APPRAISAL REPORT
NEIGHBORHOOD RETAIL DEVELOPMENT 11517 Hickman Mills Drive Kansas City, Jackson County, Missouri 64134
Prepared By Cardwell and Associates, Inc. Independence, Missouri 64050 CAA14-1725
Prepared For Klahn Property Rental, LLC
Effective Date: May 23, 2014
Cardwell and Associates, Inc Valuation & Consulting Services Jack C. Cardwell, President
June 2, 2014
Klahn Property Rental, LLC Attn: Ms. Dee Harmon, Property Manager 11517 Hickman Mills Drive Kansas City, Missouri 64134
Re: Appraisal Report of
Neighborhood Retail Development 11517 Hickman Mills Drive Kansas City, Jackson County, Missouri 64134
C & A File No: CAA14-1725
Dear Ms. Dee Harmon:
In accordance with your authorization, I have prepared an appraisal report and formed an opinion of the subject property’s current fair market value as of May 23, 2014.
The appraisal report contained herein is a summary of all information significant to the solution of the appraisal problem as defined by USPAP 2014 SR2-2 b,c,i, 8-2 b,c,i, USPAP 2014 and in addition is intended to comply with the reporting requirements set forth under the Uniform Standards of Professional Appraisal Practice 2014 Standards Rules 2-2 b,c,I, 8- 2 b,c,i. As such, it presents only the process to develop my opinion of value. Supporting documentation concerning the data, reasoning, and analyses is retained in the appraisal report file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated in the report.
Substantial volatility in the capital markets, as well as a dramatic decrease in transactional activity, has increased uncertainty in the real property marketplace. It is impossible to predict what may happen in the foreseeable future. As a result, it is difficult to predict what may happen to real property values over time. This valuation of the subject property considered the best information available at the time of my analysis. Due to on-going volatility in the marketplace, users of this appraisal should consider the current market uncertainty when determining the level of confidence they choose to place on the analyses and conclusions herein.
I, the undersigned, hereby certify that I have inspected the property and investigated all information believed pertinent to indicate value. To the best of my knowledge and belief, the statements contained in this appraisal report and the opinions expressed herein are correct, subject to the limiting conditions herein set forth. In addition, this appraisal has been
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prepared in accordance with accepted professional standards set forth in the Uniform Standards of Professional Appraisal Practice (USPAP).
Based upon my inspection of the property and careful consideration of the many factors influencing market value, it is my opinion the subject property’s fair market value was the sum of:
MARKET VALUE CONCLUSIONS/PROPERTY IMPROVEMENTS AND LAND
Appraisal Premise Real Property Interest Date of Value Value Conclusion Market Value As-Is Leased Fee May 23, 2014 $370,000
Thank you for the opportunity to serve you in this assignment.
Sincerely, CARDWELL AND ASSOCIATES, INC.
Mr. Jack C. Cardwell President Missouri State Certified General Real Estate Appraiser (Certificate No. RA-001194) Kansas Certified General Real Property Appraiser (Certificate No. G-1449)
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TABLE OF CONTENTS P a g e | 4
TABLE OF CONTENTS
Letter of Fair Market Value Table of Contents PART ONE – INTRODUCTION………………………………………………………………………………………………5 Summary Of Salient Facts and Conclusions ...... 7 PART TWO - FACTUAL DATA……………………………………………………………………………..…….………..11 Purpose and Function of the Appraisal ...... 11 Neighborhood Overview ...... 30 Flood Map/Flood Zone Determinations ...... 33 Site Description ...... 34 Legal Description ...... 35 Improvements Description ...... 41 PART THREE – ANALYSES AND CONCLUSIONS…………………………………………………………………44 Appraisal Process ...... 47 Cost Approach ...... 50 Direct Sales Comparison Approach ...... 52 Comparable Improved Sales ...... 55 Final Indicated Value By The Direct Sales Comparison Approach ...... 70 Income Approach ...... 71 Allowable Expense Estimates ...... 78 Final Indicated Value By The Income Approach ...... 81 Reconciliation And Final Estimate Of Value ...... 82 Final Estimate of Value ...... 86 Certificate Of Value ...... 87 Assumptions And Limiting Conditions ...... 89 PART FOUR – EXHIBITS AND ADDENDA…………………………………………………………………………95
INTRODUCTION P a g e | 5
INTRODUCTION
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SUMMARY OF SALIENT FACTS AND CONCLUSIONS
GENERAL INFORMATION
LOCATION Street Addresses 11517 Hickman Mills Drive/ 11517A Hickman Mills Drive/ 11517B Hickman Mills Drive/ 11519 Hickman Mills Drive City, State Kansas City, Missouri 64134 County Jackson County OWNER(S) OF RECORD Hickman Plaza LLC PROPERTY RIGHTS Leased Fee Estate EFFECTIVE DATE OF APPRAISAL May 23, 2014
SITE INFORMATION
LAND Square Feet/Acres (Allocated) 24,644 SF ±/0.566 AC ± Site Shape Rectangular Site Topography Above street grade/slopes toward street Frontage Average Site Coverage 33% FLOOD ZONE STATUS Flood Zone C Flood Map Community/Panel 290173/0130C Flood Map Date September 14, 1990
BUILDING INFORMATION
TYPE OF PROPERTY Neighborhood Retail Development BUILDING AREA Number of Buildings 1 Number of Stories 1 Year Constructed 1960 Gross Building Area 8,055 SF ± Land-to-Building Ratio 3.06:1 Quality Average Condition Average
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HIGHEST AND BEST USE
HIGHEST AND BEST USE Present Commercial
MUNICIPAL INFORMATION
Municipality Governing Zoning City of Kansas City, Missouri Current Zoning B3-2, Community Business District Real Estate Taxes
Based upon Jackson County records, 2013 real estate taxes (Allocated) were as follows:
Parcel Tax ID Number Appraised Value Assessed Value Real Estate Tax 64-620-01-72-00-0-00-000 $198,928.15 $63,657.17 $6,789.17
MARKET VALUE CONCLUSIONS
“As-Is”/May 23, 2014
Cost Direct Sales Comparison Income Final Estimated Approach Approach Approach Market Value N/A $362,000 $375,000 $370,000
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EXTERIOR PHOTOGRAPHS
Subject exterior, front/west side
Subject exterior, south side
Subject exterior, south side
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Subject exterior, south side
Subject exterior, rear/east side
Subject exterior, rear/east side
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Subject exterior, north side and maneuvering area
Subject exterior, south side
Subject exterior, west side
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FACTUAL DATA
PURPOSE AND FUNCTION OF APPRAISAL
The purpose of this appraisal is to estimate the Market Value of the real estate described in Leased Fee as of May 23, 2014.
INTENDED USE AND INTENDED USER
The intended use of this appraisal report is to aid the client in assessing a market value estimate for the subject property as of May 23, 2014. The intended user of this report is Ms. Dee Harmon, Property Manager of Klahn Property Rental, LLC. The appraisers of Cardwell and Associates, Inc. are not responsible for the use of this appraisal by any party other than the client/intended user.
DEFINITION OF MARKET VALUE
Market Value is defined as the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, assuming the price is not affected by undue stimulus, with the buyer and seller each acting prudently and knowledgeably. Implicit in this definition are consummation of the sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
A. The buyer and seller are typically motivated.
B. Both parties are well informed or well advised, acting in what they consider to be their own best interest.
C. A reasonable time is allowed for exposure in the open market.
D. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto.
E. 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.
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APPRAISAL EXPERIENCES FOR THIS TYPE OF PROPERTY
No steps were necessary to meet the competency provisions established under FIRREA or USPAP. The appraiser has appraised numerous facilities similar in type over the period of time he has been appraising and, in his opinion, has adequate experience and qualifications to appraise the subject.
SCOPE OF THE REPORT This appraisal report is not limited in scope. In the preparation of this appraisal report, the appraiser has considered all available, relevant market data identified as impacting the market value of the subject property. As identified in Assumptions and Limiting Conditions and explained in Property Rights Appraised, the appraiser assumes the marketable title is free and clear of liens and encumbrances. Data sources relied upon include, but are not limited to, discussions with knowledgeable area real estate professionals including sales persons, listing agents, property managers, and professional real estate appraisers active in the immediate area.
On May 23, 2014, the appraisers completed a physical inspection of the subject property, the immediate neighborhood, and the competitive market area. Mr. Jack Cardwell and Ms. Sherri Blandford of Cardwell And Associates, Inc., were accompanied by Ms. Dee Harmon, the property manager for Klahn Property Rental, LLC. In preparing the Cost Approach (if applicable), the appraiser has used the most appropriate cost information available from the Marshall-Swift Valuation Service. In the Direct Sales Comparison Approach, the appraiser has developed comparable sales data for improved properties similar in use and design. For the Income Approach (if applicable), the appraiser has developed income- oriented data, in terms of leasing information, for confirmed leases and lease offerings in the marketplace. In addition, the appraiser has developed comparable expense data from the market. Summary information of the data collected and analyzed is included with each approach to value.
