plaza Shopping Center
LOCATION: 2419 Thomas Drive Panama City, FL
YEAR BUILT: 1994
SIZE: 70,000 Sq.Ft. GLA +/-
ANCHORS TENANTS: 50,000 Sq.Ft. Delchamps +/-
9,000 Sq. Ft. Harco Super Drugs
11,000 Sq.Ft. Local Shop +/-
70,000 Sq.Ft. GLA
SHOP TENANTS: Movie Gallery, The Fudge Factory, Post Net, Beach
Chiropractic, Rupert's Cleaners, etc.
SHOP SPACE RENTS: Approximately $10.00 per square foot
EXP. CONTRIBUTIONS: Taxes, CAM and Insurance
SHOP OCCUPANCY: 100%
VERIFIED WITH: Cumming-White-Spunner (334) 476-6000 - 8/19/97
REMARKS: The center is 100% occupied. It is located on
Thomas Drive near the entrance to Bay
Point. Management indicated that actual
rental rates for shop space are in their
opinion below market.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 41
[GRAPHICS OMITTED]
[PHOTOGRAPH]
RENT COMPARABLE 4
NAME: 23rd Street Plaza
LOCATION: 616-676 W. 23rd Street, Panama City, FL
YEAR BUILT: 1986
SIZE: 99,756 Sq.Ft. GLA
ANCHORS TENANTS: 48,000 Sq.Ft. Publix
9,000 Sq.Ft. Party Universe
42,756 Sq.Ft. Local Shop
99,756 Sq.Ft. GLA
SHOP TENANTS: Professional Print Graphics, Transouth, Ice Cream,
Olan Mills, Heaven & Earth, Play It Again Sports,
CiCi's Pizza, 4th Dimension Hair, etc.
SHOP SPACE RENTS: $9.50 - $12.00 per Sq.Ft.
EXP. CONTRIBUTIONS: Taxes, CAM and Insurance
SHOP OCCUPANCY: 92%
VERIFIED WITH: Stan Farrell (leasing Agent) (800) 277-0606 -
8/18/97
REMARKS: The asking rate for a 3,600 square foot space is
$9.50 per square foot. Also, a 1,400 square foot
space was recently leased for $11.75 per square
foot. Only a rental range for the shop space was
given. The overall condition and quality of this
shopping center is good. According to management,
the total reimbursements are running $1.33 per
square foot annually.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 42
[GRAPHICS OMITTED]
[PHOTOGRAPH]
RENT COMPARABLE 5
NAME: Stanford Station
LOCATION: 730 W. 23rd Street Panama City, Florida
YEAR BUILT: 1983
SIZE: 88,687 Sq.Ft. GLA
ANCHORS TENANTS: 42,800 Sq.Ft. Food World
9,000 Sq.Ft. CVS Pharmacy
36,887 Sq.Ft. Local Shop
88,687 Sq.Ft. GLA
SHOP TENANTS: TCBY, Beepers Unlimited, Harrison Jewelers, Buster
Brown Shoes, Mens Fabricks, FL Linen Outlet, Mount
Olive Health Foods, MK Designs, etc.
SHOP SPACE RENTS: $10.00 - $12.00 per Sq.Ft.
EXP. CONTRIBUTIONS: Taxes, CAM, Insurance
SHOP OCCUPANCY: 89%
VERIFIED WITH: Faison Realty (904) 785-0350 8/18/97
REMARKS: The agent would not verify specific rents of the
tenants. Only a rental range for the shop space was
given. The asking rate for 1,200 and 2,800 square
foot vacant spaces are $11.50 and $10.50 per square
foot, respectively. According to the agent, costs
for taxes, insurance and CAM are running about
$1.75 per square foot annually.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 43
[GRAPHICS OMITTED]
[PHOTOGRAPH]
RENT COMPARABLE 6
NAME: Albertsons
LOCATION: Northwest corner of 23rd Street and U.S. Highway 77
Panama City, FL
YEAR BUILT: 1980 +/-
SIZE: Anchors: 45,000 Sq.Ft. +/-
Local Shop Space: 23,700 Sq.Ft.
Total 68,700 Sq.Ft +/-
ANCHOR TENANTS: Albertson's
SPACE RENT: $9.50 per Sq.Ft. (Asking)
EXP. CONTRIBUTIONS: Pro rata share of taxes, insurance & CAM
SHOP OCCUPANCY: 88%
VERIFIED WITH: Marl Cummings (334) 476-6000, 8/19/97
REMARKS: This is an older center that is well located near
the Panama City Mall. The asking rate
for a 2,800 square foot vacant space is
about $9.50 per square foot. Typical
terms are 3-5 years flat within the
center. CAM charges have been running
between $1.58 and $1.64 per square foot
in recent years.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 44
Rental rates for shop space in the six anchored shopping center comparables
range from $9.50 to $14.00 per square foot. The following table illustrates a
summary of local shop space rents within the comparables.
==================================================================================================================
COMPARABLE RENTAL SUMMARY
==================================================================================================================
Local Rent #1 #2 #3 #4 #5 #6
Local Shop Space (Sq. Ft.) 13,800 62,719 11,000 42,756 36,887 23,700
Space Available (Sq. Ft.). 0 3,870 0 3,600 4,000 2,800
Local Shop Vacancy 0% 6% 0% 8% 11% 12%
Annual Rents Per Sq. Ft. $11-14 $10-12 $10 $9.50-12 $10-12 $9.50
==================================================================================================================
According to plans indicated by management, the 9,270 square feet of shop space
is proposed to be divided into six tenant spaces. The six tenant spaces range in
size from 1,200 to 2,050 square feet. Four of the spaces are considered to have
similar exposure and market orientation as found in the above competitors, and
the market rental rate should fall within the established market range.
Considering the proposed renovation, the subject's market rents within the four
shop spaces with good exposure are estimated in the $10.00 - $10.50 per square
foot range.
Two of the subject's spaces are located in the back portion of the shopping
center with no direct exposure. One of these spaces, a 2,050 square foot space
that is presently leased to Helen Harris who operates a laundry service from the
premises, contains minimal tenant finish including exposed concrete flooring,
exposed metal roof and painted concrete block interior walls. Management has no
plans to renovate the space, and the space appears well suited for the current
tenant. Considering these factors, the current contract rent of $4.10 per square
foot annually appears at market. The other space without direct exposure
consists of 1,820 square feet that is a part of the proposed renovation.
Considering its lack of primary exposure and its expected good condition upon
completion, a rental rate of $7.00 per square foot is projected. Management at
the subject indicated that they are currently marketing this space to a
prospective office tenant.
The following table illustrates the current contract rents and the concluded
market rents for the subject shop space.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 45
SUMMARY OF CONTRACT AND MARKET RENTS FOR THE SHOP SPACE
================================================================================
Tenant Size Contact Rent/SF Estimated Market
Rent/SF
================================================================================
Helen Harris - Laundry 2,050 $4.10 $4.10
Vacant - No Primary Exposure 1,820 N/A $7.00
Vacant - Primary Exposure 1,200 N/A $10.50
Vacant - Primary Exposure 1,200 N/A $10.50
Express Coin Laundry 1,350 $10.40 $10.40
Vacant - Primary Exposure 1,650 N/A $10.50
================================================================================
As with most modern neighborhood shopping centers, shop space tenants pay their
pro rata share of taxes, insurance, arid common area maintenance. No other
expense contributions are included. Express Coin Laundry is currently paying a
15% CAM and insurance administration charge. However, this tenant is on a month
to month agreement and the long-term prospects for this tenant are in question.
Considering the age of the subject property, the projected market rents, and
overall market conditions, additional expense contributions for CAM and
insurance administrative fees, % of base rent for management fee, and per square
foot reserve for structural maintenance have not been included in this analysis.
The contract rents for Winn Dixie and Eckerd Drugs, like most signature stores,
are a function of the development cost and negotiations between developer and
tenant. The Winn Dixie rent at $6.96 per square foot is within the range of
rental rates for other similar sized food anchors. However, the current rental
rate for Eckerd Drugs's at $5.26 per square foot is below the range of rental
rates for similar sized anchors as illustrated in the following table.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 46
====================================================================================================================================
Tenant Location Year Size-Sq-Ft. Rent/Sq.Ft.
====================================================================================================================================
Winn Dixie Alabaster, AL 1993 44,000 $6.50
Winn Dixie Panama City, FL 1993 44,000 $7.15
Winn Dixie Moody, AL 1993 44,000 $7.00
Winn Dixie Chalkville, AL 1994 51,250 $6.50
Winn Dixie Alexander City, AL 1994 44,000 6.75
Winn Dixie Chattanooga, TN 1994 44,000 7.05
Winn Dixie Anniston, AL 1995 44,000 $7.70
Winn Dixie Birmingham, AL 1995 44,000 $6.95
Winn Dixie Mobile, AL 1996 51,282 $8.00
Winn Dixie Dalton, GA 1996 44,000 $9.26
Winn Dixie Trussville, AL 1996 44,000 $8.15
Winn Dixie Mobile, AL 1997 44,000 $9.00
Winn Dixie Pensacola, FL 1997 44,500 $8.60
Winn Dixie Cantonment, FL 1997 44,000 $7.75
Winn Dixie Parker, FL 1997 44,000 $7.80
Winn Dixie Mobile, AL 1997 44,000 $8.85
Winn Dixie Fairhope, AL 1997 51,282 $9.25
====================================================================================================================================
====================================================================================================================================
Drugs for Less Birmingham, AL 1993 18,000 $7.50
Harco Drugs Birmingham, AL 1993 12,876 $5.95
Harco Drugs Pell City, AL 1993 9,100 $7.50
Harco Drugs Alabaster, AL 1993 9,100 $8.50
Big B Drugs Chattanooga, TN 1994 8,470 $7.00
Harco Drugs Tuscaloosa, AL 1994 10,160 $7.90
Revco Anniston, AL 1995 9,240 $7.75
Scotty's Parker, FL 1995 19,880 $6.25
Revco Cantonment, FL 1997 9,240 $7.75
Drugs for Less Birmingham, AL 1995 18,000 $7.00
Revco Dalton, GA 1996 8,450 $9.75
Harco Drugs Mobile, AL 1997 10,125 $8.25
====================================================================================================================================
According to discussions with management and information found on the rent roll,
Winn Dixie pays its pro-rata share of common area maintenance and pro-rata share
of any increases over base year taxes and insurance, which are $12,400 and
$8,595, respectively. Eckerd's pays its pro-rata share of common area
maintenance and pro-rate share of increases over base year taxes. The base year
tax amount is $12,400, according to information on the rent roll. Eckerd's does
not contribute to the landlord's insurance expenses.
The Winn Dixie and Eckerd's leases call for percentage rents. No information was
provided that indicated that percentage rents have been collected in recent
years. As such, no income from percentage rent is estimated.
The Eckerd's lease is considered below market. There are approximately six years
remaining on the original lease agreement, and Eckerd's has four, five year
renewal options. In other areas of Bay
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 47
County, Eckerd Drugs has vacated space within shopping centers in recent years
and is occupying free-standing buildings. However, considering the favorable
terms of the lease, consideration must be given to the possibility of Eckerd
Drugs exercising renewal options.
The Potential Gross Income is the sum of the subject's contract rents plus
expense reimbursements for the pro rata share of taxes, insurance, and common
area maintenance. No administrative fees, reserves or management fee
reimbursements are included in this analysis. The Potential Gross Income is
calculated in the following table.
================================================================================
POTENTIAL GROSS INCOME
================================================================================
Anchor Tenants
Winn Dixie 46,422 sq.ft. @ $6.96 = $322,978
Eckerds 10,356 sq.ft. @ $5.26 = $54,432
Subtotal 56,778 sq.ft. $377,410
Non-Anchor Tenants
Helen Harris 2,050 sq.ft. @ $4.10 = $8,400
Vacant 1,820 sq.ft. @ $7.00 = $12,740
Vacant 1,200 sq.ft. @ $10.50 = $12,600
Vacant 1,200 sq.ft. @ $10.50 = $12,600
Express Coin 1,350 sq.ft. @ $10.40 = $14,040
Laundry
Vacant 1,650 sq.ft. @ $10.50 = $17,325
Subtotal 9,270 $77,705
-------
Total Rental Income 66,048 sq.ft. $455,115
Expense Contributions
Eckerds 10,356 sq.ft.
Taxes sq.ft. @ $0.42 = $4,299
CAM sq.ft. @ $0.38 = $3,935
Winn Dixie 46,422
Taxes sq.ft. @ $0.42 = $19,269
Insurance sq.ft. @ $0.37 = $17,153
CAM sq.ft. @ $0.38 = $17,640
Non-Anchor Tenants
CAM Admin., St. Res., Mgt. $0
CAM, Tax, Ins. 9,270 sq.ft. @ $1.48 = $13,720
66,048 $76,017
-------
POTENTIAL GROSS INCOME $531,132
================================================================================
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 48
EFFECTIVE GROSS INCOME
Stabilized vacancy and collection loss is subtracted from Potential Gross Income
to estimate the Effective Gross Income. Winn Dixie and Eckerd Drugs have
extended lease terms and are considered credit anchor tenants. As such, no
vacancy and credit loss is calculated on their income. The possibility exists
that Eckerd Drugs's will vacate the space at the end of the initial lease term
in July 2003. However, considering the below market lease, the remaining lease
period, and the time available for the landlord to find a new anchor tenant for
this space if vacated, no vacancy and credit loss was estimated for the Eckerd
Drug's space.
Local shop space in the six comparable shopping centers ranged from 88% to 100%
occupied. There is good demand for local shop space in food anchored shopping
centers throughout the Bay County area. Considering the size of the shop space,
the proposed renovation of the subject, the strength of the market, the
subject's anchor tenants, and the physical locations of the subject spaces
within the shopping center, the stabilized vacancy and collection loss for the
subject's non-anchored shop space is estimated to be 10% ($91,425) times 10% =
$9,143 of base rent and expense reimbursements. The effective gross income is
calculated as follows.
$531,132 Potential Gross Income
$9,143 Vacancy and Collection Loss
------
$521,989 Effective Gross Income
OPERATING EXPENSES
After estimating Effective Gross Income, all applicable expenses are deducted to
arrive at Net Operating Income. A two year operating expense was provided by
management. The historical expenses are displayed in the following table.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 49
OPERATING EXPENSES - (CONTINUED)
============================================================
Historical Expenses
============================================================
1995 1996
---- ----
Income
Gross Rents $421,444 $435,351
Total Income $421,444 $435,351
Expenses
Cleaning/maintenance $11,072 $13,712
Insurance $31,479 $40,734
Repairs $3,659
Taxes $17,143 17,134
Utilities $5,823 $7,346
Other $5,122 $20,834
Total Expenses $74,298 $99,760
------- -------
Net Operating Income $347,146 $335,591
============================================================
No management fee was included in the above historical expense statement
provided by management. Little emphasis was placed on the subject's historical
expenses due to the high vacancy rate within the shop space in recent years. To
estimate the appropriate expense levels, statements from similar shopping
centers in the southeast are analyzed and representatives with local management
companies were interviewed.
The expense comparables are presented below and on the following pages.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 50
OPERATING EXPENSES - (CONTINUED)
Comparable # 1
Project Name: Delchamps Plaza North
Location: McFarland & Watermelon Road Tuscaloosa, AL
Year Built: 1986 GLA: 59,389 SF
Source: Year End Statement
Type Center: Neighborhood
Analysis Year: 1995 Analysis By: DPM
Item Total $/SF %PGR
---- ----- ---- ----
Potential Gross Rent: $459,768 $7.74 100.0%
Less Vac/Credit Loss: $-603 $-0.01 -0.1%
----- ------ ------
Effective Gross Rent: $459,165 $7.73 99.9%
+ CAM/Reimbursements: $41,120 $0.69 8.9%
+ Misc Income: $3,439 $0.06 0.7%
----- ------ ------
Effec. Gross Income: $503,724 $8.48 100.0%
Item Total $/SF %EGI
---- ----- ---- ----
Less Expenses:
Management: $30,762 $0.52 6.1%
Ad Valorem Tax: $33,939 $0.57 6.7%
Insurance: $4,915 $0.08 1.0%
Administration Expense: $1,391 $0.02 0.3%
CAM: $41,892 $0.71 8.3%
Miscellaneous: $8,765 $0.15 1.7%
Total Expenses: $121,664 $2.05 24.2%
-------- ----- -----
Net Operating Income: $382,060 $6.43 75.8%
======== ===== =====
Comments: Utilities expense included in CAM. Miscellaneous expense is non-pass
through expense for building repair.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 51
OPERATING EXPENSES - (CONTINUED)
Comparable # 2
Project Name: Delchamps Plaza South
Location: Skyland Blvd. Tuscaloosa, AL
Year Built: 1986 GLA: 108,903 SF
Source: Year end operating statement
Type Center: Neighborhood Shopping Center
Comments: Miscellaneous expense is building repair and maintenance.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 54
OPERATING EXPENSES - (CONTINUED)
Based on these expense comparables, the pertinent expense categories in
appropriate amounts are estimated below. The following expense estimates reflect
estimated stabilized expenses for the subject property, as proposed.
Management/Leasing: The management fee of the comparable properties ranged
from 3.8% to 6.1%. As indicated previously, the
subject property is one of fifteen shopping centers in
a cross collateralized portfolio of retail properties
under single management. Considering economies of
scale, the subject's management fee is estimated at
the low end of the range at 4% of effective rental
income.
Ad Valorem tax: The subject's ad valorem tax, as previously discussed,
is estimated at $39,816 per year.
Insurance: According to Robb Newton, a representative of the
owner, the current insurance costs are approximately
$30,310 per year. Based on discussion with local
property manager's and a review of the subject's
recent historical insurance expenses, an insurance
expense of $33,000, or $.50 per square foot is
estimated. Based on discussions with local management
companies and the subject's location near the Gulf of
Mexico, the insurance amount appears reasonable. For
instance, a nearby 143,808 square foot center had 1996
insurance costs of $.44 per square foot with an
anticipation of a significant increase for the
upcoming year.
Common Area Maintenance: Based on the expense comparables, which range from
$.23 to $.71 per square foot, as well as discussions
with local shopping center managers, Common area
maintenance and repair expense is estimated at $25,000
per year or $.38 per sq. ft..
Structural Maintenance: Structural maintenance is estimated to be $.10 per sq.
ft. for a total annual amount of $6,600. The
comparables ranged from $.03 to $.15 per square foot.
Administrative: This expense is estimated to be $1,500 per year or
$.02 per square foot.
Total operating expenses are estimated to be $123,810 per year or $1.87 per
square foot.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 55
NET OPERATING INCOME
The subject's stabilized net operating income is calculated by subtracting the
Operating Expenses from the Effective Gross Income and illustrated as:
$521,989 Effective Gross Income
$123,810 Operating Expenses
--------
$398,179 Net Operating Income
OVERALL CAPITALIZATION RATE
To estimate the subject's value via the Income Approach, the subject's
stabilized net operating income is capitalized with an overall capitalization
rate of 9.00%. The selected overall capitalization rate is based on several
methods of capitalization rate development with consideration given to the cross
collateralization of the subject property with the other fourteen shopping
centers in the securitized portfolio of retail properties. The cap rate
development methods, which are presented following the Income Approach Summary
on the following page, includes rates extracted from comparable sales, recently
published investor surveys, and three methods using mortgage and equity
positions which include the Ellwood, Band of Investment, and Debt Coverage Ratio
Methods.
Rates extracted from the comparable sales, ranged from 9.64% to 10.53%, with an
average of 10.04%. Published rates from the Korpacz Second Quarter 1997 Investor
Survey ranged from 8.25% to 13.00% with an average rate of 9.84%. The most
likely rates from the three mortgage/equity methods ranged from 8.87% to 9.14%.
The rates developed with mortgage/equity factors reflect current conditions and
declining interest rates. The criteria used for these methods was taken from the
above investor survey and from interviews with mortgage brokers.
The High, Middle, and Low average of the five methods of cap rate development
are 10.32%, 9.36%, and 8.72%, respectively. Based on this analysis and the above
considerations, the subject's overall capitalization rate is estimated to fall
between the Middle and Low range of the five methods.
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 56
ESTIMATED VALUE BY INCOME APPROACH
The subject's stabilized net operating income of $398,179 is capitalized with an
overall capitalization rate of 9.00% for an estimated prospective market value
"At Stabilized Occupancy" of $4,424,211, which is rounded to $4,420,000. A
summary of the Income Approach to Value is presented below.
=================================================================================================================
POTENTIAL GROSS INCOME $531,132
Less Vacancy and Collection Loss
Non-Anchor Tenants 10% Rent + Exp. Cont. = $9,143
------
EFFECTIVE GROSS INCOME $521,9894
% of $ per
Less Expenses: E.G.I. S.F.
Management: $17,894 4.0% $0.27
Ad.Val.Tax $39,816 7.6% $0.60
Insurance $33,000 6.3% $0.50
CAM $25,000 4.8% $0.38
St. Maint. $6,600 1.3% $0.10
Misc. Admin. $1,500 0.3% $0.02
--- -----
Total Expenses 23.7% $1.87 $123,810
--------
NET OPERATING INCOME $398,179
Capitalized at 9.00% $4,424,211
TOTAL INDICATED VALUE - "At (Rounded) $4,420,000
Stabilized Occupancy"
=================================================================================================================
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 57
=======================================================================================================================
Property Capitalization
Rate Justification
=======================================================================================================================
High Middle Low
---- ------ ---
--------------------------------------------
1. Market extracted rates for 10.53% 10.04% 9.64%
similar local properties --------------------------------------------
--------------------------------------------
2. Recent published cap rates 13.00% 9.84% 8.25%
--------------------------------------------
used by institutional investors - Source: Korpacz Report 2nd Quarter 1997
3. Ellwood method calculated rates
11.55% = Eqty yield before tax --------------------------------------------
% Property appreciation (income) over hold period = -5.00% 0.00% 5.00%
--------------------------------------------
75% = Mortgage percent of value
7.75% = Mortgage interest rate
20.0 = Mortgage term in years
10.0 = Investment holding period
9.85% = Rm = Mortgage constant
14.4% = Rmp = Mortgage constant over holding period
31.6% = P = Percent of mortgage paid off over hold period
5.8% = SFF = Sink fund factor
37.2% = J factor
--------------------------------------------
Calculated cap rate = 9.36% 8.90% 8.45%
--------------------------------------------
4. Band of Investment Method
Mortgage percent to value 70.00% 75.00% 80.00%
Mortgage constant 10.35% 9.85% 9.35%
Equity percent to value 30.00% 25.00% 20.00%
Eqty cash on cash rate 8.00% 7.00% 6.00%
--------------------------------------------
Calculated cap rate 9.65% 9.14% 8.68%
--------------------------------------------
5. Debt Coverage Ratio Method
Req'd debt coverage ratio 1.35 1.2 1.15
Mortgage percent to value 70.00% 75.00% 80.00%
Mortgage constant 10.35% 9.85% 9.35%
--------------------------------------------
Calculated cap rate 9.06% 8.87% 8.60%
--------------------------------------------
Average of Five Methods 10.32% 9.36% 8.72%
=======================================================================================================================
H. J. Porter & Associates, Inc.
INCOME APPROACH TO VALUE - (CONTINUED) 58
Explanatory Notes
Capitalization Rate Evidence
The accompanying chart illustrates 5 different sets of data or evidence as to
appropriate current property capitalization rates.
Item # 1 Reflects the current range in capitalization rates in the
southeast based on actual sales - this information is historical in nature
although there has been a fairly consistent pattern evident in this market
over the years.
Item # 2 Reflects actual cap rates used by large financial institutions in
the acquisition and financing of major real estate projects. These rates
are also historical in nature, but are based on properties of a magnitude
atypical in this market area. Properties that would appeal to at least a
regional and perhaps a national market of potential buyers.
Item # 3 Reflects a calculated cap rate utilizing the Ellwood model based
on future expectations in income and property value growth and equity yield
rates - explicit input assumptions are listed. This method is compelling
when market mortgage and equity yield returns are predictable and property
and income changes can be reliably predicted.
Item # 4 Analyzes required capital outlays to service both the debt (ie
mortgage payment) and the equity (cash on cash or before tax cash flow or
equity dividend). The weighted average of these required returns is, by
definition, equal to the capitalization rate. It should be noted that the
mortgage interest rate and equity yield rate are NOT part of this
calculation.
Item # 5 Provides another method often used by lenders. The debt coverage
ratio is a factor equal to the net operating income divided by the annual
debt service - in other words, it is an estimate of the "cushion" or excess
of net operating income over and above debt service. The calculated cap can
be solved for by the following formula R(o) = R(m) X DCR X M.
The actual cap rate used by appraisers in this analysis is bracketed by this
information. Further, this chart illustrates the implicit market expectations of
the various investment parameters that are reflected by the specific
capitalization rate used.
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH 59
To estimate the subject property's value by the Sales Comparison Approach, a
direct comparison is made with actual sales of other neighborhood shopping
center properties. These sales are analyzed on the basis of price per square
foot of gross leasable area (GLA) and their effective gross income multiplier
(EGIM).
While the subject property is part of a large portfolio of retail properties
which would most likely be marketed as a total package, no sales of similar
portfolio of properties were found with which to compare. The market for retail
properties is national, and purchases are made on the strength and reliability
of the income stream. Similar shopping center sales were located in the
Southeast United States.
Each sale is adjusted to the subject for pertinent items, including unusual
financing or conditions of sale, time lapsed since sale, and physical
differences such as age, condition, and construction quality and location as
reflected in the net operating income.
The sales considered are detailed on the following pages with a comparison and
adjustment following the presentation of the sales data.
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 60
Sale #1
Address/Location: Village At Moody US Highway 411 Moody, AL
Grantor: FS Partnership, Ltd.
Grantee: Birmingham Realty
Sale Date: 02/14/1996
Sale Price: $4,485,000
Cash Equiv Price: $4,485,000
Equity: $1,485,000
Debt: $3,000,000
Terms: $1,485,000 cash plus assumption of $3,000,000
mortgage at market rates and terms.
Recorded: Book 261, Page 313; St. Clair County
Verified With: Paul Spina, Grantor (205) 733-1131
Verified By: David Mullins, H.J. Porter & Associates
Date Verified: 04/10/1996
Rights Conveyed: Leased Fee
Land Size: 8.43 Acres
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood Shopping Center
Parking: 396 Parking Ratio: 6.51
Building Size: 60,800 SF(NRA)
Land:Bldg Ratio: 6.0
Year Built: 1995
Condition: Good
Building
Description: In-line, one story masonry construction with brick
exterior on front and sides, and CCB on rear. Flat
built-up roof system.
Anchors: Winn Dixie - 44,000 SF
Anchor - Sq. Ft.: 44,000 Anchor %: 72.37
Local: J&E Ent., Head Start, Movie Gallery, Open Book,
Vulcan Rehab, Moody Cleaners, Vill. Beverage, Merle
Norman, Nail Shop
Local - Sq. Ft.: 16,800 Local%: 27.63
Lease Information: Winn Dixie - $7.00 PSF,
Local tenant rent range $10.50 to $11.50
PSF with average of $10.67 PSF. All
tenants pay pro-rata share of CAM, tax,
and insurance.
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 61
Sale #1 (Continued)
ANALYSIS
(1/2/3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- --------------
(A\E\F) Potential Gross Income: $533,922 $8.78
(A\E\F) Vac & Credit Loss: $9,920 $0.16
(A\E\F) Effec. Gross Income: $524,002 $8.62
(A\E\F) Less Expenses: $87,532 $1.44
------- -----
(A\E\F) Net Oper. Income $436,470 $7.18
==========================================================================
* Field 1: S = Seller B = Buyer A = Appraiser
Field 2: A = Actual E = Estimated
Field 3: P = Prior Year F = Year Following
==========================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $73.77
PGIM: 8.40
EGIM: 8.56
R(o): 9.73%
Expense Ratio: 16.70
Remarks: At time of sale this center was less than one year old and did not
have a complete year of operating history. PGI includes contract rent
plus estimated expense contributions. Market vacancy estimated at 5%
of local tenant rent and expense contributions. Expenses include 4%
management fee, taxes at $.58 PSF, insurance at $.10 PSF, CAM at $.40
PSF, and St. Maintenance at $.05 PSF. This center is located at the
northeast corner of I-20 and US Highway 411 in Moody, Alabama. This
area is a rapidly growing commercial district in the
Birmingham/Atlanta interstate corridor.
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 62
Sale #2
Address/Location: Middle Beach Shopping Center Middle Beach Road and
Bechrich Road Bay County, Florida
Grantor: Sembler Family Partnership #8.
Grantee: Secured Properties Investors XII, L.P.
Sale Date: 9/9/1994
Sale Price: $5,775,000
Cash Equiv Price: $5,775,000
Terms: Cash to Seller
Recorded: O.R. Book 1523 Page 1166; Bay County
Verified By: Lee Weaver - Pardue, Held, Church, Smith & Waller
Rights Conveyed: Leased Fee
Land Size: 8.57 Acres
Access/Visibility: Good/Good
Highest & Best Use: Shopping Center
Building Size: 69,877 SF(NRA)
Land:Bldg Ratio: 5.34
Year Built: 1994
Condition: Good
Building
Description: One Story masonry construction neighborhood shopping
center. Built up flat roof.
Anchors: Publix
Anchor - Sq. Ft.: 56,077 Anchor %: 80.3
Local: Movie Gallery, Jane's Hallmark, Jan's Pizza, Far
Horizon's Travel, Baskin Robbins, Office Express
Classique Hair Styles, Herb Shop.
Local - Sq. Ft.: 13,800 Local %: 19.7
Lease Information: All tenants pay a pro-rata share of CAM, Taxes, and
Insurance.
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 63
Sale #2 (Continued)
ANALYSIS
(1/2/3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- --------------
(A\E\F) Potential Gross Income: $747,600 $10.70
(A\E\F) Vac & Credit Loss: $16,754 $0.24
------- -----
(A\E\F) Effec. Gross Income: $730,846 $10.46
(A\E\F) Less Expenses: $148,846 $2.13
-------- -----
(A\E\F) Net Oper. Income $582,000 $8.33
=====================================================================
* Field 1: S = Seller B = Buyer A = Appraiser
Field 2: A = Actual E = Estimated
Field 3: P = Prior Year F = Year Following
=====================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $82.65
PGIM: 7.73
EGIM: 7.90
R(o): 10.08%
Expense Ratio: 20.4%
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 64
Sale #3
Address/Location: North Hixson Marketplace
Hixson Pike and Camp Columbus Road
Chattanooga, TN
Grantor: North Hixson, L.L.C.
Grantee: Amberjack Ltd.
Sale Date: 03/04/1996
Sale Price: $4,760,000
Cash Equiv Price: $4,760,000
Terms: Cash to seller
Recorded: Hamilton County
Verified With: Dick Schmalz, with Grantor (205) 871-2617
Verified By: David Mullins, H.J. Porter & Associates
Date Verified: 03/15/1996
Rights Conveyed: Leased Fee
Land Size: 9.24 Acres
Access/Visibility: Average/Average
Highest & Best Use: Neighborhood Shopping Center
Parking: 405 PARKING RATIO: 5.88
Building Size: 63,270 SF(NRA)
Land: Bldg Ratio: 6.4
Year Built: 1995
Condition: Good
Building
Description: One story neighborhood shopping center with split
face block exterior walks and synthetic stucco on
steel stud canopy.
Anchors: Winn Dixie (49,600 sf GBA & 44,000 sf NRA); Big B
Drugs 8,470 sf
Anchor - Sq. Ft.: 52,470 Anchor %: 82.93
Local: Movie Gallery, Sally's Beauty and other local
tenants
Local - Sq. Ft.: 10,800 Local %: 17.07
Lease Information: Anchor and Local: CAM, Taxes and Insurance
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 65
Sale #3 (Continued)
ANALYSIS
(1/2/3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- --------------
(S\A\F) Potential Gross Income: $623,083 $9.85
(A\E\F) Vac & Credit Loss: $13,057 $0.21
------- -----
(A\E\F) Effec. Gross Income: $610,026 $9.64
(A\E\F) Less Expenses: $124,533 $1.97
-------- -----
(A\E\F) Net Oper. Income $485,493 $7.67
======================================================================
* Field 1: S = Seller B = Buyer A = Appraiser
Field 2: A = Actual E = Estimated
Field 3: P = Prior Year F = Year Following
======================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $75.23
PGIM: 7.64
EGIM: 7.80
R(o): 10.2%
Expense Ratio: 20.41%
Remarks: At time of sale, there were two vacant local shops containing 2,400
sq.ft. Expense contribution included in PGI and local vacancy. Vacancy
based on 10% of local shop income plus expense contributions. Expenses
based on 4% management, excluding expense contributions, $1.59 for
taxes, CAM and insurance plus $.05 for structural reserves. The
estimated expenses were consistent with Grantor's proforma. Average
local shop space rent for leased space was $10.45/sf.
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 66
Sale #4
Address/Location: Hillcrest Marketplace
Hillcrest Road @ Grelot Road
Mobile, Alabama
Grantor: Hillcrest Marketplace, Ltd.
Grantee: Confidential
Proposed Sale Date: 9/15/97
Sale Price: $6,490,000
Cash Equiv Price: $6,490,000
Terms: Cash to seller
Recorded: Sale Pending
Verified With: Scott Holcombe, Arlington Properties -Developer
(205) 328-9600
Verified By: Harris Hollans, H.J. Porter & Associates
Date Verified: 04/02/1997
Rights Conveyed: Leased Fee Interest
Land Size: 12.49 Acres
Access/Visibility: Good/Good
Highest & Best Use: Neighborhood Shopping Center
Parking: 359 Parking Ratio: 4.63
Building Size: 76,365 SF(NRA)
Land:Bldg Ratio: 7.1
Year Built: 1997
Condition: New
Building
Description: Red brick veneer front over concrete block wall.
Reinforced concrete slab. Single ply membrane roof.
Raised seam metal and canvas awning.
Anchors: Winn Dixie (51,282 sq.ft.), Revco (9,240 sq.ft.)
Anchor - Sq. Ft.: 60,522 Anchor %: 79.25
Local: Various regional, national, & local
Local - Sq. Ft.: 15,843 Local %: 20.75
Lease Information: Winn Dixie rent was $8.00 per sq.ft. Revco rent was
$8.00 per sq.ft. Local rents were pro-forma $11.50,
actual was $12.50 per sq.ft. Anchor expense
contributions were estimated at $.99 per sq.ft. with
local tenants at $1.38 per sq.ft.
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 67
Sale #4 (Continued)
ANALYSIS
(1/2/3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- --------------
(A\E\F) Potential Gross Income: $756,072 $9.90
(A\E\F) Vac & Credit Loss: $17,613 $0.23
------- -----
(A\E\F) Effec. Gross Income: $738,459 $9.67
(A\E\F) Less Expenses: $112,823 $1.48
-------- -----
(S\E\F) Net Oper. Income $625,636 $8.19
======================================================================
* Field 1: S = Seller B = Buyer A = Appraiser
Field 2: A = Actual E = Estimated
Field 3: P = Prior Year F = Year Following
======================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $84.99
PGIM: 8.58
EGIM: 8.79
R(o): 9.6400%
Expense Ratio: 15.28%
Remarks: The total Gross Building Area of the shopping center was 77,557 sq.
ft. Local tenant space was projected to be 100% leased prior to
completion. The sale of the property was also negotiated prior to
completion. Estimated completion date was July 1997. There were five
out-parcel lots at the center which were not included in the
transaction. Significant site work was necessary for development.
Estimated site work totaled $85,000 per acre. Out-parcels were
marketed to Wendy's, New York Bagel, and Boston Market.
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
[PHOTOGRAPH]
SALES COMPARISON APPROACH - (CONTINUED) 68
Sale #5
Address/Location: Ensley Square Shopping Center Northeast Corner of
Nine Mile Road and Palofax Highway Pensacola,
Florida
Grantor: Noro - Ensley Square Holdings BV
Grantee: Branch / HOP Associates, L.P.
Sale Date: 11/15/1995
Sale Price: $3,450,000
Cash Equiv Price: $3,450,000
Terms: Cash Buyer assumed loan of $1,518,700 at a reported
market level rate. No known affect on sale price.
Recorded: O.R. Book 3872 Page 477; Escambia County
Verified By: Terry Hoffman, MAI - Hoffman & Associates
Rights Conveyed: Leased Fee
Land Size: 6.41 Acres
Access/Visibility: Good/Good
Highest & Best Use: Shopping Center
Building Size: 60,630 SF(NRA)
Land:Bldg Ratio: 4.61
Year Built: 1976
Condition: Average
Building
Description: One story masonry and wood exterior neighborhood
shopping center. Built up flat roof
Anchors: Delchamps
Anchor - Sq. Ft.: 381,427 Anchor %: 63.4
Local: Radio Shack, GTE Mobile Net, Vick's Cleaners, Isey's
Pet Center, Ann's Hallmark, Northwest Financial,
Delchamp's Liquor, etc.
Local - Sq. Ft.: 22,203 Local %: 36.6
Lease Information: Tenants pay a pro-rata share of CAM, Taxes, and
Insurance.
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 69
Sale #5 (Continued)
ANALYSIS
(1/2/3) *Source TOTAL $ AMOUNT $ PER SF (NRA)
-------------- --------------
(A\E\F) Effec. Gross Income: $454,218 $7.49
(A\E\F) Expenses: $90,843 $1.50
(A\E\F) Net Oper. Income $363,375 $5.99
=======================================================================
* Field 1: S = Seller B = Buyer A = Appraiser
Field 2: A = Actual E = Estimated
Field 3: P = Prior Year F = Year Following
=======================================================================
INDICATORS OF VALUE: Price Per SF (NRA): $56.90
PGIM: N/A
EGIM: 7.60
R(o): 10.53.%
Expense Ratio: 20%
Remarks: Verification of effective gross income was through the purchaser's
agent. Net income was estimated based on discussions with the agent.
H. J. Porter & Associates, Inc.
[GRAPHICS OMITTED]
IMPROVED SALES MAP
SALES COMPARISON APPROACH - (CONTINUED) 70
The sales detailed above are compared and adjusted to the subject for pertinent
items of difference as:
====================================================================================================================================
SUMMARY OF IMPROVED SALES AND ADJUSTMENTS
====================================================================================================================================
Comp. Number Subject #1 #2 #3 #4 #5
Center Name Vill @ Middle Beach North Hixson Hillcrest Ensley Square
Moody
Grantor FS Partners Sembler North Hixon Hill. Ltd. Noro
Grantee Birm. Realty Secured Amberjack. Conf. Branch
Ltd
Cash Eq.Sale Price $4,485,000 $5,775,000 $4,760,000 $6,490,000 $3,450,000
Date of Sale 2/08/98 2/14/96 9/9/94 3/4/96 7/1/97 11/15/95
Gross Leasable Area 66,048 60,800 69,877 63,270 76,365 60,630
Sale Price/Sq.Ft $73.77 $82.65 $75.23 $84.99 $56.90
NOI $398,17 $436,470 $582,000 $485,493 $625,636 $363,375
NOI per Sq. Ft $6.03 $7.18 $8.33 $7.67 $8.19 $5.99
EGIM 8.56 7.90 7.80 8.79 7.60
------------------------------------------------------------------------------------------------------------------------------------
ADJUSTMENTS #1 #2 #3 #4 #5
Conditions of Sale Normal Normal Normal Normal Normal
$0.00 $0.00 $0.00 $0.00 $0.00
Market Conditions/Time @ 0.0% 0.0%
5% Per Year 9.9% 17.1% 9.7% 3.0% 11.2%
====================================================================================================================================
Preliminary $81.07 $96.78 $82.53 $87.54 $63.28
====================================================================================================================================
Adj.Price/Sq.Ft
PHYSICAL DIFFERENCES #1 #2 #3 #4 #5
NOI Adjustment -16.0% -27.6% -21.4% -26.4% 0.6%
Overall Adjustment ($12.97) ($26.71) ($17.66) ($23.11) $0.38
====================================================================================================================================
Final Adjusted Price/Sq.Ft. of Bldg $68.10 $70.07 $64.87 $64.43 $63.66
====================================================================================================================================
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 71
The sales were adjusted to the subject for the following items:
CONDITION OF SALE: No adjustment indicated.
TIME: Considers an increase of 5% per year based on analysis
of the overall capitalization rates of the comparable
sales and range of rates from the five methods
considered in the Income Approach.
NET OPERATING INCOME: The comparable sales were adjusted to the subject based
on the difference in net operating income. The physical
and economic characteristics such as condition, age,
vacancy, size, and location are reflected in a
property's net operating income. As indicated in the
following table, there is a direct relationship between
the sale price per square foot and net operating income
per square foot.
=======================
SP/SF NOI/SF
-----------------------
$73.77 $7.18
$82.65 $8.33
$75.23 $7.67
$84.99 $8.19
$56.90 $5.99
=======================
The adjustment for NOI is based on the following
formula: the comparable sales NOI per square foot is
subtracted from the subject's estimated NOI per square
foot and the difference is divided by the comparable's
NOI per square foot.
The comparable sales present an adjusted range of value from $63.66 to $70.07
per square foot. Based on this analysis with consideration given to the
subject's cross collateralization, the subject's value is estimated at $65.00
per square foot.
Based on these adjusted sales, the subject property is valued by direct
comparison as:
66,048 Sq.Ft. GLA @ $65.00 = $4,293,120
Rounded $4,290,000
H. J. Porter & Associates, Inc.
SALES COMPARISON APPROACH - (CONTINUED) 72
The Effective Gross Rent Multipliers (EGIM) derived from the above sales are
highlighted as:
The Effective Gross Income Multipliers of the five comparable sales range from
7.6 to 8.79. Based on these sales, with consideration given to declining
interest rates, the subject's EGIM is estimated at the high end of the range.
The subject is valued by EGIM as:
Due to discrepancies between the sales and the subject property with regard to
expense collections, expense ratios and reimbursement income, the price per
square foot technique is considered the most reliable in this instance.
Considering this factor, the concluded prospective market value estimate "At
Stabilized Occupancy" by the Sales Comparison Approach is $4,300,000.
This approach is felt to be reliable, being based on a respected national cost
service's figures as well as actual cost of other centers. The land value is
based on recent commercial land sales from the subject's market area and is felt
to be well supported. Overall, this approach is given less consideration than
the Income Approach and Sales Comparison Approaches.
Income Approach ..................................................... $4,420,000
This approach is felt to be most indicative of the subject's value. It best
reflects current and projected market conditions as they relate to the subject
and mirrors the actions of investors in today's market. Overall, this approach
is afforded greatest consideration.
This approach is based on recent sale of other neighborhood shopping centers and
is reliant upon the direct sales comparison on a price per square foot basis,
and supported by the indicated value based on effective income multiplier. This
approach is afforded less consideration than the Income Approach.
Based on the value indications summarized above, we are of the opinion that the
subject's leased fee interest, has a prospective market value "At Stabilized
Occupancy", as of February 8, 1998, of:
FOUR MILLION FOUR HUNDRED THOUSAND DOLLARS
($4,400,000)
Divided As: Improvements $3,733,000
Land $ 667,000
----------
Total $4,400,000
H. J. Porter & Associates, Inc.
74
VALUATION - "AT COMPLETION"
The prospective market value "At Completion" is calculated by subtracting the
estimated value loss due to lease-up from the estimated value "At Stabilized
Occupancy". The subject property will reach stabilized occupancy when 90% of the
non-anchor tenant shop space is leased. The subject shop space is currently 37%
leased. Considering the overall strength of the market and pre-leasing activity
that is occurring on the vacant space, we estimate a six month lease-up period
before the property reaches stabilized occupancy. Based on the developer's
estimates, the addition and renovation will be complete within 80 days from the
date of inspection, or on October 28, 1997. Considering this factor, as well as
the 1,650 square foot vacant space that is presently being marketed for
immediate occupancy, it is estimated that half of the vacant space needed to
reach stabilized occupancy (2,471 square feet) will be leased within three
months of the date of inspection and the remaining space (2,471 square feet)
needed to be leased to reach stabilized occupancy will be leased in the sixth
month. Based on these estimates, the average vacancy rate of the shop space
during the first year, or during the lease-up period, will be 26%.
The value loss to lease-up is estimated by comparing the net operating income
"At Stabilized Occupancy" with the estimated net operating income considering
the six month lease-up period. The value loss due to lease-up for the subject
property is presented on the following table.
H. J. Porter & Associates, Inc.
VALUE AT COMPLETION - (CONTINUED) 75
===============================================================================================================
VALUE LOSS DUE TO RENT LOSS
===============================================================================================================
POTENTIAL GROSS INCOME Income/Expenses Income/Expenses
At Stabilized Occupancy As Is
----------------------
Anchor Tenants
Winn Dixie $322,978 $322,978
Eckerds $54,432 $54,432
------- -------
Subtotal $377,410 $377,410
Non-Anchor Tenants
Helen Harris - H & P Laundry $8,400 $8,400
Vacant $12,740 $12,740
Vacant $12,600 $12,600
Vacant $12,600 $12,600
Express Coin Laundry $14,040 $14,040
Vacant $17,325 17,325
------- ------
Subtotal $77,705 $77,705
Total Rental Income $455,115 $455,115
Expense Contributions
Eckerds
Taxes $4,299 $4,299
CAM $3,935 $3,935
Winn Dixie
Taxes $19,269 $19,269
Insurance $17,153 $17,153
CAM $17,640 $17,640
Non-Anchor Tenants
CAM Admin., St. Res., Mgt $0 $0
CAM, Tax, Ins $13,720 $13,720
Total Expense Contributions $76,016 $76,016
POTENTIAL GROSS INCOME $531,131 $531,131
Less Vacancy and Collection Loss
Non-Anchor Rent + Exp. Contributions @ 10% $9,143 26.00% $23,771
------ -------
EFFECTIVE GROSS INCOME $521,989 $507,361
Less Expenses:
Management: 4.0% $17,894 $17,396
Ad. Val. Tax $39,816 $39,816
Insurance $33,000 $33,000
CAM $25,000 $25,000
St. Maint $6,600 $6,600
Misc. Admin $1,500 $1,500
------ ------
Total Expenses $123,810 $123,312
NET OPERATING INCOME $398,179 $384,048
Value Loss Due to Rent Loss: $14,131
Rounded $15,000
===============================================================================================================
H. J. Porter & Associates, Inc.
VALUE AT COMPLETION - (CONTINUED) 76
Based on the above analysis, it is concluded that the subject has a prospective
market value estimate "At Completion" as of October 28, 1997, of:
PROSPECTIVE MARKET VALUE ESTIMATE
"AT STABILIZED OCCUPANCY": $4,400,000
LESS: VALUE LOSS ASSOCIATED WITH RENT LOSS: $ 15,000
----------
PROSPECTIVE MARKET VALUE
"AT COMPLETION": $4,385,000
H. J. Porter & Associates, Inc.
77
VALUATION - "AS IS"
The market value "As Is" is calculated by subtracting the owner's cost estimate
for the proposed renovation and addition of $75,000 and an estimated developer's
profit from the prospective market value estimate "At Completion". No detailed
plans and specifications for the proposed renovation and addition were provided
to the appraisers. However, based on the description of the scope of the work to
be performed provided by representatives of the owner, the above stated cost
estimate appears reasonable. A developer's profit of 15% is included, which
equates to $11,250. Thus, the overall estimated costs for completion of the
proposed property renovation and addition are $86,250, or $85,000, rounded.
Based on the above analysis, it is concluded that the subject has an "As Is"
market value estimate as of August 9, 1997, of:
CONCLUDED PROSPECTIVE MARKET VALUE
"AT COMPLETION": $4,385,000
LESS: COST ESTIMATED COSTS TO COMPLETE
(INCLUDING DEVELOPER'S PROFIT) $85,000
-------
CONCLUDED "AS IS" MARKET VALUE $4,300,000
ESTIMATE:
H. J. Porter & Associates, Inc.
78
CERTIFICATION
We certify that, to the best of our knowledge and belief,...
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions and conclusions.
3. Neither party signing this report has a present or prospective interest in
the property that is the subject of this report, nor do they have any
personal interest or bias with respect to the parties involved.
4. Our compensation is not contingent on an action or event resulting from the
analyses, opinions, or conclusions in, or the use of, this report. Our
compensation is not contingent upon the reporting of a predetermined value
or direction in value that favors the cause of the client, the amount of
the value estimate, the attainment of stipulated result, or the occurrence
of a subsequent event.
5. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute, and the Uniform Standards of Professional Appraisal
Practice as promulgated by the Appraisal Standards Board of the Appraisal
Foundation.
6. The use of this report is subject to the requirements of the Appraisal
Institute and the applicable State Real Estate Appraisers Board relating to
review by its duly authorized representatives.
7. This assignment was made subject to regulations of the applicable State
Real Estate Appraisers Board. The undersigned state certified appraiser has
met the requirements of the board that allow this report to be regarded as
a 'certified appraisal'.
8. Howard J. Porter, Jr., MAI, CCIM, is currently certified under the
continuing education program of the Appraisal Institute.
9. Howard J. Porter, Jr., MAI, CCIM, has not made a personal inspection of the
property that is the subject of this report.
H. J. Porter & Associates, Inc.
79
CERTIFICATION - (CONTINUED)
10. Matthew S. Rice, Associate, has made a personal inspection of the property
that is the subject of this report.
11. No one provided significant professional assistance to the persons signing
this report.
12. This appraisal assignment was not based on a requested minimum valuation, a
specific valuation, or the approval of a loan.
13. Based upon the foregoing investigations and analysis, it is our opinion
that the subject property has values of the leased fee interest, as of the
following dates, of:
Prospective Market Value Estimate
"At Stabilized Occupancy"
(As of February 8, 1998)
FOUR MILLION FOUR HUNDRED THOUSAND DOLLARS
($4,400,000)
Prospective Market Value Estimate
"At Completion"
(As of October 28, 1997)
FOUR MILLION THREE HUNDRED EIGHTY FIVE THOUSAND DOLLARS
($4,385,000)
H. J. Porter & Associates, Inc.
CERTIFICATION - (CONTINUED)
"As Is" Market Value Estimate
(As Of August 9, 1997)
FOUR MILLION THREE HUNDRED THOUSAND DOLLARS
($4,300,000)
/s/ Howard J. Porter, Jr. 11/13/97
----------------------------------------- --------
Howard J. Porter, Jr., MAI, CCIM Date
Certified General Real Property Appraiser
Alabama Certificate #G51
/s/ Matthew S. Rice 11/13/97
----------------------------------------- --------
Matthew S. Rice, Associate Date
Certified General Real Property Appraiser
State of Florida Temporary Practice Permit #0001154
H. J. Porter & Associates, Inc.
EXHIBITS
Location Map .............................................. Facing Page 4
Area Map .................................................. Facing Page 10
Subject Photographs ....................................... Facing Page 14
Site Plan ................................................. Facing Page 17
Land Sales Map ............................................ Facing Page 30
Rental Comparable Map ..................................... Facing Page 38
Improved Sales Map ........................................ Facing Page 70
REAR EXHIBITS
Lease Synopsis
Korpacz Real Estate Investor Survey
Engagement Letter
Assumptions and Limiting Conditions
Qualifications
Certifications
H. J. Porter & Associates, Inc.
LEASE SYNOPSIS
Tenant: Winn-Dixie Montgomery, Inc.
Area: 46,422 Sq. Ft.
Term: 20 years (Extension)
Lease Expiration: 10/31/14 (According to rent roll)
Renewal Options: 5 options for 5 years each at same rentand terms
Minimum Rental: $322,978/Year, or $6.96/sf
Percentage Rent: 1% over natural breakpoint
Expenses:
C.A.M. Pro-rata share
Tax Pro-rata share over base year stop of $12,400
Insurance Pro-rata share over base year stop of $8,595
Structural Res. None
Management Fee None
Repairs by Landlord: Common areas, exterior of tenant's store
building, roof, gutter, downspouts, exterior
plumbing, masonry walls, foundation and
structural members, automatic sprinkler system,
and floor surfacing of the store building.
Repairs by Tenant: Interior of premises in good repair, HVAC,
building plate glass, interior exposed
electrical wiring from but not including the
breaker panel, and interior exposed plumbing.
Subletting: Yes, as long as Winn Dixie remains liable for
payment and due performance of the lease
agreement.
Parking: Amended in new lease to a minimum of 331
parking spaces as shown on a site plan
identified as Exhibit A-1 of the lease.
Subordination: Yes
H. J. Porter & Associates, Inc.
LEASE SYNOPSIS
Tenant: Eckerd Drugs
Area: 10,356 Sq. Ft.
Term: 20 years
Lease Expiration: 07/23/03 (according to rent roll)
Renewal Options: Four, five year renewal options
Minimum Rental: $54,432 annually, or $5.26
Percentage Rent: 2% over natural breakpoint ($2,721,600) -
according to rent roll
Expense Contributions:
C.A.M. Pro-rata share
Tax Pro-rata share over base year amount ($12,400)-
according to rent roll
Insurance None
Structural Res. None
Management Fee None
Utilities Paid By: Tenant
Repairs by Landlord: Exterior of building, the roof, and structural
members of the building of which the leased
premises forms a part, and any water, gas, or
electrical lines or conduits permanently
embedded in the walls or floor.
Repairs by Tenant: Responsible for keeping interior of premises
and appurtenances in good order and repair,
including responsibility for plate glass.
Parking: Original lease states not less than 319 parking
spaces or in any event, not less than 5.5
parking spaces per 1,000 square feet of gross
leasable area. Reportedly, the above parking
requirement stated in the lease has been
amended.
Subletting: Allowed
Subordination: Yes
Remarks: Tenant responsible for maintaining general
liability insurance not less than $500,000 for
injuries to persons in one accident and not less
than $200,000 for injury to any one person and
$50,000 for damage to property.
H. J. Porter & Associates, Inc.
LEASE SYNOPSIS
Tenant: Helen Harris (Laundry)
Area: 2,050 Sq. Ft.
Term: 3 Years
Lease Expiration: 3/31/99 (According to Rent Roll)
Renewal Options: One Five year renewal option at a rate to be
negotiated at time of renewal
Minimum Rent: $8,400 annually - $4.10/Sq. Ft.
Percentage Rent: None
Expense Contributions:
C.A.M.P Pro-rata share
Tax Pro-rata share
Insurance: Pro-rate share
Structural Res. None
Management Fee None
Repairs by Landlord: Roof and other structural portions of the
building.
Repairs by Tenant: Except above mentioned repairs, tenant is
responsible for keeping premises and every part
thereof and any trade fixtures, facilities or
equipment contained therein in good working
order.
Parking: Not less than 3 per 1,000 square feet of
building area
Subletting: Requires written permission from landlord
Subordination: Yes
Remarks: This space is located in the rear of the
building with no direct street exposure. The
tenant finish is minimal.
H. J. Porter & Associates, Inc.
LEASE SYNOPSIS
Tenant: Express Coin Laundry
Area: 1,350
Term: Month to Month (According to Rent roll)
Renewal Options: One Five year renewal option at a rate to be
negotiated at time of renewal
Minimum Rent: $10.40/Sq. Ft. (According to Rent Roll)
Percentage Rent: None
Expense Contributions:
C.A.M. Pro-rata share
Tax Pro-rata share
Insurance: Pro-rate share
Structural Res. None
Cam Administration Fee: 15% of CAM and Insurance charges
Repairs by Landlord: Exterior walls, roof, foundations, load bearing
items, plumbing, pipes and conduits located
outside leased premises.
Repairs by Tenant: HVAC, plumbing, heating and electrical
installations, ceilings, interior walls, floor
covering, and replacement of all broken or
damaged glass, etc.
Parking: None
Subletting: Requires written permission from landlord
Subordination: Yes
H. J. Porter & Associates, Inc.
Korpacz
NATIONAL STRIP SHOPPING CENTER MARKET
The trend toward investors focusing on retail acquisitions continues this
quarter. They believe that since the prices of other property types have been
bid up, retail offers better relative values. "We're seeing the beginning of a
run up in retail again," says one participant. The major interest tends to be on
neighborhood and community centers.
The optimum size of the ideal strip shopping center is 100,000 square feet
to 130,000 square feet, but investors will also consider larger properties,
especially if there is the potential to put in other anchor stores, such as
Marshall's or T.J. Maxx. Although buyers prefer not to have centers that are
smaller than 100,000 square feet. some portfolios may have centers as small as
70,000 square feet and as large as 200,000 square feet. "But there you have to
take good with bad," comments a participant. The supply of available strip
centers is plentiful, but it is hard to find those of optimum size that are
anchored by a market-dominant grocery store.
The importance of the grocery anchor is based on its capability to generate
traffic in the center, which greatly enhances the landlord's ability to lease
the in-line stores. The traffic increases in-line store sales volume, which
mitigates the risk of ownership and provides the investor with the requisite
yield from such a center.
The size of the grocery anchor is also significant in its competitive
position. Although the optimum size varies by market, in major metropolitan
areas between 50,000 square feet and 75,000 square feet is ideal. In smaller
markets a 40,000-square-foot store can be successful. However, the older
25,000-square-foot stores are considered functionally obsolete.
Over the next 12 months, prices in the national strip shopping center
market are expected to remain stable or drop slightly. Survey participants put
the average decrease at 1.78%.
Key indicators in the national strip shopping center market support the
expectation of stagnant values for the year. Again this quarter, the changes in
indicators are small. The average discount rate (IRR) increased 2 basis points
(see Table 7). This follows a 10-basis-point decrease last quarter.
The average overall cap rate (OAR) decreased 1 basis point to 9.84%. Highly
desirable centers trade at cap rates between 8.00% and 10.00%, but most close at
cap rates between 10.00% and 11.00%.
Strip shopping centers have long been perceived to pose higher investment
risk than regional malls, and both IRRs and going-in cap rates have reflected a
premium for the higher risk. In fourth quarter 1996, however, for the first time
since we began tracking the national strip shopping center market in fourth
quarter 1991, the average IRR fell below the national regional mall market
average IRR. This quarter the rates are 11.55% and 11.75% respectively.
The strip shopping center OAR is still considerably higher than the
regional mall rate. The spread between the two had narrowed during 1996.
However, last quarter's 7-basis-point increase in the strip shopping center OAR
widened the gap again. The current OAR premium is 127 basis points. It was 173
one year ago. By comparison, the national power center OAR is 9.58%. 26 basis
points lower than the strip shopping center rate.
Investors would like to acquire portfolios of neighborhood and community
shopping centers that are located in one region, thus presenting the opportunity
for management and leasing efficiencies. These are difficult to find, however,
and are priced at a premium. |_|
TABLE 7
NATIONAL STRIP SHOPPING CENTER MARKET
SECOND QUARTER 1997
KEY INDICATORS CURRENT QUARTER LAST QUARTER YEAR AGO
========================== ==================== ================= =============
Discount Rate (RR)(a)
=========================== ==================== ================= =============
RANGE 10.00%-14.00% 10.00%-14.00% 10.00%-14.00%
AVERAGE 11.55% 11.53% 11.74%
CHANGE (Basis Points) -- +2 -19
========================== ==================== ================= =============
Overall Cap Rate (OAR)(a)
========================== ==================== ================= =============
RANGE 8.25%-13.00% 8.25%-13.00% 8.25%-13.00%
AVERAGE 9.84% 9.85% 9.90%
CHANGE (Basis Points) -- -1 -6
========================== ==================== ================= =============
Market Rent Change Rate(b)
========================== ==================== ================= =============
RANGE 0.00%-6.00% 0.00%-6.00% 0.00%-6.00%
AVERAGE 2.83% 2.73% 2.60%
CHANGE (Basis Points) -- +10 +23
========================== ==================== ================= =============
Expense Change Rate(b)
========================== ==================== ================= =============
RANGE 0.00%-5.00% 0.00%-5.00% 2.00%-5.00%
AVERAGE 3.58% 3.67% 3.99%
CHANGE (Basis Points) -- -9 -41
========================== ==================== ================= =============
Residual Cap Rate
========================== ==================== ================= =============
RANGE 8.25%-12.00% 8.25%-12.00% 8.25%-13.50%
AVERAGE 9.92% 9.92% 10.13%
CHANGE (Basis Points) -- 0 -21
a. Rate on unleveraged, all-cash transactions
b. Initial rate of change
[H.J.Porter Associates - LETTER HEAD]
July 31, 1997
Mr. Anthony Rokovich
Merrill Lynch
World Financial Center - North Tower
New York, NY 10281
Re: Agreement for Appraisal Services
Dear Mr. Rokovich:
Please allow this to serve as our proposal and agreement for appraised services
on the properties described below.
PROPERTY TO BE APPRAISED
The real estate to be appraised is briefly described as:
59 West Shopping Center 29 North, Shopping Center
700 Academy Drive 1550 South U.S. Highway 29
Bessemer, AL Cantonment, FL
Clanton Marketplus Nine Mile Plaza Shopping Center
Highway 31 & Ollie Avenue 312 East Nine Mile Road
Clanton, AL Pensacola, FL
Betts Crossing Shopping Center Parker Shopping Center
1441 Fox Run Parkway 208 South Tyndal Parkway
Opelika, AL Parker, FL
Opp Marketplace The "T" Shopping Center
507 E. Cummings Road 17184 Front Beach Road
Opp, AL Panama City Beach, FL
Greenbrier Station Shopping Center Mandeville Marketplace
1408 Golden Springs Road 619 N. Causeway Blvd.
Anniston, AL Mandeville, LA
Russell; Crossing Shopping Center
U.S. Highway 280 and Stadium Drive
Phenix City, AL
123 N. College St., Ste. 100 o P.O. Box 28 o Auburn, Alabama 36830 o
(334)826-8682 o Fax (334)826-3827
14 Office Park Circle, Suite 230 o Birmingham, Alabama 35223 o (205)871-3600 o
Fax (205)879-3762
418 Scott Street o Montgomery, Alabama 36104 o (334)262-8331 o Fax (334)262-8325
Real Estate Research, Appraisal & Counseling
Mr. Rokovich
July 31, 1997
page 2
Purpose Of The Appraisal
These appraisal will be made to determine the market value of the leased fee
interest of the subject real estate. The term "market value" is as defined in
the Uniform Standards of Professional Appraisal Practice as promulgated by the
Appraisal Standards Board of the Appraisal Foundation.
Function Of The Appraisal
It is understood that these appraisals have been requested to function as an
underwriting guide for mortgage loan purpose and for use in the securitization
of the mortgage. Accordingly, these appraisals may be provided by Merril Lynch
to potential investors in a securitization or other sale of the mortgage
loan(s).
Scope Of The Appraisal
The scope of this assignment shall include, but not be limited to:
1) Personal contact with the owner or his representative to arrange an on-site
inspection.
2) On-site inspection of the site and improvements.
3) Review of public records pertaining to the subject.
4) Research into public records and interviews with Realtors(r), management
agent, owners, developers, and other appraisers as deemed pertinent, to
locate comparable data.
5) Analysis of comparable data and completion of the Cost, Market, and Income
Approaches to value as may be deemed applicable.
Report and Delivery
The appraisals will be complete analyses communicated in self-contained
narrative reports with all supporting information and exhibits included.
The appraisals will be made in conformance with the Standards of Professional
Practice and Code of Ethics of the Appraisal Institute. As such, the reports
shall be subject to their review. The appraisals shall also conform to the
Uniform Standards of Professional Appraisal Practice as set by the Appraisals
Standards Board of the Appraisal Foundation.
The date of appraisals shall be made effective as of the dates of inspection.
The reports will be addressed to Mr. Anthony Rokovich, Merrill Lynch.
Additionally, the properties will be valued as of the estimated dates of
completion of improvements and as of the estimated date of stabilized occupancy,
as may be applicable.
Three (3) Copies of the completed reports will be delivered within four weeks of
receipt of your authorization to proceed and the required information noted
below.
Fee
Our fee for this assignment shall be Forty Six Thousand Dollars ($46,000) due
and payable on delivery of the completed report. Any amount past due over sixty
(60) days shall be subject to a late charge of 1-1/2% per month.
H. J. Porter & Associates, Inc.
Mr. Rokovich
July 31, 1997
page 3
The fee charged is for the appraisal reports requested. Should revisions be
requested due to a change in basic requirements by the client, an additional fee
will be charged. Consultations and, if requested in advance, court testimony,
stand by, depositions or pre-trial conferences will be charged at a per diem
rate of One Thousand Dollars ($1,000.00). Should additional copies of the report
be required, they will be made available on reasonable notice at a charge of One
Hundred Dollars ($100.00) per copy.
Client Relationship
It is understood that Merrill Lynch is considered to be the Client of H.
J. Porter & Associates. Accordingly, it shall be responsible for payment
of all fees due hereunder. Unless authorized in writing, the personnel of
H. J. Porter & Associates are not authorized to, nor will they divulge or
discuss any of the findings or conclusions of the appraisal with anyone
other than the client.
Information Required
In order to undertake this assignment we will need the following items for each
property to begin work. It is my understanding that the borrower, Newton,
Oldacre, McDonald will provide this information.
o Legal name and address of owner.
o Copy of all current leases on the subject property.
o Transaction data on any sales of the subject (or a portion thereof)
during the past five (5) years.
o Ad Valorem tax information.
o Insurance information including limits of coverage, carrier, annual
premium, and agent.
o Current year to date and prior three years income and expense history.
o Survey and legal description of property to be appraised.
o Plot plan.
o Results of any environmental site assessments or testing for hazardous
materials.
Upon receipt of the information noted above and an executed copy of the
agreement, we will begin work on this assignment. This proposal shall remain
open for a period of one week from the above date. If not executed by that date
the delivery time and fee quoted are subject to change.
Your choice of us for this assignment is appreciated.
Yours very truly,
By: /s/ David P. Mullins
David P. Mullins, MAI
H. J. Porter & Associates
The above terms and conditions are acceptable and you are authorized to proceed
as of this ______ day of _______, 1997. It is understood that the fee agreed
upon is due and payable on delivery of the report and by executing this
agreement agree to responsibility for this fee.
Client:
By: /s/ Lawrence [ILLEGIBLE]
------------------------------
Its: Director
H. J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS
1. COPIES, PUBLICATION, DISTRIBUTION, USE OF REPORT:
Possession of this report or any copy thereof does not carry with the right
of publication, nor may it be used for other than its intended use. The
report may not be used for any purpose by any person or corporation other
than the client or the party to whom it is addressed or copied without the
written consent of the appraiser, and then only in its entirety.
Neither all nor any part of the contents of this report shall be conveyed
to the public through advertising, public relations efforts, news, sales,
or other media, without the written consent and approval of the appraiser,
nor may any reference be made in such a public communication to the
Appraisal Institute or the MAI designation.
2. CONFIDENTIALITY:
The appraiser may not divulge the material (evaluation) contents of the
report, analytical findings or conclusions, or give a copy of the report to
anyone other than the client or his designee as specified in writing except
as may be required by the Appraisal Institute as they may request in
confidence for ethics enforcement, or by a court of law or body with the
power of subpoena.
This appraisal is to be used only in its entirety and no part is to be used
without the whole report. All conclusions and opinion concerning the
analysis are set forth in the report and were prepared by the Appraiser
whose signature appears on the appraisal report, unless indicated as
"Review Appraiser". No change of any item in the report shall be made by
anyone other than the Appraiser and/or officer of the firm. The Appraiser
and firm shall have no responsibility if any such unauthorized change is
made.
3. INFORMATION USED:
No responsibility is assumed for accuracy of information furnished by or
from others, the client, his designee, or public records. We are not liable
for such information or the work of possible subcontractors. The comparable
data relied upon in this report has been confirmed with one or more parties
familiar with the transaction or from affidavit; all are considered
appropriate for inclusion to the best of our factual judgement and
knowledge.
H. J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
4. TESTIMONY, CONSULTATION, COMPLETION OF CONTRACT FOR APPRAISAL SERVICES:
The contract for appraisal, consultation or analytical service, are
fulfilled and the total fee payable upon completion of the report. The
appraiser or those assisting in the preparation of the report will not be
asked or required to give testimony in court or hearing because of having
made the appraisal, in full or in part, nor engage in post appraisal
consultation with client or third parties except under separate and special
arrangement and at additional fee.
5. EXHIBITS:
The sketches and maps in this report are included to assist the reader in
visualizing the property and are not necessarily to scale. Various photos,
if any, are included for the same purpose and are not intended to represent
the property in other than actual status, as of the date of the photos.
Site plans are not surveys unless shown from separate surveyor.
No responsibility is assumed for matters legal in character or nature, nor
matters of survey, nor of any architectural, structural, mechanical, or
engineering nature. No opinion is rendered as to the title, which is
presumed to be good and merchantable. The property is appraised as if free
and clear, unless otherwise stated in particular parts of the report.
The legal description is assumed to be correct as used in this report as
furnished by the client, his designee, or as derived by the appraiser.
The appraiser has inspected as far as possible, by observation, the land
and the improvements thereon; however it was not possible to personally
observe conditions beneath the soil or hidden structural, or other
components. We have not critically inspected mechanical components within
the improvements and no representations are made herein as to these matters
unless specifically stated and considered in the report. The value estimate
considers there being no such conditions that would cause a loss of value.
The land or the soil of the area being appraised appears firm, however
subsidence in the area is unknown. The appraiser does not warrant against
this condition or occurrence of problems arising from soil conditions.
H. J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
The appraisal is based on there being no hidden, unapparent, or apparent
conditions of the property site, subsoil, or responsibility is assumed for
any such conditions or for any expertise or engineering to discover them.
All mechanical components are assumed to be in operable condition and
status standard for properties of the subject type. Conditions of heating,
cooling, ventilating, electrical and plumbing equipment is considered to be
commensurate with the condition of the balance of the improvements unless
otherwise stated. No judgement is made as to adequacy of insulation, type
of insulation, or energy efficiency of the improvements or equipment.
7. RELATING TO THE AMERICAN WITH DISABILITIES ACT:
The Americans with Disabilities Act ("ADA") became effective January 26,
1992. The appraisers have not made a specific compliance survey and
analysis of this property to determine whether or not it is in conformity
with the various detailed requirements of the ADA. It is possible that a
compliance survey of the property together with a detailed analysis of the
requirements of the ADA could reveal that the property is not in compliance
with one or more of the requirements of the Act. If so, this fact could
have a negative effect upon the value of the property. Since there is no
direct evidence relating to this issue, possible non-compliance with the
requirements of ADA in estimating the value of the property has not been
considered.
8. LEGALITY OF USE:
The appraisal is based on the premise that, there is full compliance with
all applicable federal, state and local environmental regulations and laws
unless otherwise stated in the report; further that all applicable zoning,
building, and use regulations and restrictions of all types have been
complied with unless otherwise stated in the report; further that all
applicable zoning, building, and use regulations and restrictions of all
types have been complied with unless otherwise stated in the report;
further, it is assumed that all required licenses, consents, permits, or
other legislative or administrative authority, local, state, federal and/or
private entity or organization have been or can be obtained or renewed for
any use considered in the value estimate.
9. COMPONENT VALUES:
The distribution of the total valuation in this report between land and
improvements applies only under the existing program of utilization. The
separate valuations for land and building must not be used in conjunction
with any other appraisal and are invalid if so used.
H. J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
10. AUXILIARY AND RELATED STUDIES:
No environmental or impact studies, special market study or analysis,
highest and best use analysis study or feasibility study has been requested
or made unless otherwise specified in an agreement for services or in the
report. The appraiser reserves the unlimited right to alter, amend, revise
or rescind any of the statements, findings, opinions, values, estimates, or
conclusions upon any subsequent study or analysis or previous study or
analysis subsequently becoming known to him.
11. DOLLAR VALUES, PURCHASING POWER:
The market value estimated, and the costs used, are as of the date of the
estimate of value. All dollar amounts are based on the purchasing power and
price of the dollar as of the date of the value estimate.
12. INCLUSIONS:
Furnishings and equipment of business operations except as specifically
indicated and typically considered as a part of real estate, have been
disregarded with only the real estate being considered in the value
estimate unless otherwise stated.
13. PROPOSED IMPROVEMENTS, CONDITIONED VALUE:
Improvements proposed, if any, on or off-site, as well as any repairs
required are considered, for purpose of this appraisal to be completed in
good and workmanlike manner according to information submitted and/or
considered by the appraiser. In cases of proposed construction, the
appraisal is subject to change upon inspection of property after
construction is completed. This estimate of market value is as of the date
shown, as proposed, as if completed and operating at levels shown and
projected.
14. VALUE CHANGE, DYNAMIC MARKET, INFLUENCES:
The estimated market value is subject to change with market changes over
time; value is highly related to exposure, time, promotional effort, terms
motivation, and conditions surrounding the offering. The value estimate
considers the productivity and relative attractiveness of the property
physically and economically in the marketplace. The "Estimate of Market
Value" in the appraisal report is not based in whole or in part upon the
race, color or national origin of the present owners or occupants of the
properties in the vicinity of the property appraised.
H. J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
In cases of appraisals involving the capitalization of income benefits, the
estimate of market value is a reflection of such benefits and appraiser's
interpretation of income and yields and other factors derived from general
and specific market information. Such estimates are as of the date of the
estimate of value; they are thus subject to change if the market is
naturally dynamic.
15. MANAGEMENT OF THE PROPERTY:
It is assumed that the property which is the subject of this report will be
under prudent and competent ownership and management; neither inefficient
nor super efficient.
16. CONTINUING EDUCATION CURRENT:
The Appraisal Institute conducts a voluntary program of continuing
education for its designated members. MAIs and RMs who meet the minimum of
this program are awarded periodic certification. I am currently certified
under the Appraisal Institute Voluntary Continuing Education Program.
17. FEE:
The fee for this appraisal or study is for the service rendered and not for
the time spent on the physical report.
18. AUTHENTIC COPIES:
The authentic copies of this report are signed in blue ink. Any copy that
does not have an original signature is unauthorized and may have been
altered.
19. HAZARDOUS MATERIALS:
Unless otherwise stated in this report, the appraiser signing this report
has no knowledge concerning the presence or absence of urea-formaldehyde
foam insulation or asbestos containing material in existing improvements;
if such materials are present the value of the property may be adversely
affected and reappraisal at additional cost necessary to estimate the
effects of such material.
20. Unless otherwise noted within the attached report, there are no items of
FF&E included in the reported value. Any equipment included with the
property in the value are only those items that are considered as an
integral part of the realty, even though technically they could be legally
considered as personalty.
H. J. Porter & Associates, Inc.
ASSUMPTIONS AND LIMITING CONDITIONS - (CONTINUED)
21. NOTE:
ACCEPTANCE OF, AND/OR USE OF, THIS APPRAISAL REPORT CONSTITUTES ACCEPTANCE
OF THE ABOVE CONDITIONS.
H. J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS
OF
MATTHEW S. RICE
CURRENT STATUS
Matthew S. Rice is involved in the appraisal of and consulting with owners of
income producing real estate. He is an Associate Appraiser with H.J. Porter &
Associates, Inc., with offices located at:
H.J. Porter & Assoc., Inc.
631 Stage Road/Box 28
Auburn, AL 36830
(334) 826-8682
H.J. Porter & Assoc. of Birmingham
#14 Office Park Circle, Suite 230
Birmingham, AL 35223
(334) 871-3600
H.J. Porter & Assoc. Of Montgomery
235 S. Court Street
Montgomery, AL 36104
(334) 262-8331
CERTIFICATION
Mr. Rice is currently a Certified General Real Property Appraiser in the
State of Georgia (Certificate #4139) and the State of Alabama (Certificate
#463).
EDUCATION
Mr. Rice is a 1985 graduate of the University of Georgia, with a degree in
Economics. Professional education includes:
Course Sponsor Location
------ ------- --------
Real Estate Appraisal Principles Appraisal Institute Atlanta, GA
Standards of Professional Practice Appraisal Institute Atlanta, GA
Appraisal Procedures Appraisal Institute Athens, GA
Basic Income Capitalization Appraisal Institute Chicago, IL
PROFESSIONAL EXPERIENCE
Assignments include the valuation of commercial properties in twenty-five states
throughout the Nation. The scope of Mr. Rice's experience includes the appraisal
of office buildings, industrial properties, retail buildings, single-family
subdivisions, mobile home parks, vacant land, self storage facilities, and
multi-family developments. Additionally, Mr. Rice has performed market studies
to determine demand for potential self storage development, and market studies
to determine subdivision lot pricing and absorption.
PROFESSIONAL QUALIFICATIONS
OF
HOWARD J. PORTER, JR., MAI, CCIM
CURRENT STATUS
Howard J. Porter, Jr., is involved in the appraisal of and consulting with
owners of income producing real estate. He is President of H J Porter &
Associates, Inc. with offices located at:
H. J. Porter & Assoc., Inc.
631 Stage Road/P.O. Box 28
Auburn, AL 36830
(334) 826-8682
H. J. Porter & Assoc. of Birmingham
#14 Office Park Circle Suite 230
Birmingham, AL 35223
(205) 871-3600
H. J. Porter & Assoc. of Montgomery
235 S. Court Street
Montgomery, AL 36104
(334) 262-8331
PROFESSIONAL AFFILIATIONS
Mr. Porter is a member of the Appraisal Institute and holds the MAI Designation
(Certificate Number 5924). He has served as a member of the SREA Young Advisory
Council (1977 & 1978). He served as President of the Birmingham SREA Chapter
#106 (1983) and the Montgomery SREA Chapter #127 as President (1986-1987). He is
a Realtor(R) Member and past Vice-President of the Lee County Association of
Realtors(R), Lee County, AL. He holds the CCIM designation conferred by the
Commercial Investment Real Estate Council of the National Association of
Realtors(R). He is a member of the International Right of Way Association
(Alabama Chapter #26) and is a panel member of the American Arbitration
Association.
PROFESSIONAL EDUCATION STATUS
Mr. Porter has taken courses leading to professional designation as offered by
the Appraisal Institute (AIREA) and the Society of Real Estate Appraisers (SREA)
now merged as The Appraisal Institute. Additionally, he has credit for courses
offered by the Real Estate Securities and Syndication Institute (RESSI) the
Urban Land Institute (ULI), and the International Right of Way Association
(IR/WA), and the Commercial Investment Real Estate Institute. Mr. Porter has
also taken various seminars offered by SREA, AIREA, RESSI, IR/WA, Institute of
Real Estate Management, and others.
The Appraisal Institute conducts a voluntary program of continuing education for
its designated members. MAIs and RMs who meet the minimum standards of this
program are awarded periodic educational certification. He is currently
certified under the Institute's voluntary continuing education program. Mr.
Porter is currently a Certified General Real Property Appraiser in Alabama
(Certificate #CG51) and a Certified Real Estate Appraiser in Georgia
(Certificate #182).
HISTORICAL DATA
Howard J. Porter, Jr., was born in Birmingham, Alabama. He was educated in
the Jefferson County School System and graduated from Auburn University.
His major fields of study were Economics and Finance with a B.S. Degree in
Business Administration.
H. J. Porter & Associates, Inc.
PROFESSIONAL QUALIFICATIONS OF HOWARD J. PORTER, JR.
Mr. Porter has been a licensed Real Estate Broker in Alabama since 1972 and is a
Realtor(R) Member of the Lee County Association of Realtors(R). From 1974
through 1983 he was involved with appraisals, market research, syndication and
consulting on various types of real estate. From 1983 through 1985 he was
President of a regionally active development company headquartered in Auburn,
Alabama. In 1985, H.J. Porter & Associates, Inc. was re-established in Auburn,
Alabama with affiliate offices in Birmingham and Montgomery, Alabama.
He has taught college level courses on appraisal principles and practices and
USPAP, has served as an adjunct faculty member in the Auburn University
Department of Community Planning, and is an appraisal instructor for the
International Right of Way Association. He also has given talks to various real
estate related groups throughout Alabama. Mr. Porter has developed, constructed,
owned, and managed investment real estate for his own and affiliated
partnership's account.
GOVERNMENTAL CORPORATE
------------ ---------
U. S. Internal Revenue Service Chrysler Realty Corp.
Jefferson County, AL McDonald's Corporation
Montgomery County, AL Norfolk Southern Railroad
State of Alabama DOT South Central Bell
U.S. Government Services Admin. Diversified Products
Corporation
U.S. Department of the Interior INOUE SAKAE Co. (Japan)
U.S. Postal Service TIME/LIFE Corporation
Farmers Home Administration Baptist Medical Center (B'ham)
Birmingham Airport Authority Alabama Power Company
Auburn University Southern Natural Gas
State of Alabama Department of Revenue
LENDERS DEVELOPMENT
------- -----------
SouthTrust Bank Colonial Properties, Inc.
Federal National Mortgage Association Helms-Roark Development
New York Life Insurance Co. Beisel-Moss Development
Provident Mutual Life Shannon, Strobel & Weaver
Washington Mortgage Financial Polar-BEK, Inc.
Columbus Bank & Trust Co. Southern Investment Properties
1st Interstate Mortgage (Chicago) McWhorter & Co.
Nations Bank
AmSouth Bank
First Union Bank
Mr. Porter has appeared as an expert witness in Federal Court and Circuit
Courts in various Alabama counties. He has served as a Probate Commissioner
for the Jefferson County and Lee County Probate Courts.
H. J. Porter & Associates, Inc.
An Appraisal Report
Of
Eckerd Drugstore
A 10,908 SF Retail Building
1122 Murfreesboro Road (SH-96)
Frankin, Williamson County, Tennessee
Effective Date Of Report
November 20, 1997
Specifically For
Mr. Lawrence Miller
Debt and Equity Markets Group
Merrill Lynch Mortgage Capital, Inc.
WFC - North Tower
250 Vessey Street
New York, New York 10281-1326
By
Huber & Lamb Appraisal Group, Inc.
109 Westpark Drive, Suite 320
Brentwood, Tennessee 37027
11-97-605
[LETTERHEAD OF HUBER & LAMB APPRAISAL GROUP, INC.]
November 24, 1997
Mr. Lawrence Miller
Debt and Equity Markets Group
Merrill Lynch Mortgage Capital, Inc.
WFC - North Tower
250 Vessey Street
New York, New York 10281-1326
RE: A Complete Appraisal Assignment, Self-Contained Report of The
Eckerd Drugstore
A 10,908 SF Retail Building
1122 Murfreesboro Road (SH-96)
Frankin, Williamson County, Tennessee
Dear Mr. Miller:
At your request and authorization, we have appraised the above referenced
property for the purpose of estimating its current As Is market value as of
November 20, 1997. The property rights being appraised are the Leased Fee
interest in the subject property. It is our understanding that the report will
be used to assist in real estate mortgage finance underwriting of the subject
property.
Based on the inspection of the property and the investigations and analyses
undertaken, we have formed the opinion that, as of November 20, 1997 and subject
to the Assumptions and Limiting Conditions set forth in the attached report, the
prospective value upon completion of the Leased Fee interest in the subject
property is:
Three Million Fifty Thousand Dollars
($3,050,000)
Marketing Period: The marketing period is estimated to be 12 months, assuming
the subject is placed on the market at the final value estimate conclusion
above.
Three approaches to value were utilized in the valuation process for the subject
property. These included the cost approach, the sales comparison approach and
the income capitalization approach.
The narrative appraisal report that follows contains the identification of the
property, the assumptions and limiting conditions, pertinent facts about the
area and the subject property, comparable data, the results of the
investigations and analyses, and the reasoning leading to the conclusions
contained herein. Our analysis, opinions, and conclusions were developed, and
this report has been prepared in accordance with the Uniform Standards of
Professional Appraisal Practice published by the Appraisal Foundation and the
Code of Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute.
Mr. Lawrence Miller
November 24, 1997
Page 2
As requested by the client, the following statements relate to the permitted use
of the subject appraisal report.
o The report may be relied upon by Merrill Lynch Mortgage Capital Inc. in
determining whether to make a loan evidenced by a note (the "Property
Note") secured by the Property.
o The report may be relied upon by any purchaser in determining whether to
purchase the Property Note for this transaction from Merrill Lynch
Mortgage Capital Inc.
o The report may be relied upon by any Rating Agency in rating securities
issued by Merrill Lynch Mortgage Capital Inc. and representing an interest
in the Mortgage Note.
o The report may be included with and referred to in materials offering the
Property Note or an interest in the Property Note for sale.
The uses previously described are considered to be consistent with the client's
intended uses of the report. However, no other entity other than the previously
described entities may rely upon this appraisal report without prior written
consent from the appraiser.
We appreciate the opportunity to be of service to you. Should you have any
questions concerning this appraisal, please do not hesitate to contact this
office. For further information, your attention is directed to the following
report.
/s/ James E. Lamb
James E. Lamb, MAI
State Certified General Real Estate Appraiser
Licensee #CG-557
TABLE OF CONTENTS
Summary of Important Facts and Conclusions..................................1
The Appraisal Assignment....................................................3
Identification of Subject Property....................................3
Purpose & Use of The Appraisal Report.................................3
Property Rights Being Appraised.......................................3
Significant Dates of Appraisal Assignment.............................3
Scope of the Appraisal................................................3
Subject Property Sales History........................................4
Definition of Terms.........................................................6
Assumptions and Limiting Conditions........................................10
Metropolitan Area Analysis.................................................12
Metropolitan Area Map................................................30
Williamson County Analysis.................................................31
Williamson County Mqap...............................................34
Neighborhood Analysis......................................................35
Neighborhood Map.....................................................38
Site Analysis..............................................................39
Site Plan Map........................................................42
Tax Plat Map.........................................................43
Flood Plain Map......................................................44
Description of Improvements................................................45
Site Plan............................................................48
Elevations...........................................................49
Photographs of Subject Property............................................51
Subject Property Zoning....................................................53
Zoning Map...........................................................55
Highest and Best Use.......................................................56
Real Estate Tax Analysis...................................................61
Appraisal Procedure........................................................63
Land Valuation.............................................................65
Land Sales...........................................................67
Comparable Land Sales Map............................................73
Land Valuation Analysis..............................................75
Cost Approach........................................................80
Subject's Marshall Valuation Cost Data...............................81
Analysis of Depreciation.............................................83
Cost Approach Summary................................................87
Sales Comparison Approach..................................................88
Comparable Improved Sales Data.......................................90
Comparable Improved Sales Map.......................................100
Sales Comparison Approach Analysis..................................101
Sales Comparison Approach Reconciliation............................105
--------------------------------------------------------------------------------
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 1
TABLE OF CONTENTS, cont'd.
Income Capitalization Approach............................................107
Comparable Improved Rental Data.....................................109
Comparable Improved Rental Map......................................119
Potential Gross Income Analysis.....................................121
Expense Analysis....................................................125
Stabilized Operating Statement......................................127
Direct Capitalization Rate Analysis.................................128
Subject's Potential Mortgage Terms Analysis.........................129
Debt Coverage Ratio Analysis: A Test of Reasonableness..............130
Income Capitalization Approach Reconciliation.......................132
Correlation and Final Estimate of Value...................................133
Certification of Value....................................................135
Summary of Qualifications...........................................136
Addenda...................................................................138
--------------------------------------------------------------------------------
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 2
SUMMARY OF IMPORTANT FACTS & CONCLUSIONS
Report Type: Complete Assignment,
Self-Contained Report
Valuation Conclusion:
Final Value Estimate: $3,050,000
Cost Approach: $2,825,000
Sales Comparison Approach: $3,050,000
Income Capitalization Approach: $3,050,000
Estimated Marketing Period: 12 months, assuming the subject is
placed on the market at the final
value estimate conclusion above
Interest Appraised: Leased Fee
Value Estimate's Implied Units of Comparison:
Value/SF: $279.61/SF
GIM: 10.95x
Overall Rate: 9.01%
Significant Appraisal Dates:
Date of Appraisal Report: November 24, 1997
Effective Date Of Appraisal: November 20, 1997
Date of Inspection: November 20, 1997
Location:
Address: 1122 Murfreesboro Road (SH-96)
Physical Location: SWC Southwind Drive and SH-96
City: Frankin
County: Williamson
State: Tennessee
Legal Description:
Tax Map/Parcel: 79J-A/2.01 & 2.02
Property Description:
Land Area:
Acres: 1.665
Square Feet: 72,512
Zoning: GC -General Commercial
Improvements:
Property Type: Retail
Tenancy: Single Tenant
Size (Gross Building Area): 11,293 SF
Size (Net Rentable Area): 10,908 SF
Year Built: 1997
Current Physical Occupancy: 100%
--------------------------------------------------------------------------------
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 1
Summary of Important Facts & Conclusions, cont'd.
--------------------------------------------------------------------------------
Highest and Best Use:
As Vacant: Development with a single tenant,
freestanding drug store
As Improved: Continued use as a drug store on a
single tenant basis.
Estimated Income Operating Data:
Gross Potential Income: $278,580
Occupancy at Date of Appraisal: 100%
Stabilized Vacancy: 0%
Net Operating Income: $274,703
--------------------------------------------------------------------------------
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 2
THE APPRAISAL ASSIGNMENT
--------------------------------------------------------------------------------
Identification of Subject Property
Property Name: Eckerd Drugstore
Property Type: Retail
Address: 1122 Murfreesboro Road (SH-96)
General Location: SWC Southwind Drive and SH-96
City: Frankin
County: Williamson
State: Tennessee
Tax Map/Parcel: 79J-A/2.01 & 2.02
Metes & Bounds Description: See exhibit in Addenda
Purpose & Use Of The Appraisal Report
Purpose of Report: Estimate the "as is" market value of subject
property. The reader is referred to the
Definition of Terms section of the report
for the definition of market value as
utilized in this analysis.
Client's Intended Use of Report: Assist in real estate mortgage finance
underwriting of the subject property.
Property Rights Being Appraised
The property rights being appraised are the Leased Fee interest in the
subject property. The reader is referred to the Definition of Terms section of
the report for the definition of Leased Fee as utilized in this analysis.
Significant Dates of Appraisal
The subject property is being appraised as of the effective date presented
below. The appraised property is subject to the market influences and economic
conditions that existed on that date. The Date of the Report represents the
approximate date the appraisal report was performed and/or completed.
Date of Appraisal Report: November 24, 1997
Effective Date Of Appraisal: November 20, 1997
Date of Inspection: November 20, 1997
Scope Of The Appraisal
In preparing this appraisal report, the appraisers have completed several
steps to assemble the data and form the opinions presented in this written
report.
1. Considered the complexity of the property and the appraisal
assignment in the context of the purpose and intended use of the
appraisal report.
2. Analyzed the Frankin economy and the subject neighborhood to
determine the market conditions that effect the subjects market
value.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 3
The Appraisal Assignment, cont'd.
3. Inspected the subject property and surrounding neighborhood.
4. Gathered physical and/or factual dam on the subject recorded dam,
physical characteristics of the site and improvements, and legal
restrictions imposed by the municipal government.
5. Analyzed the dam gathered and determined their affects on market
value in conjunction with the highest and best use of the real
estate as if vacant and as improved.
6. Considered the appropriateness of the three traditional appraisal
approaches to value including the cost approach, sales comparison
approach and the income capitalization approach.
7. The application and process of each valuation approach are detailed
in their respective report sections; however, the appraisers have
thoroughly researched market data in each approach and have
presented the most pertinent dam and the reasoning and opinions
leading to the conclusion of market value via each approach to
value.
8. Reconciled the analysis and value indications by the three
approaches to value into a final market value conclusion.
Subject Property Sales History
The following summarizes the most recent sales transaction and prior sales
history of the subject property: The subject is a part of a 6.6_+ acre tract
recently purchased by the subject developer. No recorded transaction of the
subject 1.665 acre parcel has occurred to date. The following information
represents the entire 6.0_+ acre site of which the subject is only a portion.
Current Owner of Record: NOM Franklin, LP
Most Recent Transaction Data:
Transaction Date: 03/03/97
Grantor: Franklin Land Dev Fund Ltd.
Consideration: $1,750,000 ($6.15/SF) for 6.607 Acres
Deed Book/Page: 1496/286
Previous Transaction Data:
Transaction Date: 12/29/86
Grantor: Lee Beaman
Consideration: Not available
Deed Book/Page: 636/331
Comparison to
Concluded Value: Since the subject is only a portion of
the original 6.607 acre tract included in
the most recent transaction, it is
difficult to compare the concluded market
value of the subject 1.665 acre parcel to
the most recent transaction.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 4
The Appraisal Assignment, cont'd.
Comment: The 6.607 acre tract had previously been under contract by Harris
Teeter grocery company (or a developer representing the company) with the intent
of developing a shopping center anchored by Harris Teeter. The contract price
was reported to be just under $1,800,000. The contract expired for specific
reasons unknown to the appraiser. However, it has been reported to the appraiser
that Harris Teeter had not intended for this contract to expire and still wanted
the site. The contract of the March 1997 transaction was a back-up contract and
was accepted before Harris Teeter could rectify the situation. To the
appraiser's knowledge, the Harris Teeter contract had been in place since as
early as March 1996.
Subsequent to the 6.607 acre parcel being placed under contract by NOM
Franklin, LP, two contracts were submitted for the subject tract. The following
summarizes this history.
Subject Parcel: Two contracts had been submitted to NOM
Franklin, LP for the subject corner tract.
CNL Retail Development had submitted a
contract for $1,100,000 with the intent of
developing an Eckerd freestanding drug store
on 1.76 acres. The second, back-up contract
was submitted by R.S. Tatum for $1,100,000
for 1.87 acres inclusive of the subject.
R.S. Tatum intended to develop the site with
a Walgreens freestanding drag store.
Reportedly, both drag store companies had
approved the site at the contract prices
tendered.
The developer of the 6.607 acre tract, NOM
(Newton Oldacre McDonald) Franklin, LP, did
not accept either contract. Upon reporting
to Eckerd and their developer that NOM
intended to sell to the Walgreens developer,
Eckerd Corp. came back to NOM and indicated
that they were willing to consider any
reasonable adjustment by the seller to
control the site. NOM indicated that they
would only accept Eckerd if NOM was the
developer of the Eckerd building. Thus, the
development of the subject 1.665 acre parcel
is not another transaction between two
separate entities. However, based on the
previous contracts submitted, NOM Franklin,
LP is allocating $1,100,000 to the subject
land in their development cost budget.
In a similar manner, NOM Franklin, LP
developed the adjacent tract fronting SH-96
with a two tenant retail center. The
Hollywood Video was completed in September
1997 and a proposed Jiffy Lube will be
developed in early 1998.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 5
DEFINITIONS OF TERMS
1. Market Value - 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.
Sources: 1. Comptroller of the Currency; 12 CFR Part 34
Section 34.42 (f) of Federal Regulations.
2. FDIC Final Rule on Title XI of the Financial
Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA), effective September 19,
1990, as defined in 12 CFR Part 323.4.a.10.
2. Highest and Best Use - That reasonable and probable use that will support
the highest present value, as defined, as of the effective date of the
appraisal. Alternatively, that use, from among reasonably probable and
legal alternative uses, found to be physically possible, appropriately
supported, financially feasible, and which results in the highest land
value.
3. Market Rent - The rental income that a property would most probably
command on the open market; indicated by current rents paid and asked for
comparable space as of the date of appraisal.
4. Market Price - The amount actually paid, or to be paid for a property in a
particular transaction. This differs from market value in that it is an
accomplished or historic fact, whereas market value is and remains an
estimate until proven. Market price involves no assumption of prudent
conduct by the parties, of absence of undue stimulus or of any other
condition basic to the market value concept.
5. Appreciation - Increase in value due to increase in cost to reproduce,
value over the cost, or value at some specified earlier point in time,
brought about by greater demand, improved economic conditions, increasing
price levels, reversal of depreciating environmental trends, improved
transportation facilities, direction of community or area growth, or other
factors.
6. Depreciation - A loss of utility and hence value from any cause. An effect
caused by deterioration and/or obsolescence.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 6
Definitions of Terms, cont'd.
7. Investment Value - The value of an investment to a particular investor,
based on his or her investment requirements; as distinguished from market
value, which is impersonal and detached.
8. Functional Obsolescence - Impairment of functional capacity or efficiency.
Functional obsolescence reflects the loss in value brought about by such
factors as overcapacity, inadequacy, and changes in the art, that affect
the property item itself or its relation with other items comprising a
larger property. The inability of a structure to perform adequately the
function for which it is currently employed.
9. External Obsolescence - Impairment of desirability or useful life arising
from factors external to the property, such as economic forces or
environmental changes which affect supply-demand relationships in the
market. Loss in the use and value of a property arising from the factors
of external obsolescence is to be distinguished from loss in value from
physical deterioration and functional obsolescence, both of which are
inherent in the property. Also referred to as locational or economic
obsolescence.
10. Fee Simple Estate - Absolute ownership unencumbered by any other interest
or estate; subject only to the limitations of eminent domain, escheat,
police power, and taxation.
11. Leased Fee Estate - An ownership interest held by a landlord with the
right of use and occupancy conveyed by lease to others; usually consists
of the right to receive rent and the right to repossession at the
termination of the lease.
12. Leasehold Estate - The right to use and occupy real estate for a stated
term and under certain conditions; conveyed by a lease.
13. Present Value - The current monetary value. It is the today's cash lump
sum which represents the current value of the right to collect future
payments. It is the discounted value of aggregate future payments.
14. Gross Sales Proceeds - The total amount of invoiced sales, before
deducting returns, allowances, etc. over the forecasted sellout period.
15. Forecasting - Predicting a future happening or condition based on past
trends and the perceptions of market participants, tempered with
analytical judgment concerning the continuation of these trends and the
realization of these perceptions in the future.
16. Overall Capitalization Rate - An income rate for a total property that
reflects the relationship between a single year's net operating income
expectancy or an annual average of several years' income expectancies and
total price or value; used to convert net operating income into an
indication of overall property value.
17. Discount Rate - A rate of return on capital used to convert future
payments or receipts into present value.
18. Internal Rate of Return - The annualized rate of return on capital that is
generated or capable of being generated within an investment or portfolio
over the period of ownership; similar to the equity yield rate; often used
to measure profitability after income taxes, i.e.,
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 7
Definitions of Terms, cont'd.
the after-tax equity yield rate; the rate of discount that makes the net
present value of an investment equal to zero; discounts all returns from
an investment, including returns from its termination, to equal the
original investment.
19. Retail Value - The term "retail" refers to the aggregate sum of all the
individual unit values as of the date of the appraisal. Generally applied
to residential lot sales or condominium developments.
Source of Definitions: The American Institute of Real Estate Appraisers,
The Dictionary of Real Estate Appraisal; American Institute of Real Estate
Appraisers and Society of Real Estate Appraisers, Real Estate Terminology,
Ed. Byrl N Boyce (Cambridge, MA: Ballinger Publishing Company, 1981); or
standard industry definitions.
Supplemental Definitions
1. Market Value "As Is" on Appraisal Date: An estimate of the market
value of a property in the condition observed upon inspection and as
it physically and legally exists without hypothetical conditions,
assumptions, or qualifications as of the date the appraisal is
prepared.
2. Prospective Value Upon Completion of Construction: The Value
presented assumes all proposed construction, conversion,
rehabilitation is hypothetically completed, or under other specified
hypothetical conditions, as of the future date when such
construction completion is projected to occur. If anticipated market
conditions indicate that stabilized occupancy is not likely as of
the date of completion, this estimate shall reflect the market value
of the property in its then "as- is" leased state (future cash flows
must reflect additional lease-up costs, including tenant
improvements and leasing commissions, for all areas not pre-leased).
For properties where individual units are to be sold over a period
of time, this value should represent that point in time when all
construction and development costs have been expended for that
phase, or those phases, under valuation.
3. Prospective Value Upon Achieving Stabilized Occupancy: The value
presented assumes the property has attained the optimum level of
long-term occupancy, which an income-producing real estate project
is expected to achieve under competent management after exposure for
leasing in the open market for a reasonable period of time at terms
and conditions comparable to competitive offerings. The date of
stabilization must be estimated and stated within the report.
4. Proposed Tract Development: Means a project of five units or more
that is constructed, or is to be constructed, as a single
development. A tract development may be units in a subdivision,
condominium project, timeshare project, or any similar project meant
to be sold as individual units over a period of time.
5. Fair Value - The cash price that might reasonably be anticipated in
a current sale under all conditions requisite to a fair sale. A
"fair sale" means that buyer and seller are each acting prudently,
knowledgeably, and under no necessity to buy or sell. "Current sale"
means that the property is exposed to the open market for a
reasonable time considering the property type and local market
conditions. When a current sale
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 8
ASSUMPTIONS AND LIMITING CONDITIONS
is unlikely, i.e., when it is unlikely that the sale can be
completed within 12 months, the appraiser should discount to present
value any and all cash flows which might be generated by the
property to obtain the estimate of fair value. These cash flows
include, but are not limited to, those arising from ownership,
development, operation, and sale of the property. The discount
applied should reflect the appraiser's judgement of what a prudent,
knowledgeable purchaser under no necessity to buy would be willing
to pay to purchase the property in a current sale. Whenever the
appraiser believes that more than one year is necessary for a fair
sale of the property, the appraiser shall state and justify the
estimated holding period, cash flows and the discount rate applied.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 9
ASSUMPTIONS AND LIMITING CONDITIONS
Standard Rule 2-2g of the Code of Professional Ethics and Standards of
Professional Conduct of the Appraisal Institute requires the appraiser to
clearly and accurately set forth all facts, assumptions and conditions that
affect the analysis, opinions and conclusions upon which the appraisal is based.
In compliance therewith, and to assist the reader in interpreting this report,
such assumptions and limiting conditions are set forth as follows:
1. Title is assumed to be marketable and free and clear of all liens and
encumbrances, easements, and restrictions except those specifically
discussed in the report. The property is appraised assuming it to be under
responsible ownership and competent management and available for its
highest and best use.
2. No opinion is intended to be expressed for legal matters or that would
require specialized investigation or knowledge beyond that ordinarily
employed by real estate appraisers, notwithstanding the fact that such
matters may be discussed in the report.
3. The date of value to which the opinions expressed in this report apply is
set forth in the letter of transmittal. The appraiser assumes no
responsibility for economic or physical factors occurring at some later
date which may affect the opinion herein stated.
4. The valuation is reported in dollars of currency prevailing on the date of
appraisal.
5. Maps, plats, and exhibits included herein are for illustration only as an
aid in visualizing matters discussed within the report. They should not be
considered as surveys or relied upon for any other purpose.
6. All information and comments pertaining to this and other properties
included in the report represent the personal opinion of the appraiser,
formed after examination and study of the subject and other properties.
While it is believed the information, estimates and analyses are correct,
the appraiser does not guarantee them and assumes no liability for errors
in fact, analysis or judgement.
7. Neither all nor any part of the contents of this report (especially any
conclusions as to value, the identity of the appraiser or the firm with
which he is connected, or any reference to the Appraisal Institute or the
MAI or RM designation) shall be disseminated to the public through
advertising media, public relations media, news media, sales media or any
other public means of communication without prior written consent and
approval of the undersigned.
8. The appraiser is not required to give testimony or to appear in court by
reason of this appraisal, unless prior arrangements have been made.
9. The distribution of the total valuation in this report between land and
improvements applies only under the existing program of utilization. The
separate valuations for land and buildings must not be used in conjunction
with any other appraisal and are invalid if so used.
10. Certain information concerning market and operating data was obtained from
others. This information is verified and checked, where possible, and is
used in this appraisal
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 10
ASSUMPTIONS AND LIMITING CONDITIONS, cont'd.
only if it is believed to be accurate and correct. However, such
information is not guaranteed.
11. Real Estate Values are influenced by a large number of external factors.
The data contained herein is all of the data we consider necessary to
support the value estimate. We have not knowingly withheld any pertinent
facts, but we do not guarantee that we have knowledge of all factors which
might influence the value of the subject. Due to rapid changes in the
external factors, the value estimate is considered reliable only as of the
date of the appraisal.
12. Opinions of value contained herein are estimates. There is no guarantee,
written or implied, that the subject property will sell for such amounts.
13. It is assumed that there are no hidden or unapparent conditions of the
property, subsoil, or structures which would render it more or less
valuable. No responsibility is assumed for such conditions or for
engineering which may be required to discover such factors.
14. If the subject of the appraisal is an improved property, the appraiser has
personally inspected the property and finds no obvious evidence of
structural deficiencies except as stated in this report; however, no
responsibility for hidden defects or conformity to specific governmental
requirements, such as fire, building and safety, earthquake, or occupancy
codes can be assumed without provision of specific professional or
governmental inspections.
15. Unless otherwise stated in this report, the existence of hazardous
material, which may or may not be present on the property, was not
observed by the appraiser. The appraiser has no knowledge of the existence
of such materials on or in the property. The appraiser, however, is not
qualified to detect such substances. The presence of substances such as
asbestos, urea-formaldehyde foam insulation, or other potentially
hazardous materials may affect the value of the property. The value
estimate is predicated on the assumption that there is no such material on
or in the property that would cause a loss in value. No responsibility is
assumed for any such conditions, or for any expertise or engineering
knowledge required to discover them. The client is urged to retain an
expert in this field, if desired.
16. We have not made a specific compliance survey and analysis of this
property to determine whether or not it is in conformity with the various
detailed requirements of the Americans with Disabilities Act (aka, ADA).
It is possible that a compliance survey of the property together with a
detailed analysis of the requirements of the ADA could reveal that the
property is not in compliance with one or more of the requirements of the
Act. If so, this fact could have a negative effect upon the value of the
property. Since we have no direct evidence relating to this issue, we did
not consider possible non-compliance with the requirements of ADA in
estimating the value of the property.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 11
METROPOLITAN AREA ANALYSIS
Introduction
The intent of this analysis is to provide basic data reflecting the Nashville
Metropolitan area economy and determine the potential effect on real estate
absorption, occupancies, rent trends and values. This analysis utilizes graphs
in the presentation of data to assist the reader in quickly identifying trends.
General Pertinent City Data
The following is general data about Nashville that will assist the reader
in establishing general characteristics of Nashville.
o State Capitol
o County Seat
o Second largest city in Tennessee
o MSA is largest in Tennessee
o MSA consists of 8 counties surrounding Davidson County
o 50% of the U.S. population is located within a 600 mile radius of the
city.
o Nashville-Davidson County consists of a Metropolitan Government (i.e.,
city and county government combined into one government)
Population
Population: 1,128,400
Year: 1/1/97
Source: Sales & Marketing Management, August 30, 1997
The graph to the right reflects historical population trends for the
Nashville MSA from 1970 through 1/1/97. Overall, the growth rate has been
relatively stable with a higher growth rate in the 1990's. The upward trend in
the population is expected to continue at moderate rates in the long-term.
Recent trends indicate that the suburban counties will be the primary
beneficiary of future growth. Currently, Rutherford County and Williamson County
are the fastest growing counties in Middle Tennessee. In fact, Rutherford County
is in the top 50 fastest growing counties in the United States.
[GRAPH OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 12
Metropolitan Area Analysis, cont'd.
The Nashville MSA consists of eight counties. The graph to the right
indicates that the largest populated counties are Davidson and Rutherford
Counties. Nashville-Davidson is part of Davidson County. Therefore, the Davidson
County data includes the Nashville-Davidson data.
[GRAPH OMITTED]
Cost of Living
Data provided by the American Chamber of Commerce Researcher's Association
indicates that Nashville's cost of living is one of the lowest in the U.S. as
compared to comparable sized towns or larger.
ACCRA All Index Rating: 94.2
ACCRA Report Date: Third Quarter 1996
The graph to the right provides a comparison of the cost of living index
between Nashville and other cities. The high quality of life in Nashville
combined with the low cost of living makes the area an attractive location for
new businesses. Nashville has lower cost of living as compared to the two other
metropolitan areas in Tennessee-Knoxville and Memphis. In addition, the cost of
living is lower than comparable sized cities such as Indianapolis, Charlotte,
Raleigh and Birmingham.
[GRAPH OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 13
Metropolitan Area Analysis, cont'd.
Effective Buying Income
While Nashville has a relatively low cost of living, the effective buying
income (EBI) is slightly above the national level. The EBI is also referred to
as "disposable personal income". The following information was obtained from
Sales and Marketing Management Survey of Buying Power, August 30, 1997.
Median Household EBI of:
Nashville MSA: $38,224
USA: $33,482
The following graph compares the median household effective buying income
of the Nashville MSA to the individual counties and composite suburban market.
[GRAPH OMITTED]
Economic Profile
The Nashville economy is very diversified and closely parallels the US
economy as evidenced by the labor force allocation comparisons provided later.
As a result, the economic performance of Nashville also closely parallels the
national economy. Nashville experienced the strong economic activity in the
mid-1980's, fell into recession in 1989 and has recovered and is expanding since
1993. The real estate market in Nashville has followed similar trends as the
overall economy with the exception of the real estate market experiencing more
of a depression than a recession in the late 1980's. This phenomena, however,
has been experienced throughout many metropolitan markets in the United States.
The following discussions present the basic economic profile of Nashville as
well as general trends.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 14
Metropolitan Area Analysis, cont'd.
Major Industries
The following is a list of the major industries significantly influencing
the Nashville economy. The reader is directed to the exhibit at the end of the
Metropolitan Analysis for a list of the largest employers of Metropolitan
Nashville.
o State & Federal Government o Music Industry
o Printing Industry o Tourism & Conventions
o Healthcare Industry o Automotive Manufacturing
Industry
Printing & Publishing Industry - Nashville, the South's leading center for
printing and publishing, is the home of the Printing Industry Association of the
South, the Southern Baptist Convention and United Methodist printing facilities,
and the Thomas Nelson Co., the world's largest printer and distributor of
Bibles. In addition, Nashville is home of Ingram Publishing, the largest book
and software distributor in the world. Publishers Weekly recently described
Nashville as one of the nation's ten largest book publishing, printing and
distribution centers and the largest in the south.
Healthcare Industry - Nashville is currently considered the healthcare
industry's business center for the U.S. Nashville is home to companies that
manage or own more than 60% of the for-profit acute care hospital beds in the
United States. More than 140 health care companies with a national or
multi-state presence, representing every segment of the industry, have regional
or corporate headquarters in Nashville. The most prominent company is
Columbia/HCA Healthcare Corporation, the largest for-profit hospital operator in
the world. It is a $16 billion-a-year company owning more than 300 hospitals and
100 day-surgery centers in 37 states. The company is one of the largest public
companies in the U.S. surpassing Coca-Cola Co. and Xerox.
Music Industry - Nashville's most famous asset is its dynamic music
industry. Anchored by the renowned Grand Ole Opry, with continuous live
broadcasting since its founding in 1925, Nashville has become the headquarters
for the country-music world. The industry has an estimated $2.5 billion impact
on the Music City economy as well as spawning the tourism business, valued to be
approximately $2 billion. Country music is one of the fastest growing sectors of
the music industry with record labels increasing their artist roster and general
financial commitment to Nashville. This commitment is evidenced by new office
building construction such as the RCA building, MCA building and other recent
projects. Music publishing is also flourishing. Nashville is known as the last
"writer's town" with many songwriters moving here from Los Angeles and other
parts of the country.
The following presents details of the impact of the music industry on the
Nashville economy.
o 68 record labels o 10 record manufacturers
o 175 recording studios o 40 record promotion companies
o 290 song publishing companies o 23 theatrical talent agencies
o 190 booking agents
The music industry has an estimated 1,500+ companies in the area directly
related to music. Approximately 25,000 people are employed in the industry with
a total payroll of approximately $500 million annually. The film/video
production business in Nashville has
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 15
Metropolitan Area Analysis, cont'd.
increased 200 percent in the last five years. Approximately 75 companies in the
area have a combined earnings estimated at $333 million annually.
Tourism & Conventions - The tourist and convention industry draws
approximately 9 million people to Nashville every year. These visitors spend
approximately $2 billion per year contributing significantly to the economy.
The Nashville Convention Center was completed in downtown Nashville in
1987. This facility combined with the even larger convention facilities at the
Opryland Hotel have resulted in Nashville becoming a strong convention town. The
2,800+/- room Opryland Hotel includes a 988 room expansion at a cost of $200
million with completion in 1996. The hotel is the largest non-gambling hotel in
the country and in the top 10 size list overall. The primary business generated
by the hotel is convention business. Even after the expansion, the hotel
reportedly maintains an 85% annual occupancy, which is an extraordinary annual
occupancy for hotels. Conventions contribute significantly to the local economy.
A downtown arena is currently under construction near the convention center. The
20,000 seat capacity Arena, completed in late 1996, is a state of the art
facility for concerts, multi-media and conventions and designed to house a
National Basketball Association team. It is now home to the new National Hockey
League team recently awarded to Nashville in 1997. This facility has already
been the direct catalyst for revitalization of downtown with completion of the
Wildhorse Saloon, Hard Rock Cafe, Planet Hollywood and numerous other
restaurants and tourist type businesses on Second Avenue.