EXTRAORDINARY ASSUMPTION Extraordinary Assumption is an assumption, directly related to a specific assignment, which if found to be false, could alter the appraiser’s opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject properly; or about conditions external to the property
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 FACTUAL DATA P a g e | 13 such as market conditions or trends; or about the integrity of data used in an analysis. No Extraordinary Assumptions have been used in this appraisal report.
Hypothetical Condition Hypothetical Condition is defined as that which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, economic, or trends; or about the integrity of data used in an analysis. No hypothetical conditions have been considered in the completion of this analysis.
Interest Appraised
The real estate is appraised as though owned in Leased Fee, as defined in the Real Estate Appraisal Terminology handbook published by the American Institute of Real Estate Appraisers. Leased Fee is defined as follows:
Leased Fee Estate A. An ownership interest held by a landlord with the right to use and occupancy conveyed by the lease to others
B. A fee without limitation to any particular class of heirs or restrictions, but subject to the limitations of eminent domain, escheat, police power, and taxation.
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KANSAS CITY REGIONAL DATA
The subject is located within the twenty-third largest metropolitan combined statistical area (CSA) in the United States: the Kansas City, Missouri – Overland Park, Kansas - Kansas City, Kansas CSA. Kansas City, Missouri is the anchor city of the Kansas City Metropolitan Area as well as the largest city and the second largest metropolitan area in the state of Missouri. The City is situated in portions of Cass, Clay, Jackson, and Platte counties. Kansas City is one of two county seats in Jackson County with Independence, located to the east, being the second county seat. As of 2010, the city population census was 459,787 with the Kansas City, MO - Overland Park, KS - Kansas City KS CSA having a population of 2.1 million. Kansas City was founded at the confluence of the Missouri and Kansas rivers in 1838 as the "Town of Kansas”. It was incorporated in its present form in 1850.
According to the U.S. Bureau of the Census, Kansas City, Missouri has a total area of 318.0 square miles (824 km2) with 313.5 square miles (812 km2) of land area and 4.5 square miles (12 km2 or 1.41%) of water area. The City is located within 250 miles of the geographic and population centers of the United States and is the most centrally located of any major city within the U.S. Situated along the state boundary of Kansas and Missouri, the core of the Kansas City Metropolitan Area can be visualized roughly as four quadrants: northeast, southeast, northwest, and southwest.
The northeast quadrant, often referred to as "north of the river" (Missouri River) or "the Northland", is contained wholly within Missouri. It encompasses five counties including Platte and Clay Counties, the northern half of Kansas City, Missouri, and the cities of Liberty and North Kansas City. The southeast quadrant, sometimes referred to as “the southland”, is the core of the metropolitan area and includes the southern half of Kansas City, Missouri and the Jackson County, Missouri suburbs of Independence, Lee's Summit, Raytown, Grandview, and Blue Springs. This quadrant includes the majority of the metropolitan area
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 KANSAS CITY REGIONAL DATA P a g e | 15 businesses, visitor attractions, cultural institutions, and urban neighborhoods. The southwest quadrant includes all of Johnson County, Kansas including all towns in the area known as Shawnee Mission. Interstate 35 runs diagonally through Johnson County from the southwest to downtown Kansas City, Missouri. The northwest quandrant contains Wyandotte County, Kansas, parts of Platte County, Missouri and the cities of Kansas City (Kansas), Bonner Springs and Edwardsville.
The CSA is a bi-state region which covers more than 5,000 square miles, includes more than 100 municipalities, and consists of 15 counties: Bates, Caldwell, Cass, Clay, Clinton, Franklin, Jackson, Lafayette, Platte, and Ray counties in Missouri; and Johnson, Leavenworth, Linn, Miami and Wyandotte counties in Kansas. In addition, the CSA also contains the adjacent non-metropolitan counties that include the cities of Atchison, Lawrence, Ottawa, and Topeka in Kansas; and Chillicothe, St. Joseph and Warrensburg in Missouri. The central business district is centrally located within the metropolitan area, just south of the Missouri River.
Rankings
In March 2012, downtown Kansas City was selected as one of America's Best downtowns by Forbes magazine for its rich culture in arts, upscale shopping, numerous fountains, and the variety in local cuisines. According to Entrepreneur magazine, the Kansas City area consistently ranks among the top U.S. cities for supporting small businesses. It was recently named the number one place to start and grow a business in the Midwest and the eleventh best nationwide. As reported by ACCRA, the cost-of-living in Kansas City measures below the U.S. average, making Kansas City among the most affordable of large U.S. cities.
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Population Change from 2000 to 2010 Per County 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 2000 Census 0 2010 Census
Source: U.S. Bureau of the Census
Population Characteristics
The Kansas City - Overland Park - Kansas City MO-KS CSA is ranked as the 29th largest metropolitan statistical area in the nation, with an estimated combined statistical population of 2,052,676 in 2011. This is an estimated increase of 0.85% from 2010. The Kansas City MSA is growing twice as fast the as the St. Louis MSA, at a rate of 10.9% from 2010 to 2011. In contrast, the St. Louis metropolitan statistical area grew only 4.2% during the same time period. While Kansas City was growing at approximately the same rate as the country (9.7%) in 2010, it is growing much slower than sunbelt cities and the west coast, faster than other metropolitan areas in the Midwest, and much faster than some of the rust belt areas.
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Population Change 2000 to 2010 Select Cities 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 Census 2000 100,000 50,000 Census 2010 0
Source: U.S. Bureau of the Census
Projections of population growth into 2015, based on the 2010 census and applied to an urban growth simulation model, for the Kansas City – Overland Park – Kansas City CSA MO- KS according to the U.S. Bureau of the Census are shown in the chart listed below. The CSA is expected to see a population increase of 0.9%, with most growth occurring in Cass, Clay, and Platte counties in Missouri and in Johnson County, Kansas.
Area Population Statistics Historical and Projected, 2015 800,000 700,000 600,000 500,000 400,000 300,000 200,000 Census 2010 100,000 Census 2015 0
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Work Force Annual Averages, 2012 Unemployment Labor Force Employed Unemployed Rate Kansas City MSA 1,043,554 974,161 69,393 6.6% Kansas 1,489,320 1,403,866 85,454 5.7% Missouri 2,992,858 2,785,467 207,391 6.9% United States 154,975,000 142,469,000 12,506,000 8.1% Source: U.S. Bureau of Labor Statistics
Employment
According to the United States Department of Labor’s Bureau of Labor Statistics, unemployment in the Kansas City MO-KS area has fluctuated over the last few years showing an overall increase from 5.7% in 2008 to an estimated 7.6% as of March 2012. Missouri, Kansas and the Kansas City – Overland Park – Kansas City CSA MO-KS are outperforming the nation as a whole in terms of unemployment. Unemployment in Missouri is in-line with national trends. Trade, transportation, utilities, government and professional business services employ the greatest percentage of residents. The metropolitan area is the production and service center for the Midwest, with the General Motors and Ford assembly plants making the Kansas City CSA the third largest producers of automobile in the nation.
Employment Growth December 2011 - December 2012
Dec
Oct
Aug
Jun
Apr
Feb
Dec 940,000 950,000 960,000 970,000 980,000 990,000
Source: U.S. Bureau of Labor Statistics
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Major Employers
The Kansas City – Overland Park – Kansas City MO-KS CSA is headquarters to four Fortune 500 companies and many Fortune 1000 corporations including AMC Entertainment, Cerner Corporation, DST Systems, Garmin International, Great Plains Energy (KCPL), Hallmark, H&R Block, Seaboard, Sprint, Westar Energy, and YRC Worldwide. Numerous agriculture companies operate out of the city and the Kansas City Board of Trade is the principal trading center for hard red winter wheat, the principal ingredient in bread.
Major Regional Employers Over 5,000 Employees Cerner Corporation 7,904 Saint Luke's Health System 6,891 Chldren's Mercy Hospitals & Clinics 6,465 Sprint 7,500 Federal Government 27,600 State of Kansas 5,494 Hallmark Cards, Inc. 5,450 State of Missouri 5,912 HCA MidAmerica 8,000 Whiteman Air Force Base 7,200 Source: Mid-America Regional Council
Major Headquarters in the CSA Major corporate headquarters located within the Kansas City – Overland Park – Kansas City MO-KS CSA include: AMC Entertainment, American Century Investments, Black & Veatch Corporation, Burns & McDonnell Engineering, Cerner Corporation, Collective Brands, Commerce Bancshares, DeBruce Grain, DST Systems Inc., Garmin International, Great Plains Energy, H & R Block, Hallmark Cards, Hill’s Pet Nutrition, JE Dunn Construction Group, Seaboard Corporation, Sprint Nextel Corporation, UMB Financial Corporation, Westar Energy and YRC Worldwide Inc.
Employment by Sectors
The Kansas City area economy is supported by a wide variety of businesses, and is a national leader of several key industries which are integral to regional economic growth. Kansas City is a leading center of transportation, distribution, manufacturing, animal health and the financial industry. The city’s utility and telecommunications infrastructure has enabled it to develop a number of successful data center and contact center operations.