Conventions have historically brought more than a million people a year to
Nashville, which has started to compete with spots such as Orlando, New Orleans
and Las Vegas for lucrative convention dollars. These conventions have been
pumping in more money to the local economy, with convention revenues jumping to
$300 million a year, nearly double what it was a decade ago. The new arena is
anticipated to boost Nashville to the next level of competition in convention
business. Already Nashville is competing with Atlanta and other similar sized
convention towns for major athletic events and conventions that would not be
feasible prior to the arena. With the Arena and the Opryland Hotel completions,
Nashville has 418,000 SF of exhibit space, more than any other city in the
Southeast except Atlanta and Orlando. The Nashville Convention & Visitors Bureau
worked with 82 conventions representing 45,300 delegates in January 1997
compared with 51 conventions representing 31,390 delegates in January 1996.
According to Butch Spyridon of the NCVB, "We used to be a three- to five-month
city, then we were a nine- to 10-month city. No we're beginning to grow into a
12 month market, particularly in the meeting industry."
The former Houston Oilers, now known as the Tennessee Oilers, moved the
franchise to Nashville in Summer 1997. The proposed $290 million, 65,000+
stadium is being developed across the Cumberland River from downtown in an area
known as the East Bank. The area previously consisted of extremely heavy
industrial uses and warehouses built in the 1930's through 1960's. Current plans
are to have the stadium completed and the football team playing by 1999. The
Oilers will be playing in Memphis until the stadium in Nashville is complete.
Automotive Manufacturing Industry - In the 1980's, the Middle Tennessee
area was the location for two new automotive manufacturing facilities that have
contributed significantly to the local economy. Nissan Motors U.S.A is located
in Smyrna in Rutherford County and has a total local employment of approximately
6,000. General Motors
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 16
Metropolitan Area Analysis, cont'd.
constructed the Saturn Plant in Maury County, just south of Williamson County,
in 1989. Their current local employment is approximately 8,300. In addition,
Primus, a subsidiary of Ford Motor Credit, has completed a 250,000 SFoffice
facility in the Cool Springs area in 1995 and already has another 250,000 SF
under construction. This is the international headquarters and central operation
center for the company. This development has already had an impact on retail,
apartment, hotel and single family development plans in the immediate area.
Labor Force/Employment
Labor Force
As previously noted, one of the attributes of the Nashville economy is its
diversity. Nashville's labor force closely parallels the United States
statistics by industry group. As a result, the Nashville/Middle Tennessee
economy closely parallels the national economic swings. Nashville, however,
tends to precede and not follow the national economy. As an example, the full
recognition of the recession appeared to have impacted Nashville at the same
time or slightly preceding the national recession. On the other hand,
statistical data indicates Nashville recovered at a slightly faster pace than
national statistics.
The two pie charts to the right compare the Nashville labor force by group
to the USA. The latest available data for Nashville is 1996 and 1990 for the
USA.
USA Labor Fore - 1990
[PIE CHART OMITTED]
LABOR FORCE - MSA
[PIE CHART OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 17
Metropolitan Area Analysis, cont'd.
Employment
The employment growth trends for the MSA reflect the late 1980's and early
1990's recession and subsequent full recovery. The graph to the right indicates
that the growth peaked in 1994 at unusually high levels and is returning to a
normal level.
The unemployment rate continued to decline through 1994 as the total labor
force has increased. This factor indicated job growth had outpaced the growth in
the labor force. The unemployment rate has remained generally stable since 1994.
The following unemployment graph presents the trends in average unemployment
over the past several years.
While annual averages show an 11,800 employment gain or 2.0% growth for
1996, the comparison of June 1997 to June 1997 data in the chart on the
following page reflects a significantly smaller employment gain of 0.9% increase
or 7,000. It is apparent that job growth has declined significantly from the
1994 peak. Furthermore, data indicates this decline in job growth is evident
throughout the state of Tennessee. This low level of job growth has been
consistent through 1997. Since job growth is a key measurement of an economy, it
should be monitored closely for the remainder of the year and into 1998.
Employment Growth History
[GRAPH OMITTED]
Unemployment History
[GRAPH OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 18
Metropolitan Area Analysis, cont'd.
Comparison of Current Month to Same Month Last Year (000's)
Labor Force Employment % Unemply
----------- ---------- ---------
June 1997 629.7 613.3 4.0%
June 1997 626.7 607.6 3.6%
----- ----- ----
Difference/Change 3 6 0
However, the reader should note that the Tennessee Department of
Employment Security's initial estimates are typically unreliable, particularly
in years of significant declines or increases. For this reason, the magnitude of
the decline is highly questionable. However, the significant factor is the
decline in job growth. The final revisions are not available for approximately
one to two years after the initial estimate. The following graph illustrates the
inaccuracy of the first revision job growth estimates as compared to the final
estimates.
Employment Growth Revisions Comparison
[GRAPH OMITTED]
In addition, recent market data for items such as single family home sales
for existing and new construction indicate slightly lower, but very similar
year-to-date levels as the same period in 1996. Inasmuch as the recent home
sales market has been setting a record pace, it does not make sense that job
growth has declined so dramatically. However, the job growth figures should be
monitored very closely over the next several months since it is recognized as a
very important leading indicator.
The Fall 1997 periodical Mid-State Economic Indicators published by the
Business and Economic Research Center, College of Business, Middle Tennessee
State University directly addresses the recent decline in job growth. This
publication states that job growth is slower in the Mid-State than in the rest
of the country due to the regions tight labor markets (i.e., low unemployment
rate). The ability of the job market to grow has been limited by the fact
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 19
Metropolitan Area Analysis, cont'd.
that the available skilled work force is so limited that even when potential
jobs are created, they are difficult to fill. The publication further indicates
that the job growth through Second Quarter 1997 is only 5,969 jobs. The data
presented in the publication indicates that Manufacturing represents a decline
of 2,474 and Government a decline of 2,428. These two categories represent a
decline of 4,902. All remaining labor market categories reflect a positive job
growth of 10,871. The Services sector was the primary job growth market with an
increase of 6,130 jobs. Thus, the quality of new jobs being created is actually
improving and may explain why real estate sectors such as home sales has
remained at healthy levels.
Retail Sales
Annual retail sales analysis is another key measure of the local economy.
The data is for the eight county Nashville MSA as reported by Sales & Marketing
Management. The primary increase in sales is being generated outside of Davidson
County in the high growth counties of Rutherford and Williamson. However, the
Davidson County sales are still increasing at a healthy pace. As will be
discussed later, the flow of population and increasing retail sales in the hub
counties is a strong catalyst for the shopping center market growth. Williamson
County has benefited from the high average household income that has attracted
significant new retail development in the Cool Springs Galleria Mall area.
Retail Sales History
[GRAPH OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 20
Metropolitan Area Analysis, cont'd.
New Construction
Building permit data is a good indicator of new construction activity for
a city/metropolitan area. The following graph presents the historical trends for
Nashville-Davidson County's residential and non-residential building permit
values.
Latest Full Year Permits: $991,687,815
Latest Full Year: 1996
The graph to the right presents the historical trends for
Nashville-Davidson County's building permit values. The data indicates a
significant recovery with 1994's total valuation reflecting a-1.74% increase as
compared to the previous year. The building permit trends have followed local
and national economic trends and should continue to follow these trends in the
future. The important factor to note is that a substantial amount of the new
commercial construction is occurring outside of Davidson County. Thus, the
declining trends since 1994 is not necessarily accurate. A significant amount of
new commercial and residential development is occuring in the high growth
counties such as Williamson and Rutherford.
Real Estate Markets
The following provides a brief summary of the occupancy histories and
status of the various real estate markets in the Nashville area. This is
intended as a broad overview in the context of how these markets effect or
reflect the Nashville Metropolitan area economy.
Total Permit Values
[GRAPH OMITTED]
Single Family Market
Single Family construction starts have rebounded from the recessionary
times of 1989 through 1991. Record level sales were recorded in 1993 and 1994
and construction starts have been on the rise since 1992. According to
Market-Graphics, Inc., the single family lot supply is extremely low in the
vibrant markets. As of October 1996, Market-Graphics, Inc. indicated that the
years supply of lots is declining and was at 1.62 years for the seven county
area they survey. This is a decline from an approximate three year supply in
1990. The decline in years supply is attributed to both increased demand and a
decline in total available lots from 14,000+ to 11,459 in 1994. The lot supply
has remained virtually the same at 11,500+/- through mid year 1997 despite the
significant increase in lot development. Analysis
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 21
Metropolitan Area Analysis, cont'd.
of the most active markets indicate a years supply of less than 1.5 years,
particularly Rutherford County and Williamson County.
New home sales for the Metropolitan area have been improving since 1993.
The 1993 new construction home sales rate was approximately 4,200 homes. New
home sales increased to 5,891 in 1994 and 5,966 in 1995. Another significant
increase occurred in 1996 to the 7,259 home level. Based on data through through
August 1997, MarketGraphics reports home sales are at slightly lower, but very
similar pace of a forecasted 7,000 new homes for all of 1997.
In addition, 1995 was a record breaking year for existing home sales. The
1996 level declined, but at higher levels then pre-1995. As was the case in new
home sales, data through August 1997 indicates highly similar, but slightly
lower existing home sales for all of 1997. Existing home appreciation in 1994
through 1996 has been strong. A study completed by Maneier & Exton indicates the
Davidson and Williamson County markets reflect appreciation of 6.7% in 1994,
6.1% in 1995 and 7.7% in 1996. Another study completed by Experian, a national
data collection company, indicated Nashville's upper end homes (i.e., $125,000+
in 1990) has appreciated an average of 5.7% per year since 1990. This places
Nashville second to Denver in the top five in the country for high end home
appreciation. However, in 1997, the existing homes for sale inventory increased
significantly because of the high appreciation. As a result, days on market will
increase and price appreciation will moderate to more typical levels.
Nashville Metropolitan Area
[GRAPH OMITTED]
Job Growth Vs Total Home Sales
[GRAPH OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 22
Metropolitan Area Analysis, cont'd.
Multi-Family Market
After several years of an apartment oversupply, the apartment market
reached a market occupancy reflecting natural full occupancy in 1993 and 1994.
With the 95+% occupancies beginning in 1992, apartments had been experiencing
significant overall market rent increases with an annualized 6.8%+/- over 1992,
7.4% in 1993, 9.5%+/- in 1994 and 7.6% in 1995. Due to the rent increases,
apartment construction began to increase to a reasonable level of 3,125 units in
1996. This resulted in a significant decline in rent appreciation to the 1.1%
level. However, by mid year 1997, another 3,055 units had been completed with
6,037 units under construction. This massive amount of new apartment
construction will probably result in an oversupply of the overall market for at
least two years, even with healthy absorption and economic activity.
Nashville Apartment Market
[GRAPH OMITTED]
Office Market
The Nashville market, like most in the U.S., had a severe oversupply of
office space in the early 1990's; however, with the improving local economy,
declining vacancy, healthy rent appreciation and limited construction in the
early 1990's, the office market began to experience new construction in late
1995 through the present. Since this new construction cycle began, the new
supply being built is typically absorbed before it is completed, particularly in
the Brentwood/Franklin submarket. Most of the new construction is by REITs or
similar type companies with minimal debt. As a result of this high demand, rents
increased 3.8% for the overall market with the strongest markets reflecting 4.4%
to 7.6% appreciation in 1996. The overall market was negatively affected by the
CBD which is still suffering to some degree, although improving. Currently,
there is an estimated 18,800,000 square feet
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 23
Metropolitan Area Analysis, cont'd.
of office space in the area with a mid year 1997 vacancy of 6.66%. The Central
Business District totals more than 5.2 million square feet with a mid year
vacancy rate of 11.15%. The 1995 and 1996 absorption has hovered around
700,000+/- square feet per year or 1,400,000+/- square feet over the two year
period. During the same period, approximately 1,126,000 square feet of space was
constructed. Thus, demand has outpaced new supply. This should yield the
continuation of healthy rent appreciation in the near term.
Nashville Office Market
[GRAPH OMITTED]
Retail Market
The retail vacancy rate has declined significantly since 1994 as evidenced
by the adjoining graph. The improved market conditions have resulted in
significant new construction and rent appreciation. During the 1993 through 1996
period, approximately 2,600,000 square feet of new construction was completed.
During the same period, the market absorbed 3,600,000 square feet yielding the
significant vacancy rate improvement. A large percentage of this new
construction has been in the Cool Springs Mall area of the Brentwood/Franklin
market. The Cool Springs market is obviously the hottest real estate submarket
for the Nashville area, particularly in the retail market.
The outlook for the overall retail market is positive based on the
year-to-date 1997 activity. Shopping center sales are still relatively limited.
However, rents are increasing as occupancies increase.
Nashville Retail Market
[GRAPH OMITTED]
Industrial Market
One of the most vibrant property types in Nashville is the industrial
market.Nashville and Chattanooga share laurels for the top industrial real
estate occupancy rate in the nation of 99%. The occupancy rate is based on the
approximate 170 million square feet of combined speculative and owner occupied
space. That is the finding of a new comprehensive study by the Washington-based
Society of
Nashville Industrial Market
[GRAPH OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 24
Metropolitan Area Analysis, cont'd.
Industrial and Office Realtors (SIOR), an arm of the National Association of
Realtors, and New York-headquartered Landauer Real Estate Counselors.
With the supply of developable industrial zoned land inside Davidson
County dwindling and the area's economy performing quite strongly, distribution,
warehouse and manufacturing space has been in short supply since 1995.
Speculative industrial space is 94.3% occupied according to the Nashville
Warehouse Report - Year End 1996 published by the Frank L. Smith Company.
However, due to the resurgence in new construction, the vacancy increased to
9.6% in the First Quarter 1997. The total new construction for 1996 was 1.6
million square feet with a net absorption of 911,000 SF. Rents for
warehouse/distribution space average $3.47/SF per square foot The majority of
the industrial activity appears to be located outside Nashville but within the
MSA, where land is plentiful and less costly. The shortage of developable,
affordable industrial zoned land in Davidson County has been a major hindrance
to developers in recent years.
As of year end 1996, the Nashville market had 1.2 million square feet of
industrial space under construction. Anthony Martin of CB Commercial states
"Nashville is now perceived as an industrial market that can support higher
levels of speculative space, because we have higher levels of activity. That is
expected to continue because of the strong position of REITs in the marketplace,
such as Security Capital Industrial, First Industrial, and Weeks." The character
of Nashville industrial development has historically been of low quality
compared to other markets. However, with the developments by Security Capital
Industrial, Weeks and Trammel Crow, the quality has stepped up to be comparable
quality as other major industrial markets. Brokers have reported that the lack
of large block space has been a hinderance to attracting tenants to this market.
However, with increased development activity of good quality space, interest in
Nashville has increased substantially over 1996 into 1997.
Hotel Market
Data obtained from the Nashville Convention and Visitors Bureau, indicates
the Nashville hotel market has sustained a relatively healthy occupancy of 71+%
since 1991. Occupancy rates have increased to a level that allows appreciation
in average daily room rates. As a result, the Metropolitan area experienced the
beginning of new hotel construction in 1994 which has continued through 1997.
The significant amount of new construction, particularly in the Opryland and
Brentwood/Franklin submarkets is bringing up warning signals relative to
potential oversupply. However, current year 1997 occupancy figures are not yet
available to determine the impact on the hotel market or the average daily
rates. The increase in development activity is in
Nashville Hotel Market
[GRAPH OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 25
Metropolitan Area Analysis, cont'd.
anticipation of demand generated from the general expanding economy,
particularly in the Brentwood/Franklin submarket, and the anticipated growth in
convention business from the recently completed Nashville Arena and the Opryland
Hotel over flow from its recent room expansion and resulting convention business
growth. Discussions with hotel managers as far out as the Brentwood market
indicate that they have been positively impacted by the increased convention
activity. As a result, the hotel market should be viewed with caution relative
to any additional new construction over the next one to two years.
Conclusions
In summary, the Nashville economy has been very strong and well positioned
for expansion. Its diversification tends to mitigate extremes of boom and bust,
of inflation and recession, and insures strong, stable growth well into the
future. The area is benefitting from Substantial growth in in all areas of the
economy from 1994 through 1996. The initial real estate market indicators
suggest that 1997 is continuing at a similar pace, but slightly moderated. The
economic data suggest that Nashville has risen to another plateau from which
fluctuations in the economy will be measured. Thus, any moderation in 1997 as
compared to 1995 and 1996 would be normal based on long-term historical data;
however, the economic factors would still reflect levels significantly higher
than levels prior to 1994. In other words, any graphical analysis of near term
future trends should reflect a leveling of the graph following the significant
rise in 1994. The only questionable economic leading indicator is the reported
significant decline in job growth, which can affect all market types.
Nashville's central location and superior transportation routes give the
city a unique character as the hub of a broad spectrum of commercial activity.
Finance, government, education, medical and health, retail trade, manufacturing,
tourism and all of the support industries insure the economic viability of
Nashville for many years to come. As the state capitol, Nashville will continue
to benefit from the amenities capitol cities traditionally enjoy in government
expenditures.
Affects on Real Estate
After several years of declining rental rates and low occupancy levels,
alii sectors of the real estate market have had substantial increases in
occupancy and began to experience increasing effective rental. rates, resulting
in the justification of new construction. The markets to initially rebound were
the single family, apartment and industrial markets. The office and retail
markets were lagging in the rebound; however, both of these markets have fully
recovered with new construction beginning in 1995 and 1996 at a pace that
generally matches demand. The two submarkets that must be watched closely due to
significant new construction completed over the past year and under construction
as of late 1997 are the apartment and hotel markets.
As a result of all the recent economic and population growth,
institutional investors are increasingly interested in the Nashville market
after ignoring this second tier market during the recession. This is supported
by increased institutional investor transactions in the apartment, office and
industrial markets. Despite the the recent low job growth, discussions with
institutional investors indicate a strong interest in the Nashville market. In
fact, despite the large amount of new apartment construction, national investors
are still interested in the Nashville apartment market, but becoming slightly
more cautious.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 26
Metropolitan Area Analysis, cont'd.
The positive growth from 1994 through 1996 and into 1997 for the Nashville
economy and real estate market has been beneficial for the subject's property
type and the subject property. The outlook for 1998 is positive for Nashville
with no significant adverse conditions expected, with the exception of the
apartment and hotel markets. As a result, most properties should continue to
experience healthy occupancy levels and achieve reasonable appreciation in
rents.
The following exhibits provide additional general data of interest about
the Nashville area.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 27
Metropolitan Area Analysis, cont'd.
--------------------------------------------------------------------------------
21 Largest Nashville Area
Major Employers
--------------------------------------------------------------------------------
Firm Product/Industry Employees
--------------------------------------------------------------------------------
1 Tennessee State Government Government 18,147
--------------------------------------------------------------------------------
2 Vanderbilt University and Education 12,000
Medical Center
--------------------------------------------------------------------------------
3 (tie) Gaylord Entertainment Hotel, Amusement Park 10,000
& Entertainment
Company
--------------------------------------------------------------------------------
3 (tie) Metro Nashville and Davidson Government 10,000
County
--------------------------------------------------------------------------------
5 United States Government Government 9,900
--------------------------------------------------------------------------------
6 Metro Nashville and Davidson Education 9,340
County Schools
--------------------------------------------------------------------------------
7 Columbia/HCA Health Care Corp. Hospital Company 7,000
--------------------------------------------------------------------------------
8 Nissan, USA Light Trucks/Cars 6,000
--------------------------------------------------------------------------------
9 Kroger Food Stores Retail Food Stores 5,944
--------------------------------------------------------------------------------
10 Shoney's, Inc. Hospitality & 4,165
Restaurant
--------------------------------------------------------------------------------
11 South Central Bell Telecommunication 3,507
Telephone Co.
--------------------------------------------------------------------------------
12 Baptist Hospital Health Care Facility 3,000
--------------------------------------------------------------------------------
13 Saint Thomas Hospital Health Care Facility 2,924
--------------------------------------------------------------------------------
14 Sumner County Public Schools Public School System 2,830
--------------------------------------------------------------------------------
15 Bridgestone/Firestone, Inc. Tire Manufacturer 2,540
--------------------------------------------------------------------------------
16 Rutherford County Government County Government 2,500
& Public Schools & Public School
system.
--------------------------------------------------------------------------------
17 State Industries, Inc. Water Heater Mfg. 2,400
--------------------------------------------------------------------------------
18 Whirlpool Corp. Maker of Air 2,300
Conditioners,
Refrigerators,
Dehumidifiers
--------------------------------------------------------------------------------
19 First American Corp. Bank Holding Company 2,195
--------------------------------------------------------------------------------
20 (tie) Castner Knott Department Retail Stores 2,000
Stores
--------------------------------------------------------------------------------
20 (tie) Ingram Industries Inc. 2,000
Source: Nashville Area Chamber of Commerce and employer representatives
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 28
Metropolitan Area Analysis, cont'd.
Nashville's Most Popular Tourist Attractions
Ranked by Attendance
--------------------------------------------------------------------------------
Attraction Attendance
--------------------------------------------------------------------------------
Opryland USA 2,247,000
--------------------------------------------------------------------------------
Grand Ole Opry(1) 765,000
--------------------------------------------------------------------------------
Cumberland Science Museum 552,537
--------------------------------------------------------------------------------
General Jackson Showboat(1) 430,400
--------------------------------------------------------------------------------
Nashville Zoo 286,922
--------------------------------------------------------------------------------
Country Music Hall of Fame & Museum 281,237
--------------------------------------------------------------------------------
The Hermitage (Pres. Andrew Jackson's Home) 268,500
--------------------------------------------------------------------------------
The Ryman Auditorium(2) 200,000
--------------------------------------------------------------------------------
Cheekwood Botanical Gardens & Museum of Art 123,913
--------------------------------------------------------------------------------
The Parthenon 117,297
--------------------------------------------------------------------------------
Source: Tennessee Department of Tourism Development.
--------------------------------------------------------------------------------
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 29
Metropolitan Area Map
[GRAPHIC OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 30
WILLIAMSON COUNTY ANALYSIS
Introduction
The population and demographic information of Williamson County as it
compares to the Nashville Metropolitan area has been presented in the
Metropolitan Analysis. This analysis focuses on the specific Williamson County
data not presented in the previous
Metropolitan Analysis.
The city of Franklin is located in central Williamson County in the heart
of the rolling hills of Middle Tennessee. The city is situated approximately 18
miles southeast of the Central Business District of Nashville via IH-65. This
interstate highway provides quick and easy access to the major employment
centers in Nashville and its surrounding communities.
The area also has a rich and colorful history. Because of its rich soils
and the founding of the county seat of Franklin in 1799, Williamson County
became an agricultural center in the Old South. Plantations flourished and by
the time of the Civil War, it was one of the richest counties in the state. The
county played an important part in the Civil War, with the Battle of Franklin
being one of the most decisive and bloody battles of the entire war. Many of the
homes and buildings from this era remain standing. The entire 15-block original
downtown area of Franklin and many of the old farms in the scenic countryside of
Williamson County are listed in the National Register of Historic Places.
Effective Buying Income
Effective buying income (EBI) is defined as personal income less taxes.
This is also referred to as "disposable personal income". Williamson County's
total estimated effective buying income was $2,306,757,000 for 1994. According
to Sales and Marketing Management Survey of Buying Power printed in August 1995,
total retail sales in Williamson County for 1994 were $1,011,944,000.
Williamson County exhibits the highest per capita income in the State of
Tennessee. The most recent data available indicates that the per capita Median
Household Effective Buying Income in December, 1994 for Williamson County was
$53,771.
Economic Base and Trends
Franklin is experiencing a healthy economy which is well balanced between
industry and agriculture. Over $30,000,000 income from all agricultural products
is received annually. Tobacco is the county's largest cash crop. Williamson
County boasts one of the lowest unemployment rates in the state, 2.2% annually
for 1994.
Williamson County's location exhibits a combination of locational,
geographical and demographic characteristics which make it a popular area for
development. Because of strict zoning regulations and cautious city and county
governments, development of commercial property is dominated by master-planned
projects.
The Crossroads South Industrial Park consists of approximately 200 acres
located in the southwest quadrant of IH-65 and Moores Lane. Situated within the
corporate boundaries of both Franklin and Brentwood, this development is
approximately 80% built-out and contains office, office/warehouse,
office/showroom, warehouse, and industrial buildings. Both owner-occupied
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 31
Williamson County Analysis, cont'd.
and speculative projects are constructed or planned for Crossroads South.
Brentwood/Interstate 65 Industrial Park is also located at the interchange of
Interstate 65 and Moores Lane, at the northwest corner, and is 100% sold-out
with Service Merchandise being the anchor tenant and owning 41 acres in the
development. Service Merchandise is also adding on to their national
headquarters complex. The remainder of the Brentwood/Interstate 65 Industrial
Park consists of small user-oriented buildings on one to two acre sites.
Chattanooga based CBL & Associates, Inc. completed the development of the
CoolSprings Galleria Mall. The development opened August 7, 1991 and is located
in the southwest quadrant of Moores Lane and IH-65. The mall, containing 1.4
million square feet on an 89 acre site, currently has five anchor tenants -
Castner Knott (187,000 SF), Dillard's (200,000 SF), Sears (116,000 SF) and the
recently opened J.C. Penny in 1993 (102,000 SF) and Parisians in 1994 (135,000
SF). A new interstate interchange was constructed in conjunction with the mall
development that facilitates access to the mall and the land areas on both sides
of IH-65. An additional 1,000+/- acre land development surrounding the mall and
on the opposite side of the interstate has received preliminary approval from
the City of Franklin for several million square feet of mixed use commercial
space as well as some residential development on the east side. The land area
will be developed over an estimated 20 year period and is planned for commercial
uses such as multi-family, single family, business parks, neighborhood retail
centers, restaurants, hotels and office buildings. Hines Development from
Atlanta is the managing partner of a partnership that purchased the 1,000+/-
acres from the RTC. As a result, a 50 acre parcel has been sold for the
development of the 240,000 SF Primus operations facility with intentions of
future expansion. In addition, a 36 acre parcel has been sold for development as
a retail power center. With the significant development on the north side of the
mall, the mall area has become the strongest new retail development area of the
Metropolitan area. The CoolSprings Galleria Mall and land development are
located in both the Brentwood and Franklin city limits.
Transportation
Franklin and Williamson County are served by a major railroad and three
major freight lines maintain headquarters in Franklin. There is direct daily bus
service and twelve major airlines currently serve the International Airport in
Nashville, approximately 18 miles northeast of Franklin. Major north-south
traffic arteries through Williamson County include IH-65, US-31, US431, SH-6,
SH-11, SH-106, Old Hillsboro Road and Wilson Pike. Major east-west arteries
include IH-40 (extreme northwest section of the county), and SH-96. A new artery
within Franklin is the Mack Hatcher Bypass (SH-397) which makes a semi-circle
from US-431 on the northside heading east/southeast to US-31 on the southside of
Franklin. Proposed IH-840 is tentatively scheduled to begin construction in
Williamson County in the late 1990's. IH-840 when completed will link IH-40 to
IH-65.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 32
Williamson County Analysis, cont'd.
Government and Community Services
The governing body of Franklin consists of a mayor and eight aldermen.
Municipal services are provided by the city and paid for by city taxes. County
government is composed of the county commission with a county executive and 24
commissioners with two representing each of the 12 voting districts.
Services include police and fire department, street lighting, sewage
facilities and road maintenance. United Cities Gas Company provides natural gas
to the area, while electric power is supplied by the Middle Tennessee Electric
Membership Corporation. Water is provided by the Harpeth Valley Utility District
and telephone services are provided by South Central Bell Telephone Company.
Public schools are provided by the Williamson County School District,
generally regarded as one of the best districts in the State in terms of the
number of graduates continuing on to higher educational institutions. According
to officials with the school district, Brentwood High School had the highest
rate of continuation in 1990 with 89.6% of the graduating class indicating their
intention to enter colleges, junior colleges, or universities. The Williamson
County School District had a total enrollment in excess of 11,500 in 1990-91.
The school district has 18 elementary, middle, and high schools. The total
budget for the school district was in excess of $40 million in 1990-91. Private
schools in the area include Battle Ground Academy, Brentwood Academy, Harpeth
Academy, and Franklin Christian Academy. Columbia State Community College has a
branch campus in Franklin as well.
There are seven banks and three savings and loan associations in Franklin
and additional banks are located throughout the county. Health care is provided
by one hospital with 144 beds. The county is serviced by one clinic, 57 doctors,
27 dentists and 5 nursing homes with 425 beds.
Recreational activities in Franklin and Williamson County include fishing,
boating, and swimming in nearby TVA lakes and state parks. The James Warren City
Park in Franklin includes five ball fields and eight tennis courts. Forest
Crossing public golf course is available along with two private country clubs
providing recreational activities.
Summary
In summary, continued growth is anticipated for Williamson County
primarily because of its close proximity to the economic advantages of the
Nashville Metropolitan Area, upper middle class demographics and strong
reputation as the better suburban area of Metropolitan Nashville. Property
values should remain stable as new residents move to the area, and the demand
for supporting commercial and retail services should continue to increase. The
quality of life is considered very good, with the state's highest per capita
income level expected to continue in the near future. The extended outlook for
the county is positive given the favorable level of ecomonic diversification in
the area.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 33
County Map
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(C)1997 Huber & Lamb Appraisal Group, Inc. Page 34
A neighborhood, as defined by the 9th edition of The Appraisal of Real
Estate is "a grouping of complementary land uses" affected by similar operation
of the four forces that affect property value. These forces include social,
economic, governmental and environmental factors. A neighborhood is further
defined by the revised edition of Real Estate Appraisal Terminology as being a
portion of a larger community, or an entire community, in which there is a
homogeneous grouping of inhabitants, buildings or business enterprises.
Neighborhood boundaries may consist of well-defined natural or manmade barriers
or they may be more or less defined by a distinct change in land use or in the
character of the inhabitants. The overriding purpose of describing and analyzing
a particular neighborhood is to observe and/or quantify data indicating
discernible patterns or urban growth, structure and change that may enhance or
detract from property values.
Neighborhood Boundaries
North: Liberty Pike
East: IH-65
South: Franklin city limits
West: Mack Hatcher Bypass (SH-397)
Size: 2 square mile
Comments: The boundaries for the subject neighborhood were chosen because
they contain homogeneous and dependent land uses delineated by distinct man-made
boundaries.
General Neighborhood Data
Distance from CBD: 16 miles south of Nashville CBD; 4
miles east of Franklin CBD
Distance from Airport: 20 miles southeast
Percent Built-Up: 85%
General Land Uses:
Single Family: 65%; typical value range - $130,000 to
$250,000
Apartment: 10%
Retail, Office: 20%
Industrial, heavy commercial: 0%
Types of Commercial Tenancies:
Predominant: Multi-tenant
Secondary: Single tenant
Predominant Property Age Range: 1970's - 1990's
Neighborhood Life Cycle Stage: Growing
Public Transportation: None, typical
Comments: This area is delineated as the subject neighborhood because it
contains generally homogeneous land uses predominantly in the form of
commercial/retail development on SH-96 with an economic support base provided by
the single-family residential housing in the remainder of the locale. The SH-96
commercial corridor is the primary commercial district for the majority of
Franklin.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 35
NEIGHBORHOOD ANALYSIS
Trends
General Neighborhood History: Neighborhood centers in the commercial
corridor formed by SH-96 have flourished in recent years. SH-96 is characterized
as an intense "highway" type commercial corridor that traverses east-west
through the town of Franklin. Development along this thoroughfare includes new
and used auto dealerships, fast-food and family style restaurants, gas
station/convenience stores, a hotel development and several strip shopping
centers. Two shopping centers were developed in 1988. The Mitchell Company
developed the Watson Glen shopping center which consists of approximately
250,000 square feet. The anchor tenants are K-Mart and Red Food Store. This
center is located at the southwest corner of Center Place and Royal Oaks
Boulevard immediately south of SH-96 within the Watson Glen land development.
Sharondale Properties developed the 334,000 square foot Williamson Square
shopping center on the north side of SH-96 at Southwinds Drive. The center is
well occupied and is anchored by Kroger and Walmart stores. Other shopping
centers located in the neighborhood include Alexander's Plaza and The Maples.
Residential development is generally single-family residential and
consists of several newer developments. These homes are typically priced in the
mid to upper price range of homes in the area and are located on varying sized
lots. Residential development tends to have good access and is generally medium
density, masonry, with a typical age of 1 to 10 years old. Recent data indicates
that the average sale price of homes in this mid section of the Williamson
County sub-market ranges from $150,000 to $250,000 depending on the amount of
land allocated and the size house positioned on each property. Residential
development in the immediate area of the subject consists of mostly single
family developments and multi-family developments.
New Development: Large tracts of vacant land are becoming more scarce as
the neighborhood undergoes transition from agricultural estates to
commercial/residential use. The area is estimated to be 80% to 85% developed at
the present time. Commercial land along SH-96 between IH-65 and Mack Hatcher
Boulevard is approaching 100% developed tracts. In fact, evidence of
redevelopment of small tracts by demolishing 20+/- year old improvements has
already begun. Land values and rental rates in the subject neighborhood have
increased at above average rates over the past several years in response to 1)
the Saturn Plant, located approximately 12 miles south of Franklin, 2)
development of Cool Springs Mall area including the Ford Primus office building
3) the excellent reputation of this area for education, quality of development,
and per-capita income that has caused significant demand for residential
development.
Recent commercial development announcements or completions for the area
primarily include shopping center or retail developments. The first development
is located just beyond the neighborhood boundary on SH-96 east of IH-65. The
center is anchored by Food Lion and Revco. The development is nearing
completion. The second development is a 6.5 acre site at the southwest corner of
SH-96 and Southwinds Drive across from Williamson Square shopping center. The
developers have replatted the site from its former eight parcels to four parcels
with cross easements. The parcels are being marketed to freestanding retail
users with recent building completions by Eckerd and Hollywood Video.
New residential development activity has been ongoing on the north side of
the neighborhood along Liberty Pike between Mack Hatcher Parkway and Royal Oaks
Boulevard. These single family developments are typically targeting the $150,000
to $250,000 home price
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 36
NEIGHBORHOOD ANALYSIS
range. The most recent activity is the recent site work that has begun on
Cheswick Farms (Phillips Builders) and Andover (Advantage Homes) immediately
west of Royal Oaks Boulevard.
The Centennial High School was constructed by the City of Franklin and
opened for the first time in September 1996. The school is located in the
northeast quadrant of Royal Oaks Boulevard and the recently widened Liberty
Pike. The school abuts IH-65 and serves as a good buffer to the single family
development to the west. In conjunction with the school, Royal Oaks Boulevard is
being extended northward to Jordan Road and will connect with Mallory Lane which
will extend southward from the Cool Springs Mall area. This is anticipated to
have a very positive affect on the neighborhood providing good access to the
school and the employment and retail center of the mall area.
Historically, apartment construction has been limited in this area of
Franklin. However, two properties are either under construction or very recently
completed in the neighborhood or slightly beyond the defined boundaries. River
Oaks is a 200 unit project completed in 1997. The property is located at Royal
Oaks Court and Mack Hatcher Parkway, south of SH-96. United Dominion, a REIT, is
currently developing the first phase of a 364 unit project located east of IH-65
on the east side of South Carothers Road, south of SH-96.
Conclusions
In summary, the subject neighborhood is located in one of the highest
growth counties in Tennessee. Williamson County has proven to be one of the most
popular areas for single-family housing in the Nashville Metropolitan area and
high-quality commercial development is moving into the area as well. Williamson
County public schools are rated among the highest in the state and the city of
Franklin has a very diverse cultural background. The presence of the Cool
Springs commercial development immediately to the north along with numerous
existing and new residential subdivisions will most probably affect the
subject's neighborhood in a positive way and allow for anticipated quality
growth.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 37
SITE ANALYSIS
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Location: 1122 Murfreesboro Road (SH-96); SWC
Southwind Drive and SH-96.
Comments: SH-96 is also referred to as Murfreesboro Pike which is the
official address of the subject property.
Size:
Acres: 1.665
Square Feet (SF): 72,512 SF
Source: Metes and bounds description and
subject site plan completed by Ragan
Smith Associates, dated 2/11/97.
Shape: Rectangular
Frontage:
SH-96: 182.66'
Street Type: Major east-west state highway; serves
as a primary traffic artery for the
City of Franklin and middle Williamson
County. The road is a four lane
thoroughfare plus turn lane.
Southwinds Drive: 325.22'
Street Type: Interior collector street; serves as
the primary ingress and egress street
for the Southwinds residential
development immediately south of the
subject. The road is a two lane
street.
Visibility: Good. No limiting factors noted
Ingress/Egress: Good. No limiting factors noted.
Access from SH-96 is not permitted.
Access is only available from
Southwinds Drive. This is actually
considered a positive characteristic
at this specific location. Traffic is
typically very congested at this
location because of SH-96 being a
primary artery used to access Franklin
from IH-65 and the high concentration
of retail development at the location.
A traffic signal is located at
Southwinds Drive providing orderly
access to the Williamson Square
(330,000+/-SF) shopping center on the
north and the residential development
to the south. Thus ingress/egress from
east and west bound SH-96 traffic is
more manageable and easier from
SouthwindsDrive via the traffic signal
than from SH-96. In addition, the
Williamson Square shopping center
outparcels across SH-96 from the
subject have similar type access.
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(C)1997 Huber & Lamb Appraisal Group, Inc. Page 39
Site Analysis, cont'd.
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The subject tract is actually accessed
by an easement that extends from
Southwinds Drive. The easement
provides access to four Parcels
including the subject.
Topography: Level; below road grade of SH-96 to
level in general; at SH-96, the site
is approximately 5' to 8' below street
grade, but is at street grade of
Southwinds Dive at the rear of the
site.
Subsoil Conditions
& Drainage: The appraisers are not aware of an
engineering study made to determine
the subsoil conditions. Upon
inspection of the subject and
surrounding improvements, conditions
appear adequate to support the subject
structure. Drainage appears to be
adequate.
Flood Plain: No
FEMA Map #: 470206-0008 D
Effective Date: 07/15/88
Net Usable Acreage: 1.665
Nuisances & Hazards:
Environmental: Based on our site inspection, the
appraisers did not observe any
specific hazardous materials on the
subject site. The appraisers are not
qualified to detect such substances
and would recommend an environmental
audit be performed by an expert in
this field to determine the possible
existence of any potentially hazardous
substances. No responsibility is
assumed by the appraisers for any such
conditions and the value estimate
contained in this report is predicated
on the assumption that there are no
such hazardous materials existing on
the site.
General: No other nuisances or potential
hazards were noted.
Easements: Neither the survey nor the on-site
inspection of the property indicated
any unusual or detrimental easements
other than typical utility easements.
Surrounding Land Uses: The surrounding land use patterns are
mostly comprised of retail and
commercial development. East of the
subject is a Toyota automobile
dealership with an animal clinic and
Arby's restaurant beyond. North of the
subject is the 330,000+ SF Williamson
Square shopping center. Outparcels
fronting the shopping center site
include a Pizza Hut at the northeast
comer of Southwinds Drive and SH-96,
SunTrust Bank at the northwest comer,
Franklin National Bank across from the
northwest corner of the subject site
and a
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(C)1997 Huber & Lamb Appraisal Group, Inc. Page 40
Site Analysis, cont'd.
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freestanding, good quality
construction restaurant (ChopHouse)
across SH-96 and west of the subject
site. The west side of the subject is
abutted by the existing/proposed two
tenant retail building that is leased
to Hollywood Video (existing) and
preleased to a proposed Jiffy Lube.
Beyond the two tenant parcel is the
Maplewood Shopping Center which was
constructed in the mid-1980's. South
of the subject are the two remaining
vacant outparcels from the original
6.607 acre tract. A self storage
facility and the Southwinds Apartments
are located beyond the these vacant
parcels.
Conclusion: The subject site is compatible with surrounding parcels both
in physical features and use. Additionally, it is functionally adequate for
development of any potential feasible development consistent with surrounding
land uses. The site currently has limited improvements in the form of an
existing street that will have to be razed; however, with the remainder of the
site being generally level to slightly sloping, this is not considered to have a
negative impact on value.
The reader is directed to the site analysis exhibits provided on the
following pages.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 41
SITE PLAN MAP
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TAX PLAT MAP
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FLOOD PLAIN MAP
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(C)1997 Huber & Lamb Appraisal Group, Inc. Page 44
DESCRIPTION OF IMPROVEMENTS
The data and analysis included in this report section describes the
building and improvement data relevant to the appraisal problem. Sources of the
data are identified and information not available to the appraiser is noted
where necessary. The data presented is analyzed based upon the functional
utility and physical condition relative to their influence on the value
conclusion of this assignment.
Property Type and Character
Property Type: Retail; build-to-suit for an Eckerds
freestanding drugstore
Building Age:
Year Built: 1997
Actual Age: 0 years
Total Economic Life: 50 years*
Effective Age: 0 years*
Remaining Economic Life: 50 years*
* See Condition Analysis to follow
Comment: The building was completed and Eckerds opened for business
November 1, 1997, or approximately three weeks prior to the effective appraisal
date.
No. of Stories: 1
Size:
Gross Building Area (GBA): 11,293 SF
Net Rentable Area (NRA): 10,908 SF
Source: Site plan; prototype for Eckerds
Drugstore properties
Floor-to-Area Ratio: 0.16:1
Building Dimensions: 140' depth - 80.6' width
Comment: The subject building is a build-to-suit development for an Eckerd
drug store. The space is rectangular and adaptable to other tenants or possibly
subdivision into multi-tenant space if Eckerd vacates. The building has a
drive-thru canopy and window.
Tenancy:
No. of Tenants: 1
Type Occupancy: Single Tenant; freestanding
build-to-suit
Current Physical Occupancy: 100% (preleased)
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(C)1997 Huber & Lamb Appraisal Group, Inc. Page 45
Description of Improvements, cont'd.
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General Construction Components
Data Sources:
Building Plans Provided: Limited Plans and specifications were
made available to the appraiser.
Drawings were completed by Ragan Smith
Associates and dated 02/11/97. Other:
Property inspection by the appraisers,
discussions with representatives of
the property owner.
Foundation: Concrete slab
Structural System: Concrete block
Roof System: Sloping; built-up composition cover
over metal rib decking on steel-bar
joists.
Exterior Walls: Painted split faced block; 8" blocks
three rows high at bottom, remainder
is 4" block. Trimed with EIFS and
dryvit bands and parapet wall at and
above roof line.
Exterior Doors: Storefront tempered glass in aluminum
frame
Exterior Windows: Tempered glass in aluminum frame
across upper 4' of store front wall
Electrical: Electrical fixtures and systems are
assumed to be average quality. Average
commercial service. Assumed to comply
with all governing codes and good
industry standard practice.
H.V.A.C.: 100% Packaged HVAC
Plumbing: A men's and women's restroom. Adequate
plumbing.
Site Improvements
Signage: Pylon sign at corner of site
Parking Area: Heavy duty asphalt in driving areas
and light duty asphalt in parking
areas. Ample parking spaces provided
for tenant
No. of Spaces: 83
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(C)1997 Huber & Lamb Appraisal Group, Inc. Page 46
Description of Improvements, cont'd.
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No./1,000 SF of GBA: 7.61/1,000 SF
Concrete Walks: Concrete along store front and
partially along east elevation
Drive-Thru Window: An approach ramp and drive thru window
covered by a canopy is positioned on
the west side of the building.
Condition/Quality
Construction Quality: Good
Condition of Improvements: Excellent
Effective Age Analysis
The improvements actual age is 0 years. The typical economic life for
similar structures is 50 years. Inasmuch as the subject will be new
construction, a 50 year remaining economic life is considered reasonable before
significant capital expenditures would be required to extend the economic life.
This yields an estimated 0 year effective age.
Functional Utility Analysis
The overall property is considered to have average functional utility
based upon the property type and use. The placement of the building on the site
is considered to be functional with good visibility from the road.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 47
SITE PLAN
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ELEVATIONS
[GRAPHIC OMITTED]
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ELEVATIONS
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PHOTOGRAPHS OF SUBJECT PROPERTY
[GRAPHIC OMITTED]
View of the subject facing south from across SH-96.
[GRAPHIC OMITTED]
View of subject facing south from SH-96 frontage.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 51
Photographs of Subject Property, cont'd
[PHOTO OMITTED]
SH-96 facing east; subject on the right.
[PHOTO OMITTED]
SH-96 facing west; subject on the left.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 52
SUBJECT PROPERTY ZONING
Subject Zoning Data Summary
Subject Zoning Designation: GC General Commercial
Zoning Authority: City of Franklin
Purpose of Zoning District: The character of the of the General
Commercial District is defined as that
which is primarily intended to meet the
needs for heavy retail commercial uses. The
service area of the district should cover a
radius of three to five miles, have a
driving time of 10 to 20 minutes and serve
a population of at least 10,000 persons.
Access control shall be emphasized because
of the high traffic generation created by
general commercial uses. General commercial
uses should be placed into cohesive
groupings that can take advantage of major
thoroughfares for traffic dissemination.
Permitted Uses: The zoning district permits group homes,
community centers, churches, day care, and
other community uses; nursing homes and
retirement centers; medical clinics,
laboratories and hospitals; office; all
business and personal service uses; all
retail and wholesale trade uses except
industrial sales and supplies. Industrial
uses and services are generally prohibited.
Regulations
Front Yard: 30'
Side Yard: 15'
Rear Yard: 25'
Minimum Landscape Surface
Ratios: 20%
Maximum Floor Ratio (FAR): 30%
Maximum Height: 35'
Required Off-Street Parking: Generally use specific.Following provides
examples (spaces/SF).
Office: 1 sp/300 SF
Office/Showroom: 1 sp/500 SF
Convenience Store: 1 sp/1,000 SF
General Retail: 1 sp/200 SF
Restaurant: 1 sp/100 SF plus 1
sp/employee for largest
shift
Planning Commission Approval: A site plan has been approved by the
Planning Department and the Planning
Commission.
Improvements Conformity: The proposed uses conform to the zoning
regulations.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 53
Subject Property Zoning, cont'd.
Other Private, Public or Legal Restrictions
Deed Restrictions: None known to the appraisers
Public Restrictions: None known to the appraisers
The reader's attention is directed to the zoning map exhibit presented on
the following page.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 54
ZONING MAP
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HIGHEST AND BEST USE
Introduction
In highest and best use analysis, an appraiser identifies the most
profitable, competitive use to which a property can be utilized. Highest and
best use may be defined as:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value.1
Proper analysis includes consideration of the highest and best use of a
given property 1) as if vacant, and 2) as improved. The purpose of determining
the highest and best use of land as though vacant is to identify a site's
potential use, which governs its value. The purpose of determining the highest
and best use of property as improved is to identify the use that is expected to
produce the greatest overall return on the capital invested, and to assist the
appraiser in the selection of comparable properties.
A property's highest and best use must be 1) physically possible, 2)
legally permissible, 3) financially feasible, and 4) maximally productive. These
criteria will be considered sequentially and conditionally in this section of
the appraisal report.
The highest and best use analysis and conclusions form the foundation for
the application of the three approaches to value and the reconciliation and
final value estimate. The data presented in the previous sections of this report
is analyzed and used as support for establishing the opinion of highest and best
use. Therefore, only the more distinctive characteristics from each section that
have substantial impact on the highest and best use are analyzed. The reader is
referred to the previous sections for the detailed data.
Highest and Best Use as Vacant
The initial step in analyzing the highest and best us of the appraised
property is to consider the land as if vacant. Highest and best use of land or a
site as vacant assumes that a parcel of land is vacant or can be made vacant by
demolishing any improvements.
1. Physically Possible
The size, shape, location, topography, and surrounding land use pattern of
a parcel of land affects its physical utility and adaptability. These and other
physical characteristics are considered in analyzing the physical capabilities
of the site and most probable uses.
Report Section Reference: Site Analysis and Neighborhood Analysis
General Site Features:
Physical Characteristics: The Rectangular shape, frontage, Level
topography, soil conditions and 1,665 acre
size are functional for almost any type of
development consistent with neighborhood
----------
The Appraisal of Real Estate, Ninth Edition, (Chicago: American Institute
of Real Estate Appraisers, 1987), p.269.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 56
Highest and Best Use, Cont'd.
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trends. No unusual site development costs
would be required.
Utilities & Services: All public utilities are available to the
site in adequate supply and capacity to
permit development of any probable use of
the site. The site fronts on a high traffic
public street that is in good condition.
Functional Utility: Considering the general site features, the
functional utility and physical
adaptability of the subject site is
considered average and will allow most any
typical development prevalent in the area.
Surrounding Land Uses: The surrounding land use patterns are
mostly comprised of retail and commercial
development. The development includes
restaurants, branch banks, car dealerships
and shopping centers along SH-96. Uses to
the south include vacant land, a self
storage facility and residential uses
beyond. The site abutting the subject to
the west will be developed with a two
tenant retail building preleased to Boston
Market restaurant and Hollywood Video.
Thus, surrounding land uses indicate a
retail or commercial use consistent with
the SH-96 frontage and commercial corridor.
Physically Possible Conclusion: The physical characteristics of the site
and available utilities and services are adequate for a variety of uses and do
not significantly limit the potential development of the site except to the
density which would be allowed under the current zoning.
2. Legally Permissible Uses
The analysis of legally permissible uses of the property includes
consideration of zoning ordinances, private and deed restrictions, historic
district controls and environmental regulations.
Report Section Reference: Zoning Analysis
Zoning Designation: GC -General Commercial
Permitted Uses: Intended to provide adequate and suitable
space for a wide variety of commercial
activities. Activities that are permitted
by fight are convenience sales and
services, automotive parking, transient
habitation, food service, medical service,
and financial services. See Zoning Analysis
for more information.
Deed Restrictions: None known to the appraisers
Public Restrictions: No public restrictions are known.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 57
Highest and Best Use, Cont'd.
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Possibility of
Zoning Change: Not Likely; given recent site plan
approval.
Legally Permissible Uses Conclusions: Based upon the factors analyzed and
the legally permissible uses for the subject, the best uses appear to be retail
services.
3. Financially Feasible
In determining which uses are physically possible and legally permissible,
an appraiser eliminates some uses from consideration. Then the uses that meet
the first two criteria are analyzed further to determine which are likely to
produce an income, or return, equal to or greater than the amount required to
satisfy operating expenses, financial obligations and capital amortization. All
uses that are expected to produce a positive rerum are regarded as financially
feasible.
Most Probable Uses: Based upon the analysis of physically
possible uses and legally permissible uses,
the best and most probable uses are limited
to single tenant or limited multi-tenant
retail space.
Feasibility: All of the most probable uses listed above
are considered financially feasible based
upon land values in the immediate area.
Income: The use with the highest potential net
operating income is retail sales,
especially a pad site user such as the
proposed drugstore, restaurant, branch bank
or other single tenant retail store pad
user.
Occupancies: Overall occupancy for retail shop space in
the area is estimated to be near 95%+.
The demand for sites in the subject's
immediate locale is evident by the approval
of sites for single tenant development
parcels for Walgreen, Eckerd, Hollywood
Video and Boston Market. In addition,
Harris Teeter had approved the site for a
grocery store. As noted in the Subject
Sales History, Walgreen and Eckerd both
approved the subject site and had
developers submit contracts to purchase the
parcel. The single tenant "pad site" type
users typically generate the highest values
on a per square foot basis as compared to
most other commercial uses. However, these
potential users typically value a site on
the basis of the total purchase price, so
long as the site meets the minimum size and
location requirements. This is particularly
true of the new freestanding drag store
prototypes, which is a relatively new
concept over the past two years.
Previously, these drug store companies had
typically been in-line shopping center
tenants. The freestanding
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Highest and Best Use, Cont'd.
drugstores typically pay the highest price
for a site that meets their requirements.
Most other potential users will pay
substantially lower prices.
Given the fact that two major drugstores
approved the subject site and had
developers submit contracts, and noting
that Eckerds Drugstore is the proposed use
for the subject, a freestanding drugstore
is considered the use that will feasibly
generate the highest return to the land.
Feasibility Conclusion: The analysis of potential income and return on
investment as well as demand (occupancy) indicates that a freestanding drugstore
would yield the highest return.
4. Maximally Productive
A comparison of the financially feasible uses indicates that retail
services with low office percentage would yield the highest return to the land.
Highest and Best Use
As If Vacant Statement: The highest and best use of the subject
site as vacant is development with a single
tenant, freestanding drugstore.
Highest and Best Use as Improved
The preceding analysis of the site as vacant is also relevant to the
highest and best use of the subject property, as improved. If the existing
improvements are the same as those indicated for the highest and best use as
vacant, the four tests for highest and best use do not have to be applied here
because the conclusions reached in testing for the highest and best use of the
site as though vacant are applicable to the analysis as improved.
Conformance to Highest and Best
Use as Vacant: The existing improvements of the subject
property generally conform to the highest
and best use as vacant.
Possible Demolition, Renovation or
Conversion in Use: A comparison of the land value estimate and
the value estimate of the property as
improved in the forthcoming valuation
section indicates that the improvements
contribute significant value to the
property. Therefore, demolition is not
justified. An economic analysis shows
remodeling, renovation or conversion of the
subject to another use is not economically
justified.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 59
Highest and Best Use, Cont'd.
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Highest & Best Use
As Improved Statement: The highest and best use as improved is
continued use as single tenant drugstore.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 60
REAL ESTATE TAX ANALYSIS
Taxing Authorities: City of Franklin, Williamson County and a
special Franklin school district. These
municipal government tax rates represent
all local municipal tax charges.
Real Estate Tax Districts
Williamson County: This district the for all properties
located within the county boundaries. The
municipal services available in this area
are somewhat limited including no municipal
trash collection, less intense police
services and other similar services.
City of Franklin: This district represents all property
within the City of Franklin. Properties in
this district pay both county and city
taxes. The parcels within this district
receive all municipal services available.
Special School District: This district was established to assist in
funding of the City of Franklin schools.
The boundaries can extend beyond the City
of Franklin to areas in the county that
utilize the city school system.
Real Estate Tax Rates
Tax Rate's Year: 1997
Williamson County: $2.50 per $100 of Assessed Value
City of Franklin: $0.69 per $100 of Assessed Value
Special School District: $0.92 per $100 of Assessed Value
Total: $4.11 per $100 of Assessed Value
Tax Bill Due Date: Between October and February
Assessment Ratio
The taxing authority applies an assessment ratio to each property's tax
appraised value for the calculation of taxes. The assessment ratio applied is
determined by the property type as follows:
Residential Property 25%
Commercial Property 40%
Subject Real Estate Tax Data
Real Estate Tax District: Franklin/Williamson County/Special School
District
Real Estate Tax Rate: $4.11 per $100 of Assessed Value
Assessment Ratio: 40%
Tax Appraised Value: $515,000 (Vacant Land)
Parcel 2.01 $325,000
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 61
Real Estate Tax Analysis, cont'd.
Parcel 2.02 $190,000
Comment: The subject is taxed on the basis of eight smaller parcels which
total $1,420,000 for the entire eight lots. The appraised value(s) noted above
is the sum of the tax appraised values of Parcels 2.01 and 2.02 as currently
platted. Now that the subject is replatted as proposed, the Tax Assessor will
reappraise the parcels with the values adjusted to the 1996 valuation year.
Tax Comparables
================================================================================
Assessed Tax Rate Tax Size Taxes
Comparables Appraised Value Value /$100 Expense (SF) /SF
--------------------------------------------------------------------------------
Sun Trust Bank $897,000 $358,000 $4.11 $14,747 3,822 $3.86
--------------------------------------------------------------------------------
Pizza Hut $539,000 $215,600 $4.11 $8,861 2,858 $3.10
--------------------------------------------------------------------------------
Chop House $605,300 $242,120 $4.11 $9,951 5,901 $1.69
Restaurant
--------------------------------------------------------------------------------
Subject $1,990,511 $796,204 $4.11 $32,724 10,908 $3.00
Estimated
================================================================================
Note: 1) Building size is based on gross square feet.
2) The assessed value is calculated based on a 40% assessment
ratio.
Subject Tax Expense Analysis: Since the subject property was completed
only three weeks ago, the appraiser must
estimate the subject tax expense. The Tax
Assessor's office has not completed an
appraisal on the property since completion.
The previous chart presents three tax
comparables in the immediate area of the
subject. There are no freestanding drug
stores in the neighborhood. The subject is
considered inferior to a bank. Based upon
the data presented, the subject tax expense
is estimated to be $3.00/SF.
The tenant will be directly responsible for
the subject tax expense, per the existing
lease.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 62
APPRAISAL PROCEDURE
Introduction
The estimation of market value of a property that is being appraised is
accomplished by the comparison and analysis of as many techniques as are
appropriate. Three approaches are generally used to produce value indications.
Cost Approach: This valuation technique is based on the
premise that the value of a property can be
indicated by the current cost to construct
a reproduction or replacement of the
improvements minus the amount of
depreciation evident in the structures from
all causes plus the value of the land and
entrepreneurial profit. The Cost Approach
is particularly useful for appraising new
or nearly new improvements. Current costs
for constructing improvements are derived
from cost estimators, cost publications,
builders or contractors. Depreciation is
measured by market research and/or through
the application of specific mathematical
procedures. Land value is estimated
separately by direct sales comparison.
Sales Comparison Approach This approach is most viable when an
adequate number of properties of similar
type have been sold recently or are
currently offered for sale in the subject
market. The application of this approach
produces a value indication for a property
through comparison with similar properties,
called comparable sales. The sale prices of
properties judged to be most comparable
tend to set a range in which the value
indication for the subject falls.
Income Capitalization
Approach: This approach to value is applicable to
properties capable of producing a net
income stream. By using the income
capitalization approach, the appraiser
measures the present value of the future
benefits of property ownership. Income
streams and the value of property upon
resale (reversion) are capitalized or
converted into a present, lump-sum value.
Research and analysis of data for this
approach are conducted against a background
of supply and demand relationships. This
background provides information on trends
and market anticipation that must be
verified for data analysis.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 63
Appraisal Procedure, cont'd.
--------------------------------------------------------------------------------
Reconciliation of Approaches: The strengths and weaknesses of each
approach used are weighed in the final
analysis. The approach or approaches
offering the greatest quantity and quality
of supporting data are typically given most
consideration and the final estimate of
value is correlated.
Approaches Utilized
In This Assignment: The Cost, Sales Comparison and Income
Capitalization Approaches to value have
each been utilized in estimating the market
value of the subject property as of the
effective date of appraisal.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 64
LAND VALUATION
Introduction
A reliable value indication for the subject parcel is provided by an
analysis and comparison of other comparable sites which have sold in the
marketplace. Many factors influence the price of land. The technique involved in
the value estimate of the land uses the principle of substitution as the basis
for analysis, and the methodology includes an analysis of what buyers in the
area have been paying for similar properties. Therefore, the value of the
subject site is derived from sales and listings of comparable properties in the
area. The comparable land sales included in this report are analyzed with
respect to market conditions (time), location, physical characteristics
(functional utility) and size.
Dollar or percentage adjustments are made to the sale price of each
comparable. Positive adjustments are made for deficiencies in the comparable
property relative to the subject site. Negative adjustments are made for
superior characteristics of the sale relative to the subject. When sufficient
sales data is available, a "paired sales" analysis is utilized. This is a
procedure in which sales are compared in pairs to identify the effect of
specific differences on sale price. When such data is unavailable or
inconclusive, adjustments are made based on discussions with active market
participants (buyers, sellers, investors and developers), historical sales data,
or the appraiser's experience in valuing similar properties.
The sales on the following pages are considered to have a reasonable
degree of comparability to the land being appraised. Information pertaining to
these transactions has been verified by either the buyer, seller, broker, or
other sources considered reliable and having knowledge of the particular
transaction.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 65
Land Valuation, cont'd.
--------------------------------------------------------------------------------
Comparable Land Sales Data
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 66
LAND SALE COMPARABLE NO. 1:
--------------------------------------------------------------------------------
PROPERTY DATA
Location: SEC SH-96 and Royal Oaks Boulevard, Franklin
County: Williamson
Grantor: Burton P. Grant, et ex
Grantee: AmSouth Bank of Tennessee
Map(s): 79
Parcel(s): 85.01
Sale Date: 05/20/96 Book/Page: 1403 / 970
SITE DATA
Size (Acres): 0.96
Size (SF): 41,818
Zoning: IC
Utilities: All available
Frontage: 160' on SH-96; 275' on Royal Oaks Blvd.; 120' on
Riverside Dr.
Shape: Irregular rectangle
Topography: Level; below SH-96 road grade
Easements: None detrimental
Improvements: 7,194 SF restaurant, no contributory value
Intended Use: AmSouth Branch Bank
TRANSACTION DATA
Consideration: $675,000 Price/SF: $16.14
Cash Equivalent: $697,000 Adj. Price/SF: $16.67
Financing: All cash to seller
Verified By: Harry Long, AmSouth (205-326-5443)
Comp_Code: 1231
COMMENTS: AmSouth razed the existing restaurant for the development of
the branch bank. Mr. Long did not provide the cost of
demolition. Therefore, the appraiser has estimated the cost
at approximately $3.00/SF or $22,000. The site cannot be
accessed from either SH-96 or Royal Oaks Boulevard
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 67
Land Sale Comparable No. 1:
and is only accessible from Riverside Drive because of the
traffic on these streets and close proximity to a traffic
light.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 68
LAND SALE COMPARABLE NO. 2:
--------------------------------------------------------------------------------
PROPERTY DATA
Location: Walgreens - Gallatin Pk. Northeast corner Gallatin
Pike and Neely's Bend Road Madison, TN
County: Davidson
Grantor: Chen Yong Lien, Lee Dunn, Charles Resha, Stanley
Embree, Norman Jestes
Grantee: R.S. Tatum
Map(s): 51-4 51-4
Parcel(s): 78-81 94-96
Sale Date: 09/03/93 Book/Page: 9071 / 672
SITE DATA
Size (Acres): 1.93
Size (SF): 84,071
Zoning: CS
Utilities: All available
Frontage: 212' Gallatin Pike; 372' Neely's Bend Road
Shape: Irregular
Topography: Sloping
Easements: None detrimental
Improvements: None of value at sale date
Intended Use: 14,468/SF freestanding Walgreens
TRANSACTION DATA
Consideration: $1,208,988 Price/SF: $14.38
Cash Equivalent: $1,448,988 Adj. Price/SF: $17.24
Financing: Acquisition & development financing from First
Verified By: Margaret Norvell
Comp_Code: 966
COMMENTS: This is an assemblage of seven parcels and six owners. The
parcels were improved with 2 houses built in the 1930s, 2
offices built in 1950+- and a retail building built in 1940.
Two parcels were vacant. All improvements were razed. The
site had significant slop and required fill
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 69
Land Sale Comparable No. 2:
for the intended use. the cost of fill and razing the
buildings was $240,000. The cash equivalent price of
$1,488,988 reflects the addition of this extraordinary cost.
Tax records indicate the land size to be approximately 1.45
acres; however, Mrs. Norvell indicated the tract consisted
of 76,230/SF of which she brokered, plus an additional
7,841/SF site (parcel 81) included in the assemblage.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 70
LAND SALE COMPARABLE NO. 3:
PROPERTY DATA
Location: 7086 Bakers Bridge Road, Franklin
County: Williamson
Grantor: Red Robin International
Grantee: Rafferty's Inc.
Map(s): 53
Parcel(s): 129.02
Sale Date: 04/30/97 Book/Page: 1516 / 672
SITE DATA
Size (Acres): 1.82
Size (SF): 79,279
Zoning: Commercial
Utilities: All available to site
Frontage: Baker's Bridge Avenue
Shape: Rectangular
Topography: Level
Easements: None detrimental
Improvements: None of value at sale date
Intended Use: Restaurant
COMMENTS: This tract has been developed with a Rafferty's restaurant. The site
is located immediately north of the Cool Springs Mall.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 71
LAND SALE COMPARABLE NO. 4:
PROPERTY DATA
Location: NWC Westgate Circle and Moore's Lane, Westgage Commons, Brentwood
County: Williamson
Grantor: New West Development, LLC
Grantee: Modern Age, Inc.
Map(s): 53
Parcel(s): 125.02
Sale Date: 07/28/96 Book/Page: 1310 / 682
SITE DATA
Size (Acres): 1.82
Size (SF): 79,279
Zoning: C-2
Utilities: All available
Frontage: Moore's Lane and Westgate Circle (west entrance)
Shape: Rectangular
Topography: Level
Easements: None detrimental
Improvements: None of value at sale date
Intended Use: An 8,921 SF Cozamel's restaurant
TRANSACTION DATA
Consideration: $1,100,000 Price/SF:$13.88
Cash Equivalent: $1,100,000 Adj. Price/SF:$13.88
Financing: All cash to seller
Verified By: Wes Lamoureux (373-8811)
Comp_Code: 1040
COMMENTS: The restaurant is completed and open for business. The site is the
western most parcel fronting Moore's Lane closest to IH-65 in Westgate
Commons. The site is designated Lot 1 Westgate Commons.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 72
Comparable Land Sale Map #1
[GRAPHIC OMITTED]
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 73
Comparable Land Sale Map #2
[GRAPHIC OMITTED]
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 74
COST APPROACH- LAND VALUATION ANALYSIS
Comparable Land Sales Summary
--------------------------------------------------------------------------------
Subject Sale #1 Sale #2 Sale #3 Sale #4
Sale Date Current 05/20/96 09/03/93 04/30/9 07/28/96
--------------------------------------------------------------------------------
Size 1.66 0.96 1.93 1.82 1.82
--------------------------------------------------------------------------------
Zoning GC IC CS Comm C-2
--------------------------------------------------------------------------------
SP/SF N/A $16.67 $17.24 $15.14 $13.88
--------------------------------------------------------------------------------
Introduction
A search for comparable land sales within the subject neighborhood and
competitive locales was conducted by the appraiser. The appraiser consulted with
local real estate agents knowledgeable of the subject market and researched
public records for pertinent information. The sales used herein represent the
most comparable data available at the time of the report. Adjustments to these
land prices for market financing, market conditions (time), location, physical
characteristics (functional utility) and size, as they relate to the subject
property, are made accordingly.
Following is a discussion of the major factors which influence the value of
the subject site. It should be noted that financing, conditions of sale and time
adjustments are made first to each of the comparables in order to reflect
authentic and current pricing trends. The net percentage of the remaining
adjustments for location, physical characteristics (utility) and size is then
applied to the "time adjusted" sales price to reflect the indicated value of the
subject.
Unit of Comparison: SP/SF; sales price per square foot
Analysis: Discussions with brokers and developers in the
subject market indicated that this is the basic
unit of comparison from which they make their
acquisition decisions for land similar to the
subject.
Financing: The transactions are either all cash
transactions or are considered to represent
typical market financing and do not require an
adjustment for non-market financing. As such,
no adjustments are made for factors relating to
financing.
Conditions of Sale: All of the comparable sales are considered to
have typical conditions of sale or the price
reflected in the comparable sale sheet reflects
any necessary adjustments, therefore no
adjustments are made in the land sale
adjustment grid.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 75
Land Valuation Analysis, Cont'd.
--------------------------------------------------------------------------------
Market Conditions:
Description: This adjustment, often referred to as the "time
adjustment", reflects the direction of change
in the market from the sale date of the
comparable to the valuation date of the subject
property.
Analysis: No adjustments are considered at this time.
Location:
Description: Locational features include visibility, access
and proximity to other quality development.
Analysis: All of the sales are located in close proximity
to the subject except Sale No. 2 which is
located north of the Nashville CBD. Sale No. 2
is an older sale, but was intended for the
development of a Walgreen drug store, which is
similar to the subject's highest and best use.
No location adjustments are applied.
Physical Characteristics
The analysis of physical attributes considers shape, frontage, topography,
zoning and the availability of public utilities. Only those physical
characteristics which impact the sales price of the comparable relative to the
subject will be addressed. The physical elements of the sales as they relate to
the subject are addressed as follows.
Shape
Description: The shape of a site will determine its
adaptability to possible uses. Some
configurations may restrict structural design
or limit the buildable/usable area of the
parcel. A site must have adequate depth to
accommodate the layout of the improvements, but
should not be excessive in relation to the
parcel's frontage and size.
Frontage:
Description: The amount of street frontage is important to
commercial properties and, in particular,
retail properties.
Topography:
Description: The topography of a site can significantly
impact the costs of development. Consideration
must be given to the contour, grade and
drainage of the sale tracts in relation to the
appraised property.
Zoning:
Description: Zoning is often the most basic criteria in
selecting comparables. Sites zoned the same as
the subject property are the most appropriate
comparables. When sufficient sales in the same
zoning category are not
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 76
Land Valuation Analysis, Cont'd.
available, data from similar categories may be
used after adjustments have been made. These
adjustments are based on the allowable uses,
permitted density and restrictions within the
ordinance in comparison to the subject.
Utilities:
Description: The availability and proximity to public
utilities (water, sewer, electricity, gas and
telephone) is an important to the development
of any property. This adjustment reflects the
difference in sales price caused by the
distance and capacity of utility services to
the comparable sites and also considers the
cost of bringing utilities to the tract.
Size:
Description: Most types of development have an optimal site
size. If a site is larger than optimal, the
value of the excess lands tends to decline at
an accelerating rate. As a result, larger
tracts of land typically sell for less per unit
of comparison than smaller parcels, all other
factors being equal.
Analysis: The subject land contains 1.665 acres of land.
The comparable sales have land sizes ranging
from 0.96 to 1.93 acres. Sale No. 1 is
significantly smaller than the remaining sales
and the subject. Based upon a matched pairs
comparison to the other sales, a 10% adjustment
is applied to Sale No. 1.
Overall, no adjustments are believed necessary in comparison to the subject
property. On the following page is an adjustment grid of the comparable sales
utilizing the adjustments noted in the previous analysis.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 77
Comparable Land Sales Adjustment Grid
------------------------------------------------------------------------------------
Subject Sale #1 Sale #2 Sale #3 Sale #4
------------------------------------------------------------------------------------
Sale Price $16.67 $17.24 $15.14 $13.88
------------------------------------------------------------------------------------
Elements of Comparison
------------------------------------------------------------------------------------
Date of Sale 05/20/96 09/30/93 04/30/97 07/28/96
------------------------------------------------------------------------------------
Comparison Similar Similar Similar Similar
------------------------------------------------------------------------------------
Adjustment 0% 0% 0% 0%
------------------------------------------------------------------------------------
Adjusted Price $16.67 $17.24 $15.14 $13.88
------------------------------------------------------------------------------------------------------
Location Excellent Good Good Excellent Excellent
------------------------------------------------------------------------------------------------------
Comparison Similar Similar Similar Similar
------------------------------------------------------------------------------------
Adjustment 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------
Shape Rectangular Irregular Irregular Rectangular Rectangular
rectangle
------------------------------------------------------------------------------------------------------
Comparison Similar Similar Similar Similar
------------------------------------------------------------------------------------
Adjustment 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------
Frontage Good Good Good Good Good
------------------------------------------------------------------------------------------------------
Comparison similar Similar Similar Similar
------------------------------------------------------------------------------------
Adjustment 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------
Topography Level Level Sloping Level Level
------------------------------------------------------------------------------------------------------
Comparison Similar Similar Similar Similar
------------------------------------------------------------------------------------
Adjustment 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------
Zoning GC IC CS Commercial C-2
------------------------------------------------------------------------------------------------------
Comparison Similar Similar Similar Similar
------------------------------------------------------------------------------------
Adjustment 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------
Utilities All Available All available All available All available All available
------------------------------------------------------------------------------------------------------
Comparison Similar Similar Similar Similar
------------------------------------------------------------------------------------
Adjustment 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------
Size 1.66 0.96 1.93 1.82 1.82
------------------------------------------------------------------------------------------------------
Comparison Superior Similar Similar Similar
------------------------------------------------------------------------------------
Adjustment -10% 0% 0% 0%
------------------------------------------------------------------------------------------------------
Other N/A
------------------------------------------------------------------------------------------------------
Comparison Similar Similar Similar Similar
------------------------------------------------------------------------------------
Adjustment 0% 0% 0% 0%
------------------------------------------------------------------------------------
Net Adjustment -10% 0% 0% 0%
------------------------------------------------------------------------------------
Final Adjustment Sale Price $15.00 $17.24 $15.14 $13.88
------------------------------------------------------------------------------------
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 78
Land Valuation Analysis, Cont'd.
Reconciliation
The sales prices ranged from $13.88 to $17.24 per square foot before the
adjustment process. The indicated value of the subject property ranged between
$13.88 and $17.24 per square foot after analysis. The adjusted value range is
considered relatively narrow and provides consistent and reliable data from
which to estimate the subject's land value. Inasmuch as the subject has recently
had two contracts submitted for $1,100,000, the estimated value is $1,100,000,
or $15.25/SF. This value is supported by and well within the price per square
foot range and total price range of the comparable sales.
Based on this analysis, a value of $15.25/SF is considered highly
supportable. Thus, the market value of the fee simple interest in the subject
parcel as if vacant, contingent to the assumptions and limiting conditions
stated herein, as of November 20, 1997 is calculated below:
Land Value Estimate
Land Size (SF) 72,512
Estimated Value/SF x $15.25
------
Estimated Value $1,105,808
Rounded $1,100,000
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 79
COST APPROACH
Introduction
The principle of substitution is basic to the Cost Approach. The principle
affirms that no prudent investor would pay more for a property than the amount
for which the site can be acquired and for which improvements that have equal
desirability and utility can be constructed without undue delay. An indication
of value may be produced by adding the depreciated value of the improvements to
the land value estimated by market (direct sales) comparison. The depreciated
value of the improvements is determined by first estimating the reproduction or
replacement cost new and subtracting depreciation from all causes, if any.
In providing complete building cost estimates, an appraiser must consider
direct (hard) costs, and indirect (soft) costs. Both types of costs are
essential for a reliable reproduction or replacement cost estimate. In addition,
any entrepreneurial profit likely to be realized from the building project must
be estimated.
Cost Data
Source: Marshal Valuation Service Manual - calculator cost
About the Source: This publication is a widely accepted cost data source in
the appraisal industry. The cost data presented in this manual are based on
years of valuation experience, thousands of appraisals and continual analysis of
the costs of new buildings. This publication has been recognized as an authority
in the appraisal field for over fifty years.
Costs Included In Source: The base calculator costs depicted in the Marshal
Valuation Service Manual include the following:
1. Architects's and engineer's fees;
2. Normal interest on only the building improvement funds during the
period of construction and processing fee or service charge;
3. Sales taxes on materials;
4. Normal site preparation including finish, grading and excavation for
foundation and backfill;
5. Utilities from structure to lot line figured for typical setback;
6. Contractor's overhead and profit including job supervision, workmen's
compensation, fire and liability insurance, unemployment insurance,
equipment, temporary facilities, security, etc.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 80
Cost Approach, cont'd.
Costs Not Included In Source: The base calculator costs depicted in the
Marshal Valuation Service Manual do not include the following:
1. Costs of buying or assembling land such as escrow fees, legal fees,
property taxes, right of way costs, demolition, storm drains, or rough
grading, are considered costs of doing business or land improvement
costs.
2. Pilings or hillside foundations;
3. Interest or taxes on the land;
4. Feasibility studies, appraisal or consulting fees, etc.;
5. Discounts or bonuses paid for financing, project bond issues,
development overhead or fixture and equipment purchases, etc.;
6. Yard improvements including signs, landscaping, paving, walls, yard
lighting, pools or other recreation facilities;
7. Off site costs including roads, utilities, park fees, jurisdictional
hook-up, tap, impact or entitlement fees and assessments, etc.;
8. Marketing costs to create first occupancy including model or
advertising expenses, leasing or broker's commissions or temporary
operation of property owners associations.
Subject's Marshall Valuation Cost Data
Summary of Subject General Building Characteristics:
Property Type: Retail store (build-to-suit for Eckerd drug
store)
Structure: Concrete block with brick veneer
No. of Stories: 1
Gross Building Area: 11,293 SF
Classification Class C
Type (Quality) Good to Excellent
Region/Climate Central/Moderate
Page Reference Section 13, Page 22
Page Reference Date September 1995
Current Multiplier Page April 1997
Local Multiplier Page Date May 1997
Cost Method Calculator, therefore, replacement cost
The subject improvements are considered to be between good ($56.13/SF) and
excellent ($75.30/SF) quality based on the description provided in the Marshall
Valuation cost manual. The initial unadjusted cost estimate of $65.00/SF is
generally in the middle of the cost estimates by quality. The reader is directed
to the base cost and adjustments presented on the following page.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 81
Cost Approach, cont'd.
--------------------------------------------------------------------------------
MVS Base Cost & Adjustments
=============================================================
1 Base Square Foot Cost $65.00
-------------------------------------------------------------
2 Square Foot Refinements
-------------------------------------------------------------
3 Heating Cooling, ventilation $0.00
-------------------------------------------------------------
4 Elevator $0.00
-------------------------------------------------------------
5 Miscellaneous $2.00
-----
-------------------------------------------------------------
6 Total SF Refinements $67.00
-------------------------------------------------------------
Height & Size Refinements
-------------------------------------------------------------
7 Number of Stories Multiplier 1.00
-------------------------------------------------------------
8 Height per story multiplier 1.30
-------------------------------------------------------------
9 Floor area-perimeter multiplier 0.93
----
-------------------------------------------------------------
10 Combined multipliers (7x8x9) 1.21
-------------------------------------------------------------
Final Calculations
-------------------------------------------------------------
11 Refined SF Cost (Line 6x10) $81.00
-------------------------------------------------------------
12 Current cost multiplier 1.03
-------------------------------------------------------------
13 Local multiplier 0.92
-------------------------------------------------------------
14 Final SF Cost (Line 11x12x13) $76.76
=============================================================
Site Improvements
& Other Hard Costs: Site improvement cost and other hard costs
related to the improvements must be added to
the base structural cost estimate. The reader
is directed to the Cost Summary exhibit at the
end of this report section for a summary of
these costs.
Indirect Costs: Indirect costs not included in the Marshall
Valuation base costs include loan interest on
land, lease-up costs and professional fees.
Calculations for the loan on land and lease-up
costs are presented as follows.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 82
Cost Approach, cont'd.
--------------------------------------------------------------------------------
Land Loan Interest Calculations:
Land Value Estimate $1,100,000
Construction Interest Rate x 9.50%
Construction Period (Years) x 0.60
----------
Land Interest = $ 62,700
Lease-up Cost Calculations:
Commissions
Market Rent/SF $ 24.63
Net Rentable Area (SF) x 10,908
Commission/SF x $ 4.00
----------
Commission Cost, Rounded = $ 43,632
Plus: Other (marketing, etc.)+ 0
----------
Total Lease-up Costs = $ 43,632
Total Replacement Cost New
(Improvements, Profit & Land): $2,825,000
Developer's Cost: $2,556,707
The developer's cost includes all direct and
indirect costs as well as the land. The
estimate does not include profit. The subject's
replacement cost excluding profit based upon
the appraiser's estimate is $2,537,000. Thus,
the appraiser's total cost estimate is
considered reasonable.
Analysis of Depreciation
Introduction - Accrued Depreciation
Accrued depreciation is a loss in value from the reproduction or
replacement cost of improvements due to any cause as of the date of appraisal.
The value difference may emanate from physical deterioration, functional
obsolescence, external obsolescence, or any combination of these sources. A
description of each of these forms of depreciation as they apply to the
appraised property is detailed as follows:
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 83
Cost Approach, cont'd.
Physical Deterioration
Physical deterioration is the result of wear, tear and weathering. This
form of depreciation can be divided into two categories - curable and incurable.
Physical Curable:
Description: Refers to items of deferred maintenance which
are in need of repair on the date of the
appraisal in order to restore occupancy or
marketability. Deferred maintenance includes
minor refurbishing of painted, tiled or
carpeted surfaces. It also includes deferred
repairs of mechanical systems, the building
exterior roof cover and the parking areas.
Subject Analysis: No physical curable noted at inspection.
Physical Incurable:
Description: Involves an estimate of deterioration that is
not practical or currently feasible to correct.
It pertains to structural elements that were
not listed in the physically curable category.
Generally, incurable physical deterioration is
a product of the aging of major structural
components such as the foundation, framing,
walls, plumbing, electrical, mechanical and
roof systems. In order to estimate the
depreciation charged for this category, the
physical age-life method is applied to the
current reproduction or replacement cost of the
entire structure less the components treated as
curable.
Subject Analysis: The reader is directed to the Description of
Improvements Analysis for the analysis of
effective age and economic life. Employing the
physical age-life (straight line) method of
estimating physical incurable deterioration,
the calculations are made as follows:
Physical Incurable Calculations
Actual Age Proposed; 0
Effective Age 0
Divide by Economic Life 50
-----
Incurable Physical % 0.00%
Remaining Economic Life 50
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 84
Cost Approach, cont'd.
--------------------------------------------------------------------------------
Calculations:
Replacement Cost New $1,725,388
Less Physical Curable 0
----------
Subtotal $1,725,388
Incurable Physical 0%
----------
Incurable Physical Estimate $ 0
Functional Obsolescence
This is the adverse effect on value resulting from defects in design. It
can also be caused by changes that, over time, have made some aspect of a
structure, material or design obsolete by current standards. Functional
obsolescence is generally attributable to deficiencies or super adequacies
inherent in the improvements and the defect may be curable or incurable.
Functional Curable
Description: To be curable, the cost of replacing the
outmoded or unacceptable aspect must be at
least offset by the anticipated increase in
value. The measure of curable functional
obsolescence is the cost to effect the cure.
Subject Analysis: The property inspection indicated the property
has no functional curable obsolescence.
Functional Incurable
Description: Involves an estimate of obsolescence that is
not practical or currently feasible to correct.
It pertains to structural elements that were
not listed in the functional curable category.
Capitalization of the net income loss is the
commonly accepted approach to the measurement
of incurable functional obsolescence.
Subject Analysis: The property inspection indicated that the
subject improvements are functional. Therefore,
no functional incurable obsolescence was noted
in the subject property.
External Obsolescence
External obsolescence, which is the result of the diminished utility of a
structure due to negative influences from outside the site, is always incurable.
It can be caused by a variety of factors - neighborhood decline, the property's
location in a community, or market conditions. Only the portion of the loss that
is applicable to the improvements is deducted from the current replacement cost
since the effect of external influences on land value is calculated in the land
valuation. In the absence of comparable sales subject to the same negative
influence, the best
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 85
Cost Approach, cont'd.
method of measuring external obsolescence is by capitalization of the rent loss
or discounting of the rent loss over the affected time period.
Subject Analysis: The subject has average access and visibility,
and conforms to surrounding development. The
calculations in the following table indicate
the subject has no external obsolescence.
External Obsolescence Calculations
Total Replacement Cost New, Building and Land $2,825,388
Less: Physical Items 0
Less: Functional Items 0
----------
Depreciated RCN $2,285,388
-----------------------------------------------------------------
Required NOI ( $,825,388 X 9.50% ) $ 268,412
Less: Estimated NOI (274,703)
----------
NOI Loss Due to External Obsolescence $ (6,292)
Less: NOI Attributable to Land 38.93% 2,449
----------
NOI Loss Attributable to Improvements $ (3,842)
Capitalized at: 9.50%
----------
External Obsolescence $ (40,443)
External Obsolescence, Rounded $ 0
Accrued Depreciation Summary
Physical Curable $ 0
Physical Incurable $ 0
Functional Curable $ 0
Functional Incurable $ 0
External $ 0
----------
Total Accrued Depreciation $ 0
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 86
Direct Costs Marshall Valuation Developer's
Cost Estimates Cost
Structural Improvements
Base Cost Est. 11,293 SF @ $76.76 /SF = $ 866,833 $ 752,652
Site Improvements
Asphalt Paving 45,000 SF @ $ 2.50 /SF = $112,500
Fence 34 LF @ $13.00 /LF = 442
Drive Thru Canopy 432 SF @ $15.35 /SF = 6,632
Storefront Canopy 1,178 SF @ $15.35 /SF = 18,084
Signage & Lighting: 30,000
Landscaping 10,000
Miscellaneous Site Improvements 70,000
Site Work: 72,000
--------
Subtotal Site Improvements: 319,658 350,000
---------- ----------
Total Direct Costs: $1,186,491 $1,102,652
Indirect Costs
Land Loan Interest: $ 62,700
Lease-Up Costs: 43,632
Development Fee 50,000
Additional Fees & Permits 75,000
Professional Fees: 20,000
--------
Total Indirect Costs: 251,332 354,055
---------- ----------
Total Direct and Indirect Costs: $1,437,823 $1,456,707
Entrepreneurial Profit as % of Direct/Indirect
Costs,Rd. 20% 287,565 291,341
---------- ----------
Total Cost New of Improvements and Profit: $1,725,388 $1,748,048
Less: Accrued Depreciation 0 0
Depreciated Cost of Improvements: $1,725,388 $1,748,048
Plus: Estimated Land Value by Market Comparison: 1,100,000 1,100,000
---------- ----------
Value Indicated by the Cost Approach: $2,825,388 $2,848,048
Stabilized Value Estimate, Rounded $2,825,000
Less: Lease-Up Costs to Stabilization 0
----------
Cost Approach As Is Value Estimate: $2,825,000
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 87
SALES COMPARISON APPROACH
Introduction
The application of this approach produces an estimate of value by comparing
the subject with properties which recently sold or which are currently offered
for sale in the same or competing areas. This approach is most viable when an
adequate number of properties of similar type have been sold recently. The sales
comparison approach is essential to almost every appraisal of real property.
In applying the sales comparison approach, the appraiser must complete five
steps:
1. Seeks out similar properties for which pertinent sales, listings,
offerings, and/or rental data are available.
2. Ascertains the nature of the conditions of sale, including the price,
terms, motivating forces, and its bona fide nature.
3. Analyzes each of the comparable properties' important attributes with
the corresponding ones of the property being appraised, under the
general divisions of conditions of sale, financing terms, market
conditions (time), location, physical characteristics and income
characteristics.
4. Considers the dissimilarities in the characteristics disclosed in Step
3, in terms of their probable effect on the sale price.
5. Formulates, in light of the comparison thus made, an opinion of the
relative value of the subject property as a whole, or where
appropriate, by applicable units, compared with each of the similar
properties.
After completing the necessary research, the property sales on the
following pages are considered the most comparable available transactions for
analysis and comparison with the subject.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 88
Sales Comparison Approach, cont'd.
--------------------------------------------------------------------------------
Comparable Improved Sales Data
--------------------------------------------------------------------------------
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 89
RETAIL CENTER SALE COMPARABLE NO. 1:
PROJECT DATA
Comp_Code: 205
Project Name: CVS Drug Store - Irmo
Location: Newberry Avenue & College Street, Irmo, SC
County: Lexington
Grantor: HMI Corporation/United Retail
Grantee: Waldan Properties, Inc.
PROPERTY DATA
Net Rentable Area (SF): 10,125
Land Size: N/A
Land/Building Ratio: N/A
Year Built: 1997
Occupancy: 100%
Construction: Prototype CVS
Condition: Excellent
Anchor Tenants: CVS Drug Store (single tenant)
Date of Sale: 09/97 Book/Page: N/A
Map(s): N/A
Parcel(s): N/A
TRANSACTION DATA
Actual Consideration: $1,961,188 Cash Equivalent: $1,961,188
Financing: Cash to seller
First Mortgage: N/A
Other Mortgages: N/A
Total Mortgages: N/A Actual Equity: N/A
Verified By: Todd Agnew, KTR
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 90
Retail Center Sale Comparable No. 1, cont'd.
--------------------------------------------------------------------------------
OPERATING Total$ Per SF % of GAI
DATA:
Gross Annual Income: $177,188 $17.50 100.00%
Less Vacancy: $ 0 $ 0.00 0.00%
-------- ------ ------
Effective Gross Income: $177,188 $17.50 100.00%
Less Expenses: $ (2,784) $(0.27) -1.5%
-------- ------ ------
Net Operating Income: $174,404 $17.23 98.43%
Debt Service: $ 0 $ 0.00 0.00%
-------- ------ ------
Cash Flow: $174,404 $17.23 98.43%
UNITS OF
COMPARISON Actual
GIM: 11.07
Effective GINI: 11.07
Overall Rate: 8.89%
Equity Dividend: 8.89%
Sales Price Per SF: $193.70
COMMENTS: This building is slated for completion in September 1997, at which
time the lease begins. It will be a 20 year lease with annual rental
rates of $177,188 for years 1-10, $195,311 for years 11-15, and
$205,133 for years 16-20. The initial lease rate equates to $17.50 per
square foot. Expenses were estimated at 1% of EGI for administration
and management plus $0.10/SF for structural maintenance and reserves.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 91
Net Rentable Area (SF): 10,125
Land Size: N/A
Land/Building Ratio: N/A
Year Built: 1997
Occupancy: 100%
Construction: Prototype CVS
Condition: Excellent
Anchor Tenants: CVS Drug Store (single tenant)
Date of Sale: 06/06/97 Book/Page: N/A
Map(s): N/A
Parcel(s): N/A
TRANSACTION DATA
Actual Consideration: $1,800,000 Cash Equivalent: $1,800,000
Financing: Cash to seller
First Mortgage: N/A
Other Mortgages: N/A
Total Mortgages: N/A Actual Equity N/A
Verified By: Todd Agnew, KTR
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 92
Retail Center Sale Comparable No. 2, cont'd.
--------------------------------------------------------------------------------
OPERATING Total $ Per SF % of GAI
DATA:
Gross Annual Income: $164,227 $16.22 100.00%
Less Vacancy: $ 0 $ 0.00 0.00%
Effective Gross Income: $164,227 $16.22 100.00%
Less Expenses: $ (2,655) $(0.26) -1.62%
Net Operating Income: $161,572 $15.96 98.38%
Debt Service: $ 0 $ 0.00 0.00%
Cash Flow: $161,572 $15.96 98.38%
UNITS OF
COMPARISON Actual
GIM: 10.96
Effective GIM: 10.96
Overall Rate: 8.98%
Equity Dividend: 8.98%
Sales Price Per SF: $177.78
COMMENTS: This is a CVS Drug Store in Chimney Ridge South Carolina, which is a
suburb of Columbia. The GAI and EGI are the same, and they equate to
$16.22 per square foot. Expenses are estimated at 1% of EGI for
administration and management plus $0.10/SF for structural maintenance
and reserves. While this transaction reportedly closed on June 6,
1997, the Richland County Public Records office indicated that it has
not yet been recorded.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 93
RETAIL CENTER SALE COMPARABLE NO. 3:
PROJECT DATA
Comp_Code: 207
Project Name: CVS Drug Store - Lilburn
Location: 341 John Carroll Road, Lilburn, GA
County: Gwinnett
Grantor: Branch Prop. LP
Grantee: Dr. B. Schwarghofer
PROPERTY DATA
Net Rentable Area (SF): 13,125
Land Size: 2 Acres
Land/Building Ratio: 0.15
Year Built: 1996
Occupancy: 100%
Construction: Prototype CVS
Condition: Excellent
Anchor Tenants: CVS Drug Store (single tenant)
Date of Sale: 12/96 Book/Page: 13619/24
Map(s): N/A
Parcel(s): N/A
TRANSACTION DATA
Actual Consideration: $1,839,200 Cash Equivalent: $1,839,200
Financing: Cash to seller
First Mortgage: $0
Other Mortgages: $0
Total Mortgages: $0 Actual Equity: $1,839,200
Verified By: Todd Agnew, KTR
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 94
Retail Center Sale Comparable No. 3, cont'd.
--------------------------------------------------------------------------------
OPERATING Total $ Per SF % of GAI
DATA:
Gross Annual Income: $168,525 $12.84 100.00%
Less Vacancy: $0 $0.00 0.00%
-------- ------ -----
Effective Gross Income: $168,525 $12.84 100.00%
Less Expenses: ($2.997) ($0.23) -1.78%
-------- ------ -----
Net Operating Income: $165,528 $12.61 98.22%
Debt Service: $0 $0.00 0.00%
-------- ------ -----
Cash Flow: $165,528 $12.61 98.22%
UNITS OF
COMPARISON Actual
GIM: 10.91
Effective GIM: 10.91
Overall Rate: 9.00%
Equity Dividend: 9.00%
Sales Price Per SF: $140.13
COMMENTS: This a CVS Drug Store in Gwinnett County, Georgia. There is a triple
net lease in place on the property. The NOI was provided, with the
other figures being estimated. Expenses are based on 1% of EGI for
administration and management plus $0.10/SF for structural maintenance
and reserves.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 95
RETAIL CENTER SALE COMPARABLE NO. 4:
PROJECT DATA
Comp_Code: 185
Project Name: Eckerd Drugs - Acworth
Location: 3245 Cobb Parkway, west of Acworth Due West Road, Acworth, GA
County: Cobb
Grantor: Regency Realty Group, Inc.
Grantee: Arthur Chester Skinner, Jr., et al
PROPERTY DATA
Net Rentable Area (SF): 10,908
Land Size: 1.11 Acres
Land/Building Ratio: 4.43/1
Year Built: 1996
Occupancy: Excellent
Construction: Concrete block (58 parking spaces)
Condition: 100%
Anchor Tenants: Eckerd Drugs (single tenant)
Date of Sale: 12/20/96 Book/Page: 10067 / 273
Map(s): N/A
Parcel(s): N/A
TRANSACTION DATA
Actual Consideration: $1,804,400 Cash Equivalent: $1,804,400
Financing: All cash to seller
First Mortgage: $0
Other Mortgages: $0
Total Mortgages: $0 Actual Equity: $1,804,400
Verified By: Seller
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 96
Retail Center Sale Comparable No. 4, cont'd.
--------------------------------------------------------------------------------
OPERATING Total $ Per SF % of GAI
DATA:
Gross Annual Income: $170,469 $15.63 100.00%
Less Vacancy: $ 0 $ 0.00 0.00%
-------- ------ ------
Effective Gross Income: $170,469 $15.63 100.00%
Less Expenses: $ (2,795) ($0.26) -1.64%
-------- ------ ------
Net Operating Income: $167,674 $15.37 98.36%
Debt Service: $ 0 $ 0.00 0.00%
-------- ------ ------
Cash Flow: $167,674 $15.37 98.36%
UNITS OF
COMPARISON Actual
GIM: 10.58
Effective GIM: 10.58
Overall Rate: 9.29%
Equity Dividend: 9.29%
Sales Price Per SF: $165.42
COMMENTS: The lease is triple net with a 25-year term and four 5-year options.
The lease includes a $0.50/SF rent escalation every five years. The
seller did not report any expenses. Therefore, the appraisers have
estimated a 1% management/administrative expense and a $0.10/SF
structural maintenance and reserves. Acworth is located in extreme
northwest Cobb County and is part of the Atlanta Metropolitan Area.
Acworth has a population of 2,500. The town is just beyond the extreme
northern edge of development expanding northward from Atlanta. As of
the date of sale, the town still has a small town atmosphere, but
benefits from the immediate access to IH-75 and proximity to
employment centers of the generally highly developed Atlanta suburban
area of Cobb County.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 97
Construction: Concrete block and stucco accents (46 parking
Condition: Excellent
Anchor Tenants: Eckerd Drugs (single tenant)
Date of Sale: 12/19/96 Book/Page: 9255 / 534
Map(s): N/A
Parcel(s):
TRANSACTION DATA
Actual Consideration: $1,818,928 Cash Equivalent: $1,818,928
Financing: All cash to seller
First Mortgage: $0
Other Mortgages: $0
Total Mortgages: $0 Actual Equity: $1,818,928
Verified By: Seller and Terry Love
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 98
Retail Center Sale Comparable No. 5, cont'd.
--------------------------------------------------------------------------------
OPERATING Total $ Per SF % of GAI
DATA:
Gross Annual Income: $176,436 $18.56 100.00%
Less Vacancy: $ 0 $ 0.00 0.00%
-------- ------ ------
Effective Gross Income: $176,436 $18.56 100.00%
Less Expenses: $ (2,715) $(0.29) -1.54%
-------- ------ ------
Net Operating Income: $173,721 $18.27 98.46%
Debt Service: $ 0 $ 0.00 0.00%
-------- ------ ------
Cash Flow: $173,721 $18.27 98.46%
UNITS OF
COMPARISON Actual
GIM: 10.31
Effective GIM: 10.31
Overall Rate: 9.55%
Equity Dividend: 9.55%
Sales Price Per SF: $191.39
COMMENTS: The lease is triple net over a 25-year term with four 5-year options.
The lease escalates every five years by $0.50/SF. The seller did not
report any expenses; therefore, a 1% management/administrative expense
and $0.10/SF structural reserves is estimated by the appraisers.
Tucker, DeKalb County is a growing area with increasing population
within the Atlanta Metropolitan area. The site has 118' of frontage on
Lawrenceville Highway with a traffic count of 24,400 vehicles per day.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 99
Comparable Sale Map
[GRAPHICS OMITTED]
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 100
Note: All transaction data in the chart reflects cash equivalency and/or other
adjustments applied in the comparable sale summary sheets.
Introduction
A search for comparable sales within the subject neighborhood and
competitive locales was conducted by the appraiser. The appraiser consulted with
local real estate agents knowledgeable of the subject market and researched
public records for pertinent information. The sales used herein represent the
most comparable data available at the time of the report.
Comparison of Important Factors Affecting SP/SF
All property characteristics of the comparable sales and the subject
property have been analyzed by the appraisers. The following summarizes the
comparison of primary factors of the comparable sales affecting value as
compared to the subject.
Subject:
Primary Negative Factors: None
Primary Positive Factors: Good location in primary retail and commercial
corridor of relatively high income and growth
neighborhood; limited land available for future
competition; net income per square foot;
improved credit rating of Eckerd since December
1996
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 101
Sales Comparison Approach - Analysis, cont'd.
Comment: The sales price per square foot analysis utilizes a net operating
per square foot adjustment. Thus, the indicated value per square foot range must
consider the credit rating of the sale's tenant as compared to the subject
tenant, which is a significant factor in the pricing of single tenant buildings
leased to national credit tenants. Since the credit rating issue is generally
associated with derivation of overall rates, the detailed discussion of this
factor is presented in the Analysis of Direct Capitalization in the Income
Capitalization Approach presented later in this report.
The Eckerd credit rating has improved since December 1996, the date of sale
for the comparable Eckerd store sales, because Eckerd was acquired by JC Penney.
As a result, the subject is actually most comparable to the CVS sales instead of
the Eckerd sales. CVS has a relatively strong credit rating in the pharmacy
industry. The company which has the strongest credit rating is Walgreen, which
typically sells at lower overall rates. CVS, and now Eckerd, are considered to
be in the next tier of pharmacy companies relative to credit ratings. Again,
this factor primarily affects the comparison of the adjusted sale prices per
square foot as compared to the subject.
Sale No. 1 - Eckerd Drugs Acworth:
Inferior Factors
Compared to Subject: Smaller town with long-term potential growth;
net income per square foot; Eckerd credit
rating at time of sale
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Inferior before and after adjustments
Sale No. 2 - Eckerd Drugs Tucker:
Inferior Factors
Compared to Subject: Slightly inferior location/town; net income per
square foot; Eckerd credit rating at time of
sale
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Inferior before and after adjustments
Sale No. 3 - CVS Drug Store, Irmo:
Inferior Factors
Compared to Subject: Net operating income lower
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Inferior before adjustments; similar after
adjustments
Sale No. 4 - CVS Drug Store, Chimney Ridge:
Inferior Factors
Compared to Subject: Net operating income lower
Superior Factors
Compared to Subject: None
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 102
Sales Comparison Approach - Analysis, cont'd.
--------------------------------------------------------------------------------
Overall Comparison
to Subject: Inferior before adjustments; similar after
adjustments
Sale No. 5 - CVS Drug Store, Lilburn:
Inferior Factors
Compared to Subject: Net operating income lower
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Inferior before adjustments; similar after
adjustments
Most Comparable Sales: No. 3, 4 and 5
Comment: As previously noted, Eckerd's merger with JC Penney has
substantially improved its credit rating. As a result, the subject is actually
considered inferior to the Eckerd sales (Nos. 1 and 2) and more comparable to
the CVS sales (Nos. 3 through 5).
Sale Price Per Square Foot Method
Description: The Price Per Square Foot indicator is a
general common denominator which encompasses
all influences without specifically identifying
their impact. It is most affected by location,
size, age/condition, and existing leases at
above or below market levels, if a rental
property. This indicator is derived by dividing
the sales price by the net rentable area.
NOI/SF Adjustment Technique: A wide range produced by this method indicates
that the comparable sales have varying
income-producing capabilities attributable to
differences in age, location, size and quality.
In order to adjust for these differences, a
multiplier is obtained by dividing the
subject's NOI/SF by the NOI/SF of each
comparable sale. The resulting multiplier is
then applied to the sales price/SF of each
comparable resulting in an indicated sale
price/SF for the subject property. The
following grid displays this technique.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 103
Sales Comparison Approach - Analysis, cont'd.
Note: Above chart is sorted based on ascending NOI/SF's.
Comments/Analysis:Additional subjective adjustments may be required based
on unquantifiable factors not recognized in the NOI/SF adjustment. Examples are
investment grade compared to owner occupancy, quality of tenants, conditions of
sale and other intangible factors. Based on the adjusted sale price per square
foot of the previously identified most comparable sales (Nos. 3, 4 and 5) and
considering the comparability factors previously discussed, the indicated market
value per square foot range for the subject property is $280.00 to $283.00. The
calculations are presented as follows.
SP/SF Method Calculations
Value Est.,
Size SP/SF Est. Rounded
10,908 SF x $280.00 = $3,050,000
10,908 SF x $283.00 = $3,090,000
Gross Income Multiplier Method
Description: The Gross Income Multiplier illustrates the
relationship between the sales price and the
revenue stream of a property. Investments are
often acquired on the basis of a multiple
either of their current or potential income
flow. Because this indicator is a good
reflection of the motives of purchasers, it is
considered to be a realistic assessment of
market tendencies.
NOI/Gross Potential Income
Ratio Comparison of GIM's: GIM's are typically influenced by the
relationship between the net operating income
and gross potential income as measured by the
net operating income to gross income ratio
(NOI/GPI ratio). The sales with the most
similar NOI/GPI ratios are typically considered
to be the most comparable to the appraised
property all other factors being equal. The
following chart summarizes the comparison of
the GIM's to the comparable sales' NOI/GPI
ratio as well as comparing the NOI/GPI ratio of
the comparable sales to the subject's NOI/GPI
ratio.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 104
Note: Above chart is sorted based on ascending NOI/GPI's.
Comment/Analysis:All of the sales have a highly similar NOI/GPI ratio as
the subject. Therefore, the most comparable sales, Nos. 3, 4 and 5, should be
the best GIM indicator for the subject. Thus, the GIM range estimated for the
subject is 10.75x to 11.00x after considering the factors noted above. The
calculations for this method are presented below.
GIM Calculations
Value Est.,
Gross Inc. GIM Est. Rounded
$278,580 x 10.75 = $2,990,000
$278,580 x 11.00 = $3,060,000
Sales Comparison Approach - Reconciliation
Summary of Value Ranges
Method Value Range
-------------------------------------
SP/SF: $3,050,000 to $3,090,000
GIM: $2,990,000 to $3,060,000
Comment/Analysis:Both valuation methods placed most weight on the most
comparable sales. In addition, the two techniques yield very similar value
ranges. Given these factors, the subject's value estimate should be in the
middle of the overall value range. The following calculates the as is value
estimate by this approach.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 105
Sales Comparison Approach - Analysis, cont'd.
--------------------------------------------------------------------------------
Sales Comparison Approach
As Is Value Estimate
Current Stabilized Value $3,050,000
Estimate
Less: Deferred Maintenance 0
Less: Lease-Up Costs to
Stabilization 0
----------
As Is Value Estimate $3,050,000
As a result, the value estimate as indicated by the sale comparison
approach, is reconciled as follows.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 106
INCOME CAPITALIZATION APPROACH
Introduction
The income capitalization approach is the procedure in appraisal analysis
which converts anticipated benefits (dollar income or amenities) to be derived
from the ownership of property into a value estimate. Anticipated future income
and/or reversions are discounted to a present worth figure through the
capitalization process.
This approach, like the cost and sales comparison approaches, requires
extensive market research. Specific areas that an appraiser investigates for
this approach are the property's gross income expectancy, the expected reduction
in gross income from lack of full occupancy and collection loss, the expected
annual operating expenses, the pattern and duration of the property's income
stream, and the anticipated value of the resale of other real property interest
reversions. When accurate income and expense estimates are established, the
income streams are converted into present value by the process of
capitalization. The rates or factors used for capitalization are derived by the
investigation of acceptable rates of return for similar properties.
The income capitalization approach is generally applied in appraising
income-producing properties. The quantity, quality and durability of the income
stream must be considered in estimating the economic rent of an income-producing
property.
Quantity: Rental comparables have been gathered from similar
properties to show current market rents,
Quality: This is a measure of the strength of the tenant that could
be expected to occupy the subject (i.e., AAA, regional,
local, etc.).
Durability: This is reflected in the vacancy of the area.
In order to analyze contractual rentals of the subject and determine the
economic rent potential of the available space, a survey was conducted of
similar developments.
The pages which follow will summarize the comparable rental data utilized
in the appraisal of the subject property. While this study does not include all
competitive space, it is useful in determining patterns of occupancy and
economic levels of rent.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 107
Income Capitalization Approach, cont'd.
Comparable Improved Rental Data
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 108
RETAIL RENT COMPARABLE NO. 1:
[GRAPHIC OMITTED]
PROJECT DATA
Project Name: Eckerd Peartree Village
Location: SWC Church Street and Franklin Pike, Peartree Village Shopping
Center, Brentwood, TN
County: Williamson
PROPERTY DATA
Rentable Area (SF): 11,120
Year Built: 1997
Construction: Concrete Block with brick veneer (inline space)
Bay Depths: 140'
Anchor Tenants: Harris Teeter, Office Max
RENTAL DATA
Quoted Rate/SF: $17.50
Existing Rate Range
Anchor Tenants: Not provided
Spec Space: $20.00+ quoted
Restaurant Space: N/A
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 108
Retail Rent Comparable No. 1, cont'd.
LEASE TERMS
Lease Basis: NNN
Typical Lease Term: 20 years
CAM Charge: $1.50/SF
Escalator Clause: Escalates $0.50/SF every five years
Finish-Out: Turn key
Rental Concessions None
Occupancy Rate: 100% Historical Occupancy Rate: N/A
Verified By: Holly Shuck
Date: 04/25/96 Comp_Code: 291
COMMENTS: The Eckerd tenant space is one tenant within the 109,867 SF Peartree
Village shopping center in Brentwood. The center was completed in
early speculative space. The Eckerd space is in-line tenant space and
is not a freestanding building, which typically yields higher rent
than in-line space.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 110
RETAIL RENT COMPARABLE NO. 2:
UNDER CONSTRUCTION
PHOTOGRAPH NOT AVAILABLE
PROJECT DATA
Project Name: CVS Franklin
Location: E/s of U.S. 431/Hillsboro Road at Del Rio Pike, Franklin
County: Williamson
PROPERTY DATA
Rentable Area (SF): 10,125
Year Built: Proposed, 1998
Construction: Concrete block and brick veneer
Bay Depths: 140'
Anchor Tenants: CVS
RENTAL, DATA
Quoted Rate/SF: $18.91
Existing Rate Range
Anchor Tenants: 18.91
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 111
COMMENTS: The property rent basis is absolute net. Tenant pays insurance, taxes
and common area maintenance directly. Landlord is responsible for
structural maintenance only.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 112
RETAIL RENT COMPARABLE NO. 3:
[GRAPHIC OMITTED]
PROJECT DATA
Project Name: Walgreens, Bartlett
Location: 5950 Stage Road, Bartlett, TN
County: Shelby
PROPERTY DATA
Rentable Area (SF): 15,400
Year Built: 1996
Construction: Masonry
Bay Depths: Typical
Anchor Tenants: Walgreens
RENTAL DATA
Quoted Rate/SF: $21.50
Existing Rate Range
Anchor Tenants: $21.50
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 113
Retail Rent Comparable No. 3, cont'd.
--------------------------------------------------------------------------------
Spec Space: N/A
Restaurant Space: N/A
LEASE TERMS
Lease Basis: Absolute net
Typical Lease Term: 20 years
CAM Charge: N/A
Escalator Clause: Every five years
Finish-Out: Turn-key
Rental Concessions None
Occupancy Rate: 100% Historical Occupancy Rate: N/A
Verified By: Buyer
Date: 07/01/96 Comp_Code: 283
COMMENTS: A lease was negotiated before construction of $21.50/SF absolute
net with several 5 year options. Very good corner location in the
heart of Bartlett.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 114
RETAIL RENT COMPARABLE NO. 4:
[GRAPHIC OMITTED]
PROJECT DATA
Project Name: Hollywood Video Franklin
Location: South side of SH-96, 185' west of Southwinds
Drive, Franklin
County: Williamson
PROPERTY DATA
Rentable Area (SF): 7,488
Year Built: 1997
Construction: Wood frame and dryvit siding
Bay Depths: 125'
Anchor Tenants: Hollywood Video
RENTAL DATA
Quoted Rate/SF: $22.42
Existing Rate Range
Anchor Tenants: $22.42
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 115
Retail Rent Comparable No. 4, cont'd.
Spec Space: N/A
Restaurant Space: N/A
LEASE TERMS
Lease Basis: Absolute Net
Typical Lease Term: 15 years
CAM Charge: Tenant directly responsible
Escalator Clause: Yes; see comments
Finish-Out: Turnkey
Rental Concessions None
Occupancy Rate: 100% Historical Occupancy Rate: N/A
Verified By: Gerry Woodruff
Date: 03/15/97 Comp_Code: 290
COMMENTS: The lease space is one lease space in a two tenant building. The
second tenant will be a Jiffy Lube on a modified ground lease. The
proposed Jiffy Lube construction is scheduled to be completed in
February 1998. The Hollywood Video rent escalation occurs every
five years and is increased by the lesser of either a total 12% or
cumulative CPI over the preceding five year period.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 116
RETAIL RENT COMPARABLE NO. 5:
PROPOSED
PHOTOGRAPH NOT AVAILABLE
PROJECT DATA
Project Name: Hollywood Video, Inglewood,
Location: 3407 Gallatin Pike; W/s of Gallatin Road at
Greenfield Drive, Nashville
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 117
Spec Space: None
Restaurant Space: None
LEASE TERMS
Lease Basis: Absolute Net
Typical Lease Term: 15 years with two 5 year options
CAM Charge: Tenant pays direct
Escalator Clause: Minimum 12% every 5 years
Finish-Out: Build-to-suit (turnkey)
Rental Concessions None
Occupancy Rate: 100% Historical Occupancy Rate: N/A
Verified By: Gerry Woodruff
Date: 11/05/97 Comp_Code: 000
COMMENTS: The property rent basis is absolute net. Tenant pays insurance,
taxes and common area maintenance directly. Landlord is
responsible for structural maintenance only. The location is a
high traffic corridor convenient to local established
neighborhoods. The site is presently under construction.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 118
COMPARABLE RENT MAP #1
[GRAPHIC OMITTED]
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 119
COMPARABLE RENT MAP #1
[GRAPHIC OMITTED]
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 120
ANALYSIS OF POTENTIAL GROSS INCOME
Rent Roll
===================================================================================================================
Suite # Tenant Size Lease Lease Lease Rent/SF Lease Annual
(SF) Begin End Term Type Rent
-------------------------------------------------------------------------------------------------------------------
1 Eckerd 10,908 11/01/97 10/31/97 20 $25.54 Net $278,580
===================================================================================================================
Option periods: Eckerd has four option periods of
five years each.
Annual Rent Schedule
Year 1-5 $278,580 annual base rent
Year 6-10 $284,028 annual base rent
Year 11-15 $289,488 annual base rent
Year 16-20 $294,936 annual base rent
Percentage Rent: 2% of gross receipts exceeding
minimum rent After end of 15th year,
and provided no less than 10 yrs
remain on unexpired term or
extension, Tenant may at own expense
remodel and credit against % rent.
Comments: The rent escalations every five years equate to $0.50/SF. The
tenant is responsible for all maintenance including exterior, structural,
mechanical, HVAC and interior repairs. In addition, the tenant is directly
responsible for utilities, taxes and insurance. Thus, the lease is a true
absolute net lease.