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Employment by Industry Kansas City CSA & United States, 2011
Public Administration Other Leisure & Hospitality Eduction & Health Services Professional & Business Services Financial Activities United States Information Kansas City Transport/Whsing & Utilities Retail Trade Wholesale Trade Manufacturing Construction & Mining 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Source: U.S. Bureau of Labor Statistics Cost of Living Index
The Council for Community and Economic Research measures the city-to-city differences in the cost of six major consumer expenditures: grocery items, health care, housing, transportation, utilities, miscellaneous goods and services. The ACCRA Cost of Living Index the C2ER produces is considered highly reliable and is recognized by the U.S. Census Bureau, U.S. Bureau of Labor Statistics, CNN Money, and the President's Council of Economic Advisors.
Cost of Living Index Selec t Cities, 2011
United States 100.0% St. Louis 91.1% Los Angeles 132.8% Phoenix 96.5% Kansas City 99.4% Denver 105.0% Dallas 96.2% Boston 137.3% Atlanta 97.3%
0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% 160.0%
Source: C2ER Cost of Living Index
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Cost of Living Indicies Kansas City CSA, 1st Qtr 2013 110 106.6
105 102.7 101.1 99.3 100 96.7 95 93.6
90
85 Grocery Housing Utilities Transport Health Misc.
Source: C2ER Cost of Living Index Consumer Price Index
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) for the Kansas City – Overland Park – Kansas City CSA MO-KS increased 4.3 percent from the second half of 2010 to the second half of 2011, the largest over-the- year advance since 1996. Costs for motor fuel, food, and shelter had the largest upward impacts on the overall index. The index for energy jumped 16.1 percent, food prices increased 7.2 percent, and the index for all items less food and energy was up 2.5 percent over the period.
Consumer Price Index Kansas City CSA, 2008-2012
Second Half 2012 2.1 First Half 2012 2.6 Second Half 2011 4.3 First Half 2011 3.6 Second Half 2010 1.7 First Half 2010 2.7 Second Half 2009 0.7 First Half 2009 -0.9 Second Half 2008 2.9 First Half 2008 4.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0
Source: U.S. Bureau of Labor Statistics
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Utility and Related Services
Electrical service is provided to various sections within the metropolitan area by twelve power and light companies: AmerenUE, Board of Public Utilities, Farmers Electric Cooperative, Gardner Electric, Independence Power & Light, KCP&L, Leavenworth-Jefferson Electric Cooperative, Osage Valley Electric Cooperative, Platte-City Electric Cooperative, United Electric Cooperative, West Central Electric Cooperative and Westar Energy. Water is provided by municipal governments or by special water districts in the county areas and in Kansas. Sewers service most of the incorporated areas and are provided by area municipalities. Four natural gas companies service the Kansas City – Overland Park – Kansas City CSA MO-KS: Atmos Energy, Black Hills Gas Company, Kansas Gas Service, and Missouri Gas Energy. Some areas within the rural metropolitan area continue to rely on propane gas.
Median Sales Price of Existing Single-family Homes Kansas City CSA and USA 200 173.1 176.9 180 166.2 160 141.6 142.6 133.2 140 120 100 80 60 40 20 0 KC CSA: USA: KC CSA: USA: KC CSA: USA: 2010 2010 2011 2011 2012 2012
Source: National Association of Realtors
Housing Affordability
The Kansas City – Overland Park – Kansas City CSA MO-KS constantly rates as one of the most affordable housing markets among metropolitan areas with populations exceeding one million. In Coldwell Banker's annual Home Price Comparison Index, in which the same home type is compared across multiple housing markets, the metropolitan area compared
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 KANSAS CITY REGIONAL DATA P a g e | 23 favorably. A single-family home with approximately 2,200 square feet, 4 bedrooms, a family room, 2 1/2 baths, and a 2-car garage would range from $143,169 to $223,287 in the Kansas City submarkets reported on by Coldwell Banker in the 2011 report. A similar home in San Francisco would be in the $800,000 range.
Median Sales Price of Existing Single-Family Homes Comparison of Two Bedroom Units, 2013
Tampa, FL $135,500 Seattle, WA $267,600 Minneapolis, MN $151,500 Los Angeles, CA $296,900 Kansas City, MO/KS $131,300 Denver, CO $230,700 Columbus, OH $118,300 Chicago, IL $164,300 Atlanta, GA $90,600 Albuquerque, NM $163,300 $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000
Source: National Association of Realtors, 2011; U.S. Dept. of Housing & Urban Development, 50th Percentile, 2 bedroom units, 2013
Median Apartment Rent Comparison of Two Bedroom Units, 2013
Tampa, FL $972 Seattle, WA $1,190 Minneapolis, MN $977 Los Angeles, CA $1,542 Kansas City, MO/KS $840 Denver, CO $1,002 Columbus, OH $830 Chicago, IL $1,056 Atlanta, GA $933 Albuquerque, NM $827 $0 $500 $1,000 $1,500 $2,000
Source: National Association of Realtors, 2011; U.S. Dept. of Housing & Urban Development, 50th Percentile, 2 bedroom units, 2013
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Real Estate Market Statistics Kansas City CSA, 3rd Quarter 2012 Kansas City, MO/KS Combined Statistical Area Buildings Existing SF Vacancy Rent Office 4,035 109,853,043 13.4% $16.97 Class A 148 25,888,457 14.7% $19.92 Class B 1,809 63,396,069 13.8% $16.71 Class C 2,078 20,668,517 10.5% $12.82 Industrial 5,822 244,254,808 6.2% $3.74 Flex 509 12,818,346 11.7% $8.50 Source: CoStar Group
Development Projects
The Kansas City – Overland Park – Kansas City CSA MO- KS currently has over $9 billion being invested in the region. According to the Downtown Council, more than $4 billion has been invested in downtown, Kansas City, Missouri since 2000. The top developments that have been completed since 2007 or currently underway/planned in the two-state region include: Kansas City Power & Light District (2007, $850 million), Village West (2006, $573 million), Schlitterbahn Vacation Village (2008, $412 million), Prairiefire (2010, $400 million), The Gateway (2008, $380 million), East Village (2009, $357 million), Park Place Community (2007, $350 million), Kauffman Center for the Performing Arts (2009, $326 million), The Walk (planned, $317 million), Sprint Center (2007, $276 million), Corbin Park (2008, $225 million), Nelson Atkins Museum of Art – expansion (2007, $207 million), BNSF Intermodal Park (2008, $200 million), Federal Reserve Bank of Kansas City (2008, $200 million), Parkway Plaza (2007, $200 million), Richard Bolling Federal Building (2010, $200 million), Zona Rosa (2007, $200 million), Tuscany Village (planned, $138 million), Kansas City Convention Center (2007, $135 million), Children’s Mercy Hospital (2010, $120 million),
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 KANSAS CITY REGIONAL DATA P a g e | 25 The West Edge (2007, $116 million), Raymore Galleria (2007, $115 million), Downtown Village Center (2007, $100 million), Erickson Retirement Community (2007, $100 million).
Mars Chocolate North America Phase I, 2013
Mars Chocolate North America (M&M’S® and SNICKERS®) has announced plans to build a new state-of-the art manufacturing facility in Topeka, KS. The new facility will be the first new chocolate site built in the United States in 35 years. Phase I of the new site has a planned completion year of 2013, and at that time the site will begin manufacturing M&M’S® and SNICKERS® candies. Mars expects to make a capital investment of more than $250 Million in the first phase of this multi-phased project. Subsequent phases of development will then expand the capacity of the facility, and more product lines will be added. The new facility will be built to meet leading-edge environmental standards, and will pursue a LEED Gold Certified designation upon completion.
Yanfeng USA
Yanfeng USA Automotive Trim Systems will construct a new 258,000 square foot manufacturing plant in the Kansas City area. The Michigan-based subsidiary of Yanfeng Visteon of China, a General Motors supplier, plans to build the $45 million manufacturing and sequencing facility and expects to create 263 new jobs.
Logoplaste
Logoplaste, a manufacturer of rigid plastic packaging, selected the Kansas City region for its new manufacturing operation at 6920 Executive Drive. The company will invest $31.5 million in a 200,000-sq.-ft. facility, creating approximately 80 new jobs.
E.C. Manufacturing
E.C. Manufacturing will open its manufacturing facility and headquarters in Shawnee, Kansas. The company is expected to create 252 new jobs over the next three years and make an estimated capital investment of more than $6 million. E.C. Manufacturing will produce advanced, small electrical components.
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Transportation
Transportation linkages/interstate roadways are vitally important to the growth of jobs, shopping and residential development within a major metropolitan area. The Kansas City – Overland Park – Kansas City CSA MO-KS has a well-designed highway system which incurs little traffic congestion when compared with other major metropolitan areas. Commute times during peak traffic periods within the MO-KS CSA increase approximately 20% which is low when compared with Chicago, Illinois which sees an increase of approximately 70%. The Kansas City area is served by 4 major interstate highways that intersect the area (I-29, I-35, I-49 and I-70), one major interstate highway that encircles the entire metropolitan area (I-435), three interstate linkages (I-470, I-670 and I-635) and 9 federal highways.
Interstate 29: a primary north/south thoroughfare traveling northward from Kansas City with two to four lanes in each direction. I-29 travels through Nebraska, South Dakota, Minnesota and the US/Canada border.
Interstate 35: a primary north/south thoroughfare traveling through central Kansas City with three to four lanes in each direction. I-35 travels through Iowa and Minnesota to the north, Kansas to the west, and Texas and the US/Mexico border to the south.
Interstate 70: a primary east/west thoroughfare traveling through the Kansas City metropolitan area with three to four lanes in each direction. I-70 travels through Indiana, Ohio and Pennsylvania to the east and Kansas, Colorado and Utah to the west.
Interstate 435: a primary thoroughfare traveling a loop around the entirety of the Kansas City metropolitan area with three to four lanes in each direction. I-435 provides access to I- 29, I-35, I-70 and I-470.
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Interstate 470: a primary thoroughfare traveling a partial loop around the southern side of the Kansas City metropolitan area with three to four lanes in each direction. I-470 provides access to I-70, US Highway 71, and I-435.
Interstate 635: a primary thoroughfare traveling a partial loop around the northern side of the Kansas City metropolitan area. I-635 provides access to I-29, I-35, and I-70.
Air Transportation: 10 major commercial airlines and their connection partners provide air transportation service to the Kansas City International Airport (KCI): Air Canada, AirTran Airways, Alaska Juneau Aerona, American Airlines, Continental Airlines, Delta Airlines, Frontier Airlines, Southwest Airlines, United Airlines and US Airways. These carriers offer approximately 200 daily departures, with nonstop service to over 50 destinations. According to J.D. Power & Associates, KCI ranks highest among medium-sized airports. Situated approximately 20 minutes from the Kansas City Central Business District, the airport is considered to be the hub for the states of Missouri, Kansas, Iowa and Nebraska. In addition to KCI, several regional airports provide air service to the metropolitan area.
Selected General Aviation Airports Airport County Distance from Length of Longest Downtown Runway Clay County Regional Airport Clay 20 mi./32 km 4,000 ft./ 1,200 m East Kansas City/Grain Valley Airport Jackson 23 mi./ 37 km 4,501 ft./ 1,350 m Forbes Field* Shawnee 71 mi./114 km 12,819 ft./ 3,907 m Johnson County Executive Airport Johnson 22 mi./35 km 4,099 ft./ 1,230 m Lawrence Municipal Airport Douglas 42mi./68 km 5,000 ft./ 1,524 m Kansas City Downtown Airport* Clay 1 mi./ 2 km 7,001 ft/ 2,100 m Lee's Summit Municipal Airport Jackson 19 mi./ 30 km 4,015 ft./ 1,205 m New Century Aircenter* Johnson 29 mi./ 46 km 7,339 ft./ 2,202 m Rosecrans Memorial Airport* Buchanan 49 mi./ 78 km 8,059 ft./2,418 m *These airports, along with KCI, are capable of supporting large cargo aircraft. Source: ThinkKC.com
Public transit: Kansas City Area Transportation Authority—The Metro, Johnson County Transit—The Jo, and Unified Government Transit—The Bus. The three transit organizations maintain integrated routes and services across the bi-state metro and participate with the Mid-America Regional Council in the region's SmartMoves transit planning effort.
Rail Transportation: Kansas City is generally regarded to be the second largest rail center in
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 KANSAS CITY REGIONAL DATA P a g e | 28 the U.S. and ranked first by freight volume. Four of eight Class I rail carriers, three regional lines, and a local switching carrier (Kansas City Terminal) serve the area. Amtrak passenger trains serve the city four times per day.
Barge Transportation: Kansas City adjoins the Missouri River's Corps of Engineers-managed shipping channel which runs from St. Louis, MO to Sioux City, IA. Seven barge lines with access to 41 docks and terminal facilities serve the metropolitan area.
Government
Each incorporated city within the Kansas City – Overland Park – Kansas City CSA MO-KS has its own set of building codes and zoning ordinances. In addition, each county has a comprehensive zoning plan and building code that provides guidelines for development of all property types.
Education
Education Distribution
Other Missouri Districts 22.3% Other Kansas Districts 16.3% Raytown, MO 2.2% Park Hill, MO 2.6% Liberty, MO 2.7% Lawrence, KS 2.9% St. Joseph, MO 2.9% Topeka, KS 3.5% Blue Springs, MO 3.5% Independence, MO 3.6% Kansas City, MO 4.3% Lee's Summit, MO 4.4% North Kansas City, MO 4.7% Kansas City, KS 5.1% Blue Valley, KS 5.4% Olathe, KS 6.9% Shawnee Mission, KS 6.9% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Source: ThinkKC.com
Greater Kansas City area residents are served by fifty-seven public school districts (570 public schools), with fourteen of the fifty-seven districts representing nearly sixty percent of area enrollments, and sixteen of the districts being located within Jackson County, Missouri. In addition to the public school system, the Kansas City area is also served by 170 private and parochial schools including Bishop Miege, Pembroke Hill and Rockhurst High School.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 KANSAS CITY REGIONAL DATA P a g e | 29
Fifteen institutions within the metro area offer graduate degrees. The University of Missouri and the University of Kansas offer professional degrees in law, medicine, dentistry, and pharmacy. The Kansas State University Olathe facility offers bioscience and biotechnology education opportunities. Degrees in osteopathic medicine are offered by the Kansas City University of Medicine and Biosciences. Nearby institutions include the University of Missouri’s main campus in Columbia, Northwest Missouri State University in Maryville, Kansas State University in Manhattan, Emporia State University in Emporia, Kansas, and the University of Kansas in Lawrence. The metropolitan area is served by fifteen two-year/ community colleges including Metropolitan Community College, Longview Community College and Johnson County Community College.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 NEIGHBORHOOD OVERVIEW P a g e | 30
SUBJECT NEIGHBORHOOD OVERVIEW
Property value is influenced by neighborhood and market area boundaries. These boundaries may be derived through changes in land use, demographic characteristics, and socioeconomic characteristics as well as physical features such as structure types, lot sizes, street patterns, bodies of water, transportation arteries, and changing elevations such as hills, valleys and cliffs. The subject neighborhood is described as follows:
SUMMARY OF SUBJECT NEIGHBORHOOD BOUNDARIES
Boundary to the North East Red Bridge Road
Boundary to the South Blue Ridge Boulevard
Boundary to the East Blue Ridge Boulevard
Boundary the West Interstate 49/US 71 Hwy/State Route 181
Map courtesy of Bing Maps Online Mapping Service
Location
The subject neighborhood would generally be described as an area near the northern boundary of Grandview, Missouri within the city limits of Kansas City, Missouri in Jackson
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 NEIGHBORHOOD OVERVIEW P a g e | 31
County. The immediate neighborhood is generally bounded by East Red Bridge Road on the north, Interstate 49/US 71 Highway/State Route 181 on the west, and Blue Ridge Boulevard on the south and east. The downtown Kansas City, Missouri area is located an estimated 15 miles to the northwest, with downtown Grandview, Missouri being approximately 2 miles to the south.
Character of the Neighborhood
The immediate neighborhood is generally considered to be mixed-use with business, commercial, and special use properties interspersed throughout the neighborhood and situated along the major arteries/thoroughfares/corridors throughout the neighborhood. Residential and multi-family housing development is generally located off the main thoroughfares.
Map courtesy of Bing Maps Online Mapping Service
Transportation Routes
The neighborhood has good access to the state and interstate highway system with the subject property being located south of Interstate 470/US 50 Highway and east of Interstate 49/US 71 Highway/State Route 181. I-470 and US 71 Highway connect with I-70 to the
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 NEIGHBORHOOD OVERVIEW P a g e | 32 north. I-49 connects with Interstate 435 and I-435 connects with I-70 to the north. Interstate 70, a six-lane divided highway with traffic in both directions, allows access to the state of Kansas from western Missouri and to Illinois from eastern Missouri.
Traffic Levels
The neighborhood is primarily influenced by local and commuter traffic along primary thoroughfares such as East Red Bridge Road, Blue Ridge Boulevard, Hillcrest Road, I-470/ US 50 Highway, and I-49/US 71 Highway/SR 181. These arterials experience moderate to heavy traffic volumes during peak morning and afternoon “rush hours” given the local commuter traffic. Traffic levels on the primary commercial thoroughfares will likely increase in the foreseeable future as a result of continued, moderate business and population growth. By and large, congestion is limited to the major thoroughfares/commercial intersections in the neighborhood and is dispensed rapidly due to the network of major highways in the area. Traffic levels throughout the remainder of the neighborhood are stable.