Tenancy: Single Tenant
Square Feet Occupied: 10,908 SF
Square Feet Vacant - Shell: 0 SF
Square Feet Vacant -
2nd Generation: 0 SF
In order to estimate market rent rates to apply to the subject, we
surveyed similar properties in the subject neighborhood. Factors which typically
influence rental rates include location, and physical attributes such as age,
condition and design/appeal characteristics. The rent comparables presented in
this report represent the most comparable properties to the subject with respect
to age, quality of construction and location. The following chart summarizes the
comparable improved rental data previously presented.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 121
Analysis of Potential Gross Income, cont'd.
Summary of Comparable Improved Rental Data
====================================================================================================================================
Rent No. Subject 1 2 3 4 5
------------------------------------------------------------------------------------------------------------------------------------
Name/Address Eckerd Eckerd Peartree CVS Walgreens, Hollywood Video Hollywood
Drugstore village Franklin Bartlett Franklin Video, Inglewood
------------------------------------------------------------------------------------------------------------------------------------
Size(SF) 10,908 11,120 10,125 15,400 7,488 7,488
------------------------------------------------------------------------------------------------------------------------------------
Year Built 1997 1997 Proposed, 1998 1996 Proposed 1997 Proposed
------------------------------------------------------------------------------------------------------------------------------------
Occupancy 100% 100% 100% 100% 100% 100%
------------------------------------------------------------------------------------------------------------------------------------
Quoted N/A $17.50 $18.91 $21.50 $22.42 $19.06
Rate/SF
------------------------------------------------------------------------------------------------------------------------------------
Tenant N/A NNN Absolute Net Absolute Net Absolute Net Absolute Net
Expenses
------------------------------------------------------------------------------------------------------------------------------------
CAM Charge N/A $1.50/SF Tenant directly Tenant directly Tenant directly Tenant pays
responsible responsible responsible direct
------------------------------------------------------------------------------------------------------------------------------------
Rental N/A None None None None None
Concessions
------------------------------------------------------------------------------------------------------------------------------------
Effective $17.50 $18.91 $21.50 $22.42 $19.06
Rate/SF
====================================================================================================================================
All property characteristics of the comparable rentals and the subject
property have been analyzed by the appraisers. The following summarizes the
comparison of primary factors of the comparable rentals affecting rents as
compared to the subject.
Comparison to Subject
Subject:
Primary Negative Factors: None
Primary Positive Factors: Freestanding building in relatively high
income per household market
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 121
Analysis of Potential Gross Income, cont'd.
--------------------------------------------------------------------------------
Rent No. 1 - Eckerd Peartree Village:
Inferior Factors
Compared to Subject: In-line shopping center space
Superior Factors
Compared to Subject: None
Tenant Expenses: Similar
Overall Comparison
to Subject: Inferior
Rent No. 2 - CVS Franklin:
Inferior Factors
Compared to Subject: Location in significantly less
dense commercial area
Superior Factors
Compared to Subject: None
Tenant Expenses: Similar
Overall Comparison
to Subject: Inferior
Rent No. 3 - Walgreens, Bartlett:
Inferior Factors
Compared to Subject: Location (lower income area than
Franklin)
Superior Factors
Compared to Subject: None
Tenant Expenses: Similar
Overall Comparison
to Subject: Slightly inferior
Rent No. 4 - Hollywood Video Franklin:
Inferior Factors
Compared to Subject: Inferior quality building
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Slightly inferior
Rent No. 5 - Hollywood Video, Inglewood:
Inferior Factors
Compared to Subject: Location; Inferior quality
building
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Inferior
Most Comparable Rentals: Nos. 2, 3 and 4
Conclusions/Analysis: Most build-to-suit leases are derived on the basis of
approved development costs, including the land, by the prospective tenant. As a
result, the location can have a significant influence based on the cost of land.
Similarly, the quality of construction has an impact on the rental rate.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 123
Analysis of Potential Gross Income, cont'd.
Rent No. 4 is located next door to the subject. For this reason, it is
considered the most comparable to the subject. However, it is still slightly
inferior because of the quality of construction. In addition, the comparable
helps establish the fact that the subject location is significantly superior to
other Middle Tennessee suburban locations. The typical Hollywood Video rents in
Middle Tennessee are in the $17.00/SF to $19.00/SF range. Rent No. 4 is about
20% to 30% above the typical range.
The CVS Franklin store is in a significantly inferior location relative to
Franklin commercial neighborhoods. Residential growth in the area is anticipated
to be very strong over the next five years; however, the existing residential
development is significantly less than the subject's locale. The SH-96
commercial corridor is significantly more dense and land values are much higher.
The CVS land was $600,000+ compared to the subject's estimated land value of
$1,100,000.
The only recent Eckerd lease in the Nashville area is the in-line space
within the Peartree Village shopping center (Rent No. 1). Typically, in-line
space is significantly lower than freestanding, pad site type buildings.
In addition to the previous Nashville MSA rent comparables, the appraiser
has considered a 1996 Walgreen drag store lease in Bartlett, Tennessee. Bartlett
is a suburb of Memphis, Tennessee. The 15,400 SF freestanding building was
leased at $21.50/SF, absolute net. The Bartlett community is generally inferior
to the Franklin community based on a comparison of demographic characteristics,
particularly household income. However, it is a relatively recent rent
comparable of a freestanding drug store.
Overall, the subject is superior to all of the comparable rent properties.
Considering the differences in the comparable properties as compared to the
subject, the subject's actual lease rate of $25.54/SF appears to be reasonable
and is considered to represent market rent for a comparable national drugstore
chain building similar to the proposed improvements.
Estimated Market Rate: $25.54/SF
Expense Recoveries: Analysis:All of the comparable retail
ease rates were based on an absolute
net basis or NNN. The following
Stabilized Operating Statement, which
follows the Analysis of Expenses, is
based on the proposed lease rate with
an absolute net lease basis.
The Stabilized Operating Statement, which follows the Analysis of Expenses,
is based on the subject's actual lease rate and expense pass throughs.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 124
ANALYSIS OF EXPENSES
Introduction
No historical data was available from the property since the property is
proposed construction. The subject has an absolute net lease with the tenant
even responsible for the structural walls and roof repairs. The tenant will pay
and be billed directly for all other expenses. Therefore, the subject will have
minimal expenses to the landlord. The following analysis addresses only those
expenses that are the responsibility of the landlord.
Vacancy & Collection Loss
Expense Description: Vacancy & collection loss is an
allowance for reductions in potential
income attributable to vacancies, tenant
turnover and nonpayment of rent. The
allowance is usually estimated as a
percentage of potential gross income,
which varies depending on the type and
characteristics of the physical
property, the quality of tenants,
current and projected supply and demand,
and general and local economic
conditions. The percentage rate
recognized reflects typical investor
expectations over the specific holding
period assumed or projected.
Subject Data:
Tenancy: Single Tenant
Current Occupancy: 100%
Analysis: Based on a review of market data as well
as the subject's preleased vacancy, a
vacancy and collection loss of 0% is
believed to appropriately recognize
potential collection loss over the
holding period. In reality, the lease is
a 20 year lease to an investment grade
credit tenant and there will be no
tenant turnover through the holding
period. The treatment of the subject
vacancy must be the same as the vacancy
treatment of the sales in order to
derive the same type of calculated net
operating income for capitalization
purposes. The comparable sales utilized
a 0% vacancy since they were all leased
to high credit tenants generally similar
to the subject.
Estimated Vacancy &
Collection Loss: 0%
Management:
Expense Description: The subject must be considered as an
investment under prudent management. A
charge is made to reflect either the
owners input of time and attention or
that of a professional agent. The
expense would include the collection of
rents, supervision of all maintenance,
etc.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 125
Analysis of Expenses, cont'd.
--------------------------------------------------------------------------------
Analysis: The proforma annual management fee for
he subject property is 1.0% of the
Effective Gross Income. This reflects
the owners time and expense for
bookkeeping and other minimal management
and administrative duties since it is
considered a long-term, absolute net
lease.
Estimated Management: 1.0%
Reserves:
Expense Description: A reserves or replacement allowance
provides for the periodic replacement of
building components that wear out more
rapidly than the building itself and
must be replaced periodically during the
building's economic life. Examples of
these components are roof cover, HVAC
compressors, parking areas and other
site improvements.
Analysis The reserves expense estimate is based
primarily on the typical expense
recognized by buyers as compared to a
calculated type estimate. Based upon the
age and condition of the property and
typical buyer actions, the reserves
expense estimate is $0.10/SF.
Estimated Reserves: $0.10/SF
Estimated Expense Summary
Management 1.0% EGI = $2,786
Taxes: $0.00 /SF = $ 0
Insurance: $0.00 /SF = $ 0
CAM: $0.00 /SF = $ 0
Administration $0.00 /SF = $ 0
Reserves: $0.10 /SF = $1,091
----- ------
Subtotal Expenses: $0.36 /SF = $3,877
Note: Taxes, Insurance & CAM will be paid directly by the tenant.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 126
Analysis of Expenses, cont'd.
STABILIZED OPERATING STATEMENT
Gross Rental Income Potential:
Lease
Size (SF) Rate
Gross Rent Income 10,908 @ $25.54 /SF = $278,580
(See Rent Roll for Rent Allocation)
Plus: Expense Recovery 0
--------
Total Gross Annual Income: $278,580
Less: Vacancy/Collection Loss 0% $ 0
--------
Effective Gross Income $278,580
Less Expenses
Management 1.0% EGI = $2,786
Taxes $0.00 /SF = $0
Insurance: $0.00 /SF = $0
CAM: $0.00 /SF = $0
Administration: $0.00 /SF = $0
Reserves: $0.10 /SF = $1.091
----- ------
Subtotal Expenses: $0.36 /SF = $3,877 ($3,877)
--------
Net Operating Income: $274,703
========
NOI/SF $25.18
NOI/Gross Income 98.61%
CAPITALIZATION TECHNIQUE
NOI / OAR = Value Estimate
$274,703 / 9.00% = $3,052,260
Current Stabilized Value Estimate $3,050,000
Less: Deferred Maintenance 0
Less: Lease-Up Costs to Stabilization 0
----------
As Is Value Estimate $3,050,000
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 127
ANALYSIS OF DIRECT CAPITALIZATION RATE
Introduction
Direct capitalization is a method used to convert a single year's income
estimate into a value indication. The capitalization rate utilized in the income
capitalization approach combines input from the marketplace in conjunction with
a review of mortgage/equity positions. Although the appraiser can estimate an
overall capitalization rate by using various techniques, derivation of the rate
from comparable sales is generally preferred when sufficient data are available
from transactions of similar, competitive properties. In order to provide a
consistent basis for comparison, the net operating income from each comparable
is calculated and estimated in the same manner as that for the subject property.
Additionally, the appraiser must conclude that neither non-market financing
terms nor different market conditions have affected the transaction prices of
the comparables. When these requirements are met, the appraiser estimates the
overall rate by dividing each property's net operating income by its sale price.
Improved Sales' Overall Rate Summary
==========================================================================================================
Sales No Subject 1 2 3 4 5
----------------------------------------------------------------------------------------------------------
Name/Address Eckerd Eckerd CVS Drug CVS Drug CVS
Drugs Drugs Store, Store, Drug
Acworth Tucker Irmo Chimney Store,
Ridge Lilburn
----------------------------------------------------------------------------------------------------------
Sale Date Current 12/20/96 12/19/96 UC (9/97) 06/06/97 12/96
----------------------------------------------------------------------------------------------------------
Year Built 1997 1996 1996 1997 1997 1996
----------------------------------------------------------------------------------------------------------
Occupancy 100% 100% 100% 100% 100% 100%
----------------------------------------------------------------------------------------------------------
Size(SF) 10,908 10,908 9,504 10,125 10,125 13,125
----------------------------------------------------------------------------------------------------------
% Credit/Achor 100% 100% 100% 100% 100% 100%
----------------------------------------------------------------------------------------------------------
Oveall Rate N/A 9.29% 9.55% 8.89% 8.98% 8.98%
==========================================================================================================
Note: All transaction data in the chart reflects cash equivalency and/or other
adjustments applied in the comparable sale summary sheets.
Comparison of Important Factors Affecting OAR
All property and conditions of sale characteristics of the comparable sales
and the subject property have been analyzed by the appraisers. The following
summarizes the comparison of primary factors of the comparable sales affecting
value as compared to the subject.
Note: The reader is reminded that this is a comparison of overall rates and
not the sales price per square foot. Therefore, the terms of comparison to the
subject of each sale may be different than those used in the previously
presented Sales Comparison Approach, which was based on the quantity of income
and subsequent adjustments to the sales price per square foot. While the overall
rate recognizes physical factors, intangible factors such as quality of tenants,
conditions of sale, occupancy at time of sale, and investment quality tend to
have stronger
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 128
Analysis of Direct Capitalization Rate, Cont'd.
influence on the overall rate comparison. As an example, two properties with
different locations and quality of improvements may have significantly different
per square foot sales prices, but very similar overall rates. Thus, the
comparison to the subject includes the intangible factors influencing overall
rates.
Subject:
Primary Negative Factors: None
Primary Positive Factors: Credit rating of Eckerd has improved since
merger with JC Penney
Comment/Analysis: All of the sales represent buildings with long-term
leases to investment grade credit tenants. As discussed in the sales comparison
approach, the most significant factor for long-term leases to credit tenants is
the quality of the credit. The merger of JC Penney and Eckerds was announced in
early November 1996 subject to approval by stockholders of Eckerds. JC Penney
completed the cash tender offer of Eckerd common stock on December 6, 1996. Upon
completion of the cash tender offer, JC Penney obtained in excess of 50.1% of
Eckerd's outstanding shares. Prior to the merger, Eckerds credit rating was
significantly inferior to other retail drug companies such as Walgreens, Riteaid
and CVS, but superior to Revco. The rating was low because of the high debt
ratios and relatively weaker financial performance prior to 1996. Walgreens has
the highest credit rating of all major retail drug companies with Riteaid and
CVS in the next tier.
JC Penney, the largest department store chain in the U.S., has a very
strong credit rating. However, the revised Eckerd credit rating was not released
until February 1997. Moody's upgraded the Eckerd industrial development revenue
bond rating to A3 from Ba3 and senior subordinated debt to Baal from B2. The
credit rating was not increased to the equivalent of JC Penney. The primary
reason was the lack of any guaranty, assumption or legal support agreement from
Penney for the benefit of holders of Eckerd obligations. On the other hand,
Moody's expects that Eckerd's cash needs will be met through intercompany
funding from Penney.
Considering the Eckerd's improved credit rating since the December 1996
Eckerd sales, the appropriate overall rate for the subject should be similar to
the CVS overall rates, or 9.00%.
Concluded OAR: 9.00%
Analysis of Subject's Potential Mortgage Terms
Preliminary Analysis: Several factors affect the potential real
estate mortgage terms of any given property.
These factors include, creditworthiness of
the borrower, quality of tenants, length of
term, amortization and other factors
considered by lenders when analyzing the
relative risk of a loan. However, lenders
typically have general parameters or
guidelines established for real estate
loans. The appraisers have had discussions
with local mortgage brokers about long-term
financing terms and bankloan officers about
short term financing.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 129
Analysis of Direct Capitalization Rate, Cont'd.
--------------------------------------------------------------------------------
Long-Term Financing: Institutional lenders are typically
establishing interest rates on the basis of
130 to 200 basis points above the comparable
term U.S. Treasury Bond with a 7 to 10 year
term, 20 to 25 year amortization and 70% to
75% loan-to-value ratio. While these terms
may vary from lender to lender, the ultimate
test for a particular loan is the debt
coverage ratio.
Bank Short-Term
Financing: Banks are typically utilizing the prime rate
as the index for loans. Mortgage interest
rates are typically 200+/- basis points
above the prime rate. The mortgage terms are
preferably a three year call based on a 20
to 25 year amortization and 70% to 75%
loan-to-value ratio: however, banks will
provide a five year term in some situations.
Summary of Subject's Potential Mortgage Terms
Mortgage Type: Long-term;
Analysis: This appraisal contemplates a typical
long-term loan instead of a bank short-term
loan. While the bank loan is common, a
long-term loan is more consistent with the
typical holding period for real estate.
U.S. Treasury Bond
10 Year Rate: 6.00%
Loan Term: 10 years
Amortization: 20 years
Loan-to-Value Ratio: 75%
Approx. Interest Rate: 8.00%
Debt Coverage Ratio (DCR) Analysis: A Test of Reasonableness
Direct Cap Value Final Report Value
Direct Capitalization Value $3,050,000 $3,050,000
Loan Amount @ L-to-V of 75% $2,287,500 $2,287,500
Monthly Payment $19,134 $19,134
Estimated NOI $274,703 $274,703
Divided by Annual Payment $229,603 $229,603
-------- --------
Implied Debt Coverage Ratio 1.20 1.20
----------
Note: The rate is an approximation on a rounded basis due to the weekly change
in the rate.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 130
Analysis of Direct Capitalization Rate, Cont'd.
Comment/Analysis: The implied debt coverage ratios for the direct
capitalization method value estimate and the final report value (based on
correlation of all three approaches) are acceptable and reasonable.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 131
INCOME CAPITALIZATION APPROACH - RECONCILIATION
Introduction
The direct capitalization and discounted cash flow analysis are the two
most frequently utilized methods in appraisal practice. The Direct
Capitalization Method represents the more traditional method and the Discounted
Cash Flow Analysis Method is the more current for investment grade property.
Direct Capitalization $3,050,000
The Direct Capitalization Method utilized stabilized gross income based on
existing lease income (if any) and vacant lease space at market rates.
Appropriate deductions from the gross income, including vacancy & credit loss
and expenses, were analyzed and supported from available data. The resulting net
operating income was capitalized based on an overall rate derived from
comparable sales presented in the Sales Comparison Approach.
Discounted Cash Flow Omitted
A Discounted Cash Flow model takes into account the future income to the
property based on current and expected future market rental rates. The analysis
also recognizes current investor perceptions of future appreciation rates and
economic factors as well as current investors' required rates of return on
invested capital. Over the past few years, investors have placed less emphasis
on this technique as a primary valuation tool. It has become more of a test of
reasonableness. The discounted cash flow is not typically a significant
valuation tool for a single tenant, long-term lease property, particularly with
adequate sales data from which an overall rate can be derived.
Reconciliation
Value Estimate Summary by Method:
Direct Capitalization: $3,050,000
Discounted Cash Flow Analysis: Omitted
The subject's investment grade quality is good with the most probable buyer
being a sophisticated regional or national investor. Recent investor trends
reflect a tendancy of investors to focus on the direct capitalization approach.
In addition, a sufficient number of recent sales of similar properties is
available to derive an overall capitalization rate. Thus, total consideration is
given the direct capitalization approach
Therefore, the estimated value of the subject property by the income
capitalization approach, as of November 20, 1997, as follows:
Value Indicated by the Income Capitalization Approach $3,050,000
Implied OAR: 9.01%
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 132
CORRELATION AND FINAL ESTIMATE OF VALUE
Introduction:
The three indications utilized in the appraisal of the subject property
falls within an acceptable range. In the final analysis, the strengths and
weaknesses of each approach must be considered and most weight must be given to
the approach or approaches with the greatest quantity and quality of supporting
data. Since market value is being sought, all three approaches rely heavily upon
supporting data from the marketplace.
Cost Approach: $2,825,000
General Description: The cost approach is most applicable when a
property is new or proposed and represents
the highest and best use of the site. Land
values are documented in the marketplace and
cost estimates are readily supported. The
inherent weakness of this approach is that
it gives no consideration to the
income-producing capability of a property.
Analysis: Since the subject is new construction and
market conditions are currently favorable,
this is a reasonable method of valuation.
However, it is utilized more as a test of
feasibility for the subject because it does
not reflect the actions of buyers/investors
in the market and the credit worthiness of
the tenant.
Weighted Consideration: Limited
Sales Comparison Approach: $3,050,000
General Description: The sales comparison approach is utilized in
the valuation of the subject. The appraisal
utilizes the best available and verifiable
single tenant, investment grade tenant
property sales comparable to the subject
property. This approach utilized two methods
to estimate a value range for the subject -
1) sales price per square foot and 2) the
gross income multiplier (GIM). The adjusted
selling price per square foot of building
area and GIM of each comparable is utilized
in comparison to the subject property. After
appropriate adjustments, these sales were
generally similar to the subject in quality,
design, location and age.
Analysis: A sufficient quantity and quality of
comparable sales was available to compare to
the subject. Given the similar investment
quality and type of buyer of the comparable
sales, this approach is considered a very
reliable value indicator for the subject.
Weighted Consideration: Significant
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 133
Correlation and Final Estimate of Value, Cont'd.
--------------------------------------------------------------------------------
Income Capitalization
Approach: $3,050,000
General Description: The income capitalization approach involved
the analysis of the existing rent as
compared with market rent for the subject
space. Additionally, a stabilized operating
statement was developed. The net operating
income was capitalized by the appropriate
capitalization rate which was derived by
sales comparison.
Analysis: A sufficient quantity and quality of
comparable rental and sale data was
available to compare to the subject. Since
the subject's most probable buyer is a
regional or national investor, this approach
is considered highly reflective of the
actions and investment criteria for the
potential investor in the subject property.
Weighted Consideration: Significant
Summary of Value Indications
Cost Approach $2,825,000
Sales Comparison approach $3,050,000
Income Capitalization Approach $3,050.000
Final Conclusion of Value
In view of the previous analyses, the most weight has been placed on the
sales comparison approach and income capitalization approach with limited weight
being placed on the cost approach in the valuation of the subject property. The
cost approach value indication is supportive of the other two approaches and
supports the feasibility of the development. Thus, the market value of the
subject property, contingent to the Assumptions and Limiting Conditions
presented herein, as of November 20, 1997, is estimated to be:
Three Million Fifty Thousand Dollars
($3,050,000)
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 134
CERTIFICATION OF VALUE
We certify that, to the best of our knowledge and belief,.
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our
personal, unbiased professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
4. Our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of subsequent event.
5. Our analyses, opinions, and conclusions were developed, and this
report has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice published by the Appraisal Foundation
and the Standards of Professional Practice of the Appraisal Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. As of the appraisal date, James E. Lamb, MAI, has completed the
requirements of the continuing education program of the Appraisal
Institute.
8. We have made a personal inspection of the property that is the subject
of this report.
9. No one provided significant professional assistance to the person(s)
signing this report.
10. This appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
11. The market value of the Leased Fee interest for the subject property,
subject to the Assumptions and Limiting Conditions stated herein, as
of November 20, 1997, is estimated to be:
Three Million Fifty Thousand Dollars
($3,050,000)
/s/ James E. Lamb
James E. Lamb, MAI
State Certified General Real Estate Appraiser
Licensee #CG-557
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 135
SUMMARY OF QUALIFICATIONS
JAMES E. LAMB, MAI
--------------------------------------------------------------------------------
Education
Attended the University of North Alabama, Fall 1977 through Spring 1979.
Graduate of the University of Mississippi, BBA Banking and Finance, May, 1981;
MBA Finance, August, 1982.
Professional Affiliations
The Appraisal Institute, The Volunteer State Chapter; MAI Designation -
Certification No. 8254. Continuing education completion status - through
December 31, 1997
The National Association of Realtors, Member; local affiliation - Nashville
Board of Realtors.
State Certifications
State of Tennessee Certified General Real Estate Appraiser - Licensee #CG-557
Accredited Appraisal Courses
The Appraisal Institute:
Course 101 Introduction to Appraising Real Property
Course 1A-1 Real Estate Appraisal Principles
Course 1A-2 Basic Valuation Procedures
Course 1B-A Capitalization Theory and Techniques, Part A
Course 1B-B Capitalization Theory and Techniques, Part B
Course 2-1 Case Studies In Real Estate Valuation
Course 2-2 Valuation Analysis and Report Writing
Course Standard of Professional Practice, Part A
Course Standard of Professional Practice, Part B
Seminar Hazardous Materials in Real Property
Seminar Persuasive Styles in Narrative Report Writing
Seminar Advanced Income Capitalization Overview
Other
Real Estate Principles
Real Estate Finance
Commercial and Investment Real Estate
Project Seminar
Professional Exchange to Foreign Countries
Participated as a delegate of People to People International's Citizen
Ambassador Program - Real Estate Delegation to Russia and Lithuania. Discussions
focused on the privatization of real estate in these countries as they converted
real estate ownership from the government to the private sector. Issues specific
to this process included real estate law fundamentals, real estate tax issues,
real estate valuation and attracting foreign real estate investment.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 136
Summary of Qualifications
James E. Lamb, MAI
--------------------------------------------------------------------------------
Professional Experience
Appraisal experience includes retail, industrial, office, multi-family,
mixed-use land developments and special-purpose properties. Special-purpose
property assignments include hotels, manufacturing facilities, restaurants,
right-of-ways and retirement facilities. Appraisals have been utilized for
mortgage loans, eminent domain, feasibility analyses, gift and estate tax, and
corporate management decisions.
Expert Witness
Qualified as an expert witness in several real estate court cases. Court
appearances have been in Middle Tennessee, East Tennessee and West Tennessee
federal bankruptcy courts. Also, Mr. Lamb has qualified as an expert in federal
bankruptcy court in Pennsylvania (Philadelphia) and Georgia (Atlanta).
Mr. Lamb has appeared before an Administrative Judge for the State of Tennessee
State Board of Equalization.
Employment History
Currently employed with Huber & Lamb Appraisal Group, Inc., and is a principle
in the company. Mr. Lamb is the principle in charge of the commercial real
estate division of the company and is the managing partner of the firm.
Previously employed as Vice President and primary MAI with Dengel, Lamb & Huber
prior to purchasing the assets and operations of DLH in October 1991.
Previously employed by a Dallas, Texas appraisal firm from March 1983 through
June 1987 as a staff appraiser.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 137
A tract of land lying in the Ninth Civil District of Williamson County, in the
City of Franklin, Tennessee and being a portion of Lots 17 and 18, of Revision
Three, Woodlands Subdivision of record in Plat Book 12, Page 25 in the
Register's Office, Williamson County, Tennessee and more particularly described
as follows:
BEGINNING at the westerly curve return at the southwest corner of the
intersection of State Route 96 (Mufreesboro Road, a 96 foot right of way) and
Southwinds Drive said point lying on the northerly line of Lot 17 of Proposed
Revision Four of Woodlands Subdivision; thence.
1. With the southerly right of way line of said State Route 96, easterly, with
a curve to the right, having a radius of 24.86 feet and a central angle of
90(degree)00'00", an arc length of 39.05 feet, a chord bearing and distance
of South 39(degree)45'08" East, 35.15 feet to an iron pin set on the
westerly right of way line of said Southwinds Drive; thence.
2. With said westerly right of way line, South 05(degree)14'52" West, 325.22
feet to an iron pin set at the common easterly corner of the Lots 17 and 18
of said proposed subdivision; thence.
3. With the common line of proposed Lots 17 and 18, North 84(degree)48'08"
West, 207.49 feet to an iron pin set at the southeast corner of Lot 16 of
said proposed subdivision; thence.
4. With the common line of proposed Lots 16 and 17, North 05(degree)14'32"
East, 350.08 feet to an iron pin set on the southerly right of way line of
said Sate Route 96; thence.
5. With said southerly right of way line, South 84(degree)45'08" East, 182.66
feet to the POINT OF BEGINNING and containing 1.665 acres, more or less.
Being a portion of the same property conveyed to Franklin Land Development Fund
by deed from Lee A. Beaman, of record in Book 636, Page 331, Register's Office
of Williamson County, Tennessee.
An Appraisal Report
Of
BROWNSVILLE PLACE SHOPPING CENTER
A 77,752 SF NEIGHBORHOOD SHOPPING CENTER BUILDING
110 - 128 DUPREE AVENUE/SR-76 BY-PASS
BROWNSVILLE, HAYWOOD COUNTY, TENNESSEE
Effective Date Of Report
AUGUST 14, 1997
Specifically For
MR. LAWRENCE MILLER
Debt and Equity Markets Group
Merrill Lynch Mortgage Capital, Inc.
WFC - North Tower
250 Vessey Street
New York, New York 10281-1326
By
HUBER & LAMB APPRAISAL GROUP, INC.
109 Westpark Drive, Suite 320
Brentwood, Tennessee 37027-5032
09-97-567
[Letterhead of Huber & Lamb Appraisal Group, Inc.]
November 25, 1997
Mr. Lawrence Miller
Debt and Equity Markets Group
Merrill Lynch Mortgage Capital, Inc.
WFC - North Tower
250 Vessey Street
New York, New York 10281-1326
RE: AN APPRAISAL ASSIGNMENT OF BROWNSVILLE PLACE SHOPPING CENTER
A 76,762 SF NEIGHBORHOOD SHOPPING CENTER BUILDING
110 - 128 DUPREE AVENUE/SR-76 BY-PASS
BROWNSVILLE, HAYWOOD COUNTY, TENNESSEE
Dear Mr. Miller:
At your request and authorization, we have appraised the above-referenced
property for the purpose of estimating its current market value as of August
14, 1997, assuming an individual property sale. In addition, you have
requested the estimated value of the subject assuming it is part of a 18
property portfolio sale. The property rights being appraised are the leased
fee interest in the subject property. It is our understanding that the report
will be used to assist in real estate mortgage finance underwriting of the
subject property.
ASSUMING SINGLE ASSET PROPERTY SALE
Based on the inspection of the property and the investigations and analyses
undertaken, we have formed the opinion that, as of August 14, 1997 and
subject to the Assumptions and Limiting Conditions set forth in the attached
report, the market value of the leased fee interest in the subject property
is:
THREE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
($3,250,000)
ASSUMING PORTFOLIO SALE
Based on the inspection of the property and the investigations and analyses
undertaken, we have formed the opinion that, as of August 14, 1997 and
subject to the Assumptions and Limiting Conditions set forth in the attached
report, the market value of the leased fee interest in the subject property,
assuming the property is sold as part of the 18 property portfolio described
herein, is:
THREE MILLION SIX HUNDRED TEN THOUSAND DOLLARS
($3,610,000)
Mr. Lawrence Miller
November 25, 1997
Page 2
MARKETING PERIOD: The marketing period is estimated to be 12 months, assuming
the subject is placed on the market at the final value estimate conclusion
above.
Three approaches to value were utilized in the valuation process for the
subject development. These included the cost approach, the sales comparison
approach and the income capitalization approach.
The narrative appraisal report that follows contains the identification of
the property, the assumptions and limiting conditions, pertinent facts about
the area and the subject property, comparable data, the results of the
investigations and analyses, and the reasoning leading to the conclusions
contained herein. Our analysis, opinions, and conclusions were developed, and
this report has been prepared in accordance with the Uniform Standards of
Professional Appraisal Practice published by the Appraisal Foundation and the
Code of Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute.
As requested by the client, the following statements relate to the permitted
use of the subject appraisal report.
o The report may be relied upon by Merrill Lynch Mortgage Capital Inc. in
determining whether to make a loan evidenced by a note (the "Property
Note") secured by the Property.
o The report may be relied upon by any purchaser in determining whether to
purchase the Property Note for this transaction from Merrill Lynch
Mortgage Capital Inc.
o The report may be relied upon by any Rating Agency in rating securities
issued by Merrill Lynch Mortgage Capital Inc. and representing an interest
in the Mortgage Note.
o The report may be included with and referred to in materials offering the
Property Note or an interest in the Property Note for sale.
The uses previously described are considered to be consistent with the
client's intended uses of the report. However, no other entity other than the
previously described entities may rely upon this appraisal report without
prior written consent from the appraiser.
Mr. Lawrence Miller
November 25, 1997
Page 3
We appreciate the opportunity to be of service to you. Should you have any
questions concerning this appraisal, please do not hesitate to contact this
office. For further information, your attention is directed to the following
report.
/s/ James E. Lamb, MAI /s/ Craig A. Johnson
--------------------------------------------- ----------------------------
James E. Lamb, MAI Craig A. Johnson
State Certified General Real Estate Appraiser Associate Appraiser
Licensee #CG-557 State Certified General
Real Estate Appraiser
Licensee #CG-1200
TABLE OF CONTENTS
Summary of Important Facts and Conclusions....................................1
The Appraisal Assignment......................................................3
Identification of Subject Property.......................................3
Purpose & Use of The Appraisal Report....................................3
Property Rights Being Appraised..........................................3
Significant Dates of Appraisal Assignment................................3
Scope of the Appraisal...................................................3
Subject Property Sales History...........................................4
Definition of Terms...........................................................6
Assumptions and Limiting Conditions..........................................10
Brownsville Area Analysis....................................................12
Brownsville Area Map....................................................18
Jackson County Analysis......................................................19
County Map..............................................................22
Shopping Center Market Analysis..............................................23
Neighborhood Analysis........................................................26
Neighborhood Map........................................................29
Site Analysis................................................................30
As Built Survey.........................................................33
Proposed Survey.........................................................34
Site Description........................................................35
Tax Plat Map............................................................36
Flood Plain Map.........................................................37
Description of Improvements..................................................38
Floor Plans.............................................................40
Photographs of Subject Property..............................................42
Subject Property Zoning......................................................44
Zoning Map..............................................................46
Highest and Best Use.........................................................47
Real Estate Tax Analysis.....................................................51
Appraisal Procedure..........................................................53
Land Valuation...............................................................55
Land Sales..............................................................57
Comparable Land Sales Map..........................................61
Land Valuation Summary..................................................62
Cost Approach................................................................68
Subject's Marshall Valuation Cost Data..................................69
Analysis of Depreciation................................................71
Cost Approach Summary...................................................75
Sales Comparison Approach....................................................76
Comparable Improved Sales Data............................................78
Comparable Improved Sales Map...........................................78
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 1
Table of Contents, cont'd.
Sales Comparison Approach Analysis......................................89
Sales Comparison Approach Reconciliation..............................94
Income Capitalization Approach...............................................95
Comparable Improved Rental Data.........................................97
Comparable Improved Rental Map.......................................105
Potential Gross Income Analysis........................................106
Expense Analysis.......................................................110
Stabilized Operating Statement.........................................113
Direct Capitalization Rate Analysis....................................114
Subject's Potential Mortgage Terms Analysis..........................116
Debt Coverage Ratio Analysis: A Test of Reasonableness...............117
Discounted Cash Flow Analysis..........................................118
Discounted Cash Flow Summary.........................................128
Income Capitalization Approach Reconciliation..........................131
Correlation and Final Estimate of Value.....................................132
Certification of Value......................................................135
Portfolio Sale Market Value Estimates.......................................139
Certification of Value - Portfolio Sale Market Value Estimates..............145
Summary of Qualifications...................................................146
Addenda.....................................................................151
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 2
SUMMARY OF IMPORTANT FACTS
& CONCLUSIONS
================================================================================
VALUATION CONCLUSION:
SINGLE ASSET SALE
AS IS VALUE ESTIMATE: $3,250,000
Cost Approach: $3,260,000
Sales Comparison Approach: $3,225,000
Income Capitalization Approach: $3,250,000
INTEREST APPRAISED: leased fee
VALUE ESTIMATE'S IMPLIED UNITS OF COMPARISON:
Value/SF: $42.34/SF
GIM: 9.16x
Overall Rate: 10.00%
AS IS PORTFOLIO SALE VALUE ESTIMATE: $3,610,000
SPECIAL LIMITING CONDITION: The portfolio sale value estimate specifically
assumes the subject property is part of the 18 property portfolio defined
herein.
ESTIMATED MARKETING PERIOD: 12 months, assuming the subject
is placed on the market at the
final value estimate conclusion
above.
SIGNIFICANT APPRAISAL DATES:
DATE OF APPRAISAL REPORT: November 25, 1997
EFFECTIVE DATE OF APPRAISAL: August 14, 1997
DATE OF INSPECTION: August 14, 1997
LOCATION:
PHYSICAL LOCATION: Southeast corner of Dupree
Avenue/SR-76 Bypass and East
Main Street/US-70.
City: Brownsville
County: Haywood
State: Tennessee
LEGAL DESCRIPTION:
TAX MAP/PARCEL: 074 - 024
PROPERTY DESCRIPTION:
LAND AREA:
Acres: 11.433
Square Feet: 498,017
Zoning: GC - General Commercial District
IMPROVEMENTS:
Property Type: Neighborhood shopping center
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 1
Summary of Important Facts & Conclusions, cont'd.
--------------------------------------------------------------------------------
Tenancy: Multi-tenant
Size (Gross Building Area): 77,752 SF
Size (Net Rentable Area): 76,762 SF
Year Built: 1989
Physical Occupancy at Completion: 98%
HIGHEST AND BEST USE:
AS VACANT: Hold for investment and/or
development as an office or retail
services use.
AS IMPROVED: Continued use as a shopping center
on a multi- tenant basis.
ESTIMATED INCOME OPERATING DATA:
GROSS POTENTIAL INCOME: $410,517
STABILIZED VACANCY: 5% of local shop space only
NET OPERATING INCOME: $324,972
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 2
THE APPRAISAL ASSIGNMENT
IDENTIFICATION OF SUBJECT PROPERTY
Property Name: Brownsville Place Shopping Center
Property Type: Neighborhood Shopping Center
Address: 110 - 128 Dupree Avenue/SR-76 By-pass
General Location: Southeast corner of Dupree Avenue/SR-76
Bypass and East Main Street/US-70
City: Brownsville
County: Haywood
State: Tennessee
Tax Map/Parcel: 074 - 024 (North Half)
Metes & Bounds Description: See Exhibit 3 Addenda
PURPOSE & USE OF THE APPRAISAL REPORT
Purpose of Report: Estimate the "as is" market value of
subject property. The reader is referred
to the Definition of Terms section of
the report for the definition of market
value as utilized in this analysis.
Client's Intended Use of Report: Assist in real estate mortgage finance
underwriting of the subject property.
PROPERTY RIGHTS BEING APPRAISED
The property rights being appraised are the leased fee interest in the
subject property. The reader is referred to the Definition of Terms section of
the report for the definition of leased fee as utilized in this analysis.
SIGNIFICANT DATES OF APPRAISAL
The subject property is being appraised as of the effective date presented
below. The appraised property is subject to the market influences and economic
conditions that existed on that date. The Date of the Report represents the
approximate date the appraisal report was performed and/or completed.
Date of Appraisal Report: September 10, 1997
Effective Date Of Appraisal: August 14, 1997
Date of Inspection: August 14, 1997
SCOPE OF THE APPRAISAL
In preparing this appraisal report, the appraisers have completed several
steps to assemble the data and form the opinions presented in this written
report.
1. Considered the complexity of the property and the appraisal
assignment in the context of the purpose and intended use of the
appraisal report.
(C)1997 Huber & Lamb Appraisal Group. Inc. Page 3
The Appraisal Assignment, cont'd.
2. Analyzed the Brownsville economy and the subject neighborhood to
determine the market conditions that effect the subject's market
value.
3. Inspected the subject property and surrounding neighborhood.
4. Gathered physical and/or factual data on the subject recorded data,
physical characteristics of the site and improvements, and legal
restrictions imposed by the municipal government.
5. Analyzed the data gathered and determined their affects on market
value in conjunction with the highest and best use of the real
estate as if vacant and as improved.
6. Considered the appropriateness of the three traditional appraisal
approaches to value including the cost approach, sales comparison
approach and the income capitalization approach.
7. The application and process of each valuation approach are detailed
in their respective report sections; however, the appraisers have
thoroughly researched market data in each approach and have
presented the most pertinent data and the reasoning and opinions
leading to the conclusion of market value via each approach to
value.
8. Reconciled the analysis and value indications by the three
approaches to value into a final market value conclusion.
SUBJECT PROPERTY SALES HISTORY
The following summarizes the most recent sales transaction and prior sales
history of the subject property:
Current Owner of Record: Brownsville Place Partners, Inc.
Most Recent Transaction Data:
Transaction Date: 06/14/89
Grantor: William A. Oldcare, Jr., et al
Consideration: $317,123 or $14,881/Acre
Deed Book/Page: 180 / 387
Land Size: 21.31 Acres
Comparison to
Concluded Value: The transaction date is beyond the three
year comparison period required. This
was a land transaction prior to the
construction of the subject
improvements, it does not compare
favorable with the land value presented
within this report at $103,000 or
$9,009/Acre for the total land value.
The eight year difference in time
between the sale and land valuation is
due to a changing market and
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 4
The Appraisal Assignment, cont'd.
--------------------------------------------------------------------------------
the larger size of the tract
transferred. The 1989 market was
somewhat stronger in local rural areas.
Current Contracts: None reported
Current Listing: Not listed for sale
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 5
DEFINITION OF TERMS
1. MARKET VALUE - 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.
Sources: 1. Comptroller of the Currency; 12 CFR Part 34
Section 34.42(f) of Federal Regulations.
2. FDIC Final Rule on Title XI of the Financial
Institutions Reform. Recovery, and Enforcement Act
of 1989 (FIRREA). effective September 19, 1990, as
defined in 12 CFR Part 323.4.a.10.
2. HIGHEST AND BEST USE - That reasonable and probable use that will support
the highest present value, as defined, as of the effective date of the
appraisal. Alternatively, that use, from among reasonably probable and
legal alternative uses, found to be physically possible, appropriately
supported, financially feasible, and which results in the highest land
value.
3. MARKET RENT - The rental income that a property would most probably
command on the open market; indicated by current rents paid and asked for
comparable space as of the date of appraisal.
4. MARKET PRICE - The amount actually paid, or to be paid for a property in a
particular transaction. This differs from market value in that it is an
accomplished or historic fact, whereas market value is and remains an
estimate until proven. Market price involves no assumption of prudent
conduct by the parties, of absence of undue stimulus or of any other
condition basic to the market value concept.
5. APPRECIATION - Increase in value due to increase in cost to reproduce,
value over the cost, or value at some specified earlier point in time,
brought about by greater demand, improved economic conditions, increasing
price levels, reversal
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 6
Definitions of Terms, cont'd.
of depreciating environmental trends, improved transportation facilities,
direction of community or area growth, or other factors.
6. DEPRECIATION - A loss of utility and hence value from any cause. An effect
caused by deterioration and/or obsolescence.
7. INVESTMENT VALUE - The value of an investment to a particular investor,
based on his or her investment requirements; as distinguished from market
value, which is impersonal and detached.
8. FUNCTIONAL OBSOLESCENCE - Impairment of functional capacity or efficiency.
Functional obsolescence reflects the loss in value brought about by such
factors as overcapacity, inadequacy, and changes in the art, that affect
the property item itself or its relation with other items comprising a
larger property. The inability of a structure to perform adequately the
function for which it is currently employed.
9. EXTERNAL OBSOLESCENCE - Impairment of desirability or useful life arising
from factors external to the property, such as economic forces or
environmental changes which affect supply-demand relationships in the
market. Loss in the use and value of a property arising from the factors
of external obsolescence is to be distinguished from loss in value from
physical deterioration and functional obsolescence, both of which are
inherent in the property. Also referred to as locational or economic
obsolescence.
10. FEE SIMPLE ESTATE - Absolute ownership unencumbered by any other interest
or estate; subject only to the limitations of eminent domain, escheat,
police power, and taxation.
11. LEASED FEE ESTATE - An ownership interest held by a landlord with the
right of use and occupancy conveyed by lease to others; usually consists
of the right to receive rent and the right to repossession at the
termination of the lease.
12. LEASEHOLD ESTATE - The right to use and occupy real estate for a stated
term and under certain conditions; conveyed by a lease.
13. PRESENT VALUE - The current monetary value. It is the today's cash lump
sum which represents the current value of the right to collect future
payments. It is the discounted value of aggregate future payments.
14. GROSS SALES PROCEEDS - The total amount of invoiced sales, before
deducting returns, allowances, etc. over the forecasted sellout period.
15. FORECASTING - Predicting a future happening or condition based on past
trends and the perceptions of market participants, tempered with
analytical judgment concerning the continuation of these trends and the
realization of these perceptions in the future.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 7
Definitions of Terms, cont'd.
16. OVERALL CAPITALIZATION RATE - An income rate for a total property that
reflects the relationship between a single year's net operating income
expectancy or an annual average of several years' income expectancies and
total price or value; used to convert net operating income into an
indication of overall property value.
17. DISCOUNT RATE - A rate of return on capital used to convert future
payments or receipts into present value.
18. INTERNAL RATE OF RETURN - The annualized rate of return on capital that is
generated or capable of being generated within an investment or portfolio
over the period of ownership; similar to the equity yield rate; often used
to measure profitability after income taxes, i.e., the after-tax equity
yield rate; the rate of discount that makes the net present value of an
investment equal to zero; discounts all returns from an investment,
including returns from its termination, to equal the original investment.
19. RETAIL VALUE - The term "retail" refers to the aggregate sum of all the
individual unit values as of the date of the appraisal. Generally applied
to residential lot sales or condominium developments.
Source of Definitions: The American Institute of Real Estate Appraisers, The
Dictionary of Real Estate Appraisal; American Institute of Real Estate
Appraisers and Society of Real Estate Appraisers, Real Estate Terminology, Ed.
Byrl N Boyce (Cambridge, MA: Ballinger Publishing Company, 1981); or standard
industry definitions.
SUPPLEMENTAL DEFINITIONS
1. MARKET VALUE "AS IS" ON APPRAISAL DATE: An estimate of the market value of
a property in the condition observed upon inspection and as it physically
and legally exists without hypothetical conditions, assumptions, or
qualifications as of the date the appraisal is prepared.
2. PROSPECTIVE VALUE UPON COMPLETION OF CONSTRUCTION: The Value presented
assumes all proposed construction, conversion, rehabilitation is
hypothetically completed, or under other specified hypothetical
conditions, as of the future date when such construction completion is
projected to occur. If anticipated market conditions indicate that
stabilized occupancy is not likely as of the date of completion, this
estimate shall reflect the market value of the property in its then
"as-is" leased state (future cash flows must reflect additional lease-up
costs, including tenant improvements and leasing commissions, for all
areas not preleased). For properties where individual units are to be sold
over a period of time, this value should represent that point in time when
all construction and development costs have been expended for that phase,
or those phases, under valuation.
3. PROSPECTIVE VALUE UPON ACHIEVING STABILIZED OCCUPANCY: The value presented
assumes the property has attained the optimum level of long-term
occupancy, which an income-producing real estate project is expected to
achieve under
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 8
Definitions of Terms, cont'd.
competent management after exposure for leasing in the open market for a
reasonable period of time at terms and conditions comparable to
competitive offerings. The date of stabilization must be estimated and
stated within the report.
4. PROPOSED TRACT DEVELOPMENT: Means a project of five units or more that is
constructed, or is to be constructed, as a single development. A tract
development may be units in a subdivision, condominium project, timeshare
project, or any similar project meant to be sold as individual units over
a period of time.
5. FAIR VALUE - The cash price that might reasonably be anticipated in a
current sale under all conditions requisite to a fair sale. A "fair sale"
means that buyer and seller are each acting prudently, knowledgeably, and
under no necessity to buy or sell. "Current sale" means that the property
is exposed to the open market for a reasonable time considering the
property type and local market conditions. When a current sale is
unlikely, i.e., when it is unlikely that the sale can be completed within
12 months, the appraiser should discount to present value any and all cash
flows which might be generated by the property to obtain the estimate of
fair value. These cash flows include, but are not limited to, those
arising from ownership, development, operation, and sale of the property.
The discount applied should reflect the appraiser's judgement of what a
prudent, knowledgeable purchaser under no necessity to buy would be
willing to pay to purchase the property in a current sale. Whenever the
appraiser believes that more than one year is necessary for a fair sale of
the property, the appraiser shall state and justify the estimated holding
period, cash flows and the discount rate applied.
(C)1997 Huber & Lamb Appraisal, Inc. Page 9
ASSUMPTIONS AND LIMITING CONDITIONS
Standard Rule 2-2g of the Code of Professional Ethics and Standards of
Professional Conduct of the Appraisal Institute requires the appraiser to
clearly and accurately set forth all facts, assumptions and conditions that
affect the analysis, opinions and conclusions upon which the appraisal is based.
In compliance therewith, and to assist the reader in interpreting this report,
such assumptions and limiting conditions are set forth as follows:
1. Title is assumed to be marketable and free and clear of all liens and
encumbrances, easements, and restrictions except those specifically
discussed in the report. The property is appraised assuming it to be under
responsible ownership and competent management and available for its
highest and best use.
2. No opinion is intended to be expressed for legal matters or that would
require specialized investigation or knowledge beyond that ordinarily
employed by real estate appraisers, notwithstanding the fact that such
matters may be discussed in the report.
3. The date of value to which the opinions expressed in this report apply is
set forth in the letter of transmittal. The appraiser assumes no
responsibility for economic or physical factors occurring at some later
date which may affect the opinion herein stated.
4. The valuation is reported in dollars of currency prevailing on the date of
appraisal.
5. Maps, plats, and exhibits included herein are for illustration only as an
aid in visualizing matters discussed within the report. They should not be
considered as surveys or relied upon for any other purpose.
6. All information and comments pertaining to this and other properties
included in the report represent the personal opinion of the appraiser,
formed after examination and study of the subject and other properties.
While it is believed the information, estimates and analyses are correct,
the appraiser does not guarantee them and assumes no liability for errors
in fact, analysis or judgement.
7. Neither all nor any part of the contents of this report (especially any
conclusions as to value, the identity of the appraiser or the firm with
which he is connected, or any reference to the Appraisal Institute or the
MAI or RM designation) shall be disseminated to the public through
advertising media, public relations media, news media, sales media or any
other public means of communication without prior written consent and
approval of the undersigned.
8. The appraiser is not required to give testimony or to appear in court by
reason of this appraisal, unless prior arrangements have been made.
9. The distribution of the total valuation in this report between land and
improvements applies only under the existing program of utilization. The
separate valuations for land and buildings must not be used in conjunction
with any other appraisal and are invalid if so used.
10. Certain information concerning market and operating data was obtained from
others. This information is verified and checked, where possible, and is
used in this appraisal only if it is believed to be accurate and correct.
However, such information is not guaranteed.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 10
Assumptions and Limiting Conditions, cont'd.
11. Real Estate Values are influenced by a large number of external factors.
The data contained herein is all of the data we consider necessary to
support the value estimate. We have not knowingly withheld any pertinent
facts, but we do not guarantee that we have knowledge of all factors which
might influence the value of the subject. Due to rapid changes in the
external factors, the value estimate is considered reliable only as of the
date of the appraisal.
12. Opinions of value contained herein are estimates. There is no guarantee,
written or implied, that the subject property will sell for such amounts.
13. It is assumed that there are no hidden or unapparent conditions of the
property, subsoil, or structures which would render it more or less
valuable. No responsibility is assumed for such conditions or for
engineering which may be required to discover such factors.
14. If the subject of the appraisal is an improved property, the appraiser has
personally inspected the property and finds no obvious evidence of
structural deficiencies except as stated in this report; however, no
responsibility for hidden defects or conformity to specific governmental
requirements, such as fire, building and safety, earthquake, or occupancy
codes can be assumed without provision of specific professional or
governmental inspections.
15. Unless otherwise stated in this report, the existence of hazardous
material, which may or may not be present on the property, was not
observed by the appraiser. The appraiser has no knowledge of the existence
of such materials on or in the property. The appraiser, however, is not
qualified to detect such substances. The presence of substances such as
asbestos, urea-formaldehyde foam insulation, or other potentially
hazardous materials may affect the value of the property. The value
estimate is predicated on the assumption that there is no such material on
or in the property that would cause a loss in value. No responsibility is
assumed for any such conditions, or for any expertise or engineering
knowledge required to discover them. The client is urged to retain an
expert in this field, if desired.
16. We have not made a specific compliance survey and analysis of this
property to determine whether or not it is in conformity with the various
detailed requirements of the Americans with Disabilities Act (aka, ADA).
It is possible that a compliance survey of the property together with a
detailed analysis of the requirements of the ADA could reveal that the
property is not in compliance with one or more of the requirements of the
Act. If so, this fact could have a negative effect upon the value of the
property. Since we have no direct evidence relating to this issue, we did
not consider possible non-compliance with the requirements of ADA in
estimating the value of the property.
17. The value estimate assuming a portfolio sale specifically assumes the
property is sold as part of the 17 property portfolio described within the
attached report. As is the case with any value estimate, the portfolio
sale value estimate is based on a sale within a typical marketing period
of 12 months or less. Any fluctuations in market conditions can possibly
have more significant effects on portfolio value than individual property
sales.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 11
BROWNSVILLE\HAYWOOD COUNTY ANALYSIS
LOCATION AND GENERAL INFORMATION
Brownsville, the county seat of Haywood County, is located in the
southwest portion of the State and is 55 miles northeast of Memphis, 166 miles
west of Nashville and 500 miles south of Chicago. U.S. Highways 70 and 79 and
State roads 76 and 19 intersect within the city or adjacent to Interstate 40
immediately south.
Brownsville has a pleasant blend of agriculture and industry with twelve
manufacturing firms located in the city. Much of the land in Haywood County is
suitable for growing cotton in an abundant supply.
Brownsville, named for General Jacob Jennings Brown, was incorporated in
1826 by an Act of the Tennessee Assembly. In 1825, the first school was
established and public roads were cut to neighboring county seats. In 1882, the
Brownsville and Jackson Railroad was chartered to serve Haywood County. The
County operates under a County Executive-Commissioner form of government. The
County Executive-Commissioner is the chief administrative officer and presides
over the quarterly meetings of the County Commissioners.
Haywood County has an estimated 10,160 persons in the labor force, of
which 8,990 are employed. This reflects an 11.5 percent unemployment rate. The
estimated total population within a 25-mile area is 135,000 persons.
A report by the County School Superintendent shows that 265 high school
graduates enter the Haywood County the labor force annually.
Within a 25-mile radius of Brownsville, which is normal commuting distance
in West Tennessee, there are portions of six other counties. While the majority
of Haywood Countians live outside the city limits of Brownsville, many of these
people are industrial employees in Brownsville and other nearby towns. An
excellent network of Federal, State and County highways provide mobility of
Haywood and surrounding counties.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 12
Brownsville\Haywood County Analysis, cont'd.
The past decade has reflected a change from agrarian to industrial
employment for many of the local residents. This same trend has been reflected
in the decrease in county population during a period of increase in the city
population.
ECONOMIC CHARACTERISTICS
A diversified economy exists in Brownsville and Haywood County. Personal
income is not dominated by any one source. Industrial payrolls total
approximately $39,157,740 in Haywood County. Income from agriculture is more
than $40-million. The median home value is $41,200 and the typical median rent
is $267. The median household income is $18,018.
Per capita income in Haywood County has increased from $3,806 in 1977 to
$14,859 in 1993. Retail sales for the county were approximately $47-million in
1977 and were reported at $114,216,000 in 1993.
EXISTING INDUSTRIES IN BROWNSVILLE
Brownsville Sawmill Lasco Products/Phillips Industries
------------------- ----------------------------------
Product: Lumber, railroad ties Product: Plastic pipe fittings
Employment: 35 Employment: 350
Dixie Printing Company MTD Products/Cub Cadet
---------------------- ----------------------
Product: Custom printing Product: Riding lawn mowers
Employment: 8 Employment: 501
Haywood Company James H. Moore and Son
--------------- ----------------------
Product: Garden Hose, PVC Product: Ladies' & children's
compound,plasticizer, sportswear
tread rubber Employment: 98
Employment: 540
Haywood Element Pro-Line
--------------- --------
Product: Heating Elements Product: Plastic converter
Employment: 74 Employment: 24
Ross Manufacturing Company
--------------------------
Product: Bucket elevators, feed mill, and grain handling equipment
Employment: 24
Simmco
------
Product: Propane vessels
Employment: 60
Stackpole Limited, U.S.A.
-------------------------
Product: Powder metal bearings
Employment: 120
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 13
Electric power is distributed in Brownsville by the City of Brownsville
Utility Department, which has a contract with the Tennessee Valley Authority.
TVA is a wholesale supplier of electric power to the City of Brownsville Utility
Department. TVA has been a leader in implementing innovative pricing
arrangements which have lowered the price to eligible customers. These
innovative pricing arrangements decrease rates for commercial and industrial
customers. TVA's economic development field offices provide direct and
customized economic development services with a goal of helping to create
high-value jobs and increasing the production of goods and services. All of the
West Tennessee Industrial Association's service area is served from
locally-owned systems of distributors which purchase power at wholesale from
TVA.
Natural Gas
Natural gas is distributed by the Brownsville Utility Department and
purchased from Texas Gas Transmission Corporation. The supply is furnished to
the city through a six-inch high pressure transmission line. Two main
transmission lines are maintained by Texas Gas Transmission Corporation.