Conclusion of Neighborhood Overview
Each neighborhood has a life cycle which is a dynamic quality based upon the organization, construction, and use of a particular market area. Typically, there are four neighborhood land use stages:
I. Growth – the market area is given public favor and acceptance II. Stability – the market area remains stable with minimal gains or losses III. Decline – the market area sees a reduction in demand IV. Revitalization – the market area undergoes a period of increasing demand, renewal, redevelopment, and modernization
Based on market observations described previously in the report, the neighborhood as defined may be described as in the second stage of a total life cycle: a period of stability.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 FLOOD MAP/FLOOD ZONE DETERMINATIONS P a g e | 33
FLOOD MAP FLOOD ZONE DETERMINATIONS
Flood Map for the subject property produced by the FloodInsights.Com online mapping service
Areas inundated by 500-year flooding Areas outside of the 100-year and 500-year floodplains Areas inundated by 100-year flooding Areas inundated by 100-year flooding with velocity Floodway areas Floodway areas with velocity hazard Areas of undetermined but possible flood hazards Areas not mapped on any published FIRM
Flood Zone Determinations SFHA (Flood Zone): Out Within 250 feet of multiple zones? No Community: 290173 Community Name: Kansas City, City of Zone: C Panel: 0130C Panel Date: September 14, 1990 FIPS Code: 29095 Census Tract: 0131.00
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 SITE DESCRIPTION P a g e | 34
SITE DESCRIPTION
A brief overview of the characteristics for the subject site is as follows:
SUMMARY OF SITE CHARACTERISTICS
Gross Site Area, Square Feet/Acre(s) 24,644 Square Feet ± 0.56 Acres ±
Primary Road Frontage Hickman Mills Drive
Secondary Road Frontage None
Excess Land Area None
Zoning District B3-2, Community Business District
Flood Map FIPS Code, Panel & Date 29095, 0130C/September 14, 1990
Flood Zone C
Aerial photography for the subject property produced by Bing Maps.
Location
The subject parcel is improved with two neighborhood retail buildings. This appraisal assignment is for the northern portion of the site and the improvement situated on that portion of the parcel. The area allocated to the improvement at 11517 Hickman Mills Drive is a first tier interior lot which contains 24,644 square feet ± (allocated) along the west side of Hickman Mills Drive in Kansas City, Missouri. The lot, which faces in a westerly direction, is located minutes east of I-49/US 71 Highway/SR 181. Hickman Mills Drive is a secondary street which connects with Longview Road to the north which connects with I-49/US 71 Highway/SR 181 minutes to the west. The subject development has the following Jackson
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 SITE DESCRIPTION P a g e | 35
County Assessment Department/US Postal Service addresses: 11517 Hickman Mills Drive, Kansas City, Missouri 64134, 11517A Hickman Mills Drive, Kansas City, Missouri 64134, 11517B Hickman Mills Drive, Kansas City, Missouri 64134 and 11519 Hickman Mills Drive, Kansas City, Missouri 64134
Legal Description
The legal description for the subject property per Jackson County records is as follows: KEMPERS HICKMAN HEIGHTS LOTS 5-7, a subdivision in Kansas City, Jackson County, Missouri.
Parcel maps for the subject property produced by Jackson County Online Mapping Service.
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Size/Configuration/Topography
The allocated portion of this fully useable site has an estimated 24,644 square feet or 0.566 acres, more or less. The site is rectangular in shape, is above street grade, and slopes downward toward the street for proper drainage. Based upon a visual inspection of the property and according to FIRM Flood Insurance Rate Map, the subject is not known to be located in a federally designated flood zone. Surface water drainage appeared to be adequate at the time of inspection. The site’s topography is well suited for the existing development.
Zoning map for the subject property produced by Blue Springs Government Online Zoning Search.
Zoning/Zoning Conformance
The site is zoned B3-2, Community Business District by the City of Kansas City, Missouri. A neighborhood retail development is an approved use under this zoning and the property appeared to be in conformity with county zoning at the time of inspection.
Access/Frontage
Entrance areas along the west side of the site (Hickman Mills Drive) provide good direct access. The site has average indirect access via I-49/US 71 Highway/SR 181 from the East Longview Road exit, traveling east to Hickman Mills Drive, then south to the subject. The subject has access from northbound and southbound Hickman Mills Drive. The site has good
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 SITE DESCRIPTION P a g e | 37 visibility from Hickman Mills Drive, which is a two-lane secondary access street.
Easements/Utilities/Hazards
Easements are presumed to be standard for improvements of this design and functionality. No adverse easements were noted by nor are known to the appraiser. All necessary public utilities inclusive of water, sanitary sewer, electricity, natural gas, and telecommunications/ telephone service are present at or available to the subject site. The appraiser has not been supplied with a soil report and makes the assumption the soil’s load capacity is sufficient to support the existing structure. Neither has the appraiser been supplied with an environmental study of the site and makes no judgments as to potential environmental hazards. The appraiser has no knowledge of the existence of hazardous materials in or on the subject property.
Positive Site Features/Negative Factors
Positive site features for the subject include the size of the site, location within a stable commercial area, and good visibility with frontage near major Kansas City, Missouri thoroughfares (I-49/US 71 Highway/SR 181 and I-470/US 50 Highway). The site has zoning compatibility with surrounding uses. The site has good access to a state highway (SR 181), major US highways (US 71 Highway and US 50 Highway), and to the federal interstate system (I-49, I-70, I-470). There does not appear to be any negative factors associated with the site.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 I N T E R I O R PHOTOGRAPHS P a g e | 38
INTERIOR PHOTOGRAPHS
Subject interior
Subject interior
Subject interior
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 I N T E R I O R PHOTOGRAPHS P a g e | 39
Subject interior
Subject interior
Subject interior
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 I N T E R I O R PHOTOGRAPHS P a g e | 40
Subject interior
Subject interior
Subject interior
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 IMPROVEMENT S DESCRIPTION P a g e | 41
IMPROVEMENTS DESCRIPTION (As-Is/May 23, 2014)
An overview of the characteristics for the subject improvements is as follows:
SUMMARY OF IMPROVEMENT CHARACTERISTICS
Property Type Neighborhood Retail Development
Number of Buildings 1
Number of Stories 1
Year Built 1960
Quality/Condition Average/Average
Building Area 8,055 Square Feet
Site Coverage 33% ±
Land-to-building Ratio 3.06:1
Parking Improvements Off-street Asphalt-paved Surface Parking
Site Improvements Typical for Property Type, Use and Area
Overview
The subject property is improved with an existing one-story neighborhood retail development. The structure is a freestanding, Class C, concrete block and brick frame building. The improvement contains three tenant spaces: Klahn Property Rental, LLC Phoenix Auto Repair, and League of Lifestyles. The structure is of average quality construction, in average condition, and contains approximately 8,055 square feet of gross building area. The footprint of the building is approximately 8,055 square feet. The building has a site coverage ratio of 33% and the land-to-building ratio of 3.06:1 appears to be reflective of the market and adequate for this type of property. The structure was constructed in 1960 and is estimated to be 54 years of age. The building appears to have received average on-going maintenance.
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Exterior/Structural
The foundation is of slab on grade, reinforced concrete construction. The building has concrete block exterior sidewalls with brick finish along the front/west and south sides. The flat roof has a mop tar and gravel covering. There is a false mansard along the front/west and south sides. The building clear height is approximately 18 feet along the sidewalls, approximately 18 feet in the center, and walls are load bearing. The exterior windows are double-pane glass windows in aluminum framing. There are primary pedestrian entrances along the front/south walls for all of the tenant spaces, there are two 10’ X 12’ drive-in overhead doors and two 8’ X 10’ drive-in overhead doors on the south side and one 8’ X 10’ drive-in overhead door on the rear/east side. The exterior of the building is of average quality construction and appeared to be in average condition at the time of inspection.
Interior/Interior Finish/Layout
The building area is divided into three tenant spaces of approximately 885 square feet (Klahan Property Rental, LLC), 2,122 square feet (Phoenix Auto Repair) and 5,058 square feet (League of Lifestyles). The main entrances for two of the tenant spaces are on the front/west side of the building, with the main entrance for the third tenant space being located along the south side. Primary loading/unloading is along the rear/east side. Typical tenant finish in the office/retail areas includes concrete floors with commercial grade carpet or roll vinyl covering, painted drywall, and 2 x 4 drop ceilings with overhead fluorescent light fixtures. Typical tenant finish in the rear portions include unfinished concrete flooring and open/drop ceilings. The interior of the subject building is of average quality construction and appeared to be in average condition at the time of inspection.
Mechanical
The appraisal inspection was limited to a visual examination of the building components. It is not possible to determine the integrity of concealed structural components or the serviceability of mechanical systems. Inspections of this type are beyond the scope of the investigation required for this appraisal assignment.
Mechanical equipment includes the zoned HVAC forced air gas heating and central air conditioning system which is deemed adequate for the entirety of the building area. The subject has standard plumbing, standard electrical wiring, an adequate number of electrical outlets, and adequate electrical service for the current use. Other mechanical equipment
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 IMPROVEMENT S DESCRIPTION P a g e | 43 includes a smoke detection/alarm system.
Parking/Site Improvements
Parking and site improvements include an adequate number of off-street asphalt-paved, designated parking spaces along the front/west, north and south and sides of the building. The parking lot is illuminated by building-mounted exterior lighting. The development has good ingress/egress and good visibility from Hickman Mills Drive. The site has landscaping that is typical of the area with large asphalt-paved areas for parking, concrete curbs with curb cuts, gutters and storm drains.
Improvement Analysis
The subject interiors and exteriors are of average quality construction, functional in nature, and in overall average condition for the age and area. The inspection did not reveal any significant functional problems and the improvement is adequate for the current use.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 ANALYSES AND CONCLUSIONS P a g e | 44
ANALYSES AND CONCLUSIONS
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 HIGHEST AND BEST USE P a g e | 45
HIGHEST AND BEST USE
Highest and best use is defined by the Appraisal of Real Estate (12th Edition, 305) 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 land value.” The highest and best use of the property must be determined for both the subject site as though vacant and available to be put it its highest and best use, and for the property as currently improved (if applicable). The highest and best use must be:
1. Physically possible for the site. 2. Permitted under the zoning laws and deed restrictions that apply to the site. 3. Economically feasible. 4. The use that will produce the highest net return on investment (i.e. highest value) from among the possible, permissible, and economically feasible uses.
Highest and Best Use (Site as if Currently Vacant)
Possible Use As detailed in the site description section, the site’s physical characteristics should reasonably accommodate any use that is not restricted by its size of 0.566 acres, or 24,644 square feet ±.
Permissible Use Permitted uses are often restricted by zoning codes, land use plans, easements, and private deed restrictions. The site is located within the City of Kansas City, Jackson County, Missouri and zoned B3-2, Community Business District. Given prevailing land use patterns in the area, and recognizing the principle of conformity, only commercial/neighborhood retail uses have been given further consideration in determining the highest and best use of the site, as if vacant.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 HIGHEST AND BEST USE P a g e | 46
Feasible Use Holding for future commercial/neighborhood retail use is a feasible use of the subject as vacant, given the current surrounding property uses, and the state of the real estate market.
Maximum Profitability Holding for future commercial/neighborhood retail use is a use that meets the previous three tests. Accordingly, it is concluded to be maximally profitable, and the highest and best use of the site, as if vacant.
Highest and Best Use (Site as Currently Improved)
This subject site has been developed with a neighborhood retail development. The existing use could produce a significant positive cash flow when stabilized, before debt, and this can reasonably be expected to continue. Accordingly, the existing use is concluded to be feasible.
There are no alternative uses that could reasonably be expected to provide a higher present value than the current use. The value of the subject under the existing use exceeds the potential value associated with the alternatives. Furthermore, the value produced by the existing improvements exceeds the value of the site, as if vacant. For these reasons, the existing use as a commercial/neighborhood retail development is concluded to be maximally productive, and the highest and best use of the site as improved.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 APPRAISAL PROCESS P a g e | 47
APPRAISAL PROCESS
Although the valuation process can differ depending on the nature of the assignment and the availability of data, the process typically goes through six stages:
I. Definition of the problem II. Research and data analysis III. Determination of highest and best use IV. Estimation of land value V. Application of the three approaches to value VI. Reconciliation of the final value indication
In stage one, the appraiser identifies the market area to be researched and the data to be assembled for analysis including identification of the real estate, the effective date of the appraisal, terms of use for the appraisal, and limiting conditions. In stage two, the appraiser conducts research and data analysis for the site, improvements (if applicable), sales, listings, cost, depreciation, income, expenses and capitalization rate. In stage three, the appraiser determines the highest and best use. In stage four, the appraiser makes an estimation of the value of the land at its highest and best use, as though vacant and unimproved.
In stage five, the appraiser applies the three approaches to value (if applicable). The following is a brief description of three approaches to value that are generally used in the appraisal of real property and used to estimate the value for the subject property.
The Cost Approach
This approach is based upon the premise that an informed purchaser will pay no more for the subject property than the cost to reproduce it. This approach is particularly applicable when the property being appraised has relatively new improvements, or if there is a lack of comparable data to estimate the value using the other approaches.
The cost approach utilizes an estimated value of the ground, as if vacant, and to that value adds the depreciated cost of reproducing the improvements. The land is valued at its highest
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 APPRAISAL PROCESS P a g e | 48 and best use, as defined by this report. The cost new of a structure is calculated by utilizing one of the recognized cost valuation services or with estimates by local builders. There are three general types of accrued depreciation: (1) Physical Deterioration, curable and incurable, due to age, condition and/or damage; (2) Functional Obsolescence, curable and incurable, caused by old or poor design, inadequate or super-adequate size, type and/or quality of construction, and any other depreciating factors within the property that are not associated with physical deterioration; and (3) External Obsolescence, which is caused by external factors that reduce the property value. This includes location, (undesirable surrounding properties - these properties may appear undesirable or have undesirable uses, adverse zoning, unusual tax burdens) or economic factors which lessen the subject property's ability to return the highest value to its owner.
The Direct Sales Comparison Approach
The Direct Sales Comparison Approach (Market Data Approach) is an appraisal procedure in which the market value estimate is predicated upon prices paid for similar properties in actual market transactions and current listings. It is a process of analyzing sales of similar, recently sold properties in order to derive an indication of the most probable sales price of the property being appraised. The premise in this approach is that an informed purchaser will pay no more for the subject property than it would cost him to purchase a similar property on the open market. When there is an active market for the type of property being appraised, this becomes a very reliable method of evaluation. Problems in this method tend to come from unreliable sales information or adjusting for dissimilar characteristics between the comparable properties and the subject.
The Income Approach
This method estimates the value of the property by analyzing the potential return to an owner over a projected period of time. The ownership benefits evaluated are the anticipated net returns of this particular investment in relation to other investments. This approach is widely used in the appraisal of income producing properties. The process is to estimate potential maximum income; deduct an appropriate amount of vacancy and operating expense to arrive at the net operating income (NOI). The NOI is then discounted to estimate the present value of the income during a projected period of ownership.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 APPRAISAL PROCESS P a g e | 49
Reconciliation of the Final Value Indication
In stage six, after estimating the value of the property using the appropriate approaches outlined above, the appraiser weighs the relative significance, application and defensibility of the indication of value from each approach, and places the most weight and reliance on the methodology which, in his judgment, best reflects the actions of purchasers in the marketplace. The appraiser may or may not give equal consideration to the Cost, Direct Sales Comparison, and Income Approaches to value.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 COST APPROACH P a g e | 50
COST APPROACH
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 COST APPROACH P a g e | 51
COST APPROACH
The Cost Approach is comprised of four separate steps, which include:
A. An estimate of the market value of the subject site;
B. The estimated cost of replacing the existing improvements under current market conditions;
C. An estimate of depreciation from all causes, which includes physical deterioration and functional and external obsolescence. The total accrued depreciation is subtracted from the replacement cost new of the improvements;
D. The addition of the land value and depreciated value of the improvements to arrive at a market value estimate.
The Cost Approach to value employs the principle of substitution to the extent that no business entity or single person would pay more for a property than that amount by which he/she can obtain, by purchase of the site and construction of a building, without undue delay, a property of equal desirability and utility. The value estimated by this approach consists of land value (as though vacant) to which is added (1) the depreciated cost of the improvements (building structure) and (2) the value of the site improvements. Basic to arriving at the depreciated value of the subject improvements is the consideration of the difference between reproduction cost new and replacement cost new, and a determination of which to use. The definitions are as follows:
Reproduction Cost – the cost of creating a replica building or improvements, on the basis of current prices, using the same or closely similar materials.
Replacement Cost – the cost of creating a building or improvements having the same equivalent utility on the basis of current prices, using current standards of material and design.
The Cost Approach is most useful in the value determination of new construction or properties less than approximately five years of age. Because of the unreliability and difficulty in estimating accrued depreciation, the appraiser has not developed the Cost Approach for this appraisal report. In addition, we feel market participants rarely rely on this valuation methodology in arriving at a final market value estimate for this type of property.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 DIRECT SALES COMPARISON APPROACH P a g e | 52
DIRECT SALES COMPARISON APPROACH
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 DIRECT SALES COMPARISON APPROACH P a g e | 53
DIRECT SALES COMPARISON APPROACH
The Direct Sales Comparison Approach or The Market Data Approach is a process whereby prices paid for properties similar to the subject are used to establish an indicated value for the subject property. This approach has its foundation built on the principle of substitution which states that a prudent investor will pay no more to buy a property than it will cost him to buy a comparable property somewhere else in the market. The Direct Sales Comparison Approach relies on actual sales of comparable properties. In effect, this approach is the interpretation of the reaction of buyers and sellers to a certain type of property.
The approach is based on the principle of substitution; that is, a knowledgeable buyer will not pay more for a particular property than he would for a comparable property given the same utility. The real estate market, however, is not a perfect market. Differences in utility and physical features of a property that are recognized by the market influence the selling price. For this reason, adjustments must be made to develop a value estimate from the sales considered to be most similar to the subject property.