Fuel
Coal may be obtained directly from nearby West Kentucky or Southern
Illinois fields either by rail or truck delivery.
Water
Water is supplied by the Brownsville Utility Department. The system has
two 180-feet deep eight-inch wells and three 260-feet twelve-inch wells. The
average temperature of the water is sixty degrees. The pumping capacity of the
system is 4-million gallons per day and daily consumption is 2.7-million
gallons. Two additional wells have been added and an additional water plant is
being built that will provide another 3-million gallons per day.
COMMUNICATIONS
Postal Facilities
Brownsville is served by a first-class post office with 25 employees.
There are three incoming and two outgoing mails daily by truck.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 14
Brownsville\Haywood County Analysis, cont'd.
Telephone and Telegraph
Telephone service is provided by BellSouth with over 7,089 access lines
currently being served. Western Union provides telegraph service for
Brownsville.
Radio
Brownsville has two local radio stations, WBHT-AM and WTBG-FM. There is
also excellent AM and FM reception from most Memphis and Jackson stations.
Television
Brownsville has no local television station, but is adequately served by
WBBJ-TV in Jackson, WHBQ-TV, WMC-TV and WREG-TV in Memphis. Education station
WKNO is also received from Memphis. Cable-TV service is available and offers 24
channels plus four movie channels and the Disney Channel.
Newspapers
The Brownsville States-Graphic and West Tennessee Chronicle, weekly
newspapers, are published in Brownsville. The Commercial Appeal (Memphis),
Nashville Tennessean, and The Jackson Sun are daily newspapers delivered in
Brownsville.
TRANSPORTATION
Railroads
Brownsville is served by the CSX Transportation Railroad. This line
provides daily service with connections to the Norfolk Southern Railroad at
Humboldt, 25 miles to the northeast. In addition, direct service is available to
numerous other trunk line railroads.
Highways
Brownsville is located at the junction of U.S. Highway 70 and 70A, running
eastwest, U.S. Highway 79, running north and south, State Highway 19, running
northwest and Highway 54 running north. U.S. Interstate Highway 40 is four miles
south of Brownsville. Three interchanges with federal and state highways provide
access into Brownsville.
Air Service
The nearest commercial service is in Jackson (22 miles east) at
McKellar-Sipes Regional Airport through Northwest Airlink. Memphis International
Airport is approximately one hour's drive from Brownsville via Interstate 40.
Memphis offers eight major airlines, six commuter airlines, and 42 air freight
companies. Federal Express is based in Memphis.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 15
Brownsville\Haywood County Analysis, cont'd.
LIVING CONDITIONS
Climate
Memphis data has been used here and any variation will be minor. The
prevailing climate is temperate, with pronounced seasonal variations in both
temperature and precipitation. Snowfall is variable from year to year. Most
winters have little or none, while other winters can have a seasonal snowfall of
up to 17 inches.
Housing
Home prices (new) range from $30,000 to $200,000, depending upon location
and type of building. Older homes can be purchased for a lower price. Average
residential construction cost will range from $40.00 to $50.00 per square foot.
Average rental for a garden-type two bedroom apartment is $350.00. The
average house in Brownsville would rent for $400.00 to $450.00 per month.
Education
Public education in Brownsville is provided by the Haywood County Board of
Education which operates six schools in Brownsville including a vocational
school. There are approximately 4,100 students and 258 teachers in the entire
system.
Higher education is available at the many colleges, universities, business
and vocational schools of nearby Jackson and Memphis. The Tennessee Technology
Center at Jackson turns out many students who are trained for skilled industrial
employment.
Medical Facilities
As the primary resource for health care in Brownsville, Methodist Haywood
Park Hospital plays a vital role in the community. The 62-bed, acute care
hospital offers numerous services including: inpatient, emergency, outpatient,
obstetrics, laboratory, therapeutic swingbed as well as intermediate and skilled
care. Diagnostic services such as mammography, CT Scan, fluoroscopy and
ultrasound are also at Methodist Hospital.
FINANCIAL INSTITUTIONS
Brownsville has three strong banks. They reported the following condition
as of the date of their last statement:
Brownsville Bank
----------------
Deposits .................... $184,295,000
Total Assets ................ $212,044,000
First State Bank
----------------
Deposits .................... $ 80,000,000
Total Assets ................ $ 92,959,000
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 16
Brownsville\Haywood County Analysis, cont'd.
Tennessee Community Bank
Deposits .................... $ 5,883,000
Financing of industrial projects in West Tennessee communities is an
important factor in attracting new firms to the area and encouraging existing
firms to expand. Local communities and the West Tennessee Industrial Association
can suggest a plan suitable for most projects.
CONCLUSION
Brownsville is a small town located in a generally rural setting. Long
term data indicates the immediate economy is in transition from agricultural
influences to increasing influences of industrial growth. Long term growth for
the area is anticipated to be moderate and consistent with non-metropolitan
areas of the region; however, high unemployment rates relative to the State of
Tennessee and national averages is anticipated to continue. The effects on
commercial real estate is anticipated to be stable to moderate appreciation in
the long term.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 17
CITY/COUNTY MAP
[GRAPHICS OMITTED]
(C)1997 Hubber & Lamb Appraisal Group, Inc. Page 18
JACKSON COUNTY ANALYSIS
PHYSICAL CHARACTERISTICS
Jackson County is situated in the southeast section of Mississippi, on the
Gulf of Mexico. The County contains a total of 744 square miles of area, of
which 56 square miles are incorporated areas of: Pascagoula, Moss Point, Ocean
Springs and Gautier. Therefore, only eight (8) percent of the total area is
incorporated. It is important to note, however, that there are several
communities in Jackson County that are not incorporated, but account for a
considerable amount of population. Gautier became an incorporated city in the
mid-1980's, and the City of Moss Point annexed portions of Escatawpa in the
early 1990's.
The four incorporated areas mentioned above (Pascagoula, Moss Point, Ocean
Springs and Gautier) are all located in the southern portion of the County,
along the Gulf of Mexico and Pascagoula Rivers. Pascagoula is situated along the
Gulf of Mexico and Pascagoula Rivers. Pascagoula is situated along the Gulf of
Mexico and the east bank of the East Pascagoula River. Moss Point is located
north of Pascagoula, on the Escatawpa River. Gautier is located on the Gulf of
Mexico and the west bank of the West Pascagoula River and Ocean Springs is
located on the Gulf of Mexico and the Biloxi Bay, in the western section of the
County.
COMMUNITY INFLUENCES
Pascagoula and Moss Point are industrial employment centers for the area,
while Gautier and Ocean Springs are bedroom communities. Gautier has developed
over the last 20 years due to the industrial expansion in Pascagoula and the
scarcity of residential land in Pascagoula. It is now the location of a regional
mall and three community shopping centers, and thus, it became the shopping
center for the area. However, Wal-Mart and K-Mart have built new shopping
centers in Pascagoula and Ocean Springs, and several of the neighborhood
shopping center spaces around the Singing River Mall are now vacant. In fact,
one of the shopping centers, located directly across from the mall, sold at
auction several years ago.
Ocean Springs has consistently been a favorite bedroom community in the
area. It was a resort community until the early part of this century and it is
now the fastest growing residential area of the County. It not only serves as a
bedroom community for Pascagoula/Moss Point, but Biloxi/Gulfport as well. It is
also a popular retirement community. It is interesting to note that from 1986 to
1991, Ocean Springs increased in total water meters by 10.8%, while Pascagoula
increased by less than 2%, and Moss Point did not grow at all. Since 1991,
however, Ocean Springs has embarked on an unprecedented growth cycle that is
partially due to the Navy Homeport, but mainly to legalized gaming in
Biloxi-Gulfport.
POPULATION
The County's total population, in the 1995 estimate, was approximately
126,800 people. Of that estimate, Pascagoula contained 27,400, Moss Point -
18,100, Ocean Springs - 16,200 (does not include recently annexed area to the
east) and Gautier - 11,000. The Pascagoula median household income is
approximately $24,410. The
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 19
Jackson Analysis, cont'd
Pascagoula per capita income is approximately $11,560. The average age in
Pascagoula is 34 years.
The unincorporated areas of Jackson County contain an estimated total of
54,100 people, according to the Census. This large number, outside the city
limits, is primarily due to the fact that the municipalities are limited in
growth potential by natural boundaries such as swamps, the Gulf, rivers, and
undesirable lowlands.
Pascagoula's existing tax base is not growing at a fast enough rate to
keep up with escalating operating costs. In addition, a large regional shopping
center, the Singing River Mall, was built in Gautier. This mall spawned growth
of surrounding neighborhood shopping centers, and it made Gautier the shopping
center of Jackson County. Consequently, much of the sales tax revenue has been
lost from the other communities. This could be a potential problem for those
communities since it could cause taxes to increase. However, within the last few
years, Wal-Mart and K-Mart have built new shopping centers in Pascagoula and
Ocean Springs, and a significant amount of the shopping center space around the
Mall in Gautier is vacant or rented for low rates. The taxes in Pascagoula have
increased by an average of only about 2.4% per year, over the last five years.
However, there is not enough land available for sustained growth like that found
in Ocean Springs.
ECONOMICS
Jackson County ranks in the top ten of the 82 counties in Mississippi for
per capita personal income, which was estimated to be $12,800 in 1995. It is the
home of Mississippi's largest seaport, and it is the most industrialized county
in the state.
Litton Industries' Ingalls Shipbuilding Division is one of the largest
shipyards in the United States, and it has been a very successful defense
contractor with the Navy for the past thirty (30) years. However, the shipyard
employed over 24,000 people in 1977, and the employment was reduced to about
11,000 in the early 1980's. This had a very negative impact on the local economy
for several years, but the current employment has been stable for the last few
years. However, the shipyard was not successful in a bid for a major Navy
contract, and the workforce was reduced in late 1996 to about 9,000 employees.
Recently, they have begun to rehire, due to new work in the offshore oil
exploration and production industry. However, these "ups and downs" in the
shipyards work force are typical characteristics of Ingall's since the
employment requirements fluctuate during the building stages.
The reader must be advised that the shipyard is dependent upon the U.S.
Navy for the majority of their work. They apparently cannot compete with foreign
shipyards for commercial shipbuilding, since costs are considerably less in some
other shipbuilding countries. This point is made to illustrate how important the
U.S. Navy budget is to the local economy. Therefore, the Navy budget is always
of great concern to local business and political leaders. It is clear that the
"600 ship Navy" goal of the 1980's is not the goal of the 1990's, and several
shipbuilding programs, including those at Ingalls, are under scrutiny.
The bright spot in the local economy has been the resurgence of activity
in the offshore oil industry. The oil industry suffered a drastic downturn in
the early
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 20
Jackson Analysis, cont'd
1980's, and offshore rigs and supply boats were no longer in demand.
Consequently, much of that hardware was sold at reduced prices and converted
to other uses. There has been very little construction of that type of
equipment (rigs and supply boats) since then, and new production in the Gulf
is requiring new construction now. Consequently, Halter Marine and HAM
Industries, two local companies, have hundreds of new jobs to fill.
In addition to the shipyards, one of the largest oil refineries in the
United States is located in Pascagoula, in the Stennis Industrial Park. This is
the Chevron Refinery that has always been, and is expected to remain, "stable."
When Ingalls Shipyard expanded in the early 1970's, the entire area
enjoyed a "boom town" growth. Building permits in Jackson County were almost
1,100 in 1972, and 1,500 in 1973. As a comparison, building permits in the last
three years have averaged between 550 and 650 per year.
It is also important to note that Pascagoula has a Homeport for Naval
vessels that officially opened in July of 1992. The County also has a "high
tech" industrial park at the intersection of Interstate 10 and Highway 57, near
the geographic center of the County. This development is known as Sunplex, and
it is designed to attract lighter, high technology industries to diversify the
industrial base. It has had limited success in attracting new "outside"
industry.
In summary, Jackson County has much potential as an industrial area, but
is still dependent on the Navy. It will take years to diversify to a point that
it will not "live and die" with the shipyard. However, the new construction
demand from the offshore oil industry will stabilize the area for several years.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 21
CITY/COUNTY MAP
[GRAPHICS OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 22
SHOPPING CENTER MARKET ANALYSIS
INTRODUCTION
Trends in the shopping center market are examined in this section of the
appraisal report in an effort to assess current, as well as future, influences
on property value. The data most commonly utilized in the analysis of shopping
center feasibility includes the supply of shopping center space and ongoing, or
planned new construction. Additionally, absorption rates, occupancy levels and
the direction of rental rates and expenses are viewed as critical in determining
the marketability and ultimate feasibility of a project.
INFORMATION SOURCE
HUBER & LAMB: A survey of comparable properties in
the subject's submarket was also
conducted by Huber & Lamb Appraisal
Group, Inc. This data is useful in
delineating and identifying trends
in the immediate market area of the
subject as indicated by the subject
and most competitive properties.
SUBMARKET OCCUPANCY ANALYSIS
BROWNSVILLE/HAYWOOD COUNTY SUBMARKETS
TYPE OF SHOPPING CENTER: The shopping center market can be
delineated into three general
categories based on physical size
and tenancy. The following
summarizes these classifications.
Neighborhood: Usually under 100,000 SF, 1 or 2
anchors, usually anchored by
grocery. Typically draws shoppers
from within a three mile radius.
Community: 100,000 - 300,000 SF built around
discount department store, variety
store or junior department store and
usually including supermarket. Draws
shoppers from at least a seven mile
radius.
Regional: Usually over 300,000 SF with at
least one major department store.
Typically enclosed mall type
shopping centers drawing shoppers
from a greater than 10-mile radius.
SUBJECT MOST COMPETITIVE MARKET OCCUPANCY ANALYSIS
DESCRIPTION: Huber & Lamb has completed a survey
of the most competitive properties
with the subject located within the
submarket. These properties are
considered most direct competition
of the subject and are utilized as
the comparable rents in the
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 23
SHOPPING CENTER MARKET ANALYSIS, CONT'D.
income capitalization approach. This
analysis provides insight on the
micro market level of the subject as
compared to the previous general
market analysis.
MOST COMPETITIVE MARKET
OCCUPANCY SUMMARY
=============================================================================================================
Square
Comparable Apartment Rent No. Feet Year Built Occupancy
-------------------------------------------------------------------------------------------------------------
Brownsville Place Shopping Center Subject 76,762 1989 98%
-------------------------------------------------------------------------------------------------------------
Bradford Square Shopping Center, Brownsville, TN 1 1972, 1977, 1983
81,651 & 1987 100%
-------------------------------------------------------------------------------------------------------------
Subway Shopping Center, Brownsville, TN 2 6,000 1990 100%
-------------------------------------------------------------------------------------------------------------
Humboldt Center, Humboldt, TN 3 125,000 1972 98%
-------------------------------------------------------------------------------------------------------------
Humboldt Eye Care/Cato Shopping Center, 4
Humboldt, TN 14,000 1996 100%
=============================================================================================================
Totals/ Weighted Avgs. 303,413 99%
=============================================================================================================
TOTAL SF OCCUPIED: 299,713 SF
TOTAL SF VACANT: 3,700 SF
ANALYSIS: The most competitive shopping center
properties, including the subject
have an occupancy rate at 98% or
higher. The most competitive
market's occupancy is obviously
reflective of the good health of the
submarket. The subject property was
constructed in 1989. It should be
noted that the Brownsville shopping
center properties have 100%
occupancies excluding the subject.
However, the population within the
county has not increased over the
past 40 years, which leads the
appraisers to believe that growth is
not a factor in this county or city.
INVESTMENT DESIRABILITY: The retail real estate investor
market is becoming cautious. Retail
sales nationally and locally were
weaker than expected in 1995,
particularly for the Christmas
season. In addition, the market is
changing significantly with the
on-slaught of superstores and the
significant growth in catalogue
retail sales. Thus, tenant type and
center design is constantly changing
as well as consumers' buying habits.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 24
SHOPPING CENTER MARKET ANALYSIS, CONT'D.
It is inevitable that a certain
percentage of these superstores will
fall out due to increased
competition. Thus, while power
centers were the investors choice
only one to two years ago, they have
fallen out of favor over the past
several months. Investors are
considering neighborhood and
community centers to be a better
investment. People will always have
to buy groceries, get their hair
cut, buy pizza and purchase
consumable items and services from
local neighborhood and community
stores. This is considered a
positive for the subject.
Smaller, non-anchored strip centers
will attract local investors. This
market has had limited sales
activity over the past two to three
years. Most of the activity from a
few years ago was during the end of
a cycle where lending institutions
had taken control or foreclosed on
properties and sold the strip
centers to local investors. These
investors have held the properties
as the market has improved. Only
recently has there been significant
evidence of smaller retail strip
centers beginning to sell again.
CONCLUSIONS
The overall City of Brownsville & Haywood County shopping center market
has relatively static over the years since the subject property was constructed.
No significant new construction has occurred. Occupancies have remained high for
the last few years. In neighboring Humboldt, a very similar rural community the
situations is approximately the same. Most rural Tennessee communities of this
size have remained stable over the past few years, unless an outside source
changes the area.
In the final analysis, the economy is maintaining strength with increased
retail sales. Neighborhood shopping centers are gaining strength, particularly
well anchored centers in good locations. Speculative new development is
currently limited in this market. This should result in continued high
occupancies and moderate rent appreciation over the foreseeable future, or at
least two years.
SUBJECT PROPERTY CONCLUSIONS
The subject property can be classified as an anchored neighborhood center.
The subject's retail submarket is relatively strong with high occupancies in the
newer or renovated centers as well as occupancies in the older centers. The
tenant mix for the subject is appropriate for the local market it serves. Thus,
the subject property is considered an average quality investment property with
the most probable buyer being a regional buyer.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 25
NEIGHBORHOOD ANALYSIS
NEIGHBORHOOD DEFINED
A neighborhood, as defined by the 9th edition of The Appraisal of Real
Estate is "a grouping of complementary land uses" effected by similar operation
of the four forces that affect property value. These forces include social,
economic, governmental and environmental factors. A neighborhood is further
defined by the revised edition of Real Estate Appraisal Terminology as being a
portion of a larger community, or an entire community, in which there is a
homogeneous grouping of inhabitants, buildings or business enterprises.
Neighborhood boundaries may consist of well-defined natural or manmade barriers
or they may be more or less defined by a distinct change in land use or in the
character of the inhabitants. The overriding purpose of describing and analyzing
a particular neighborhood is to observe and/or quantify data indicating
discernible patterns or urban growth, structure and change that may enhance or
detract from property values.
NEIGHBORHOOD BOUNDARIES
North: Brownsville northern city limits/Iola Avenue
East: Brownsville eastern city limits/Morgan Street
South: Brownsville southern city limits
West: Brownsville city limits/Hillcrest Drive
COMMENTS: The boundaries for the subject neighborhood were chosen because
they contain homogeneous and dependent land uses delineated by distinct man-made
boundaries. The neighborhood boundaries cover an area of approximately 0 miles.
These boundaries constitute the neighborhoods.
GENERAL NEIGHBORHOOD DATA
DISTANCE FROM CBD: 60 miles southwest (Memphis)
DISTANCE FROM AIRPORT: 60 miles southwest (Memphis)
PERCENT BUILT-UP: 65%
GENERAL LAND USES:
Single Family: 60%; $20,000 to $70,000
Apartment: 15%
Retail, Office: 10% retail and 5% office
Industrial, heavy commercial: 10%
TYPES OF COMMERCIAL TENANCIES:
Predominant: Multi-tenant
Secondary: Limited free standing owner occupant
PREDOMINANT PROPERTY AGE RANGE: 1960's - 1990's
NEIGHBORHOOD LIFE CYCLE STAGE: Stable
PUBLIC TRANSPORTATION: None
COMMENTS: The subject neighborhood is a typical rural community with a few
local industries. Residents commute to Memphis, Jackson and other rural
locations for employment. Since the neighborhood is generally Brownsville, it
contains a very wide range of development types and ages. The community has only
two grocery stores and it is the county seat for Haywood County.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 26
NEIGHBORHOOD ANALYSIS, CONT'D.
--------------------------------------------------------------------------------
MAJOR TRAFFIC ARTERIES/ACCESS
================================================================================
STREET NAME TYPE DIRECTION NO. OF LANES
--------------------------------------------------------------------------------
US-70 & 70A PRIMARY NEIGHBORHOOD ARTERY EAST-WEST 4 LANE + TURN LANE
--------------------------------------------------------------------------------
US-79 PRIMARY NEIGHBORHOOD ARTERY NORTH-SOUTH 4 LANE + TURN LANE
--------------------------------------------------------------------------------
SR-76/BY-PASS NEIGHBORHOOD ARTERY NORTH-SOUTH 4 LANE + TURN LANE
--------------------------------------------------------------------------------
SR-54 NEIGHBORHOOD ARTERY NORTH-SOUTH 2 LANE
--------------------------------------------------------------------------------
SR-19 NEIGHBORHOOD ARTERY EAST-WEST 2 LANE
================================================================================
ACCESSIBILITY: The major traffic arteries provide average ingress and
egress for the neighborhood. Main Street/US-70 is the primary retial/commercial
corridor for Brownsville. The traffic arteries in the previous chart provided
adequate accessibility throughout the neighborhood. IH-40 has three interchanges
that provide accessibility to Brownsville.
NEIGHBORHOOD UTILITIES & INFRASTRUCTURE
ITEM ADEQUACY PROVIDER COST
--------------------------------------------------------------------------------
SEWER ADEQUATE PUBLIC TYPICAL
--------------------------------------------------------------------------------
WATER ADEQUATE PUBLIC TYPICAL
--------------------------------------------------------------------------------
GAS ADEQUATE PUBLIC TYPICAL
--------------------------------------------------------------------------------
POWER ADEQUATE PUBLIC TYPICAL
--------------------------------------------------------------------------------
TELEPHONE ADEQUATE SOUTH BELL TYPICAL
--------------------------------------------------------------------------------
INTERIOR ROADS ADEQUATE PUBLIC N/A
================================================================================
COMMENTS: The neighborhood utilities and infrastructure are considered
typical for the area and no negative influences are noted.
TRENDS
GENERAL NEIGHBORHOOD HISTORY: The subject neighborhood is a developed
rural community with a stable history. Commercial development along Main
Street/US-70 as it currently exists began in the late 1960's into the 1970's
with retail strip centers and free standing commercial buildings. The local
city/county population has shifted over the past few years, but overall has
stayed relatively the same since the 1950's.
NEW DEVELOPMENT: In general, the subject neighborhood is a retail and
commercial district with occasional redevelopment. The likelihood of new major
retail/commercial development in the Brownsville area is slight, since the local
population has remained relatively the same over the past few years. The last
major development was of the subject property.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 27
NEIGHBORHOOD ANALYSIS, CONT'D.
CONCLUSIONS
In general, the subject neighborhood is a retail and commercial district
with occasional development. The likelihood of new major retail/commercial
development in the Brownsville area is slight, since the local population has
remained relatively the same over the past few years. The last major development
was of the subject property.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 28
NEIGHBORHOOD MAP
[GRAPHICS OMITTED]
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 29
SITE ANALYSIS
================================================================================
LOCATION: 110-128 Dupree Avenue/SR-76 By-pass;
Southeast corner of Dupree
Avenue/SR-76 Bypass and East Main
Street/US-70
SIZE:
ACRES: 11.433
SQUARE FEET (SF): 498,017 SF
SOURCE: Proposed metes & bounds description
COMMENTS: The above size is based on a proposed
metes & bounds description based on the
site plans and legal description
provided by the developer/owners. The
appraisers were instructed not to value
the EXCESS VACANT SOUTHERN PORTION OF
LAND. However, the appraisers were not
provided a metes and bounds description.
Therefore, the appraisers have estimated
a size utilizing a software program
designed for surveys. The company is
Apex Software in Austin, Texas. The
proposed survey and site description is
included within this section of the
report with two drainage basis along
Dupree Avenue.
SHAPE: Semi-rectangular; Improvements are
situated parallel to Dupree
Avenue/SR-76 By-pass providing excellent
visibility for the retail tenants.
FRONTAGE:
DUPREE AVE./SR-76 BYPASS: 329.51'
EAST MAIN STREET/US-70: 276'
STREET IMPROVEMENTS:
DUPREE AVENUE/SR-76 BYPASS:
Street Type: Primary neighborhood artery
Traffic Direction: North - south
Quality; Condition: Asphalt bar-ditches; average
Number of Lanes: Four; with one turn lane, bi-directional
Driveway Cuts: One on Dupree Avenue/SR-76 Bypass
General Traffic Patterns: Moderate
EAST MAIN STREET/US-70:
Street Type: Primary neighborhood artery
Traffic Direction: East - west
Quality; Condition: Asphalt bar-ditches; average
Number of Lanes: Four; with one turn lane, bi-directional
Driveway Cuts: Two on East Main Street/US-70
General Traffic Patterns: Moderate
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 30
SITE ANALYSIS, CONT'D.
--------------------------------------------------------------------------------
VISIBILITY: Good, for stores fronting Dupree
Avenue/SR-76 Bypass.
INGRESS/EGRESS: Good. One curb cut on Dupree
Avenue/SR-76 Bypass and two side
entrance to the northside. No limiting
factors noted.
TOPOGRAPHY: Level. Frontage slightly above street
grade level.
SUBSOIL CONDITIONS & DRAINAGE: The appraisers are not aware of an
engineering study made to determine the
subsoil conditions. Upon inspection of
the subject and surrounding
improvements, conditions appear adequate
to support the subject structure.
Drainage appears to be adequate.
FLOOD PLAIN: No
FEMA MAP #: 470087 0015 C
EFFECTIVE DATE: 03/04/88
NUISANCES & HAZARDS:
ENVIRONMENTAL: Based on our site inspection, the
appraisers did not observe any hazardous
materials on the subject site. In August
of 1990 a Phase I Environmental Site
Assessment was conducted by United
States Testing Company, Inc. of Memphis,
Tennessee. They have determined that no
environmental problems exist on the
subject property. However, the
appraisers are not qualified to detect
such substances and would recommend an
environmental audit be performed by an
expert in this field to determine the
possible existence of any potentially
hazardous substances. No responsibility
is assumed by the appraisers for any
such conditions and the value estimate
contained in this report is predicated
on the assumption that there are no such
hazardous materials existing on the
site.
GENERAL: No other nuisances or potential hazards
were noted.
EASEMENTS: Neither the survey nor the on-site
inspection of the property indicated any
unusual or detrimental easements other
than typical utility easements.
UTILITIES & SERVICES: All typical public utilities including
sewer, water, gas, electric and
telephone are available and in use at
the site. Capacity is considered
adequate for any potential feasible
development of the site.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 31
SITE ANALYSIS, CONT'D.
SURROUNDING LAND USES: The subject tract is surrounded on the east
and south by vacant farm land. The vacant
land to the south is owned by the subject
property's developer for future expansion of
the center, but is not a part of this
appraisal report. A separately owned, Exxon
Station, outlot is located in the northwest
corner of the subject property and has
frontage along Dupree Avenue/SR-76 Bypass
and East Main Street/US-70. To the north of
the subject property across East Main
Street/US-70 are some vacant residential
tracts. Directly across Dupree Avenue/SR-76
Bypass to the west from the subject site is
a commercial property.
CONCLUSION: The subject site is compatible with surrounding parcels both
in physical features and use. Additionally, it is functionally adequate for the
existing improvements and development of any potential feasible development
consistent with surrounding land uses. There is no evidence of any negative site
factors that would hamper the existing use, value, or marketability of the
subject site.
The reader is directed to the site analysis exhibits provided on the
following pages.
(C)1997 Hubber & Lamb Appraisal Group, Inc. Page 32
AS-BUILT SURVEY
[GRAPHICS OMITTED]
(C) 1997 Hubber & Lamb Appraisal Group, Inc. Page 33
PROPOSED SURVEY
[GRAPHICS OMITTED]
(C) 1997 Hubber & Lamb Appraisal Group, Inc. Page 34
SITE DESCRIPTION
Beginning at a point of the Lot described by Metes and Bounds as follows:
TRACT 1:
THENCE North 01 degrees;54'00" East, a distance of 450 ft.;
THENCE North 08 degrees;50'00" West, a distance of 150.37 ft.;
THENCE North 06 degrees;38'59" East, a distance of 179.14 ft.;
THENCE North 76 degrees;46'39" East, a distance of 13.64 ft.;
THENCE South 86 degrees;01'06" East, a distance of 141.31 ft.;
THENCE North 03 degrees;58'54" East, a distance of 180.79 ft.;
THENCE North 85 degrees;49'22" East, a distance of 242 ft.;
THENCE South 03 degrees;58'54" West, a distance of 178 ft.;
THENCE South 86 degrees;01'06" East, a distance of 151.20 ft.;
THENCE North 03 degrees;58'54" East, a distance of 202.24 ft.;
THENCE North 84 degrees;52'20" East, a distance of 34 ft.;
THENCE South 03 degrees;58'54" West, a distance of 1029 ft.;
THENCE North 85 degrees;29'32" West, a distance of 537.32 ft.;
Said tract containing 11.4329 acres (498016.74 sqft.) of land, more or
less
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 35
TAX PLAT MAP
[GRAPHICS OMITTED]
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 36
FLOOD PLAIN MAP
[GRAPHICS OMITTED]
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 37
DESCRIPTION OF IMPROVEMENTS
The data and analysis included in this report section describes the
building and improvement data relevant to the appraisal problem. Sources of the
data are identified and information not available to the appraiser is noted
where necessary. The data presented is analyzed based upon the functional
utility and physical condition relative to their influence on the value
conclusion of this assignment.
PROPERTY TYPE AND CHARACTER
PROPERTY TYPE: Neighborhood shopping center
BUILDING AGE:
Year Built: 1989
Actual Age: 8 years
Total Economic Life: 50 years(*)
Effective Age: 8 years(*)
Remaining Economic Life: 42 years(*)
* See Condition Analysis to follow
NO. OF STORIES: 1
SIZE:
Gross Building Area (GBA): 77,752 SF
Net Rentable Area (NRA): 76,762 SF
Source: Rent roll and tax records
Floor-to-Area Ratio: 0.16:1
TYPICAL SMALL SHOP BAY DEPTH: 60' to 100'
TYPICAL SMALL SHOP BAY WIDTH: 15' to 60'
ANCHOR SPACE:
Tenants: Wal-Mart
Total Size: 54,962 SF
% Anchor: 71.60%
COMMENT: The subject anchor space is specifically designed for the anchor
tenant. However, the open "big box" space is easily adaptable to other tenants.
A loading dock is located in the rear of this space.
TENANCY:
No. of Tenants: 9
Type Occupancy: Multi-tenant
Current Physical Occupancy: 98%
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 38
DESCRIPTION OF IMPROVEMENTS, CONT'D.
--------------------------------------------------------------------------------
GENERAL CONSTRUCTION COMPONENTS
DATA SOURCES:
Building Plans Provided: Plans and specifications were not made
available to the appraisers.
Other: Property inspection by the appraisers,
discussions with representatives of the
property owner and information available
from the Tax Assessor's office.
FOUNDATION: Concrete slab
STRUCTURAL SYSTEM: Concrete black
ROOF SYSTEM: Built-up composition cover over metal
rib decking on steel-bar joists
EXTERIOR WALLS: The exterior walls are brick on store
fronts and painted concrete block on
sides and rear.
EXTERIOR DOORS: Storefront glass in aluminum frame
EXTERIOR WINDOWS: Glass in aluminum frame
ELECTRICAL: Electrical fixtures and systems were
noted to be in average quality. Average
commercial service. Assumed to comply
with all governing codes and good
industry standard practice.
H.V.A.C.: Each lease space has an electric package
heating and cooling units. Ground level.
PLUMBING: Each lease space has a men's and women's
restroom. All restaurants have special
plumbing for sinks and restrooms.
COMMENTS: The subject improvements are composed of two separate buildings.
These two buildings are separated by 115' tract of land set aside for a future
expansion of the Wal-Mart space of approximately 20,000 SF of building area. The
front of this space is covered by concrete block decorative wall.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 39
DESCRIPTION OF IMPROVEMENTS, CONT'D.
--------------------------------------------------------------------------------
SITE IMPROVEMENTS
SIGNAGE: One lighted sign on Dupree Avenue/SR-76
Bypass
PARKING AREA: Asphalt paved with adequate parking spaces;
average condition. Heavy duty concrete in the
rear of the center for truck loading area.
NO. OF SPACES: 529
NO./1,000 SF OF GBA: 6.89/1,000 SF
FENCING: None
CONCRETE WALKS: Concrete along retail area
CONDITION/QUALITY
CONSTRUCTION QUALITY: Average and typical of the local market
CONDITION OF IMPROVEMENTS: Average to good given actual age
RECENT SIGNIFICANT
CAPITAL EXPENDITURES: None
EFFECTIVE AGE ANALYSIS
The improvements actual age is 8 years. This is not unusual in this
neighborhood. The typical economic life for similar structures is 50 years. The
condition, quality of construction and effective maintenance program by the
current owner has maintained the economic life of the property. Based on the
condition/quality analysis presented, a 42 year remaining economic life is
considered reasonable before significant capital expenditures would be required
to extend the economic life. This yields an estimated 8 year effective age.
FUNCTIONAL UTILITY ANALYSIS
The overall property is considered to have average functional utility
based upon the property type and use. The straight line shape of the center
parallel to the highway is considered to be a functional shape with good
visibility from the road. The local space bay depths are considered to be
optimal for the market.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 40
SITE PLAN
[GRAPHICS OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 41
PHOTOGRAPHS OF SUBJECT PROPERTY
[GRAPHICS OMITTED]
Front view of the subject on Dupree Avenue/SR-76 Bypass.
[GRAPHICS OMITTED]
Front view of the subject on Dupree Avenue/SR-76 Bypass.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 42
PHOTOGRAPHS OF SUBJECT PROPERTY, CONT'D.
[GRAPHICS OMITTED]
View of East Main Street/US-70 looking north with subject on right.
[GRAPHICS OMITTED]
View of the rear of the site.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 43
SUBJECT PROPERTY ZONING
SUBJECT ZONING DATA SUMMARY
SUBJECT ZONING DESIGNATION: GC - General Commercial District
ZONING AUTHORITY: City of Brownsville & Haywood County
PURPOSE OF ZONING DISTRICT: These districts are designed to provided
adequate space in appropriate locations for
the establishment of a wide variety of uses
including commercial trade and service uses,
entertainment facilities, offices and
establishments engaged in wholesale trade.
Since these activities tend to generate
relatively large volumes of traffic and have
other characteristics detrimental to
residential districts, their locations should
be removed from the proximity of residential
district as much as possible.
PERMITTED USES: These districts provide for residential,
governmental uses, institutional,
community facilities and utilities necessary
to serve these districts or which are
required for general community welfare,
automotive parking, retial and commercial,
medical service, general office uses and
general personal service uses.
REGULATIONS
MINIMUM FRONT YARD: 50'
SIDE YARD: 50' when adjoining residential; 10' for all
others
REAR YARD: 50' when adjoining residential; 30' for all
others
MAXIMUM FLOOR AREA RATIO: None
MAXIMUM HEIGHT: 35 foot maximum front wall
LANDSCAPING: The first 10 feet of any required yard
adjacent to a street shall be devoted to
devoted to landscaping. All other required
yard areas not occupied by sidewalks and
driveways shall also be devoted to
landscaping.
IMPROVEMENTS CONFORMITY: Improvements appear to conform to the zoning
regulations.
OTHER PRIVATE, PUBLIC OR LEGAL RESTRICTIONS
DEED RESTRICTIONS: None known to the appraisers
PUBLIC RESTRICTIONS: None known to the appraisers
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 44
SUBJECT PROPERTY ZONING, CONT'D.
The reader's attention is directed to the zoning map exhibit presented on
the following page.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 45
ZONING MAP
[GRAPHICS OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 46
HIGHEST AND BEST USE
INTRODUCTION
In highest and best use analysis, an appraiser identifies the most
profitable, competitive use to which a property can be utilized. Highest and
best use may be defined as:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value.(1)
Proper analysis includes consideration of the highest and best use of a
given property 1) as if vacant, and 2) as improved. The purpose of determining
the highest and best use of land as though vacant is to identify a site's
potential use, which governs its value. The purpose of determining the highest
and best use of property as improved is to identify the use that is expected to
produce the greatest overall return on the capital invested, and to assist the
appraiser in the selection of comparable properties.
A property's highest and best use must be 1) physically possible, 2)
legally permissible, 3) financially feasible, and 4) maximally productive. These
criteria will be considered sequentially and conditionally in this section of
the appraisal report.
The highest and best use analysis and conclusions form the foundation for
the application of the three approaches to value and the reconciliation and
final value estimate. The data presented in the previous sections of this report
is analyzed and used as support for establishing the opinion of highest and best
use. Therefore, only the more distinctive characteristics from each section that
have substantial impact on the highest and best use are analyzed. The reader is
referred to the previous sections for the detailed data.
HIGHEST AND BEST USE AS VACANT
The initial step in analyzing the highest and best use of the appraised
property is to consider the land as if vacant. Highest and best use of land or a
site as vacant assumes that a parcel of land is vacant or can be made vacant by
demolishing any improvements.
1. PHYSICALLY POSSIBLE
The size, shape, location, topography, and surrounding land use pattern of
a parcel of land affects its physical utility and adaptability. These and other
physical characteristics are considered in analyzing the physical capabilities
of the site and most probable uses.
REPORT SECTION REFERENCE: Site Analysis and Neighborhood Analysis
(1) THE APPRAISAL OF REAL ESTATE, NINTH EDITION, (CHICAGO: AMERICAN
INSTITUTE OF REAL ESTATE APPRAISERS, 1987), P. 269.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 47
HIGHEST AND BEST USE, CONT'D.
GENERAL SITE FEATURES:
Physical Characteristics: The semi-rectangular shape, average
frontage, level topography, soil
conditions and 11.433 acre size are
functional for almost any type of
development consistent with neighborhood
trends. No unusual site development
costs would be required.
Utilities & Services: All public utilities are available to
the site in adequate supply and capacity
to permit development of any probable
use of the site. The site fronts on a
public street that is in good condition.
Functional Utility: Considering the general site features,
the functional utility and physical
adaptability of the subject site is
considered average and will allow most
any typical development prevalent in the
area.
SURROUNDING LAND USES: The subject tract is surrounded on the
east and south by vacant farm land. The
vacant land to the south is owned by the
subject property's developer for future
expansion of the center, but is not a
part of this appraisal report. A
separately owned, Exxon Station, outlot
is located in the northwest corner of
the subject property and has frontage
along Dupree Avenue/SR-76 Bypass and
East Main Street/US-70. To the north of
the subject property across East Main
Street/US-70 are some vacant residential
tracts. Directly across Dupree
Avenue/SR-76 Bypass to the west from the
subject site is a commercial property.
LIMITING FACTORS: No limiting physical factors noted
PHYSICALLY POSSIBLE CONCLUSION: The physical characteristics of the site
and available utilities and services are adequate for a variety of uses and do
not significantly limit the potential development of the site except to the
density which would be allowed under the current zoning.
2. LEGALLY PERMISSIBLE USES
The analysis of legally permissible uses of the property includes
consideration of zoning ordinances, private and deed restrictions, historic
district controls and environmental regulations.
REPORT SECTION REFERENCE: Zoning Analysis
ZONING DESIGNATION: GC - General Commercial District
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 48
HIGHEST AND BEST USE, CONT'D.
PERMITTED USES: These districts provide for residential,
governmental uses, institutional,
community facilities and utilities
necessary to serve these districts or
which are required for general community
welfare, automotive parking, retial and
commercial, medical service, general
office uses and general personal service
uses. See Zoning Analysis for more
information.
DEED RESTRICTIONS: None known to the appraisers
PUBLIC RESTRICTIONS: No public restrictions are known.
POSSIBILITY OF
ZONING CHANGE: None known to the appraisers
LEGALLY PERMISSIBLE USES CONCLUSIONS: Based upon the factors analyzed
and the legally permissible uses for the subject, the best uses appear to be
retail services.
3. FINANCIALLY FEASIBLE
In determining which uses are physically possible and legally permissible,
an appraiser eliminates some uses from consideration. Then the uses that meet
the first two criteria are analyzed further to determine which are likely to
produce an income, or return, equal to or greater than the amount required to
satisfy operating expenses, financial obligations and capital amortization. All
uses that are expected to produce a positive return are regarded as financially
feasible.
MOST PROBABLE USES: Based upon the analysis of physically
possible uses and legally permissible
uses, the best and most probable uses
are limited to the highest density of
retail space physically possible.
FEASIBILITY: All of the most probable uses listed
above are considered financially
feasible based upon land values in the
immediate area.
Income: The use with the highest potential net
operating income is retail sales,
particularly a shopping center complex.
Occupancies: Overall occupancy for retail shop space
in Brownsville is estimated to be near
98.8%. This is considered sufficient to
justify new construction.
FEASIBILITY CONCLUSION: The analysis of potential income and return on
investment as well as demand (occupancy) indicates that retail services with a
low percentage of office space would yield the highest return.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 49
HIGHEST AND BEST USE, CONT'D.
4. MAXIMALLY PRODUCTIVE
A comparison of the financially feasible uses indicates that retail
services with low office percentage would yield the highest return to the land.
HIGHEST AND BEST USE
AS IF VACANT STATEMENT: The highest and best use of the subject
site assuming it is vacant is
development of a neighborhood shopping
center.
HIGHEST AND BEST USE AS IMPROVED
The preceding analysis of the site as vacant is also relevant to the
highest and best use of the subject property, as improved. If the existing
improvements are the same as those indicated for the highest and best use as
vacant, the four tests for highest and best use do not have to be applied here
because the conclusions reached in testing for the highest and best use of the
site as though vacant are applicable to the analysis as improved.
CONFORMANCE TO HIGHEST AND BEST
USE AS VACANT: The existing improvements of the subject
property generally conform to the
highest and best use as vacant.
POSSIBLE DEMOLITION, RENOVATION OR
CONVERSION IN USE: A comparison of the land value estimate
and the value estimate of the property
as improved in the forthcoming valuation
section indicates that the improvements
contribute significant value to the
property. Therefore, demolition is not
justified. An economic analysis shows
remodeling, renovation or conversion of
the subject to another use is not
economically justified.
HIGHEST & BEST USE
AS IMPROVED STATEMENT: The highest and best use as improved is
continued use as a neighborhood shopping
center development.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 50
REAL ESTATE TAX ANALYSIS
TAXING AUTHORITIES: The City of Brownsville & Haywood
County. The local government tax rate
represents all local municipal tax
charges. School Districts or other
special districts as a separate taxing
authority do not exist. All municipal
funding from real estate taxes are under
the tax rate charged in the two taxing
districts.
REAL ESTATE TAX RATES
TAX RATE'S YEAR: 1997
TAX BILL DUE DATE: Between October and February
ASSESSMENT RATIO
The local government applies an assessment ratio to each property's tax
appraised value for the calculation of taxes. The assessment ratio applied is
determined by the property type as follows:
RESIDENTIAL PROPERTY 25%
COMMERCIAL PROPERTY 40%
SUBJECT REAL ESTATE TAX DATA
REAL ESTATE TAX DISTRICT: City of Brownsville & Haywood County
REAL ESTATE TAX RATE: $3.90 per $100 of Assessed Value
ASSESSMENT RATIO: 40%
TAX APPRAISED VALUE: $2,076,700
TAX COMPARABLES
=============================================================================================
APPRAISED ASSESSED TAX RATE TAX SIZE
COMPARABLES VALUE VALUE /$100 EXPENSE (SF) TAXES/SF
---------------------------------------------------------------------------------------------
BRADFORD SQUARE S/C $1,881,300 $752,520 $3.90 $29,348 81,133 $0.36
---------------------------------------------------------------------------------------------
934 W. MAIN STREET $256,300 $102,520 $3.90 $3,998 14,196 $0.28
---------------------------------------------------------------------------------------------
1362 N. WASHINGTON ST. $349,900 $139,960 $3.90 $5,458 10,240 $0.53
---------------------------------------------------------------------------------------------
SUBJECT $2,076,700 $830,680 $3.90 $32,397 76,762 $0.42
=============================================================================================
Note: 1) Building size is based on gross square feet gross square feet.
2) The assessed value is calculated based on a 40% assessment
ratio.
SUBJECT TAX EXPENSE ANALYSIS: The subject property's tax bill falls in
the middle of the range based on the
comparison of tax expenses for each
property. After consideration of the
proposed valuation methodology used by
the tax assessor it appears that the
real estate tax
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 51
REAL ESTATE TAX ANALYSIS, CONT'D.
expense projection is fair and reasonable
for the subject property.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 52
APPRAISAL PROCEDURE
INTRODUCTION
The estimation of market value of a property that is being appraised is
accomplished by the comparison and analysis of as many techniques as are
appropriate. Three approaches are generally used to produce value indications.
COST APPROACH: This valuation technique is based on the
premise that the value of a property can
be indicated by the current cost to
construct a reproduction or replacement
of the improvements minus the amount of
depreciation evident in the structures
from all causes plus the value of the
land and entrepreneurial profit. The
Cost Approach is particularly useful for
appraising new or nearly new
improvements. Current costs for
constructing improvements are derived
from cost estimators, cost
publications, builders or
contractors. Depreciation is measured by
market research and/or through the
application of specific mathematical
procedures. Land value is estimated
separately by direct sales comparison.
SALES COMPARISON APPROACH This approach is most viable when an
adequate number of properties of similar
type have been sold recently or are
currently offered for sale in the
subject market. The application of this
approach produces a value indication for
a property through comparison with
similar properties, called comparable
sales. The sale prices of properties
judged to be most comparable tend to set
a range in which the value indication
for the subject falls.
INCOME CAPITALIZATION APPROACH: This approach to value is applicable to
properties capable of producing a net
income stream. By using the income
capitalization approach, the appraiser
measures the present value of the future
benefits of property ownership. Income
streams and the value of property upon
resale (reversion) are capitalized or
converted into a present, lump-sum
value. Research and analysis of data for
this approach are conducted against a
background of supply and demand
relationships. This background provides
information on trends and market
anticipation that must be verified for
data analysis.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 53
APPRAISAL PROCEDURE, CONT'D.
RECONCILIATION OF APPROACHES: The strengths and weaknesses of each
approach used are weighed in the final
analysis. The approach or approaches
offering the greatest quantity and
quality of supporting data are typically
given most consideration and the final
estimate of value is correlated.
APPROACHES UTILIZED
IN THIS ASSIGNMENT: The Cost, Sales Comparison and Income
Capitalization Approaches to value have
each been utilized in estimating the
market value of the subject property as
of the effective date of appraisal.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 54
LAND VALUATION
INTRODUCTION
A reliable value indication for the subject parcel is provided by an
analysis and comparison of other comparable sites which have sold in the
marketplace. Many factors influence the price of land. The technique involved in
the value estimate of the land uses the principle of substitution as the basis
for analysis, and the methodology includes an analysis of what buyers in the
area have been paying for similar properties. Therefore, the value of the
subject site is derived from sales and listings of comparable properties in the
area. The comparable land sales included in this report are analyzed with
respect to market conditions (time), location, physical characteristics
(functional utility) and size.
Dollar or percentage adjustments are made to the sale price of each
comparable. Positive adjustments are made for deficiencies in the comparable
property relative to the subject site. Negative adjustments are made for
superior characteristics of the sale relative to the subject. When sufficient
sales data is available, a "paired sales" analysis is utilized. This is a
procedure in which sales are compared in pairs to identify the effect of
specific differences on sale price. When such data is unavailable or
inconclusive, adjustments are made based on discussions with active market
participants (buyers, sellers, investors and developers), historical sales data,
or the appraiser's experience in valuing similar properties.
The sales on the following pages are considered to have a reasonable
degree of comparability to the land being appraised. In formation pertaining to
these transactions has been verified by either the buyer, seller, broker, or
other sources considered reliable and having knowledge of the particular
transaction.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 55
LAND VALUATION, CONT'D.
--------------------------------------------------------------------------------
COMPARABLE LAND SALES DATA
--------------------------------------------------------------------------------
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 56
LAND SALE COMPARABLE NO. 1:
PROPERTY DATA
Location: Hwy 76 Bypass south of SH-19, Brownsville, TN
County: Haywood
Grantor: Lyle Reid, etux
Grantee: MHR Properties, LLC
Map(s): 074P-B
Parcel(s): 002.06
Sale Date: 03/01/96 Book/Page: 211 / 818
SITE DATA
Size (Acres): 3.00
Size (SF): 130,680
Zoning: Commercial
Utilities: All available to site
Frontage: Along Hwy 76 Bypass
Shape: Rectangular
Topography: Slightly Sloping
Easements: None detrimental
Improvements: None of value at sale date
Intended Use: Future Farmers Home Office
TRANSACTION DATA
Consideration: $25,000 Price/Acre: $8,333
Cash Equivalent: $25,000 Adj. Price/Ac: $8,333
Financing: All cash to seller.
Verified By: Haywood County Assessor's Office
COMP_CODE: 1287
COMMENTS: This tract of land is located on the eastside of Brownsville.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 57
LAND SALE COMPARABLE NO. 2:
PROPERTY DATA
Location: 1462 East Main Street, Brownsville, TN
County: Haywood
Grantor: Cherry M. Lea & Joe W. Lea, Jr., etal
Grantee: Thomas O. Lea, etux
Map(s): 074
Parcel(s): 021.01
Sale Date: 12/01/94 Book/Page: 205 / 480
SITE DATA
Size (Acres): 1.90
Size (SF): 82,764
Zoning: Commercial
Utilities: All available
Frontage: Along East Main Street
Shape: Rectangular
Topography: Slightly Sloping
Easements: None detrimental
Improvements: None of value at sale date
Intended Use: Future Retail Store
TRANSACTION DATA
Consideration: $18,000 Price/Acre: $9,474
Cash Equivalent: $18,000 Adj. Price/Ac: $9,474
Financing: All cash to seller.
Verified By: Haywood County Assessor's Office
COMP_CODE: 1288
COMMENTS: This tract of land is located on the eastside of Brownsville.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 58
Size (Acres): 3.14
Size (SF): 136,778
Zoning: Commercial
Utilities: All available
Frontage: Along Hwy 76 Bypass
Shape: Rectangular
Topography: Slightly Sloping
Easements: None detrimental
Improvements: None of value at sale date
Intended Use: Future Department of Human Services
TRANSACTION DATA
Consideration: $40,000 Price/Acre: $12,739
Cash Equivalent: $40,000 Adj. Price/Ac: $12,739
Financing: All cash to seller.
Verified By: Haywood County Assessor's Office
COMP_CODE: 1289
COMMENTS: This tract of land is located on the eastside of Brownsville.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 59
LAND SALE COMPARABLE NO. 4:
PROPERTY DATA
Location: NWC of US-70 and Prospect Lane, Brownsville, TN
County: Haywood
Grantor: Timothy O. Morris
Grantee: Tennessee Seeds Brownsville
Map(s): 075
Parcel(s): 017.02
Sale Date: 08/29/96 Book/Page: 214 / 360
SITE DATA
Size (Acres): 32.67
Size (SF): 1,423,105
Zoning: Commercial
Utilities: All available
Frontage: Along Hwy 76 Bypass & Prospect Lane
Shape: Rectangular
Topography: Slightly Sloping
Easements: None detrimental
Improvements: None of value at sale date
Intended Use: Future Retail/Warehouse
TRANSACTION DATA
Consideration: $138,000 Price/Acre: $4,224
Cash Equivalent: $138,000 Adj. Price/Ac: $4,224
Financing: All cash to seller.
Verified By: Haywood County Assessor's Office
COMP_CODE: 1290
COMMENTS: This tract of land is located on the southwest side of
Brownsville. This tract of land was purchased for a
retail sales location and warehouse.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 60
LAND SALES MAP
[GRAPHICS OMITTED]
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 61
COST APPROACH - LAND VALUATION ANALYSIS
COMPARABLE LAND SALES SUMMARY
SUBJECT SALE #1 SALE #2 SALE #3 SALE #4
--------------------------------------------------------------------------------
SALE DATE CURRENT 03/01/96 12/01/94 12/17/92 08/29/96
--------------------------------------------------------------------------------
SIZE/ACRES 11.43 3.00 1.90 3.14 32.67
--------------------------------------------------------------------------------
ZONING GC COMMERCIAL COMMERCIAL COMMERCIAL COMMERCIAL
--------------------------------------------------------------------------------
SP/SF N/A $8,333 $9,474 $12,739 $4,224
--------------------------------------------------------------------------------
INTRODUCTION
A search for comparable land sales within the subject neighborhood and
competitive locales was conducted by the appraiser. The appraiser consulted with
local real estate agents knowledgeable of the subject market and researched
public records for pertinent information. The sales used herein represent the
most comparable data available at the time of the report. Adjustments to these
land prices for market financing, market conditions (time), location, physical
characteristics (functional utility) and size, as they relate to the subject
property, are made accordingly.
Following is a discussion of the major factors which influence the value
of the subject site. It should be noted that financing, conditions of sale and
time adjustments are made first to each of the comparables in order to reflect
authentic and current pricing trends. The net percentage of the remaining
adjustments for location, physical characteristics (utility) and size is then
applied to the "time adjusted" sales price to reflect the indicated value of the
subject.
UNIT OF COMPARISON: SP/SF; sales price per square foot
Analysis: Discussions with brokers and developers in the subject
market indicated that this is the basic unit of
comparison from which they make their acquisition
decisions for land similar to the subject.
FINANCING: The transactions are either all cash transactions or are
considered to represent typical market financing and do
not require an adjustment for non-market financing. As
such, no adjustments are made for factors relating to
financing.
CONDITIONS OF SALE: All of the comparable sales are considered to have
typical conditions of sale, therefore no adjustments
were made.
MARKET CONDITIONS:
DESCRIPTION: This adjustment, often referred to as the "time
adjustment", reflects the direction of change in the
market from the sale date of the comparable to the
valuation date of the subject property.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 62
LAND VALUATION ANALYSIS, CONT'D.
ANALYSIS: The adjustment to Sale No. 2 reflects inferior
market conditions at the time related to the local
economic recession. The adjustment to the listing
indicates the level at which offers to purchase
have been received.
LOCATION:
DESCRIPTION: Locational features include visibility, access and
proximity to other quality development.
ANALYSIS: All of the sales are located in a similar
neighboring community. Sale Nos. 1 and 3 are
adjusted for their weaker locations. Sale No. 2 is
the most similar to the subject in location with no
adjustment is required.
PHYSICAL CHARACTERISTICS
The analysis of physical attributes considers shape, frontage,
topography, zoning and the availability of public utilities. Only those
physical characteristics which impact the sales price of the comparable
relative to the subject will be addressed. The physical elements of the sales
as they relate to the subject are addressed as follows.
SHAPE
Description: The shape of a site will determine its adaptability
to possible uses. Some configurations may restrict
structural design or limit the buildable/usable
area of the parcel. A site must have adequate depth
to accommodate the layout of the improvements, but
should not be excessive in relation to the parcel's
frontage and size.
Analysis: All of the comparable sales have a shape adequate
for their intended use. As such, no adjustments are
deemed appropriate for the comparables.
FRONTAGE:
Description: The amount of street frontage is important to
commercial properties and, in particular, retail
properties.
Analysis: All of the comparable sales have a frontage
adequate for their intended use. As such, no
adjustments are deemed appropriate for the
comparables.
TOPOGRAPHY:
Description: The topography of a site can significantly impact
the costs of development. Consideration must be
given to the contour, grade and drainage of the
sale tracts in relation to the appraised property.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 63
LAND VALUATION ANALYSIS, CONT'D.
Analysis: The subject tract has a level topography. All of
the comparable sales were considered to have
similar topographical characteristics at the time
of sale. Thus, no adjustments for topography are
deemed necessary to the sales.
ZONING:
Description: Zoning is often the most basic criteria in
selecting comparables. Sites zoned the same as the
subject property are the most appropriate
comparables. When sufficient sales in the same
zoning category are not available, data from
similar categories may be used after adjustments
have been made. These adjustments are based on the
allowable uses, permitted density and restrictions
within the ordinance in comparison to the subject.
Analysis: All of the sales utilized in this land valuation
have the same or comparable zoning designation as
the subject. Thus, no adjustments for zoning are
deemed necessary to the sales.