An important consideration is that a sufficient number of sales should be analyzed to establish definite patterns of investor action in the market. In order to establish an indication of market value for the subject property, an orderly process takes place allowing the appraiser to carefully analyze the data gathered and form this data into an indication of market value for the property being appraised. This analysis follows a logical sequence whereby:
A. The appraiser finds properties similar to the subject for which sales, listings, rentals and offerings are available.
B. Sales are qualified by the appraiser when he confirms the price, terms notification or authenticity of each sale.
C. Each sale is then compared to the subject property, giving consideration to the time of sale, locational influences and physical characteristics.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 DIRECT SALES COMPARISON APPROACH P a g e | 54
D. Each sale is then evaluated and adjusted as being more, less, or equal in value to the subject property, based on each of the three broad classifications mentioned in paragraph.
E. After comparing the sales to the subject property and making adjustments for any major dissimilarity, each comparable sale will then indicate a probable selling price for the subject property. The probable selling price indicated by all comparable sales are then reconciled into a final value estimate.
The Direct Sales Comparison Approach can be a very effective approach to value, assuming the data gathered is properly analyzed and verified, and provided there are sufficient sales to be analyzed. This approach establishes what typical investors in the market are willing to pay for a property similar to the subject. The unit of comparison in this report is the sales price per square foot of building area.
In order to value the subject site, the appraiser has reviewed multiple comparable sales and listings of similar development structures located within comparable marketing areas and similar to the subject in use and location. The four (4) sales, which were selected for comparison based upon the subject’s size and physical characteristics, are outlined on the following pages.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 COMPARABLE IMPROVED SALES P a g e | 55
COMPARABLE IMPROVED SALE 1
Neighborhood Retail Development 12780 East US 40 Highway Independence, Jackson County, Missouri
Comparable Improved Sale 1 Sale Data
Transaction Type Sale Sale Date 6/20/2013 Book/Page 2013E0064169 Building Area, SF 14,400 Square Feet ± Year Constructed 1975 Sale Price, Total $747,000 Sale Price, Per SF $51.88 Grantor William V. & M. L. Drake Trust Grantee Bulldog Enterprises Inc. Conditions of Sale Arm’s Length Transaction
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 COMPARABLE IMPROVED SALES P a g e | 56
Comparable Improved Sale 1 Site Description Legal Description Lengthy metes and bounds description in Witte Ed H Farm Sub in the City of Independence, Jackson County, Missouri.
Land Area 58,488 SF ±/1.34 AC ± Frontage Along East US 40 Highway Land-to-building Ratio 4.06:1 Site Coverage Ratio 25% Zoning C-2, General Commercial Topography Basically Level Drainage Topography Allows for Proper Drainage Shape Rectangular Utilities All Available and in Place
Additional Remarks: Comparable sale one is located northeast of the subject in Independence, Missouri. The development is of average quality construction, in average condition, and appeared to be in conformity with city zoning at the time of sale. Landscaping is typical of the area and includes off-street parking.
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COMPARABLE IMPROVED SALE 2
Neighborhood Retail Development 7933 – 7951 State Line Road Kansas City, Jackson County, Missouri
Comparable Improved Sale 2 Sale Data
Transaction Type Sale Sale Date 3/23/2012 Book/Page 2012E0031378 Building Area 12,400 Square Feet ± Year Constructed 1955 Sale Price, Total $550,000 Sale Price, PSF $44.35 Grantor Crum & Reed Trust Grantee State Line 79 Conditions of Sale Arm’s Length
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Comparable Improved Sale 2 Site Description Legal Description MEADOW LAKE LAWN LOTS 23 & 26, a subdivision in Kansas City, Jackson County, Missouri.
Land Area 30,492 SF ±/0.70 AC ± Frontage Along State Line Road Land-to-building Ratio 2.46:1 Site Coverage Ratio 40.7% Zoning B2-1, Neighborhood Business District Topography Mostly Level Drainage Topography Allows for Proper Drainage Shape Mostly Rectangular Utilities All Available and in Place
Additional Remarks: Comparable sale two is located northwest of the subject in Kansas City, Missouri. The development is of average quality construction, in average condition, and appeared to be in conformity with city zoning at the time of sale. Landscaping is typical of the area and includes off-street parking.
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COMPARABLE IMPROVED SALE 3
Neighborhood Retail Development 604 - 610 East 30th Street Kansas City, Jackson County, Missouri
Comparable Improved Sale 3 Sale Data
Transaction Type Sale Sale Date 2/25/2014 Book/Page 2014E0020100 Building Area 12,298 Square Feet ± Year Constructed 1935 Sale Price, Total $415,000 Sale Price, PSF $33.75 Grantor BDB Properties, LLC Grantee SJPS Properties Conditions of Sale Arm’s Length
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Comparable Improved Sale 3 Site Description Legal Description COLEMAN PLACE LOTS 25-28 BLK 2 , a subdivision of land in the City of Kansas City, Jackson County, Missouri.
Land Area 13,068 SF ±/0.30 AC ± Frontage Along E. 30th Street Land-to-building Ratio 1.06:1 Site Coverage Ratio 94% Zoning M1-5, Manufacturing District Topography Basically Level Drainage Topography Allows for Proper Drainage Shape Rectangular Utilities All Available and in Place
Additional Remarks: Comparable sale three is located northeast of the subject in Kansas City, Missouri. The development is of average quality construction, in average condition, and appeared to be in conformity with city zoning at the time of sale. Landscaping is typical of the area and includes off-street parking.
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COMPARABLE IMPROVED SALE 4
Neighborhood Retail Development 1210 Southwest Market Street Lee’s Summit, Jackson County, Missouri
Comparable Improved Sale 4 Sale Data
Transaction Type Sale Sale Date 9/13/2013 Book/Page 2013E0097183 Building Area, SF 4,850 Square Feet ± Year Constructed 1960 Sale Price, Total $215,000 Sale Price, Per SF $44.33 Grantor Richard E. Winkler Trust Grantee KCL Holdings, LLC Conditions of Sale Arm’s Length Transaction
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Comparable Improved Sale 4 Site Description Legal Description SIMONIN ADD ALL (EX N 145.4') OF LOT 1, a subdivision of land in Lee’s Summit, Jackson County, Missouri.
Land Area 82,328 SF ±/1.89 AC ± Frontage Along SW Market Street Land-to-building Ratio 16.97:1 Site Coverage Ratio 6% Zoning PI, Planned Industrial Topography Basically Level Drainage Topography Allows for Proper Drainage Shape Rectangular Utilities All Available and in Place
Additional Remarks: Comparable sale four is located northeast of the subject in Lee’s Summit, Missouri. The development is of average quality construction, in average condition, and appeared to be in conformity with city zoning at the time of sale. Landscaping is typical of the area and includes off-street parking.