UTILITIES:
Description: The availability and proximity to public utilities
(water, sewer, electricity, gas and telephone) is
an important attribute to the development of any
property. This adjustment reflects the difference
in sales price caused by the distance and capacity
of utility services to the comparable sites and
also considers the cost of bringing utilities to
the tract.
Analysis: All utilities were available to the comparable
sites at the time of their sale, as they are to the
subject. No adjustment is made for factors
associated with utilities.
SIZE:
Description: Most types of development have an optimal site
size. If a site is larger than optimal, the value
of the excess land tends to decline at an
accelerating rate. As a result, larger tracts of
land typically sell for less per unit of comparison
than smaller parcels, all other factors being
equal.
Analysis: The subject land contains 11.433 acres of land. The
comparable sales have land sizes ranging from 1.90
to 32.67 acres. The subject site is considered
larger than optimal and slight adjustments are made
for size.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 64
LAND VALUATION ANALYSIS, CONT'D.
On the following page is an adjustment grid of the comparable sales
utilizing the adjustments noted in the previous analysis.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 65
COMPARABLE LAND SALES ADJUSTMENT GRID
SUBJECT SALE #1 SALE #2 SALE #3 SALE #4
------------------------------------------------------------------------------
SALE PRICE $8,333 $9,474 $12,739 $4,224
------------------------------------------------------------------------------
ELEMENTS OF COMPARISON
------------------------------------------------------------------------------
DATE OF SALE 03/01/96 12/01/94 12/17/92 08/29/96
------------------------------------------------------------------------------
COMPARISON SIMILAR SIMILAR SIMILAR SIMILAR
------------------------------------------------------------------------------
ADJUSTMENT 0% 0% 0% 0%
------------------------------------------------------------------------------
HWY 76 BYPASS E. MAIN ST. HWY 76 BYPASS HWY 70 &
PROSPECT
------------------------------------------------------------------------------
ADJUSTED PRICE $8,333 $9,474 $12,739 $4,224
---------------------------------------------------------------------------------------------------------
LOCATION GOOD GOOD GOOD GOOD AVERAGE
---------------------------------------------------------------------------------------------------------
COMPARISON SIMILAR SIMILAR SIMILAR INFERIOR
------------------------------------------------------------------------------
ADJUSTMENT 0% 0% 0% 45%
---------------------------------------------------------------------------------------------------------
SHAPE SEMI-RECTANGULAR RECTANGULAR RECTANGULAR RECTANGULAR RECTANGULAR
---------------------------------------------------------------------------------------------------------
COMPARISON SIMILAR SIMILAR SIMILAR SIMILAR
------------------------------------------------------------------------------
ADJUSTMENT 0% 0% 0% 0%
---------------------------------------------------------------------------------------------------------
FRONTAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
---------------------------------------------------------------------------------------------------------
COMPARISON SIMILAR SIMILAR SIMILAR SIMILAR
------------------------------------------------------------------------------
ADJUSTMENT 0% 0% 0% 0%
---------------------------------------------------------------------------------------------------------
TOPOGRAPHY LEVEL SLIGHTLY SLOPING SLIGHTLY SLOPING SLIGHTLY SLOPING SLIGHTLY SLOPING
---------------------------------------------------------------------------------------------------------
COMPARISON SIMILAR SIMILAR SIMILAR SIMILAR
------------------------------------------------------------------------------
ADJUSTMENT 0% 0% 0% 0%
---------------------------------------------------------------------------------------------------------
ZONING GC COMMERCIAL COMMERCIAL COMMERCIAL COMMERCIAL
---------------------------------------------------------------------------------------------------------
COMPARISON SIMILAR SIMILAR SIMILAR SIMILAR
------------------------------------------------------------------------------
ADJUSTMENT 0% 0% 0% 0%
---------------------------------------------------------------------------------------------------------
UTILITIES ALL AVAILABLE ALL AVAILABLE TO SITE ALL AVAILABLE ALL AVAILABLE ALL AVAILABLE
---------------------------------------------------------------------------------------------------------
COMPARISON SIMILAR SIMILAR SIMILAR SIMILAR
------------------------------------------------------------------------------
ADJUSTMENT 0% 0% 0% 0%
---------------------------------------------------------------------------------------------------------
SIZE/ACRES 11.43 3.00 1.90 3.14 32.67
---------------------------------------------------------------------------------------------------------
COMPARISON SIMILAR SIMILAR SIMILAR INFERIOR
------------------------------------------------------------------------------
ADJUSTMENT 0% 0% 0% 45%
---------------------------------------------------------------------------------------------------------
OTHER N/A
---------------------------------------------------------------------------------------------------------
COMPARISON SIMILAR SIMILAR SIMILAR SIMILAR
------------------------------------------------------------------------------
ADJUSTMENT 0% 0% 0% 0%
------------------------------------------------------------------------------
NET ADJUSTMENT 0% 0% 0% 0%
------------------------------------------------------------------------------
FINAL ADJUSTMENT SALE PRICE $8,333 $9,474 $12,739 $8,026
------------------------------------------------------------------------------
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 66
LAND VALUATION ANALYSIS, CONT'D.
RECONCILIATION
The sales prices ranged from 4,224 to 12,739 per square foot before the
adjustment process. The indicated value of the subject property ranged between
$8,026 and $12,739 per square foot after analysis. The adjusted value range is
considered very narrow and provides consistent and reliable data from which to
estimate the subject's land value. The most weight is placed on Sale Nos. 2 and
3 because of their location on Hillsboro Pike. In the final analysis, the
subject's land value was based on the low end of the range of sales due to the
site's excessive depth relative to its frontage and visibility.
Based on this analysis, a value of $9,000/SF is considered highly
supportable. Thus, the market value of the fee simple interest in the subject
parcel as if vacant, contingent to the assumptions and limiting conditions
stated herein, as of August 14, 1997 is calculated below:
LAND VALUE ESTIMATE
Land Size 11.43
(Acres)
Estimated Value/Acre $9,000
--------
x
Estimated Value $102,896
Rounded $103,000
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 67
COST APPROACH
INTRODUCTION
The principle of substitution is basic to the Cost Approach. The principle
affirms that no prudent investor would pay more for a property than the amount
for which the site can be acquired and for which improvements that have equal
desirability and utility can be constructed without undue delay. An indication
of value may be produced by adding the depreciated value of the improvements to
the land value estimated by market (direct sales) comparison. The depreciated
value of the improvements is determined by first estimating the reproduction or
replacement cost new and subtracting depreciation from all causes, if any.
In providing complete building cost estimates, an appraiser must consider
direct (hard) costs, and indirect (soft) costs. Both types of costs are
essential for a reliable reproduction or replacement cost estimate. In addition,
any entrepreneurial profit likely to be realized from the building project must
be estimated.
COST DATA
SOURCE: Marshal Valuation Service Manual - calculator cost
ABOUT THE SOURCE: This publication is a widely accepted cost data source
in the appraisal industry. The cost data presented in this manual are based on
years of valuation experience, thousands of appraisals and continual analysis of
the costs of new buildings. This publication has been recognized as an authority
in the appraisal field for over fifty years.
COSTS INCLUDED IN SOURCE: The base calculator costs depicted in the
Marshal Valuation Service Manual include the following:
1. Architects's and engineer's fees;
2. Normal interest on only the building improvement funds during the
period of construction and processing fee or service charge;
3. Sales taxes on materials;
4. Normal site preparation including finish, grading and excavation for
foundation and backfill;
5. Utilities from structure to lot line figured for typical setback;
6. Contractor's overhead and profit including job supervision,
workmen's compensation, fire and liability insurance, unemployment
insurance, equipment, temporary facilities, security, etc.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 68
COST APPROACH, CONT'D.
COSTS NOT INCLUDED IN SOURCE: The base calculator costs depicted in the
Marshal Valuation Service Manual do not include the following:
1. Costs of buying or assembling land such as escrow fees, legal fees,
property taxes, right of way costs, demolition, storm drains, or
rough grading, are considered costs of doing business or land
improvement costs.
2. Pilings or hillside foundations;
3. Interest or taxes on the land;
4. Feasibility studies, appraisal or consulting fees, etc.;
5. Discounts or bonuses paid for financing, project bond issues,
development overhead or fixture and equipment purchases, etc.;
6. Yard improvements including signs, landscaping, paving, walls, yard
lighting, pools or other recreation facilities;
7. Off site costs including roads, utilities, park fees, jurisdictional
hook-up, tap, impact or entitlement fees and assessments, etc.;
8. Marketing costs to create first occupancy including model or
advertising expenses, leasing or broker's commissions or temporary
operation of property owners associations.
SUBJECT'S MARSHALL VALUATION COST DATA
SUMMARY OF SUBJECT GENERAL BUILDING CHARACTERISTICS:
Property Type: Neighborhood shopping center
Structure: Masonry
No. of Stories: 1
Gross Building Area: 77,752 SF
CLASSIFICATION Class C Community Center
TYPE (QUALITY) Average
REGION/CLIMATE Central/Moderate
PAGE REFERENCE Section 13, Page 28
PAGE REFERENCE DATE September 1995
CURRENT MULTIPLIER PAGE August 1997
LOCAL MULTIPLIER PAGE DATE July 1997
COST METHOD Calculator; therefore, replacement cost
The reader is directed to the base cost and adjustments presented on the
following page.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 69
COST APPROACH, CONT'D.
--------------------------------------------------------------------------------
MVS BASE COST & ADJUSTMENTS
================================================================================
1 BASE SQUARE FOOT COST $46.08
--------------------------------------------------------------------------------
2 SQUARE FOOT REFINEMENTS
--------------------------------------------------------------------------------
3 Heating Cooling, ventilation $ 0.00
--------------------------------------------------------------------------------
4 Elevator $ 0.00
--------------------------------------------------------------------------------
5 Miscellaneous $ 1.50
--------------------------------------------------------------------------------
6 Total SF Refinements $47.58
--------------------------------------------------------------------------------
HEIGHT & SIZE REFINEMENTS
--------------------------------------------------------------------------------
7 Number of Stories Multiplier 1.00
--------------------------------------------------------------------------------
8 Height per story multiplier 1.04
--------------------------------------------------------------------------------
9 Floor area-perimeter multiplier 0.81
--------------------------------------------------------------------------------
10 Combined multipliers (7x8x9) 0.84
--------------------------------------------------------------------------------
FINAL CALCULATIONS
--------------------------------------------------------------------------------
11 Refined SF Cost (Line 6x10) $40.16
--------------------------------------------------------------------------------
12 Current cost multiplier 1.05
--------------------------------------------------------------------------------
13 Local multiplier 0.96
--------------------------------------------------------------------------------
14 Final SF Cost (Line 11x12x13) $40.48
================================================================================
SITE IMPROVEMENTS
& OTHER HARD COSTS: Site improvement cost and other hard costs related
to the improvements must be added to the base
structural cost estimate. The reader is directed
to the Cost Summary exhibit at the end of this
report section for a summary of these costs.
INDIRECT COSTS: Indirect costs not included in the Marshall
Valuation base costs include loan interest on
land, lease-up costs and professional fees.
Calculations for the loan interest on land and
lease-up costs are presented below.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 70
COST APPROACH, CONT'D.
--------------------------------------------------------------------------------
LAND LOAN INTEREST CALCULATIONS:
LAND VALUE ESTIMATE $103,000
CONSTRUCTION INTEREST RATE X 9.00%
CONSTRUCTION PERIOD (YEARS) X 0.75
--------
LAND INTEREST = $6,953
LEASE-UP COST CALCULATIONS:
COMMISSIONS
Market Rent/SF $4.62
Net Rentable Area (SF) X 76,762
Commissions % X 6.00%
Average years of leases X 5.00
--------
COMMISSION COST, ROUNDED = $106,400
PLUS: OTHER (MARKETING, ETC.) + 0
--------
TOTAL LEASE-UP COSTS = $106,400
TOTAL REPLACEMENT COST NEW
(IMPROVEMENTS, PROFIT & LAND): $4,111,000
ANALYSIS OF DEPRECIATION
INTRODUCTION - ACCRUED DEPRECIATION
Accrued depreciation is a loss in value from the reproduction or
replacement cost of improvements due to any cause as of the date of appraisal.
The value difference may emanate from physical deterioration, functional
obsolescence, external obsolescence, or any combination of these sources. A
description of each of these forms of depreciation as they apply to the
appraised property is detailed as follows:
PHYSICAL DETERIORATION
Physical deterioration is the result of wear, tear and weathering. This
form of depreciation can be divided into two categories - curable and incurable.
PHYSICAL CURABLE:
Description: Refers to items of deferred maintenance which are
in need of repair on the date of the appraisal in
order to restore occupancy or marketability.
Deferred maintenance includes minor refurbishing
of painted, tiled or carpeted surfaces. It also
includes deferred repairs of mechanical systems,
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 71
COST APPROACH, CONT'D.
the building exterior roof cover and the parking
areas.
Subject Analysis: This is an 8-year old property; no deferred
maintenance.
PHYSICAL INCURABLE:
Description: Involves an estimate of deterioration that is not
practical or currently feasible to correct. It
pertains to structural elements that were not
listed in the physically curable category.
Generally, incurable physical deterioration is a
product of the aging of major structural
components such as the foundation, framing, walls,
plumbing, electrical, mechanical and roof systems.
In order to estimate the depreciation charged for
this category, the physical age-life method is
applied to the current reproduction or replacement
cost of the entire structure less the components
treated as curable.
Subject Analysis: The reader is directed to the Description of
Improvements Analysis for the analysis of
effective age and economic life. Employing the
physical age-life (straight line) method of
estimating physical incurable deterioration, the
calculations are made as follows:
PHYSICAL INCURABLE CALCULATIONS
Actual Age 8
Effective Age 8
Divide By Economic Life 50
----------
Incurable Physical % 16.00%
Remaining Economic Life 42
CALCULATIONS:
Replacement Cost New $4,007,969
Less Physical Curable 0
----------
Subtotal $4,007,969
Incurable Physical % 16%
----------
Incurable Physical Estimate $641,275
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 72
COST APPROACH, CONT'D.
FUNCTIONAL OBSOLESCENCE
This is the adverse effect on value resulting from defects in design. It
can also be caused by changes that, over time, have made some aspect of a
structure, material or design obsolete by current standards. Functional
obsolescence is generally attributable to deficiencies or superadequacies
inherent in the improvements and the defect may be curable or incurable.
FUNCTIONAL CURABLE
Description: To be curable, the cost of replacing the
outmoded or unacceptable aspect must be
at least offset by the anticipated
increase in value. The measure of
curable functional obsolescence is the
cost to effect the cure.
Subject Analysis: The physical inspection of the subject
indicated the property has no
functional curable obsolescence.
FUNCTIONAL INCURABLE
Description: Involves an estimate of obsolescence
that is not practical or currently
feasible to correct. It pertains to
structural elements that were not listed
in the functional curable category.
Capitalization of the net income loss is
the commonly accepted approach to the
measurement of incurable functional
obsolescence.
Subject Analysis: The inspection of the subject property
and a review of the plans provided
indicate that the two-story design of
the subject improvements is functional.
Therefore, no functional incurable
obsolescence was noted in the subject
property.
EXTERNAL OBSOLESCENCE
External obsolescence, which is the result of the diminished utility of a
structure due to negative influences from outside the site, is always incurable.
It can be caused by a variety of factors - neighborhood decline, the property's
location in a community, or market conditions. Only the portion of the loss that
is applicable to the improvements is deducted from the current replacement cost
since the effect of external influences on land value is calculated in the land
valuation. In the absence of comparable sales subject to the same negative
influence, the best method of measuring external obsolescence is by
capitalization of the rent loss or discounting of the rent loss over the
affected time period.
SUBJECT ANALYSIS: The subject has average access and
visibility, and conforms to
surrounding development. Market
conditions have been historically
weak; however, rents have begun to
increase over the past 24
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 73
COST APPROACH, CONT'D.
months. However, it appears rents have
not increased to a level to justify
speculative development. Thus, the
minimal external obsolescence is
calculated in the following table.
EXTERNAL OBSOLESCENCE CALCULATIONS
Total Replacement Cost New, Building And Land $4,110,969
Less: Physical Items (641,275)
Less: Functional Items 0
----------
Depreciated RCN $3,469,694
--------------------------------------------------------------------
Required NOI ($3,469,694 X 10.00% ) $346,969
Less: Estimated NOI (324,972)
NOI Loss Due To External Obsolescence $21,998
Less: NOI Attributable To Land 2.51% (551)
NOI Loss Attributable To Improvements $21,447
Capitalized At: 10.00%
External Obsolescence $214,467
External Obsolescence, Rounded $214,000
ACCRUED DEPRECIATION SUMMARY
PHYSICAL CURABLE $0
PHYSICAL INCURABLE $641,275
FUNCTIONAL CURABLE $0
FUNCTIONAL INCURABLE $0
EXTERNAL $214,000
----------
TOTAL ACCRUED DEPRECIATION $855,275
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 74
Wal-Mart Store 54,962 SF @ $0.00 /SF = $0
Anchor 0 SF @ $0.00 /SF = $0
Anchor 0 SF @ $0.00 /SF = $0
Small Shop Allowan 21,800 SF @ $0.00 /SF = $0
Site Improvements
-----------------
Asphalt Paving 200,000 SF @ $1.50 /SF = $300,000
Fence 115 LF @ $25.00 /LF = 2,875
Signage & Lighting: 5,000
Landscaping: 10,000
Site Preparation 10,000
Traffic Light Installation: 0
Additional Fees & Permits 5,000
--------
Subtotal Site Improvements: 332,875
----------
Total Direct Costs: $3,480,256
INDIRECT COSTS
Land Loan Interest: $6,953
Lease-Up Costs: 106,400
Professional Fees: 50,000
--------
Total Indirect Costs: 163,353
----------
Total Direct and Indirect Costs: $3,643,608
Entrepreneurial Profit as % of Direct/Indirect Costs, Rd. 10% 364,361
----------
Total Cost New of Improvements and Profit: $4,007,969
Less: Accrued Depreciation (855,275)
----------
Depreciated Cost of Improvements: $3,152,694
Plus: Estimated Land Value by Market Comparison: 103,000
----------
Value Indicated by the Cost Approach: $3,255,694
STABILIZED VALUE ESTIMATE, ROUNDED $3,260,000
Less: Lease-Up Costs to Stabilization 0
----------
COST APPROACH AS IS VALUE ESTIMATE: $3,260,000
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 75
SALES COMPARISON APPROACH
INTRODUCTION
The application of this approach produces an estimate of value by
comparing the subject with properties which recently sold or which are currently
offered for sale in the same or competing areas. This approach is most viable
when an adequate number of properties of similar type have been sold recently.
The sales comparison approach is essential to almost every appraisal of real
property.
In applying the sales comparison approach, the appraiser must complete
five steps:
1. Seeks out similar properties for which pertinent sales, listings,
offerings, and/or rental data are available.
2. Ascertains the nature of the conditions of sale, including the
price, terms, motivating forces, and its bona fide nature.
3. Analyzes each of the comparable properties' important attributes
with the corresponding ones of the property being appraised, under
the general divisions of conditions of sale, financing terms, market
conditions (time), location, physical characteristics and income
characteristics.
4. Considers the dissimilarities in the characteristics disclosed in
Step 3, in terms of their probable effect on the sale price.
5. Formulates, in light of the comparison thus made, an opinion of the
relative value of the subject property as a whole, or where
appropriate, by applicable units, compared with each of the similar
properties.
After completing the necessary research, the property sales on the
following pages are considered the most comparable available transactions for
analysis and comparison with the subject.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 76
SALES COMPARISON APPROACH, CONT'D.
--------------------------------------------------------------------------------
COMPARABLE IMPROVED SALES DATA
--------------------------------------------------------------------------------
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 77
Actual Consideration: $9,380,038 Cash Equivalent: $9,380,038
Financing: All cash to seller.
First Mortgage: $0
Other Mortgages: $0
Total Mortgages: $0 Actual Equity: $9,380,038
Verified By: Grantee
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 78
RETAIL CENTER SALE COMPARABLE NO. 1, CONT'D.
--------------------------------------------------------------------------------
OPERATING DATA: TOTAL $ PER SF % OF GAI
Gross Annual Income: $ 1,027,542 $ 5.24 100.00%
Less Vacancy: ($ 30,826) ($0.16) -3.00%
----------- ------ ------
Effective Gross Income: $ 996,716 $ 5.08 97.00%
Less Expenses: ($ 59,459) ($0.30) -5.79%
----------- ------ ------
Net Operating Income: $ 937,257 $ 4.78 91.21%
Debt Service: $ 0 $ 0.00 0.00%
----------- ------ ------
Cash Flow: $ 937,257 $ 4.78 91.21%
UNITS OF COMPARISON ACTUAL
GIM: 9.13
Effective GIM: 9.41
Overall Rate: 9.99%
Equity Dividend: 9.99%
Sales Price Per SF: $47.88
COMMENTS: This community center was constructed in 1987 and an additional
10,565 SF was added to the Wal-Mart space between 1991 and 1995.
Local space totals 29,200 SF or 15% of the center. The center sold
in 1995 for $9,000,000 or $48.56/SF based on 185,347 SF in place
at the time. The appraisers only had access to the NOI. Therefore,
the appraisers have estimated the gross income, vacancy, and
expenses.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 79
RETAIL CENTER SALE COMPARABLE NO. 2:
PROJECT DATA
COMP_CODE: 219
Project Name: Pine Valley Shopping Center
Location: 3600 South College Road, Wilmington, NC
County: New Hanover
Grantor: Prime Properties Ventures, LLC
Grantee: Pine Valley Commercial Center Number One
PROPERTY DATA
Net Rentable Area (SF): 60,000
Land Size: 5.38
Land/Building Ratio: 3.9:1
Year Built: 1990
Occupancy: 100%
Construction: 1-story masonry with stucco cover
Condition: Good
Anchor Tenants: Food Lion and Revco (71%)
Date of Sale: 04/28/96 Book/Page: 2024 / 927
Map(s): N/A
Parcel(s): N/A
TRANSACTION DATA
Actual Consideration: $4,400,000 Cash Equivalent: $4,400,000
Financing: All cash to seller.
First Mortgage: $0
Other Mortgages: $0
Total Mortgages: $0 Actual Equity: $4,400,000
Verified By: Phil Krauss
(C)l997 Huber & Lamb Appraisal Group, Inc. Page 80
RETAIL CENTER SALE COMPARABLE NO. 2, CONT'D.
--------------------------------------------------------------------------------
OPERATING DATA: TOTAL $ PER SF % OF GAI
Gross Annual Income: $ 478,952 $ 7.98 100.00%
Less Vacancy: ($ 14,369) ($0.24) -3.00%
--------- ------ ------
Effective Gross Income: $ 464,583 $ 7.74 97.00%
Less Expenses: ($ 24,583) ($0.41) -5.13%
--------- ------ ------
Net Operating Income: $ 440,000 $ 7.33 91.87%
Debt Service: $ 0 $ 0.00 0.00%
--------- ------ ------
Cash Flow: $ 440,000 $ 7.33 91.87%
UNITS OF COMPARISON ACTUAL
GIM: 9.19
Effective GIM: 9.47
Overall Rate: 10.00%
Equity Dividend: 10.00%
Sales Price Per SF: $73.33
COMMENTS: This neighborhood center is in a good location in a growth
corridor south of Wilmington. The buyer indicated that
approximately 85% of the cash flow was derived from a credit
tenant base. The buyer also indicated that the center was
purchased on a 10% overall capitalization rate. The appraisers
only had access to the NOI. Therefore, the appraisers have
estimated the gross income, vacancy and expenses.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 81
RETAIL CENTER SALE COMPARABLE NO. 3:
PROJECT DATA
Comp_Code: 204
Project Name: North Nixson Marketplace Shopping Center
Location: Hixson Place and Camp Columbus Road, Chattanooga, TN
County: Hamilton
Grantor: North Nixson, LLC
Grantee: Amberjack, Ltd.
PROPERTY DATA
Net Rentable Area (SF): 63,270
Land Size: 9.24 acres
Land/Building Ratio: 6.4:1
Year Built: 1995
Occupancy: 96%
Construction: 1-story with split face block
Condition: Good
Anchor Tenants: Winn Dixie & Big "B" Drugs (83%)
Date of Sale: 03/15/96 Book/Page: N / A
Map(s): N/A
Parcel(s): N/A
TRANSACTION DATA
Actual Consideration: $4,760,000 Cash Equivalent: $4,760,000
Financing: All cash to seller.
First Mortgage: $0
Other Mortgages: $0
Total Mortgages: $0 Actual Equity: $4,760,000
Verified By: Dick Schmalz (205-871-23617)
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 82
RETAIL CENTER SALE COMPARABLE NO. 3, CONT'D.
--------------------------------------------------------------------------------
OPERATING DATA: TOTAL $ PER SF % OF GAI
Gross Annual Income: $ 623,083 $ 9.85 100.00%
Less Vacancy: ($ 13,057) ($0.21) -2.10%
--------- ------ ------
Effective Gross Income: $ 610,026 $ 9.64 97.90%
Less Expenses: ($127,697) ($2.02) -20.49%
--------- ------ ------
Net Operating Income: $ 482,329 $ 7.62 77.41%
Debt Service: $ 0 $ 0.00 0.00%
--------- ------ ------
Cash Flow: $ 482,329 $ 7.62 77.41%
UNITS OF COMPARISON Actual
GIM: 7.64
Effective GIM: 7.80
Overall Rate: 10.13%
Equity Dividend: 10.13%
Sales Price Per SF: $75.23
COMMENTS: This one-story neighborhood shopping center with split-face
concrete block exterior walls and synthetic stucco on a steel stud
canopy. Other tenants are Movie Gallery and Sally's Beauty Salon.
Tenant expenses are CAM, taxes and insurance. At the time of sale,
there were two vacant local shops containing 2,400 SF. Expense
contributions included in potential gross income and local
vacancy. The vacancy is based on 10% of local shop income plus
expense contributions. The expenses are based on 4% management,
excluding contributions, $1.59/SF for taxes, CAM and insurance
plus $0.10/SF for reserves. The estimated expenses were consistent
with Grantor's proforma. Average local shop space rent for leased
space was $10.45/SF.
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 83
RETAIL CENTER SALE COMPARABLE NO.4:
PROJECT DATA
Comp_Code: 171
Project Name: Kimball Crossing
Location: NEC IH-24 and US-41/72/64/8, Kimball, TN
Date of Sale: 11/08/95 Book/Page: 211 / 141
Map(s): 133
Parcel(s): 128.01
TRANSACTION DATA
Actual Consideration: $6,057,328 Cash Equivalent: $6,057,328
Financing: All cash to seller; conventional financing from PNC
Bank, amount not provided
First Mortgage: $0
Other Mortgages: $0
Total Mortgages: $0 Actual Equity: $6,057,328
Verified By: Fletcher Bright
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 84
RETAIL CENTER SALE COMPARABLE NO. 4, CONT'D.
--------------------------------------------------------------------------------
OPERATING DATA: TOTAL $ PER SF % OF GAI
Gross Annual Income: $ 688,200 $ 4.93 100.00%
Less Vacancy: ($ 22,729) ($0.16) -3.30%
--------- ------ ------
Effective Gross Income: $ 665,471 $ 4.77 96.70%
Less Expenses: ($ 54,197) ($0.39) -7.88%
--------- ------ ------
Net Operating Income: $ 611,274 $ 4.38 88.82%
Debt Service: $ 0 $ 0.00 0.00%
--------- ------ ------
Cash Flow: $ 611,274 $ 4.38 88.82%
UNITS OF COMPARISON ACTUAL
GIM: 8.80
Effective GIM: 9.10
Overall Rate: 10.09%
Equity Dividend: 10.09%
Sales Price Per SF: $43.44
COMMENTS: The property is located in a very small community along
IH-24between Chattanooga and Mt. Eagle, Tennessee. However, the
location serves a multi-county region extending to Mt. Eagle to
the west, counties in Alabama to the south and Grundy County to
the north. The Wal-Mart lease was initiated in 1987 for a 20 year
term. Thus, the lease had 12 years remaining. Goody's lease was
initiated in 1987 and will expire in 3.5 years. The Bi-Lo lease
has 12 years remaining as well. A substantial portion of the
parking lot is in the 100 year floodplain, but all building
improvements have been raised above flood elevation. The vacancy
is calculated on 10% of local shops only because of the location.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 85
RETAIL CENTER SALE COMPARABLE NO. 5:
PROJECT DATA
COMP_CODE: 210
Project Name: Market Place Shopping Center
Location: U.S. Highway 74, Shelby, NC
County: Cleveland
Grantor: ING and Bosch Properties
Grantee: Mid-America Capital
PROPERTY DATA
Net Rentable Area (SF): 197,787
Land Size: 23.27 acres
Land/Building Ratio: 5:1
Year Built: 1987
Occupancy: 100%
Construction: 1-story masonry
Condition: Good
Anchor Tenants: Wal-Mart, Bi-Lo, Goody's and Revco (85%)
Date of Sale: 05/14/96 Book/Page: N / A
Map(s): N/A
Parcel(s): N/A
TRANSACTION DATA
Actual Consideration: $8,350,000 Cash Equivalent: $8,350,000
Financing: All cash to seller.
First Mortgage: $0
Other Mortgages: $0
Total Mortgages: $0 Actual Equity: $8,350,000
Verified By: Grantee
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 86
RETAIL CENTER SALE COMPARABLE NO. 5, CONT'D.
--------------------------------------------------------------------------------
OPERATING DATA: TOTAL $ PER SF % OF GAI
Gross Annual Income: $ 1,103,124 $ 5.58 100.00%
Less Vacancy: ($ 33,094) ($0.17) -3.00%
----------- ------ ------
Effective Gross Income: $ 1,070,030 $ 5.41 97.00%
Less Expenses: ($ 220,000) ($1.11) -19.94%
----------- ------ ------
Net Operating Income: $ 850,030 $ 4.30 77.06%
Debt Service: $ 0 $ 0.00 0.00%
----------- ------ ------
Cash Flow: $ 850,030 $ 4.30 77.06%
UNITS OF COMPARISON ACTUAL
GIM: 7.57
Effective GIM: 7.80
Overall Rate: 10.18%
Equity Dividend: 10.18%
Sales Price Per SF: $42.22
COMMENTS: This property is located in a rural community and serves as the
primary retail facility for a large trade area. The block building
was completed in 1987 and renovated in 1994. Overall, the property
has good market appeal. Occupancy was 100% at the time of sale,
but the Grantee utilizes a 6% overall vacancy and collection loss
rate when underwriting the deal. Anchor spaces comprise nearly 85%
of the total center space. The center reportedly included one
vacant out parcel, however, information regarding the Grantee's
perceived value of the out parcel was not available.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 87
COMPARABLE SALES MAP
[GRAPHICS OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 88
SALES COMPARISON APPROACH - ANALYSIS
COMPARABLE IMPROVED SALES SUMMARY
===================================================================================================
Sale No. Subject 1 2 3 4 5
---------------------------------------------------------------------------------------------------
Name/Address Franklin North Nixson
Square Pine Valley Marketplace Kimball
Shopping Shopping Shopping Crossing Market Place
Center, Center, Center, Shopping Shopping
Spartanburg, Wilmington, Chattanooga, Center, Center,
SC NC TN Kimball, TN Shelby, NC
---------------------------------------------------------------------------------------------------
Sale Date Current 10/01/96 04/28/96 03/15/96 11/08/95 05/14/96
---------------------------------------------------------------------------------------------------
Year Built 1989 1987 1990 1995 1987 1987
---------------------------------------------------------------------------------------------------
Occupancy 98% 97% 100% 96% 95% 100%
---------------------------------------------------------------------------------------------------
Size(SF) 76,762 195,912 60,000 63,270 139,455 197,787
---------------------------------------------------------------------------------------------------
% Credit/Anchor 72% 85% 71% 83% 78% 85%
---------------------------------------------------------------------------------------------------
SP/SP N/A $47.88 $73.33 $75.23 $43.44 $42.22
---------------------------------------------------------------------------------------------------
NOI/SF $423 $4.78 $7.33 $7.62 $4.38 $4.30
---------------------------------------------------------------------------------------------------
GIM N/A 9.13 9.19 7.64 8.80 7.57
---------------------------------------------------------------------------------------------------
NOI/GPI 91.59% 91.21% 91.87% 77.41% 88.82% 77.06%
===================================================================================================
Note: All transaction data in the chart reflects cash equivalency and/or
other adjustments applied in the comparable sale summary sheets.
INTRODUCTION
A search for comparable sales within the subject neighborhood and
competitive locales was conducted by the appraiser. The appraiser consulted with
local real estate agents knowledgeable of the subject market and researched
public records for pertinent information. The sales used herein represent the
most comparable data available at the time of the report.
COMPARISON OF IMPORTANT FACTORS AFFECTING SP/SF
All property characteristics of the comparable sales and the subject
property have been analyzed by the appraisers. The following summarizes the
comparison of primary factors of the comparable sales affecting value as
compared to the subject.
SUBJECT:
Primary Negative Factors: None
Primary Positive Factors: None significant compared to most comparable
sales
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 89
SALES COMPARISON APPROACH - ANALYSIS, CONT'D.
SALE NO.1 - FRANKLIN SQUARE SHOPPING CENTER, SPARTANBURG, SC:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Slightly superior before adjustment and
similar after
SALE NO.2 - PINE VALLEY SHOPPING CENTER, WILMINGTON, NC:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: Superior market
Overall Comparison
to Subject: Superior before adjustment and similar after
SALE NO.3 - NORTH NIXSON MARKETPLACE SHOPPING CENTER, CHATTANOOGA, TN:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: Superior market; slightly newer center
Overall Comparison
to Subject: Superior before adjustment and similar after
SALE NO.4 - KIMBALL CROSSING SHOPPING CENTER, KIMBALL, TN:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: NOI/SF
Overall Comparison
to Subject: SlightLy superior before adjustment and
similar after
COMMENT: The sale date for this property is slightly older than desired;
however, the economic and physical characteristics of this sale are highly
similar to the subject. It is located within an hour of a metropolitan area
(Chattanooga) within a very small community near an interstate. The property has
a higher number of anchors (Wal Mart at 65,930 SF, Bi-Lo, and Goody's at 17,050
SF); however, the center is larger yielding a very similar percentage of anchor
space. In fact, Goody's only had 3.5 years remaining on their lease. Therefore,
excluding Goody's as an anchor based upon remaining term, the property's
percentage of anchor is only 65%.
In addition, this property had an adjacent parcel available should Wal
Mart require a "relocation" to a supercenter style store. In fact, since the
sale date, the new owner has announced that they are developing a supercenter
Wal Mart on the adjacent site. This factor is also highly similar to the
subject, which has ample acreage located on an adjacent tract. While the actual
intent of Wal Mart is unknown, they have a well
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 90
SALES COMPARISON APPROACH - ANALYSIS, CONT'D.
established history of moving out of existing stores similar in size and age
as the subject and moving into a new supercenter store.
Finally, the date of sale does not appear to be a significant factor when
compared to Sale Nos. 1 and 5, which also have Wal Mart as an anchor. These
sales occurred in mid to late 1996 and reflect highly similar sale prices per
square foot and overall rates. Thus, the use of this 1995 sale is justified.
SALE NO. 5 - MARKET PLACE SHOPPING CENTER, SHELBY, NC:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Slightly superior before adjustment and
similar after
MOST COMPARABLE SALES: Nos. 1, 4 and 5
COMMENT: Sale Nos. 1, 4 and 5 have the most similar income, anchor and
risk characteristics as the subject. This is primarily related to the percent of
anchor space and the risk associated with the Wal Mart anchors. Sale No.3 has
Winn Dixie as an anchor tenant. Thus, the adjusted price per square foot range
of Sale Nos. 1, 4 and 5 are most comparable to the subject property and given
most weight.
The appraisers acknowledge that a similarly aged Wal Mart and Food Lion
anchored shopping center sold in October 1996 in Ashland City, Tennessee.
However, after repeated attempts to confirm the sale from the buyer and seller,
the appraisers were not successful in confirming the sale. The known factors are
that the recorded price from the deed is $3,092,717 and is 93,304 SF. The
percentage of anchor is 71% with Wal Mart occupying 41,304 SF and Food Lion
25,000 SF. The sale price equates to $33.15/SF.
The appraisers a very familiar with this shopping center, with the
exception of the income information. The center has suffered from high vacancies
in the local shop space because of a very poor location removed from the small
town of Ashland City. Ashland City is generally removed from interstate roads
resulting in the Wal Mart being an at risk location relative going dark.
Furthermore, several supercenter stores have been developed in the adjacent
counties to the north, east and west. The surrounding terrain is very hilly with
no expansion land available for Wal Mart. Considering all of these factors, the
relatively low sales price per square foot is reasonable for this sale, which is
substantially inferior to the subject.
SALE PRICE PER SQUARE FOOT METHOD
DESCRIPTION: The Price Per Square Foot indicator is a general
common denominator which encompasses all
influences without specifically identifying their
impact. It is most affected by location, size,
age/condition, and existing leases at above or
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 91
SALES COMPARISON APPROACH - ANALYSIS, CONT'D.
below market levels, if a rental property. This
indicator is derived by dividing the sales price
by the net rentable area.
NOI/SF ADJUSTMENT TECHNIQUE: A wide range produced by this method indicates
that the comparable sales have varying
income-producing capabilities attributable to
differences in age, location, size and quality. In
order to adjust for these differences, a
multiplier is obtained by dividing the subject's
NOI/SF by the NOI/SF of each comparable sale. The
resulting multiplier is then applied to the sales
price/SF of each comparable resulting in an
indicated sale price/SF for the subject property.
The following grid displays this technique.
Note: Above chart is sorted based on ascending NOI/SF's.
COMMENTS/ANALYSIS: Additional subjective adjustments may be required based
on unquantifiable factors not recognized in the NOI/SF adjustment. Examples are
investment grade compared to owner occupancy, quality of tenants, conditions of
sale and other intangible factors. Sale Nos. 1, 4 and 5 are the most similar to
the subject in income producing ability, anchors, and location. Based on the
adjusted sale price per square foot of the previously identified most comparable
sales and considering the sale requiring the least adjustment the indicated
market value per square foot range for the subject property is $41.50 to $42.50.
The calculations are presented as follows.
SP/SF METHOD CALCULATIONS
VALUE EST.,
SIZE SP/SF EST. ROUNDED
76,762 SF x $41.50 = $3,190,000
76,762 SF x $42.50 = $3,260,000
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 92
SALES COMPARISON APPROACH - ANALYSIS, CONT'D.
GROSS INCOME MULTIPLIER METHOD
DESCRIPTION: The Gross Income Multiplier illustrates the
relationship between the sales price and the
revenue stream of a property. Investments are
often acquired on the basis of a multiple either
of their current or potential income flow. Because
this indicator is a good reflection of the motives
of purchasers, it is considered to be a realistic
assessment of market tendencies.
NOI/GROSS POTENTIAL INCOME
RATIO COMPARISON OF GIM'S: GIM's are typically influenced by the relationship
between the net operating income and gross
potential income as measured by the net operating
income to gross income ratio (NOI/GPI ratio). The
sales with the most similar NOI/GPI ratios are
typically considered to be the most comparable to
the appraised property all other factors being
equal. The following chart summarizes the
comparison of the GIM's to the comparable sales'
NOI/GPI ratio as well as comparing the NOI/GPI
ratio of the comparable sales to the subject's
NOI/GPI ratio.
Note: Above chart is sorted based on ascending NOI/GPI's.
COMMENT/ANALYSIS: Based on the comparison in the previous chart and
considering the general characteristics of the transactions as compared to the
subject previously discussed, the subject's GIM should be slightly above Sale
No.4 and at or slightly below Sale No.1 since these sales bracket the subject's
NOI/GPI%. Thus, the GIM range estimated for the subject is 8.80x to 9.10x after
considering the factors noted above. The calculations for this method are
presented below.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 93
SALES COMPARISON APPROACH - ANALYSIS, CONT'D.
--------------------------------------------------------------------------------
GIM CALCULATIONS
VALUE EST.,
GROSS INC. GIM EST. ROUNDED
$354,822 x 8.80 = $3,120,000
$354,822 x 9.10 = $3,230,000
SALES COMPARISON APPROACH - RECONCILIATION
SUMMARY OF VALUE RANGES
METHOD VALUE RANGE
----------------------------------
SP/SF $3,190,000 to $3,260,000
GIM: $3,120,000 to $3,230,000
COMMENT/ANALYSIS: The two valuation techniques yield highly similar value
ranges. This is attributed to the narrow range indicated by the most comparable
sales, which also had Wal Mart anchors and constructed in the late 1980's. With
equal consideration placed upon the sales price per square foot method and GIM
method, a value at the middle of the range is reasonable.
The value ranges previously derived represent an as stabilized value range
for the subject property. The subject center is 98% economically leased.
Therefore, there are no deductions for the prospective value upon completion.
SALES COMPARISON APPROACH
AS IS VALUE ESTIMATE
Current Stabilized Value $3,225,000
Estimate
Less: Deferred Maintenance 0
Less: Lease-Up Costs to
Stabilization 0
----------
As Is Value Estimate $3,225,000
==========
As a result, the value estimate as indicated by the sale comparison
approach, is reconciled as follows.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 94
INCOME CAPITALIZATION APPROACH
INTRODUCTION
The income capitalization approach is the procedure in appraisal analysis
which converts anticipated benefits (dollar income or amenities) to be derived
from the ownership of property into a value estimate. Anticipated future income
and/or reversions are discounted to a present worth figure through the
capitalization process.
This approach, like the cost and sales comparison approaches, requires
extensive market research. Specific areas that an appraiser investigates for
this approach are the property's gross income expectancy, the expected reduction
in gross income from lack of full occupancy and collection loss, the expected
annual operating expenses, the pattern and duration of the property's income
stream, and the anticipated value of the resale of other real property interest
reversions. When accurate income and expense estimates are established, the
income streams are converted into present value by the process of
capitalization. The rates or factors used for capitalization are derived by the
investigation of acceptable rates of return for similar properties.
The income capitalization approach is generally applied in appraising
income-producing properties. The quantity, quality and durability of the income
stream must be considered in estimating the economic rent of an income-producing
property.
QUANTITY: Rental comparables have been gathered from similar
properties to show current market rents.
QUALITY: This is a measure of the strength of the tenant that
could be expected to occupy the subject (i.e., AAA,
regional, local, etc.).
DURABILITY: This is reflected in the vacancy of the area.
In order to analyze contractual rentals of the subject and determine the
economic rent potential of the available space, a survey was conducted of
similar developments.
The pages which follow will summarize the comparable rental data utilized
in the appraisal of the subject property. While this study does not include all
competitive space, it is useful in determining patterns of occupancy and
economic levels of rent.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 95
INCOME CAPITALIZATION APPROACH, CONT'D.
COMPARABLE IMPROVED RENTAL DATA
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 96
RETAIL RENT COMPARABLE NO. 1:
[GRAPHICS OMITTED]
PROJECT DATA
Project Name: Bradford Square Shopping Center
Location: 321 East Main Street, St. Brownsville, TN
County: Haywood
PROPERTY DATA
Rentable Area (SF): 81,651
Year Built: 1972,1977,1983 & 1987
Construction: 1-Story masonry
Bay Depths: 50'
Anchor Tenants: Kroger's, Heilig-Meyers & Freds
RENTAL DATA
Quoted Rate/SF: $2.00 to $3.00
EXISTING RATE RANGE
Anchor Tenants: $2.00/SF (Kroger)
Spec Space: N/A
Restaurant Space: N/A
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 97
RETAIL RENT COMPARABLE NO. 1, CONT'D.
LEASE TERMS
Lease Basis: Gross and triple-net
Typical Lease Term: Varies
CAM Charge: $1.20/SF
Escalator Clause: N/A
Finish-Out: N/A
Rental Concessions N/A
Occupancy Rate: 100% Historical Occupancy Rate: 100%
Verified By: Vernon Brown (901-757-0500)
Date: 08/21/97 COMP_CODE:314
COMMENTS: The Kroger space has five years left on the lease agreement. Other
tenants are Auto Zone & Family Dollar. Fred's and Heilig-Meyers
Furniture occupy the former Wal-Mart space.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 98
RETAIL RENT COMPARABLE NO. 2:
[GRAPHICS OMITTED]
PROJECT DATA
Project Name: Subway Shopping Center
Location: 960-1000 East Main Street, St. Brownsville, TN
County: haywood
PROPERTY DATA
Rentable Area (SF): 6,000
Year Built: 1990
Construction: 1-Story metal frame with brick veneer
Bay Depths: 55'
Anchor Tenants: Subway
RENTAL DATA
Quoted Rate/SF: $5.50
EXISTING RATE RANGE
Anchor Tenants: N/A
Spec Space: N/A
Restaurant Space: N/A
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 99
COMMENTS: Other tenants at this location are Pizza For Less, Prime Time
Video & a beauty salon.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 100
RETAIL RENT COMPARABLE NO. 3:
[GRAPHICS OMITTED]
PROJECT DATA
Project Name: Humboldt Center
Location: 2120 North Central Avenue/US-45W, Humboldt, TN
County: Gibson
PROPERTY DATA
Rentable Area (SF): 125,000
Year Built: 1972
Construction: 1-Story
Bay Depths: 80'
Anchor Tenants: Piggly Wiggly & Peebles
RENTAL DATA
Quoted Rate/SF: $6.00/SF to $8.00/SF
EXISTING RATE RANGE
Anchor Tenants: N/A
Spec Space: N/A
Restaurant Space: N/A
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 101
RETAIL RENT COMPARABLE NO. 3, CONT'D.
--------------------------------------------------------------------------------
LEASE TERMS
Lease Basis: Triple-net
Typical Lease Term: 5 to 10 years
CAM Charge: $1.00
Escalator Clause: No
Finish-Out: Negotiable
Rental Concessions None
Occupancy Rate: 98% Historical Occupancy Rate: 100%
Verified By: David Hutton Jr. (615-363-6545)
Date: 08/20/97 COMP_CODE: 316
COMMENTS: This center is located on the southeast corner of the by-pass and
N. Central Avenue/US-45W. This well maintained center is the
largest in Humboldt.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 102
RETAIL RENT COMPARABLE NO. 4:
[GRAPHICS OMITTED]
PROJECT DATA
Project Name: Humboldt Eye Care/Cato Shopping Center
Location: 2439 North Central Avenue, Humboldt, TN
County: Gibson
PROPERTY DATA
Rentable Area (SF): 14,000
Year Built: 1996
Construction: 1-Story masonry
Bay Depths: 80'
Anchor Tenants: Eye Care Clinic & Cato Plus
RENTAL DATA
Quoted Rate/SF: $11.00
EXISTING RATE RANGE
Anchor Tenants: N/A
Spec Space: N/A
Restaurant Space: N/A
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 103
RETAIL RENT COMPARABLE NO. 4, CONT'D.
--------------------------------------------------------------------------------
LEASE TERMS
Lease Basis: Triple-net
Typical Lease Term: 3 to 5 years
CAM Charge: $1.10/SF
Escalator Clause: N/A
Finish-Out: N/A
Rental Concessions N/A
Occupancy Rate: 100% Historical Occupancy Rate: 100%
Verified By: George Currin (704-362-6706)
Date: 08/20/97 Comp_Code: 317
COMMENTS: Other tenants at this location are Friedman's Jewelers and
Fashions. The Eye Care Clinic operator and some other investors
own this new center.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 104
COMPARABLE RENT MAP
[GRAPHICS OMITTED]
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 105
Note: Vacant Space Current Rent/SF input at market rent estimates.
1. PLUS RESERVES
2. PLUS RESERVES & MANAGEMENT FEE
TENANCY: Multi-tenant
SQUARE FEET OCCUPIED: 75,562 SF
SQUARE FEET VACANT - SHELL: 0 SF
SQUARE FEET VACANT -
2ND GENERATION: 1,200 SF
RENT TREND: Stable
HISTORICAL TENANT FINISH:
New Lease: None
Refinish: Negotiable
COMMENTS/ANALYSIS: As discussed earlier this is a shopping center that was
built in 1989. The most current lease is Beauty World in June 1996 at $6.75/SF
for 3 1/2-years on a absolute net basis. The bay depth for Beauty World is 80',
with 25' store front; however, they did not need 2,000 SF, only 1,500 SF. The
typical 80' bay depth user requires more space and bay width. Therefore, the
effect rental rate for this space is
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 106
ANALYSIS OF POTENTIAL GROSS INCOME, CONT'D.
$9.00/SF for typical bay epth. Thus, the $6.75/SF rate is reflective of deep bay
depth. The current asking rental rate for local shop space is $9.50/SF.
The anchor expense recovery for the center is the standard triple net
lease in which taxes, insurance and common area maintenance (CAM) is recovered
from the tenant. However, three tenants, also pay their pro rata share of the
management fee. In addition, three other tenants have absolute net leasesin
which they pay pro rata share of capital expenses.
In order to estimate market rent rates to apply to the subject, we
surveyed similar properties in the subject neighborhood. Factors which typically
influence rental rates include location, and physical attributes such as age,
condition and design/appeal characteristics. The rent comparables presented in
this report represent the most comparable properties to the subject with respect
to age, quality of construction and location. The following chart summarizes the
comparable improved rental data previously presented.
SUMMARY OF COMPARABLE IMPROVED RENTAL DATA
=====================================================================================================================
Rent No. Subject 1 2 3 4
Brownsville Humnoldt Eye
Place Bradford Square Subway Shopping Care/Cato
Name/Address Shopping Shopping Center, Center, Humnoldt Center, Shopping Center,
Center Brownsville, TN Brownsville, TN Humnoldt, TN Humnoldt, TN
---------------------------------------------------------------------------------------------------------------------
Size(SF) 77,752 81,651 6,000 125,000 14,000
---------------------------------------------------------------------------------------------------------------------
Year Built 1989 1972, 1977, 1983 1990 1972 1996
& 1987
---------------------------------------------------------------------------------------------------------------------
Occupancy 98% 100% 100% 98% 100%
---------------------------------------------------------------------------------------------------------------------
Quoted Rate/SF N/A $2.00 to $3.00 $5.50 $6.00 to $8.00 $11.00
---------------------------------------------------------------------------------------------------------------------
Tenant Expenses N/A Gross & triple-net Gross Triple-net Triple-net
---------------------------------------------------------------------------------------------------------------------
CAM Charge N/A $1.20/SF None $1.00/SF $1.10/SF
---------------------------------------------------------------------------------------------------------------------
Rental N/A None None None None
Concessions
=====================================================================================================================
All property characteristics of the comparable rentals and the subject
property have been analyzed by the appraisers. The following summarizes the
comparison of primary factors of the comparable rentals affecting rents as
compared to the subject.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 107
ANALYSIS OF POTENTIAL GROSS INCOME, CONT'D.
COMPARISON TO SUBJECT
SUBJECT:
Primary Negative Factors: None
Primary Positive Factors: Newer facility; Wal-Mart anchor; frontage
along two major highways
RENT NO.1 - BRADFORD SQUARE SHOPPING CENTER, BROWNSVILLE, TN:
Inferior Factors
Compared to Subject: Older center; below market anchor rent
Superior Factors
Compared to Subject: None
Tenant Expenses: Gross lease for Kroger and all other
tenants are triple-net
Overall Comparison
to Subject: Inferior
RENT NO.2 - SUBWAY SHOPPING CENTER, BROWNSVILLE, TN:
Inferior Factors
Compared to Subject: No anchor; construction; gross leases
Superior Factors
Compared to Subject: None
Tenant Expenses: All tenants pay gross
Overall Comparison
to Subject: Inferior
RENT NO.3 - HUMNOLDT CENTER, HUMNOLDT, TN:
Inferior Factors
Compared to Subject: Slightly older property;
Superior Factors
Compared to Subject: None
Tenant Expenses: Similar; no adjustment required
Overall Comparison
to Subject: Slightly inferior
RENT NO.4 - HUMNOLDT EYE CARE/CATO SHOPPING CENTER, HUMNOLDT, TN:
Inferior Factors
Compared to Subject: No anchor
Superior Factors
Compared to Subject: Newer property
Overall Comparison
to Subject: Similar
MOST COMPARABLE RENTALS: Nos. 3 and 4
CONCLUSIONS/ANALYSIS: The two comparables in Brownsville do not compare
well with the subject property. The two Humboldt properties are similar to the
subject in size, quality of tenants and a similar rural market. However, Rent
No. 3 is a significantly older property. After reviewing the subject's leases as
well as the rent
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 108
ANALYSIS OF POTENTIAL GROSS INCOME, CONT'D.
comparable data, the current asking rental rate for small shop space of $9.50/SF
is considered reasonable.
ESTIMATED MARKET RATE:
60' Bay Depth: $9.50/SF
80' Bay Depth
Beauty World: $7,125/SF ($9.50/SF for 60' of the depth)*
Cato/Cato Plus: $8.00/SF (recognizes >3,000 SF size)
100' Bay Depth: $8.00/SF (based on 3,000 SF size)
*Note: Lower than Cato spaces because of less functional 25' width.
EXPENSE RECOVERIES:
Analysis: The anchor expense recovery for the center is
the standard triple net lease in which taxes,
insurance and common area maintenance (CAM)
is recovered from the tenant. However, three
tenants, also pay their pro rata share of the
management fee. In addition, three other
tenants have absolute net leases.
Conclusion: Market lease rates based on the following
expense recovery: NNN.
Inasmuch as the subject is an existing property with several leases in
place, the existing contract rents and expense recoveries are utilized for
occupied space and the market lease rates and expense recovery for vacant spaces
are utilized in the Stabilized Operating Statement which follows the Analysis of
Expenses.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 109
ANALYSIS OF EXPENSES
EXPENSE HISTORY
$/SF HISTORY COMPARED TO APPRAISER'S ESTIMATE
EXPENSE ITEM 1994 1995 1996 ESTIMATE
------------ ---- ---- ---- --------
MANAGEMENT $0.00 $0.00 $0.18 $0.21
TAXES: $0.45 $0.39 $0.45 $0.42
INSURANCE: $0.05 $0.05 $0.05 $0.05
CAM: $0.40 $0.20 $0.19 $0.20
ADMINISTRATION: $0.00 $0.00 $0.00 $0.01
RESERVES: $0.00 $0.00 $0.00 $0.10
SUBTOTAL $0.90 $0.65 $0.87 $0.99
VACANCY & COLLECTION LOSS
EXPENSE DESCRIPTION: Vacancy & collection loss is an allowance for
reductions in potential income attributable
to vacancies, tenant turnover and nonpayment
of rent. The allowance is usually estimated
as a percentage of potential gross income,
which varies depending on the type and
characteristics of the physical property, the
quality of tenants, current and projected
supply and demand, and general and local
economic conditions. The percentage rate
recognized reflects typical investor
expectations over the specific holding period
assumed or projected.
SUBJECT DATA:
TENANCY: Multi-tenant
CURRENT OCCUPANCY: 98%
ANALYSIS: Based on a review of the market data above as
well as the subject's current vacancy, a
vacancy and collection loss of 5% of local
shop space is believed to appropriately
recognize potential tenant turnover and
collection loss over the holding period.
ESTIMATED VACANCY &
COLLECTION LOSS: 5% of local shop space
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 110
ANALYSIS OF EXPENSES, CONT'D.
MANAGEMENT:
EXPENSE DESCRIPTION: The subject must be considered as an
investment under prudent management. A charge
is made to reflect either the owner's input
of time and attention or that of a
professional agent. The expense would
include the collection of rents, supervision
of all maintenance, etc.
ANALYSIS: The proforma annual management fee for the
subject property is 4.0% of the Effective
Gross Income. This is consistent with local
practices.
ESTIMATED MANAGEMENT: 4.0%
REAL ESTATE TAXES: See previously presented Real Estate Tax
Analysis for detailed analysis and expense
history.
ESTIMATED REAL ESTATE
TAXES: $32,397, or $0.42/SF
INSURANCE:
Expense Description: The subject property will be insured against
losses arising out of fire, casualty, and
liability. Other various extended coverages
are also provided for under this policy.
ANALYSIS: The subject's expenses history reflects an
expense range of $0.05/SF to $0.05/SF Based
on a competitive analysis of other retail
centers and the subject's historical expense,
an estimate of $0.05/SF annually is judged
appropriate for the subject.
ESTIMATED INSURANCE: $0.05/SF
COMMON AREA MAINTENANCE (CAM):
EXPENSE DESCRIPTION: The common area maintenance charge covers all
trash removal, common area maintenance,
certain recoverable administrative expenses,
landscaping charges and common area utilities
and any other common area expenses.
ANALYSIS: The subject's expenses history reflects an
expense range of $0.19/SF to $0.40/SF. Based
on a competitive analysis of other retail
centers and the subject's historical expense,
an estimate of $0.20/SF annually is judged
appropriate for the subject.
ESTIMATED CAM: $0.20/SF
(C) 1997 Huber & Lamb Appraisal Group, Inc. Page 111
ANALYSIS OF EXPENSES, CONT'D.
ADMINISTRATION:
EXPENSE DESCRIPTION: The administrative expense consists of
non-recoverable administrative expenses
such as legal expenses and other
miscellaneous expenses that are not
passed through to the tenant in the
common area expense recovery.
ANALYSIS: The subject's expenses history reflects
an expense of $0.00$0.00/SF. Based on a
competitive analysis of other retail
centers and the subject's historical
expense, an estimate of $0.01/SF
annually is judged appropriate for the
subject.
ESTIMATED ADMINISTRATION: $0.01/SF
RESERVES:
EXPENSE DESCRIPTION: A reserves or replacement allowance
provides for the periodic replacement of
building components that wear out more
rapidly than the building itself and
must be replaced periodically during the
building's economic life. Examples of
these components are roof cover, HVAC
compressors, parking areas and other
site improvements.
ANALYSIS: The reserves expense estimate is based
primarily on the typical expense
recognized by buyers as compared to a
calculated type estimate Based upon the
age and condition of the property and
typical buyer actions, the reserves
expense estimate is $0.10/SF.
ESTIMATED RESERVES: $0.10/SF
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 112
ANALYSIS OF EXPENSES, CONT'D.
STABILIZED OPERATING STATEMENT
================================================================================
GROSS RENTAL INCOME POTENTIAL:
Lease
Size (SF) Rate
--------- ----
Anchors 54,962 @ $3.35 /SF = $184,122
Local Shop Space 21,800 @ $7.83 /SF = $170,700
------ ----- --------
Gross Rent Income 76,762 @ $4.62 /SF = $354,822
(See Rent Roll for Rent Allocation)
Plus: Expense Recovery
Anchor @ Triple-net $36,937
Local Shop @ Mixture of triple-net to absolute net $18,758
--------
Total Expense Recovery $55,695
Total Income By Tenant Type Classification
Anchor @ $221,059
Local Shop @ $189,458
--------
TOTAL GROSS ANNUAL INCOME: $410,517
LESS: VACANCY/COLLECTION LOSS
Anchor Income @ 0% $0
Local Shop Income @ 5% ($9,473)
--------
Effective Gross Income: $401,044
LESS EXPENSES
Management 4.0% EGI = $16,042
Taxes: $0.42 /SF = $32,397
Insurance: $0.05 /SF = $3,838
CAM: $0.20 /SF = $15,352
Administration: $0.01 /SF = $768
Reserves: $0.10 /SF = $7,676
-------
SUBTOTAL EXPENSES: $0.99 /SF = $76,073 ($76,073)
--------
NET OPERATING INCOME: $324,972
========
NOI/SF: $4.23
NOI/Gross Rental Income 91.59%
NOI/Gross Income 79.16%
CAPITALIZATION TECHNIQUE
NOI / OAR = Value Estimate
$324,972 / 10.00% = $3,249,715
CURRENT STABILIZED VALUE ESTIMATE $3,250,000
Less: Deferred Maintenance 0
Less: Lease-Up Costs to Stabilization 0
----------
AS IS VALUE ESTIMATE $3,250,000
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 113
ANALYSIS OF DIRECT CAPITALIZATION RATE
INTRODUCTION
Direct capitalization is a method used to convert a single year's income
estimate into a value indication. The capitalization rate utilized in the income
capitalization approach combines input from the marketplace in conjunction with
a review of mortgage/equity positions. Although the appraiser can estimate an
overall capitalization rate by using various techniques, derivation of the rate
from comparable sales is generally preferred when sufficient data are available
from transactions of similar, competitive properties. In order to provide a
consistent basis for comparison, the net operating income from each comparable
is calculated and estimated in the same manner as that for the subject property.
Additionally, the appraiser must conclude that neither non-market financing
terms nor different market conditions have affected the transaction prices of
the comparables. When these requirements are met, the appraiser estimates the
overall rate by dividing each property's net operating income by its sale price.
IMPROVED SALES' OVERALL RATE SUMMARY
=================================================================================================
Sale No. Subject 1 2 3 4 5
-------------------------------------------------------------------------------------------------
Name/Address Franklin North Nixson
Square Pine Valley Marketplace Kimball
Shopping Shopping Shopping Crossing Market Place
Center, Center, Center, Shopping Shopping
Spartanburg, Wilmington, Chattanooga, Center, Center,
SC NC TN Kimball, TN Shelby, NC
-------------------------------------------------------------------------------------------------
Sale Date Current 10/01/96 04/28/96 03/15/96 11/08/95 05/14/96
-------------------------------------------------------------------------------------------------
Year Built 1989 1987 1990 1995 1987 1987
-------------------------------------------------------------------------------------------------
Occupancy 98% 97% 100% 96% 95% 100%
-------------------------------------------------------------------------------------------------
Size(SF) 76,762 195,912 60,000 63,270 139,455 197,787
-------------------------------------------------------------------------------------------------
% Credit/Anchor 72% 85% 71% 83% 78% 85%
-------------------------------------------------------------------------------------------------
Overall Rate N/A 9.99% 10.00% 10.13% 10.09% 10.18%
=================================================================================================
Note: All transaction data in the chart reflects cash equivalency and/or
other adjustments applied in the comparable sale summary sheets.
COMPARISON OF IMPORTANT FACTORS AFFECTING OAR
All property and conditions of sale characteristics of the comparable
sales and the subject property have been analyzed by the appraisers. The
following summarizes the comparison of primary factors of the comparable sales
affecting value as compared to the subject.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 114
ANALYSIS OF DIRECT CAPITALIZATION RATE, CONT'D.
NOTE: The reader is reminded that this is a comparison of overall rates
and not the sales price per square foot. Therefore, the terms of comparison to
the subject of each sale may be different than those used in the previously
presented Sales Comparison Approach, which was based on the quantity of income
and subsequent adjustments to the sales price per square foot. While the overall
rate recognizes physical factors, intangible factors such as quality of tenants,
conditions of sale, occupancy at time of sale, and investment quality tend to
have stronger influence on the overall rate comparison. As an example, two
properties with different locations and quality of improvements may have
significantly different per square foot sales prices, but very similar overall
rates. Thus, the comparison to the subject includes the intangible factors
influencing overall rates.
SUBJECT:
Primary Negative Factors: None
Primary Positive Factors: Anchor percentage and quality of anchor;
recent renovation
SALE NO. 1 - FRANKLIN SQUARE SHOPPING CENTER, SPARTANBURG, SC:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Similar
SALE NO. 2 - PINE VALLEY SHOPPING CENTER, WILMINGTON, NC:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Similar
SALE NO. 3 - NORTH NIXSON MARKETPLACE SHOPPING CENTER, CHATTANOOGA, TN:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Similar
SALE NO.4 - KIMBALL CROSSING SHOPPING CENTER, KIMBALL, TN:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Similar
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 115
ANALYSIS OF DIRECT CAPITALIZATION RATE, CONT'D.
SALE NO. 5 - MARKET PLACE SHOPPING CENTER, SHELBY, NC:
Inferior Factors
Compared to Subject: None
Superior Factors
Compared to Subject: None
Overall Comparison
to Subject: Similar
MOST COMPARABLE SALES: Nos. 1, 4 and 5
COMMENT/ANALYSIS: All of the sales are community or neighborhood
shopping centers with moderate to strong anchors, which for the most part
dominate the overall physical size of each center. Analysis in the Sales
Comparison Approach concluded that Sale Nos. 1, 4 and 5 are the most similar
to the subject in the type of risk and anchor tenant. Based on the relatively
narrow range indicated by the most comparable sales, the appropriate overall
rate for the subject is 10.00%.
CONCLUDED OAR: 10.00%
ANALYSIS OF SUBJECT'S POTENTIAL MORTGAGE TERMS
PRELIMINARY ANALYSIS: Several factors affect the potential
real estate mortgage terms of any given
property. These factors include, credit
worthiness of the borrower, quality of
tenants, length of term, amortization
and other factors considered by lenders
when analyzing the relative risk of a
loan. However, lenders typically have
general parameters or guidelines
established for real estate loans. The
appraisers have had discussions with
local mortgage brokers about long-term
financing terms and bank loan officers
about short term financing.
LONG-TERM FINANCING: Institutional lenders are typically
establishing interest rates on the basis
of 200 to 250 basis points above the
comparable term U.S. Treasury Bond with
a 7 to 10 year term, 20 to 25 year
amortization and 70% to 75%
loan-to-value ratio. While these terms
may vary from lender to lender, the
ultimate test for a particular loan is
the debt coverage ratio.
BANK SHORT-TERM
FINANCING: Banks are typically utilizing the prime
rate as the index for loans. Mortgage
interest rates are typically 150(plus or
minus) basis points above the prime
rate. The mortgage terms are preferably
a three year call based on a 20 to 25
year amortization and 70% to 75%
loan-to-value ratio; however, banks will
provide a five year term in some
situations.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 116
ANALYSIS OF DIRECT CAPITALIZATION RATE, CONT'D.
SUMMARY OF SUBJECT'S POTENTIAL MORTGAGE TERMS
MORTGAGE TYPE: Long-term;
Analysis: This appraisal contemplates a typical
long-term loan instead of a bank short-term
loan. While the bank loan is common, a
long-term loan is more consistent with the
typical holding period for real estate.
U.S. TREASURY BOND
10 YEAR RATE(1): 6.50%
LOAN TERM: 10 years
AMORTIZATION: 25 years
LOAN-TO-VALUE RATIO: 75%
APPROX. INTEREST RATE: 8.00%
DEBT COVERAGE RATIO (DCR) ANALYSIS: A TEST OF REASONABLENESS
FINAL REPORT
DIRECT CAP VALUE VALUE
DIRECT CAPITALIZATION VALUE $3,250,000 $3,250,000
LOAN AMOUNT @ L-TO-V OF 75% $2,437,500 $2,437,500
MONTHLY PAYMENT $ 18,813 $ 18,813
ESTIMATED NOI $ 324,972 $ 324,972
DIVIDED BY ANNUAL PAYMENT $ 225,756 $ 225,756
IMPLIED DEBT COVERAGE RATIO 1.44 1.44
COMMENT/ANALYSIS: The implied debt coverage ratios for the direct
capitalization method value estimate and the final report value (based on
correlation of all three approaches) are acceptable and reasonable.
(1) Note: The rate is an approximation on a rounded basis due to the
weekly change in the rate.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 117
DISCOUNTED CASH FLOW ANALYSIS
INTRODUCTION
In a discounted cash flow analysis (DCF) the quantity, variability, timing
and duration of the cash flows to a property are analyzed. Each cash flow is
discounted to a present value and then all the present values are added to
obtain the total value of the income to the real property interest being
appraised. The future value of that interest, the reversion, is forecast at the
end of the projection period and is also discounted.
This method is particularly appropriate for properties with irregular cash
flows. This is particularly appropriate in the case of properties with below
stabilized occupancy, below or above market rental rates, and other unusual
circumstances.
In order to utilize this analysis, certain assumptions must be made. A
summary of all such assumptions used as a basis for the DCF analysis will
follow. Projections regarding market (economic) rental rates, occupancy levels,
expenses and absorption rates are all market-derived and have been discussed in
previous sections of this report. Consideration is also given to several
investment surveys provided by regional/national research companies. These
investor surveys included the Real Estate Investor Survey published by Peter F.
Korpacz & Associates, Inc.. This report provides a summary of the expected rates
of return, property selection criteria, and investment outlook of a
representative sampling of large institutional investors in the United States.
The DCF technique will follow the assumptions and forecasts listed below.
This projected economic model carries no warranties, expressed or implied, that
the scenario will actually be achieved by the subject property.
ASSUMPTIONS & FORECASTS
PROJECTION PERIOD:
ANALYSIS: The appraisers have relied upon conversations
with market participants and a review of
investor surveys to determine the appropriate
holding period for the subject property.
Additionally, significant consideration is
given to the remaining economic life of the
property, the current economic climate of the
region and changes in the tax laws. Noting
that investment properties have historically
been held for a period of 7 to 15 years, and
that the survey data provided by P.F. Korpacz
indicate expectations of a similar time
frame, a ten year investment period is
projected. The cash flow for the subject is
presented on a fiscal year with the first
year beginning in the month of the effective
date of appraisal (August 14, 1997).
ESTIMATE: 10 years
GROSS INCOME ESTIMATES: Gross annual income is based on the
contractual income from the existing leases,
and the market
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 118
DISCOUNTED CASH FLOW ANALYSIS, CONT'D.
rental rate on the vacant space. Existing
leases are forecasted to roll over at market
rates.
MARKET RENTAL RATES: See Analysis of Potential Gross Income for
details and analysis.
MARKET RENT: $9.00/SF
EXPENSE RECOVERY: Mixture of triple-net to absolute net; The
anchor expense recovery for the center is the
standard triple net lease in which taxes,
insurance and common area maintenance (CAM)
is recovered from the tenant. However, three
tenants, also pay their pro rata share of the
management fee. In addition, four other
tenants have absolute net leases.
RENT APPRECIATION:
DESCRIPTION: Support for the rental rate appreciation is
based upon several factors. Items to be
considered include historical and forecasted
consumer price index data, current supply and
demand factors (market vacancy & market rent
trends), and investors' perceptions (investor
surveys).
CPI INDEX RECENT HISTORY: 2% to 3%
ECONOMISTS' CONSENSUS
CPI FORECAST: 3%(plus or minus) in short-term, moderate
increase long-term Under current Federal
Reserve leadership, inflation is anticipated
to be reasonably maintained and under
control.
GENERAL OCCUPANCY TRENDS:
Property Type: Neighborhood shopping center
Submarket: 98.8%
MARKET RENT TRENDS: Increasing
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 119
DISCOUNTED CASH FLOW ANALYSIS, CONT'D.
INVESTOR SURVEYS:
Source: Korpacz Real Estate Investor Survey; Second
Quarter 1997
Property Type: National Strip Shopping Center Market
Rent Appreciation
Range:
--------------------------------------
KEY INDICATORS CURRENT QUARTER
--------------------------------------
MARKET RENT CHANGE RATE
Range 0.00% 6.00%
Average 2.83%
DCF RENT APPRECIATION
FORECAST:
Years 1-3: 3.00%
Years 4-11: 4.00%
COMMENTS/ANALYSIS: The market occupancy is strong; however, there is no
evidence of enough demand to yield rent appreciation higher than anticipated
inflation over the holding period. Thus, rent appreciation is forecasted to be
at general inflationary rates in the short-term and slightly below in the
long-term.
VACANCY & COLLECTION LOSS:
ANALYSIS: The subject will undergo a loss in potential
gross income attributable to lease-up, normal
vacancy, collection losses, tenant default
and turnover. The appraisers have considered
the historical performance of the subject,
the amount of unleased space in the
competitive market and planned new
construction in the projection of vacancy
over the holding period. The DCF analysis
assumes competent and professional management
of the property at the previously cited
market rental rates.
SUBJECT OCCUPANCY: See Analysis of Expenses for details and
analysis
Current Occupancy: 98%
Stabilized Vacancy: 5% (local shop space only)
GENERAL OCCUPANCY TRENDS:
Property Type: Neighborhood shopping center
Submarket: 98.8%
Submarket Years Supply: Equilibrium
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 120
DISCOUNTED CASH FLOW ANALYSIS, CONT'D.
TENANT TURNOVER:
VACANCY AT TURNOVER: 4 months
PROBABILITY OF RENEWAL: 75%
SPECIAL EXISTING TENANT
TURNOVER SITUATIONS: None
OPERATING EXPENSES
PROFORMA YEAR 1: $0.99/SF
APPRECIATION: As in the market rental rate appreciation
analysis, the appraiser must consider
historical and forecasted CPI data and
investors perceptions.
CPI DATA: See Rent Appreciation analysis
INVESTOR SURVEYS:
Source: Korpacz Real Estate Investor Survey;
Second Quarter 1997
Property Type: National Strip Shopping Center Market
Expense Appreciation
Range:
--------------------------------------
KEY INDICATORS CURRENT QUARTER
--------------------------------------
EXPENSE CHANGE RATE
Range 0.00% 5.00%
Average 3.58%
DCF EXPENSE APPRECIATION
FORECAST:
Years 1-3: 3.00%
Years 4-11: 4.00%
COMMENTS/ANALYSIS: The investor survey expense change data actually
reflects a stratified expense appreciation segregated into a low rate in the
early years and higher rate in later years. For the subject property, the
expense appreciation is anticipated to be highly similar to the general
inflation rate and similar to the income appreciation.
LEASING COMMISSIONS:
ANALYSIS: Leasing commissions are charged when any
given lease renews or if a new lease is
signed for vacant or vacated tenant space.
The leasing commission for new leases is
different than renewal leases. As existing
leases roll over, the discounted cash flow
applies a blended or weighted average of the
two
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 121
DISCOUNTED CASH FLOW ANALYSIS, CONT'D.
leasing commissions based on the probability
of renewal/vacating. Charged as capital
expense below NOI.
SUBJECT BROKER & OUTSIDE BROKER: The new
tenant commission is based on a typical 4%
commission when the only broker involved in
the transaction is the subject's leasing
agent. When an outside broker is utilized,
the total commission is typically 6% with 4%
paid to the outside broker and 2% to the
subject broker. Discussions with brokers
indicated a 50% probability of an outside
broker involvement is reasonable. The
following table presents the calculations of
the leasing commissions utilized in the
discounted cash flow.
DCF LEASING COMMISSIONS CALCULATIONS
NEW LEASE RATE CALCULATIONS
WEIGHTED
% COMM. PROBABILITY RATE
w/ Outside Broker 6.00% x 50% = 3.00%
No Outside Broker 4.00% x 50% = 2.00%
COMPOSITE RATE 5.00%
DCF LEASING COMMISSION
CALCULATIONS
New Lease Rate 5.00% x 25% = 1.25%
Renewal Lease Rate 2.00% x 75% = 1.50%
BLENDED LEASING RATE 2.75%
TENANT IMPROVEMENTS/RETROFIT (TI'S):
ANALYSIS: As vacant space is leased and existing tenant
space rolls over, the landlord incurs a
capital expense for tenant improvements.
Different TI's/SF can be expected for two
types of events - 1) renewal of existing
tenant and 2) existing vacant or vacated
lease space by a tenant The table presented
below indicates the TI's/SF for the two
events and the blended rate charged in the
discounted cash flow.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 122
DISCOUNTED CASH FLOW ANALYSIS, CONT'D.
================================================================================
DCF TENANT IMPROVEMENT CALCULATIONS
--------------------------------------------------------------------------------
BLENDED TI CALCULATIONS
--------------------------------------------------------------------------------
WEIGHTED
ROLLOVER EVENT TI'S/SF PROBABILITY $/SF
Vacate $3.00 x 25% = $0.75
Renewal $1.00 x 75% = $0.75
-----
BLENDED TI'S/SF $1.50
REVERSION:
DESCRIPTION: Income-producing properties typically provide
two types of financial benefits - periodic
income and the future value obtained from
sale of the property or reversion of the
property interest at the end of the holding
period. In the case of the subject, the
appraisers have projected the reversion as
the proceeds of resale, or the net difference
between the transaction price and any selling
expenses, which may include brokerage
commissions, legal fees, title policies,
surveys, fix-up costs and the like. The
reversion value is calculated by applying an
overall rate to the 11th year's NOI.
ANALYSIS: The reversion overall rate is typically
higher than the going-in overall rate to
reflect higher risk associated with a
forecast in the extended future and to
reflect the older age of the property. A
review of the overall capitalization rates
provided by the investor surveys cited
previously indicated that terminal
capitalization rates are typically projected
at 50 to 100 basis points higher than the
going-in cap rates. The typical reversion
rate for a property with similar quality
investment characteristics as the subject
would be 50 basis points higher because of
its current age.
ESTIMATED REVERSION OAR: 10.50%
REVERSION SALES COSTS: 4%
YIELD OR DISCOUNT RATE:
DESCRIPTION: The selection of the appropriate rate
requires the verification and interpretation
of the attitudes and expectations of market
participants including buyers, sellers,
advisers and brokers. Although the
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 123
DISCOUNTED CASH FLOW ANALYSIS, CONT'D.
actual yield on an investment cannot be
calculated until the investment is sold, an
investor may set a target yield for the
investment before or during ownership.
Historical yield rates derived from
comparable sales may be relevant, but they
reflect past, not future, benefits perceived
by the investor and are not reliable
indicators of current yield. Therefore, the
selection of yield rates for discounting cash
flows should focus on the prospective or
forecast yield rates anticipated by typical
buyers and sellers.
The appropriate yield or discount rate is
based upon a combination of factors and
considerations. These include current
mortgage interest rate levels, yield rates on
government and corporate bonds, the
anticipated rate of future inflation; the
management, risk and illiquidity aspects of
the subject property; and the expressed
objectives of major investors in investment
properties. Because of the importance of the
proper selection of a yield rate in the DCF,
the appraisers have attempted to estimate the
rate by two independent techniques as
follows:
BUILD-UP METHOD
INTRODUCTION: It is generally accepted that all investments
are predicated on the expectation of
receiving a return on capital that represents
the time value of money with an appropriate
adjustment for perceived risk. In the
build-up method the appraisers attempt to
recognize the premiums attached to the yield
rate of a real estate investment compared to
a safer, more liquid and marketable
investment. The minimum rate of return for
invested capital is sometimes referred to as
the "safe" or "riskless" rate. Theoretically,
the difference between the yield rate applied
to real estate and the safe rate may be
considered a premium to compensate the
investor for risk, anticipated inflation, the
burden of management, and the illiquidity of
invested capital.
SAFE RATE: The safe rate used in this analysis is
considered the yield applicable to government
securities for a comparable term as the
subject investment.
ILLIQUIDITY &
MARKETABILITY PREMIUMS: There are several hypothetical measurements
for the add on premiums for illiquidity and
risk, such
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 124
DISCOUNTED CASH FLOW ANALYSIS, CONT'D.
as comparison of corporate bonds to
government bonds. In our analysis, the
premium for illiquidity and marketability is
measured by the difference in yield rates
depicted by government bonds and long term
real estate mortgages. The more subjective
adjustment for risk is based on this
appraiser's interpretation of market
expectations for this property type.
(1) SEE ANALYSIS OF DIRECT CAPITALIZATION,
SUBJECT'S POTENTIAL MORTGAGE TERMS FOR
ANALYSIS AND DETAILS.
The lender's return reflects less risk on the
loan capital as compared to the total
investment in a property because of the
cushion provided in the loan-to-value ratio.
The lower risk position is considered to best
reflect illiquidity and marketability.
RISK: As a correlation, the risk of the overall
capital investment, above and beyond the safe
rate and illiquidity and marketability
premium, should be at or higher than the
spread presented in the previous chart. Given
the subject's age and quality of investment,
the risk premium should be higher than the
illiquidity and marketability risk.
CONCLUDED RISK
PREMIUM: 3.00%
BUILD-UP METHOD CALCULATION
Safe Rate - 10 Yr. Treasuries 6.50%
Plus: Premium for Illiquidity and
Marketability 1.50%
Plus: Premium for Risk 3.00%
-----
Indicated Discount Rate 11.00%
Rounded, 11.00%
======
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 125
DISCOUNTED CASH FLOW ANALYSIS, CONT'D.
INVESTOR SURVEY:
INTRODUCTION: The appraisers reviewed the investor surveys
provided by P.F. Korpacz. This is a
nationally recognized research company that
provide ex ante return expectations or goals
of investors contemplating acquisitions of
real estate. This survey provides a timely
insight into the yields, return criteria, and
risk adjustments of national/institutional
investors when making acquisition decisions.
The general parameters depicted by the data
are provided as follows:
Source: Korpacz Real Estate Investor Survey; Second
Quarter 1997
Property Type: National Strip Shopping Center Market
IRR Range:
---------------------------------------------
KEY INDICATORS CURRENT QUARTER
---------------------------------------------
FREE & CLEAR IRR
Range 10.00% 14.00%
Average 11.55%
ANALYSIS: The subject does not fit the parameters of
investment grade property, particularly
considering that the property value is well
below the typical $10,000,000 to $20,000,000
value range for properties desired by
institutional investors. Therefore, the
subject property's discount rate should be at
the middle to upper middle of the range.
INVESTOR SURVEY DISCOUNT RATE
CONCLUSION: 11.50%
DISCOUNT RATE
RECONCILIATION: The appraisers have given nearly equal weight
to the two techniques above in selecting the
appropriate discount rate for the appraised
property with least weight placed on the
build-up method. Also considered in the
analysis was the age and construction quality
of the subject, the current occupancy,
quality of tenants and the economic
constraints of the submarket in which it
competes.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 126
DISCOUNTED CASH FLOW ANALYSIS, CONT'D.
DISCOUNT RATE
CONCLUSION: 11.50%
The following discounted cash flow analysis is the summary of the
individual tenant's income and the forecasted expenses to be incurred over the
holding period. The individual lease analysis and discounted cash flow program
generated assumptions and forecasts are presented in the Addenda section of this
report.
The reader is directed to the Discounted Cash Flow Analysis located on the
following pages.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 127
DISCOUNTED CASH FLOW SUMMARY
Software :ARGUS Ver. 7.0.01
File :Brownsvl
Property Type :Retail
Portfolio :Merrill Lynch Mortgage Capital
Brownsville Place Shopping Ctr
110 - 128 Dupree Avenue/SR-76
Brownsville, Tennessee 38012
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year beginning 8/1/1997
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 128
DISCOUNTED CASH FLOW REVERSION SUMMARY
Software :ARGUS Ver. 7.0.01
File :Brownsvl
Property Type :Retail
Portfolio :Merrill Lynch Mortgage Capital
Brownsville Place Shopping Ctr
110 - 128 Dupree Avenue/SR-76
Brownsville, Tennessee 38012
PROSPECTIVE PROPERTY RESALE
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
For the Years Ending Jul-1998 Jul-1999 Jul-2000 Jul-2001 Jul-2002 Jul-2003 Jul-2004 Jul-2005 Jul-2006 Jul-2007
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
RESALE AMOUNT
Gross Proceeds from Sale $3,685,695
Commissions & Other Costs (147,428)
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
NET PROCEEDS FROM SALE $3,538,267
======== ======== ======== ======== ======== ======== ======== ======== ======== ==========
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 129
DISCOUNTED CASH FLOW VALUE SUMMARY
Software :ARGUS Ver. 7.0.01
File :Brownsvl
Property Type :Retail
Portfolio :Merrill Lynch Mortgage Capital
Brownsville Place Shopping Ctr
110 - 128 Dupree Avenue/SR-76
Brownsville, Tennessee 38012
PROSPECTIVE PRESENT VALUE
Cash Flow Before Debt Service plus Property Resale
Discounted Annually (End-point on Cash Flow & Resale) over a 10-Year Period
Discounted Discounted Resale Total Total Cash Flow Resale
For the Cash Flow @ 10.50% Cap Discounted Value Contribution Contribution
Discount Rates Before Debt Before Debt Value per SqFt Before Debt Before Debt
-------------- ----------- ----------------- ---------- -------- ------------ ------------
11.50% $1,920,745 $1,191,357 $3,112,102 $40.54 61.72% 38.28%
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 130
INCOME CAPITALIZATION APPROACH - RECONCILIATION
INTRODUCTION
The direct capitalization and discounted cash flow analysis are the two
most frequently utilized methods in appraisal practice. The Direct
Capitalization Method represents the more traditional method and the Discounted
Cash Flow Analysis Method is the more current for investment grade property.
DIRECT CAPITALIZATION $3,250,000
The Direct Capitalization Method utilized stabilized gross income based on
existing lease income (if any) and vacant lease space at market rates.
Appropriate deductions from the gross income, including vacancy & credit loss
and expenses, were analyzed and supported from available data. The resulting net
operating income was capitalized based on an overall rate derived from
comparable sales presented in the Sales Comparison Approach.
DISCOUNTED CASH FLOW $3,112,000
The Discounted Cash Flow model takes into account the actual cash flows
that will result from the current leases (if any) as well as the future income
to the property based on current and expected future market rental rates. The
analysis also recognizes current investor perceptions of future appreciation
rates and economic factors as well as current investors' required rates of
return on invested capital. This technique is particularly useful in valuing
investment grade, multi-tenant, and/or properties with below stabilized
occupancies. The discounted cash flow analysis is less reliable for
owner-occupied properties and small income properties which are typically
purchased by less sophisticated buyers.
RECONCILIATION
VALUE ESTIMATE SUMMARY BY METHOD:
DIRECT CAPITALIZATION: $3,250,000
DISCOUNTED CASH FLOW ANALYSIS: $3,112,000
VARIANCE: 4.43%
The two methods utilized indicated a relatively narrow value range and are
generally supportive of each other. The subject's investment grade quality is
good with the most probable buyer being a sophisticated regional or national
investor. Recent investor trends reflect a tendancy of investors to focus on the
direct capitalization approach while utilizing the discounted cash flow for
additional support. In addition, a sufficient number of recent sales of similar
properties is available to derive an overall capitalization rate. Thus, most
consideration is given the direct capitalization approach.
Therefore, the estimated value of the subject property by the income
capitalization approach, as of August 14, 1997, as follows:
VALUE INDICATED BY THE INCOME CAPITALIZATION APPROACH $3,250,000
Implied OAR: 10.00%
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 131
CORRELATION AND FINAL ESTIMATE OF VALUE
INTRODUCTION:
The three indications utilized in the appraisal of the subject property
falls within an acceptable range. In the final analysis, the strengths and
weaknesses of each approach must be considered and most weight must be given to
the approach or approaches with the greatest quantity and quality of supporting
data. Since market value is being sought, all three approaches rely heavily upon
supporting data from the marketplace.
COST APPROACH: $3,260,000
GENERAL DESCRIPTION: The cost approach is most applicable when a
property is new or proposed and represents
the highest and best use of the site. Land
values are documented in the marketplace and
cost estimates are readily supported. The
inherent weakness of this approach is that it
gives no consideration to the
income-producing capability of a property.
ANALYSIS: Given the age of the subject property,
estimation of remaining economic life is
difficult.
WEIGHTED CONSIDERATION: Limited
SALES COMPARISON APPROACH: $3,225,000
GENERAL DESCRIPTION: The sales comparison approach is utilized in
the valuation of the subject. The appraisal
utilizes the best available and verifiable
neighborhood shopping center property sales
located in the southeastern region of the
country. This approach utilized two methods
to estimate a value range for the subject -
1) sales price per square foot and 2) the
gross income multiplier (GIM). The adjusted
selling price per square foot of building
area and GIM of each comparable is utilized
in comparison to the subject property. After
appropriate adjustments, these sales were
generally similar to the subject in quality,
design, location and age.
ANALYSIS: A sufficient quantity and quality of
comparable sales was available to compare to
the subject. Since the subject's most
probable buyer is a regional operator, this
approach is considered most reflective of a
regional or nationally owned neighborhood
shopping centers.
WEIGHTED CONSIDERATION: Significant
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 132
CORRELATION AND FINAL ESTIMATE OF VALUE, CONT'D.
================================================================================
INCOME CAPITALIZATION APPROACH: $3,250,000
GENERAL DESCRIPTION: The income capitalization approach involved
the analysis of the existing rent as compared
with market rent for the subject space.
Additionally, a stabilized operating
statement was developed. The net operating
income was capitalized by the appropriate
capitalization rate which was derived by
sales comparison.
ANALYSIS: A sufficient quantity and quality of
comparable rental and sale data was available
to compare to the subject. Since the
subject's most probable buyer is a regional
or national operator, this approach is
considered most reflective of a regional or
nationally owned neighborhood shopping
centers this is considered a reasonable
method of estimating value.
WEIGHTED CONSIDERATION: Significant
SUMMARY OF VALUE INDICATIONS
COST APPROACH $3,260,000
SALES COMPARISON APPROACH $3,225,000
INCOME CAPITALIZATION APPROACH $3,250,000
FINAL CONCLUSIONS OF VALUE
In view of the previous analyses, the most weight has been placed on the
sales comparison approach, specifically the adjusted sales price per square foot
method, and income capitalization approach. The cost approach value indication
is supportive of the other two approaches. Thus, the market value of the subject
property, contingent to the Assumptions and Limiting Conditions presented
herein, as of August 14, 1997, is estimated to be:
THREE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
($3,250,000)
MARKETING PERIOD
ANALYSIS: The appraisers are required to clearly state
the estimated marketing period required for
the sale of the subject property. As
discussed in the Highest and Best Use
Analysis, the subject property is generally
well suited as a neighborhood shopping center
property. The property is located in a
developed retail area with average income
demographics for Haywood County surrounding
the commercial neighborhood. Occupancies in
the
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CORRELATION AND FINAL ESTIMATE OF VALUE, CONT'D.
area are in excess of 98%. As evidenced in
the sales comparison approach, several
transactions have occurred within the past 12
months indicating buyer interest in the
subject property type.
CONCLUSION: Based on discussions with local brokers and
other market evidence, it is the appraisers'
opinion that an approximate 12 month period
of time would be required to sell the
property, if subjected to a typical marketing
program and if the property were listed at a
price based on the conclusion of value
presented above.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 134
CERTIFICATION OF VALUE
We certify that, to the best of our knowledge and belief,...
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
4. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of subsequent event.
5. Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice published by the Appraisal Foundation and
the Standards of Professional Practice of the Appraisal Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. As of the appraisal date, James E. Lamb, MAI, has completed the
requirements of the continuing education program of the Appraisal
Institute.
8. Craig A. Johnson made a personal inspection of the property that is the
subject of this report. James E. Lamb, MAI did not inspect the subject
property.
9. No one provided significant professional assistance to the person(s)
signing this report.
10. This appraisal assignment was not based on a requested minimum valuation,
a specific valuation, or the approval of a loan.
11. The market value of the leased fee interest in the subject property,
subject to the Assumptions and Limiting Conditions stated herein, as of
August 14, 1997 is estimated to be:
THREE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
($3,250,000)
/s/ James E. Lamb /s/ Craig A. Johnson
James E. Lamb, MAI Craig A. Johnson
Review Appraiser Associate Appraiser
State Certified General State Certified General
Real Estate Appraiser Real Estate Appraiser
Licensee #CG-557 Licensee #CG-1200
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 135
SUMMARY OF QUALIFICATIONS
JAMES E. LAMB, MAI
================================================================================
EDUCATION
Attended the University of North Alabama, Fall 1977 through Spring 1979.
Graduate of the University of Mississippi, BBA Banking and Finance, May, 1981;
MBA Finance, August, 1982.
PROFESSIONAL AFFILIATIONS
The Appraisal Institute, The Volunteer State Chapter; MAI Designation -
Certification No. 8254. Continuing education completion status - through
December 31, 1997
The National Association of Realtors, Member; local affiliation - Nashville
Board of Realtors.
STATE CERTIFICATIONS
State of Tennessee Certified General Real Estate Appraiser - Licensee #CG-557
State of Georgia Certified General Real Property Appraiser - Licensee #005801
ACCREDITED APPRAISAL COURSES
THE APPRAISAL INSTITUTE:
Course 101 Introduction to Appraising Real Property
Course 1A-1 Real Estate Appraisal Principles
Course 1A-2 Basic Valuation Procedures
Course 1B-A Capitalization Theory and Techniques, Part A
Course 1B-B Capitalization Theory and Techniques, Part B
Course 2-1 Case Studies In Real Estate Valuation
Course 2-2 Valuation Analysis and Report Writing
Course Standard of Professional Practice, Part A
Course Standard of Professional Practice, Part B
Seminar Hazardous Materials in Real Property
Seminar Persuasive Styles in Narrative Report
Writing
Seminar Advanced Income Capitalization Overview
OTHER
Real Estate Principles
Real Estate Finance
Commercial and Investment Real Estate
Project Seminar
PROFESSIONAL EXCHANGE TO FOREIGN COUNTRIES
Participated as a delegate of People to People International's Citizen
Ambassador Program - Real Estate Delegation to Russia and Lithuania.
Discussions focused on the privatization of real estate in these countries
as they converted real estate ownership
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 136
SUMMARY OF QUALIFICATIONS
JAMES E. LAMB, MAI
================================================================================
from the government to the private sector. Issues specific to this process
included real estate law fundamentals, real estate tax issues, real estate
valuation and attracting foreign real estate investment.
PROFESSIONAL EXPERIENCE
Appraisal experience includes retail, industrial, office, multi-family,
mixed-use land developments and special-purpose properties. Special-purpose
property assignments include hotels, manufacturing facilities, restaurants,
right-of-ways and retirement facilities. Appraisals have been utilized for
mortgage loans, eminent domain, feasibility analyses, gift and estate tax, and
corporate management decisions.
EXPERT WITNESS
Qualified as an expert witness in several real estate court cases. Court
appearances have been in Middle Tennessee, East Tennessee and West Tennessee
federal bankruptcy courts. Also, Mr. Lamb has qualified as an expert in federal
bankruptcy court in Pennsylvania (Philadelphia) and Georgia (Atlanta).
Mr. Lamb has appeared before an Administrative Judge for the State of Tennessee
State Board of Equalization.
EMPLOYMENT HISTORY
Currently employed with Huber & Lamb Appraisal Group, Inc., and is a principle
in the company. Mr. Lamb is the principle in charge of the commercial real
estate division of the company and is the managing partner of the firm.
Previously employed as Vice President and primary MAI with Dengel, Lamb & Huber
prior to purchasing the assets and operations of DLH in October 1991.
Previously employed by a Dallas, Texas appraisal firm from March 1983 through
June 1987 as a staff appraiser.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 137
APPRAISAL OF
THE BROWNSVILLE PLACE SHOPPING CENTER
ASSUMING A PORTFOLIO SALE
================================================================================
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 138
INTRODUCTION TO
PORTFOLIO SALE MARKET VALUE ESTIMATES
================================================================================
INTRODUCTION
This analysis is presented in a brief format in order that descriptions
and analysis is not replicated from the previous section representing the
appraisal report of the total shopping center. The following analysis relies
heavily on the data and analysis previously presented and must remain a part of
the total shopping center appraisal report to be fully understood by the reader.
In addition to the appraisal of the subject previous market value
estimate, the client has requested a value estimate assuming the subject
property is part of a defined portfolio sale of 18 retail properties included in
the client's loan package. Since all 18 properties are in the client's loan
package, the portfolio valuation assumption requested is reasonable,
particularly in assisting the client in the underwriting process. A summary of
the 18 properties is provided as an exhibit to this report section.
The reader should note that Huber & Lamb has only completed appraisals on
seven of the properties, which include the following:
1. Brownsville Plaza
2. Hollywood Video, Paducah, KY
3. Delchamps Plaza
4. Chicot Crossing
5. One Main Place
6. Eckerds, Franklin, TN
7. Hollywood Video/Jiffy Lube, Franklin, TN
The appraiser has been provided the rentrolls for the remaining 11
properties. Since the appraiser has not appraised or inspected the remaining 11
properties, it must be assumed that these 11 properties are at least the same
general quality of investment as the six properties appraised by Huber & Lamb.
We have had discussions with the appraiser of the remaining 11 properties, which
tends to support this assumption.
The only reliable technique and approach to value is considered to be the
direct capitalization approach of the income capitalization approach to value.
This is the only approach that can adequately address the financial issues
involved in the specialized value requested.
FACTORS EFFECTING PORTFOLIO VALUATIONS
The appraisers have had numerous conversations with institutional lenders,
brokers and retail investors to determine if a portfolio purchase could have an
effect on individual property overall rates as compared to the individual,
non-portfolio sales of similar properties. The question presented to each was
"Does a portfolio purchase have an effect on the overall rate as compared to
individual property transactions?" The surveyed individuals Included the
following:
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 139
PORTFOLIO SALE MARKET VALUE ESTIMATE
Institutional Lenders: Prudential Insurance, Vice President of
Comptrollers and Valuation, Newark, NJ office
New York Life, Regional Appraiser - Southeast
Region
Broker: Cushman & Wakefield, Atlanta - broker
specializing in shopping center sales and
portfolio transactions
Investor: Highwoods REIT, Vice President - primarily
office and industrial investor in the
southeast region of the US
Itochu International, New York Office Vice
President - Japanese investor representative
and consultant with significant background in
portfolio investments and consultations
The following summary of general factors effecting portfolio valuations
represent the general consensus of the people surveyed.
1. Geographic Dispersion
Portfolios with properties in the same geographical region are
preferred. However, for retail portfolios, dispersion in various
locations within the region is preferred to spread out the potential
risks of swings in local economies and retail markets.
2. Quality of Properties in the Portfolio
The people surveyed indicated this factor can have a significant
effect on the portfolio valuation. If all properties are low
quality, riskier properties, the portfolio overall rates could very
well be higher than the overall rate for individual property sales.
However, if the quality of properties is good (i.e., well anchored
centers with 10+ year remaining terms, age, location within their
markets), the portfolio overall rate will be positively effected as
compared to the overall rate for individual property sales.
3. Total Dollar of Portfolio Investment
Assuming favorable geographic dispersion and quality of properties,
the total dollar amount of the portfolio investment must be large
enough to attract investors that would be willing to pay a premium
for overall investment. Those surveyed respondents that indicated a
dollar amount indicated the total portfolio investment would
probably have to exceed $25 million.
All of the respondents generally indicated that their opinions are based
on the current market conditions. One gave the example that the same scenario
approximately five years ago, during a real estate recession, would probably
yield a discount on value (i.e., a higher overall rate). However, current and
recent market conditions over the past two years have been very strong.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 140
PORTFOLIO SALE MARKET VALUE ESTIMATE
SUBJECT PORTFOLIO CONCLUSIONS: The general portfolio was described to each
person surveyed including type of shopping center, general locations, percentage
of anchor, remaining term of anchors and potential minimum of total dollar
investment for the 18 property portfolio. All of the persons surveyed indicated
that based on the information provided, the subject portfolio appears to be a
good quality investment portfolio based on the primary criteria previously
described.
SURVEYED RESPONDENTS INDICATION OF PORTFOLIO EFFECT ON THE OAR
The respondents all tended to agree that, based upon the description of
the subject portfolio, the overall rate of a portfolio purchase should have a
positive effect as compared to the individual property overall rates. The
institutional lender respondents tended to be more vague in their responses. The
two respondents that appeared to have the most experience in this matter and
provided more detailed responses were the Cushman & Wakefield broker and the
Itochu investor/consultant. The most active portfolio buyers are currently Real
Estate Investment Trusts (REITs); however, other national investor types such as
pension funds, life companies and foreign investors are also active in portfolio
purchases. The following summarizes their individual assessments.
CUSHMAN & WAKEFIELD BROKER: The broker discussed potential effects on the
overall rate in a broad and somewhat vague
ranges. He indicated this was intentional
because so many factors must be considered.
One important factor is the motivation of the
buyer.
The broker indicated very generally that a
portfolio purchase can definitely have a 25
basis point positive effect (i.e., reduction)
on overall rates. If the portfolio ranks well
in the quality of properties category
previously discussed, it is the brokers
opinion that the reduction in overall rate
range is 50 basis points to about 100 basis
points.
ITOCHU INVESTOR/CONSULTANT: A true portfolio analysis truly consolidates
the cash flows of all properties in the
portfolio into one cash flow analysis. The
consolidated cash flow analysis should
probably yield an annual cash flow
appreciation of 2% to 4%. This will
accommodate the analysis of a true internal
rate of return for the overall portfolio in
total.
The investor would be looking for a true
internal rate of return of approximately 20%
to 25%. Based on the description of the
subject portfolio, a 20% internal rate of
return would be the most probable targeted
rate. The analysis should be based upon a
hypothetical "loan" at an interest rate
reflective of alternative cost of funds. This
could be either 130(plus or minus) basis
points above 10 year treasuries or 175(plus
or minus) basis points above LIBOR.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 141
PORTFOLIO SALE MARKET VALUE ESTIMATE
Based on the respondents experience, this
will probably have an approximate 50(plus or
minus) to 100(plus or minus) basis point
reduction in the overall rate as compared to
individual property overall rates.
Since the appraisers did not appraise all 18
properties in the subject portfolio, we have
applied these criteria to the individual
subject property cash flow. The implied
alternative cost of funds, or hypothetical
interest rate range equates to 7% to 7.5% and
the hypothetical loan was derived based upon
a 1.15 debt coverage ratio. This discounted
cash flow analysis values under these two
scenarios ranged from 8.76% to 9.09%. This
compares to the original individual property
sale valuation overall rate of 10.00%. Thus,
a 100 basis point reduction appears to be
justified.
CONCLUSION
Obviously, it is difficult to utilize matched pairs comparison to
determine the effect of portfolio investments on the overall rate because it can
be highly subjective what the overall rate should have been assuming properties
sold on an individual basis. Therefore, the appraiser had to rely on the
opinions of real estate professionals experienced in this type of transaction.
All persons surveyed suggested that a portfolio similar in quality to the
subject portfolio should generate a lower overall rate than the overall rate
assuming the properties sold individually. The two most reliable sources tended
to suggest ranges of a 50+ to 100(plus or minus) basis point lower overall rate
on a portfolio sale. Only one source provided a solid mathematical calculation
to estimate the overall rate range. Based on the previous analysis, the most
probable effect on the subject's overall rate is a 100 basis point reduction of
the original individual property sale valuation overall rate of 10.00%, or
9.00%.
The Stabilized Operating Statement net operating income utilized in the
following calculation is the same as the original net operating income presented
earlier in this report.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 142
PORTFOLIO SALE MARKET VALUE ESTIMATE
ESTIMATED SUBJECT VALUE
ASSUMING A PORTFOLIO SALE
================================================================================
NOI / OAR = Value Estimate
--------------------------------------------------------------------------------
$324,972 / 9.00% = $3,610,794
--------------------------------------------------------------------------------
Portfolio Sale Value Estimate $3,610,000
FINAL CONCLUSIONS OF ASSUMED PORTFOLIO SALE VALUE
In view of the previous analyses, the market value of the subject
property, contingent to the Assumptions and Limiting Conditions presented
herein, and particularly assuming the subject is part of a sale of the defined
portfolio of properties, as of August 14, 1997, is estimated to be $3,610,000.
SPECIAL LIMITING CONDITION: The reader is reminded that the a true
portfolio valuation typically derives a value estimate based on the combined
cash flows of all properties within the portfolio. The total value estimate is
sometimes allocated to individual properties within the portfolio and sometimes
not allocated. As a result, portfolio valuation can have varying effects on
individual property values within the portfolio to a minor degree in a positive
or negative direction. The estimated subject portfolio sale value represents the
most probable overall effect on the subject property value, within reasonable
parameters, and in conjunction with the overall portfolio, given the information
available and stated herein.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 143
PORTFOLIO SALE MARKET VALUE ESTIMATE
NOM SHOPPING CENTER PORTFOLIO SUMMARY
Years
Name Location Size (GLA) Anchor Anchor Size (GLA) % Anchor Expiration Remaining
---- -------- ---------- ------ ----------------- -------- ---------- ---------
Brownsville Place Brownsville, TN 76,762 Wal-Mart 54,962 71.6% 4/17/10 13 54962
Greenbrier Station Anniston, AL 62,540 Winn Dixie 44,900 71.8% 1/28/17 20
Revco Drugs 9,240 14.8% 1/31/12 15
----- ----
Total Anchor 54,140 86.6% 54140
59 West Bessemer, AL 95,591 Winn Dixie 44,090 46.1% 07/31/16
Drugs For Less 18,000 18.8% 8/31/11
------ ----
Total Anchor 62,090 65.0% 62090
Clanton Marketplace Clanton, AL 57,150 Winn Dixie 35,000 61.2% 3/10/13 16
Harco Drugs 8,450 14.8% 3/20/06 9
----- ----
Total Anchor 43,450 76.0% 43450
Betts Crossing Opelika, AL 58,400 Winn Dixie 44,000 75.3% 12/1/16 19 44000
Opp Marketplace Opp, AL 25,350 B.C. Moore 16,900 66.7% 8/2/06 9
Harco 8,450 33.3% 11/15/08 11
----- ----
Total Anchor 25,350 100.0% 25350
Russell Crossing Phenix City, GA 72,312 Winn Dixie 45,500 62.9% 12/7/08 11
Big B Drugs 9,000 12.4% 11/28/03 6
----- ----
54,500 75.4% 54500
Parker Shopping Center Pensacola, FL 68,680 Winn Dixie 44,000 64.1% 6/25/17 20
Scotty's 19,880 28.9% 2/28/06 9
------ ----
63,880 93.0% 63880
The Y Panama City, 64,848 Winn Dixie 46,422 71.6% 11/30/14 17
Eckerd Drugs 10,354 16.0% 7/28/09 12
------ ----
56,776 87.6% 56776
29 North Pensacola 58,040 Winn Dixie 44,000 75.8% 11/30/17 20
Big B 9,240 15.9% 11/30/12 15
----- ----
53,240 91.7% 53240
Nine Mile Plaza Pensacola 191,787 Winn Dixie 46,372 24.2% 08/29/06 9
Eckerds 8,640 4.5% 09/30/05 8
TJX 78,000 40.7% 10/31/12 15
------ ----
133,012 69.4% 133012
Hollywood Video Paducah, KY 7,488 Hollywood 7,488 100.0% 09/26/12 15
Video
Mandeville Marketplace Mandeville, LA 77,785 Winn Dixie 53,986 69.4% 9/30/16 19
FNBC 10,500 13.5% 9/11/03 6
------ ----
64,486 82.9% 64486
Delchamps Plaza Long Beach, MS 62,859 Delchamps 35,059 55.8% 7/31/09 12
Big B Drugs 9,000 14.3% 7/31/99 2
----- ----
44,059 70.1% 44059
Chicot Crossing Pascagoula, MS 122,360 Winn Dixie 47,300 38.7% 3/24/16 19
Harco 10,125 8.3% 1/31/11 14
Goody's 27,435 22.4% 3/31/06 9
------ ----
84,860 69.4% 84860
One Main Place Pascagoula, MS 68,566 Brunos (Food 4,802 69.7% 4/30/13 16
World)
Big B/Revco 10,064 14.7% 8/31/05 8
------ ----
57,866 84.4% 57866
Hollywood Video/Jiffy Franklin, TN 9,305 Hollywood 7,488 80.5% 8/31/12 15
Lu Video
Jiffy Lube 1,817 19.5% 8/31/05 20
----- ----
9,305 100.0% 9305
Eckerd Franklin, TN 10,908 Eckerd 10,908 100.0% 11/30/17 20 10908
------ ------ -----
Total Portfolio GLA 1,190,731 916,884 77.0% 13 916,884
No. of Properties 18
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 144
CERTIFICATION OF VALUE - PORTFOLIO SALE
We certify that, to the best of our knowledge and belief,...
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
4. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of subsequent event.
5. Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice published by the Appraisal Foundation and
the Standards of Professional Practice of the Appraisal Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. As of the appraisal date, James E. Lamb, MAI, has completed the
requirements of the continuing education program of the Appraisal
Institute.
8. Craig A. Johnson made a personal inspection of the property that is the
subject of this report. James E. Lamb, MAI did not inspect the subject
property.
9. No one provided significant professional assistance to the person(s)
signing this report.
10. This appraisal assignment was not based on a requested minimum valuation,
a specific valuation, or the approval of a loan.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 145
CERTIFICATION OF VALUE, CONT'D.
11. MARKET VALUE OF SHOPPING CENTER ASSUMING PORTFOLIO SALE
The market value of the leased fee interest in the subject property,
subject to the Assumptions and Limiting Conditions stated herein,
particularly assuming the subject is sold as part of the 18 property
portfolio described in the attached report, as of August 14, 1997 is
estimated to be:
THREE MILLION SIX HUNDRED TEN THOUSAND DOLLARS
($3,610,000)
/s/ James E. Lamb /s/ Craig A. Johnson
James E. Lamb, MAI Craig A. Johnson
Review Appraiser Associate Appraiser
State Certified General State Certified General
Real Estate Appraiser Real Estate Appraiser
Licensee #CG-557 (Tennessee)
Licensee #CG-1200
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 146
SUMMARY OF QUALIFICATIONS
JAMES E. LAMB, MAI
================================================================================
EDUCATION
Attended the University of North Alabama, Fall 1977 through Spring 1979.
Graduate of the University of Mississippi, BBA Banking and Finance, May, 1981;
MBA Finance, August, 1982.
PROFESSIONAL AFFILIATIONS
The Appraisal Institute, The Volunteer State Chapter; MAI Designation -
Certification No. 8254. Continuing education completion status - through
December 31, 1997
The National Association of Realtors, Member; local affiliation - Nashville
Board of Realtors.
STATE CERTIFICATIONS
State of Tennessee Certified General Real Estate Appraiser - Licensee #CG-557
ACCREDITED APPRAISAL COURSES
THE APPRAISAL INSTITUTE:
Course 101 Introduction to Appraising Real Property
Course 1A-1 Real Estate Appraisal Principles
Course 1A-2 Basic Valuation Procedures
Course 1B-A Capitalization Theory and Techniques, Part A
Course 1B-B Capitalization Theory and Techniques, Part B
Course 2-1 Case Studies In Real Estate Valuation
Course 2-2 Valuation Analysis and Report Writing
Course Standard of Professional Practice, Part A
Course Standard of Professional Practice, Part B
Seminar Hazardous Materials in Real Property
Seminar Persuasive Styles in Narrative Report Writing
Seminar Advanced Income Capitalization Overview
OTHER
Real Estate Principles
Real Estate Finance
Commercial and Investment Real Estate
Project Seminar
PROFESSIONAL EXCHANGE TO FOREIGN COUNTRIES
Participated as a delegate of People to People International's Citizen
Ambassador Program - Real Estate Delegation to Russia and Lithuania.
Discussions focused on the privatization of real estate in these countries
as they converted real estate ownership from the government to the private
sector. Issues specific to this process included real estate law
fundamentals, real estate tax issues, real estate valuation and attracting
foreign real estate investment.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 146
SUMMARY OF QUALIFICATIONS
JAMES E. LAMB, MAI
================================================================================
PROFESSIONAL EXPERIENCE
Appraisal experience includes retail, industrial, office, multi-family,
mixed-use land developments and special-purpose properties. Special-purpose
property assignments include hotels, manufacturing facilities, restaurants,
right-of-ways and retirement facilities. Appraisals have been utilized for
mortgage loans, eminent domain, feasibility analyses, gift and estate tax,
and corporate management decisions.
EXPERT WITNESS
Qualified as an expert witness in several real estate court cases. Court
appearances have been in Middle Tennessee, East Tennessee and West Tennessee
federal bankruptcy courts. Also, Mr. Lamb has qualified as an expert in
federal bankruptcy court in Pennsylvania (Philadelphia) and Georgia
(Atlanta).
Mr. Lamb has appeared before an Administrative Judge for the State of
Tennessee State Board of Equalization.
EMPLOYMENT HISTORY
Currently employed with Huber & Lamb Appraisal Group, Inc., and is a
principle in the company. Mr. Lamb is the principle in charge of the
commercial real estate division of the company and is the managing partner
of the firm.
Previously employed as Vice President and primary MAI with Dengel, Lamb &
Huber prior to purchasing the assets and operations of DLH in October 1991.
Previously employed by Crosson Dannis, Inc., a Dallas, Texas appraisal firm
from March 1983 through June 1987 as a staff appraiser.
(C)1997 Huber & Lamb Appraisal Group, Inc. Page 147
SUMMARY OF QUALIFICATIONS
CRAIG A. JOHNSON
================================================================================
EDUCATION
Attended Lincoln Land Community College of Springfield, Illinois 1973 through
1975
PROFESSIONAL AFFILIATIONS
International Association of Assessing Officers
Certified Illinois Assessing Officer
Registered Agent with the Tennessee State Board of Equalization
Licensed Certified General Appraiser with the Tennessee State Board of
Real Estate Appraisers
Institute of Property Taxation
State of Tennessee Certified General Real Estate Appraiser - Licensee
#CG-1200
APPRAISAL COURSES
INTERNATIONAL ASSOCIATION OF ASSESSING OFFICERS:
Fundamentals of Real Property Appraisal
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