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 COMPARISON OF COMPRABLE SALES P a g e | 63
COMPARISON OF COMPARABLE IMPROVED SALES
Comparison of Comparable Improved Sales
Subject Property Location 11517 Hickman Mills Drive, Kansas City, Missouri County Jackson Sale Date N/A Building Area 8,055 Square Feet Year Built 1960 Quality Average Condition Average Zoning B3-2, Community Business District Sale Price N/A Sale Price Per SF N/A
Comparable Sale 1 Location 12780 E. US 40 Highway, Independence, Missouri County Jackson Sale Date 6/20/2013 Building Area 14,400 Square Feet ± Year Built 1975 Quality Average Condition Average Zoning C-2, General Commercial Sale Price $747,000 Sale Price Per SF $51.88
Comparable Sale 2 Location 7933 - 7951 State Line Road, Kansas City, Missouri County Jackson Sale Date 3/23/2012 Building Area 12,400 Square Feet ± Year Built 1955 Quality Average Condition Average Zoning B2-1, Neighborhood Business District Sale Price $550,000 Sale Price Per SF $44.35
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 COMPARISON OF COMPRABLE SALES P a g e | 64
Comparable Sale 3 Location 604 - 610 E. 30th Street, Kansas City, Missouri County Jackson Sale Date 2/25/2014 Building Area 12,298 Square Feet ± Year Built 1935 Quality Average Condition Average Zoning M1-5, Manufacturing District Sale Price $415,000 Sale Price Per SF $33.75
Comparable Sale 4 Location 1210 SW Market Street, Lee’s Summit, Missouri County Jackson Sale Date 9/13/2013 Building Area 4,850 Square Feet ± Year Built 1960 Quality Average Condition Average Zoning PI, Planned Industrial Sale Price $215,000 Sale Price Per SF $44.33
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COMPARABLE IMPROVED SALES ADJUSTMENTS
Subject/Comparable Sale Subject Comparable 1 Comparable 2 Location 11517 12780 7933-7951 Hickman Mills E. US 40 Highway State Line Road Drive Independence, Kansas City, Kansas City, Jackson County, Jackson County, Jackson County, MO MO MO Cash Equiv. Price N/A $747,000 $550,000
Sale Price, Per Square Foot N/A $51.88 $44.35 Adjustments Property Rights Conveyed N/A 0% 0% Motivation/Financing N/A 0% 0% Market Conditions N/A 0% 0% Time N/A 0% 0%
Total Adjustments N/A 0% 0% Preliminary Adjusted Price N/A $51.88 $44.35 Size/Square Feet 8,055 14,400 12,400 Adjustment N/A +10% +10% Location/Access Hickman Mills Dr. E. US 40 Hwy State Line Road Adjustment N/A -10% -10% Age/Condition 1960/Avg 1975/Avg 1955/Avg Adjustment N/A -5% 0% Quality Avg Avg Avg Adjustment N/A 0% 0% Land-to-Building Ratio 3.06:1 4.06:1 2.46:1 Adjustment N/A 0% 0% Zoning/Use B3-2, Community C-2, General B2-1, Business Commercial Neighborhood Business District Adjustment N/A 0% 0% Other/Fence None None None Adjustment N/A 0% 0%
Total Adjustments N/A -5% 0% Indicated Value, Per SF N/A $49.29 $44.35
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ADJUSTMENTS – Continued
Subject/Comparable Sale Subject Comparable 3 Comparable 4 Location 11517 604-610 1210 Hickman Mills Dr. E. 30th Street SW Market St. Kansas City, Kansas City, Lee’s Summit, Jackson Jackson County, Jackson County, County, MO MO MO Cash Equiv. Price N/A $415,000 $215,000
Sale Price, Per Square Foot N/A $33.75 $44.33 Adjustments Property Rights Conveyed N/A 0% 0% Motivation/Financing N/A 0% 0% Market Conditions N/A 0% 0% Time N/A 0% 0%
Total Adjustments N/A 0% 0% Preliminary Adjusted Price N/A $33.75 $44.33 Size/Square Feet 8,055 12,298 4,850 Adjustment N/A +10% -5% Location/Access Hickman Mills Dr. E. 30th Street SW Market Street Adjustment N/A 0% 0% Age/Condition 1960/Avg 1935/Avg 1960/Avg Adjustment N/A +10% 0% Quality Avg Avg Avg Adjustment N/A 0% 0% Land-to-Building Ratio 3.06:1 1.06:1 16.97:1 Adjustment N/A +10% -15% Zoning/Use B3-2, Community M1-5, PI, Planned Business District Manufacturing Industrial District Adjustment N/A +10% +10% Other/None None None None Adjustment N/A 0% 0%
Total Adjustments N/A 40% -10% Indicated Value, Per SF N/A $47.25 $39.89
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EXPLANATION OF IMPROVED SALES ADJUSTMENTS
In order to estimate the market value of the subject property, the appraiser has analyzed multiple sales of similar developments within a competitive market area. Of these sales, the appraiser has selected four (4) improved sales determined to be comparable to arrive at an estimate of value for the subject by the Direct Sales Comparison Approach. Summary data of each adjusted sale used has been provided on the preceding pages.
As can be seen by review of this information, improved sales that consummated between 2012 and 2014 indicated a range in sales price of $33.75 to $51.88 per square foot including land, prior to adjustments for any differences. Since not every property can be compared to "IDEAL” sales, the appraiser has chosen the best sales available from a search of similar type properties in the metropolitan area. The pertinent data surrounding each selected improved sale, together with the necessary adjustments thereto, have been summarized in the Comparable Improved Sales Adjustments preceding this discussion. Detailed information regarding each selected sale transaction is included at the beginning of this section for the reference of the reader.
Property Rights Conveyed
All comparable sale properties were fee simple transfers of ownership and did not appear to require any adjustment.
Financing/Motivation
First, the appraiser must consider the financing and the motivation (condition of sale) applicable to each of the comparable sales in order for the sales to be equal to the subject for these elements of comparison, prior to the consideration of any other element of comparison. Typically, when estimating the market value of a site, the appraiser assumes market financing as of the effective date of the appraisal report. If the financing of the sales was typical at the time of sale, no adjustment for financing is required. However, if the financing was below the typical rate at the time, then an adjustment for this element of comparison is required.
The same consideration is required for the motivation (condition of sale). If there are no unusual circumstances or motivations involved in the sale, no adjustment is required.
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However, if either the buyer or the seller were in any way motivated to sell or buy, these conditions must be considered and an adjustment must be made, since for the purposes of market value, the appraiser considers there are no unusual conditions of sale. By making these adjustments first, the comparable sales are “purified” so that other comparisons can be made on a more equal basis with the only other pre-adjusting factor being time value, which will be discussed in a following paragraph.
Based on the analysis done by the appraiser in confirming the sales utilized within this report, no unusual financing was evident and consequently no adjustments were made for financing.
Market Conditions
All comparable sale properties were sold under similar market conditions and did not appear to require any adjustment.
Time
It is generally conceded that property values have a tendency to change with the passage of time. This change can either be positive during times of rapid growth, or negative in times of economic recession, when an oversupply of properties are available on the market. The real estate "bubble" of the early 2000's that resulted in rapid market value increases has burst with many areas in the nation suffering from depressed real estate values. Many areas in the Kansas City Metropolitan area have remained fairly stable since 2009, therefore resulting in a steadiness in the marketplace.
Due to current economic conditions and with the subject neighborhood considered to be stable, no adjustment for time is deemed necessary.
Size
General sales analysis indicates that the smaller the unit of measure, the larger the per unit price. This analysis follows the economic principle of supply and demand, which states that there are more buyers in the marketplace capable of buying smaller properties than larger ones. Therefore, smaller properties are considered to have a higher unit price. The larger the unit of comparison, the smaller the per unit price; and the smaller the unit of comparison, the larger the per unit price.
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The appraiser made a slight upward adjustment to comparable sales 1 - 3 due to the fact these sales are larger than the subject. Comparable sale 4 required a slight downward adjustment as this sale is smaller than the subject.
Location/Access
Comparable sales 1 and 2 required slight downward adjustments for this unit of comparison.
Age/Condition
Comparable sale 1 required a slight downward adjustment for age as this sale is of newer construction than the subject. Comparable sale 3 required a slight upward adjustment for this unit of comparison.
Quality
No adjustments for quality were deemed necessary as the subject and all comparable sales were of similar quality construction.
Land-to-building Ratio
Higher land-to-building ratios generally indicate that further utilization of the site is possible. Comparable sale 4 required a slight downward adjustment as this sale has a larger land-to- building ratio than the subject. Comparable sale 3 required a slight upward adjustment for this unit of comparison.
Zoning & Use
Comparable sales 3 and 4 required slight upward adjustments as these sales had zoning which is considered to be inferior to the subject.
Other
No other adjustments were deemed necessary.
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VALUE BY DIRECT SALES COMPARISON APPROACH
The final indicated value of the comparable sales ranged from $39.89 per square foot to $49.29 per square foot, after adjustments and including land. After a careful analysis of all the comparable sales presented herein, it is the appraiser's opinion that an estimated value of $45.00 per square foot of gross building area is considered appropriate for the subject, including land. The indicated value for the subject property by the sale price per square foot method of the Direct Sales Comparison Approach to Value is $362,000, rounded.
DIRECT SALES COMPARISON APPROACH VALUE (“As-Is”)
VALUE ESTIMATE BY DIRECT SALES COMPARISON APPROACH
Neighborhood Retail: 8,055 Square Feet at $45.00 PSF Equals $362,475
Indicated Value, Including All Land $362,475
VALUE ESTIMATE BY DIRECT SALES COMPARISON APPROACH, ROUNDED $362,000
Final Indicated Value By The Direct Sales Comparison Approach, Rounded, “As-Is”:
Three Hundred Sixty-two Thousand Dollars $362,000
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 INCOME APPROACH P a g e | 71
INCOME APPROACH
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 INCOME APPROACH P a g e | 72
THE INCOME APPROACH
The Income Approach is a technique in which the anticipated net operating income to be generated by the subject property during its projected period of ownership is capitalized into a value estimate. The accuracy of the Income Approach is related to the estimation of income, vacancy, expenses and characteristics of the net income stream; its economic life span; the capitalization rate; and the methodology used in converting the net income into value. This approach is accepted as the most reliable method in the valuation of income producing investments.
The Income Approach to value is actually a discounting process whereby the projected net income expectancy is capitalized into a present day value. To have a successful real estate investment, an attractive return on invested capital plus recapture should be present. The rate of return depends on such factors as location, functional characteristics, the tax shelter of the property appraised, the money market and demand for competitive properties. The capitalization rate should, therefore, reflect the risk involved in the property being appraised, mortgage terms and rates from alternate investments. It is acknowledged that different types of investors may be willing to pay different prices for the same property due to different tax liabilities, investment objectives and motivation for ownership. This is called investment value.
The Income Approach is divided into two parts: estimating market rent with comparison to the lease terms and estimated operating expense; and income capitalization. In implementing the Income Approach, the appraiser projects the income and expenses assuming a typical ownership period for the property. Current economic trends, location, and other relevant factors have also been considered by the appraiser prior to arriving at a value conclusion. The appraiser utilized the following method of valuation in the Income Approach: Direct Capitalization.
Gross Income Estimate The first step in the Income Approach is to analyze and estimate the potential Gross Income of the subject property. In order to project a value for the subject property by the Income Approach, one must estimate a market rent, which is the rental income that property should
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 INCOME APPROACH P a g e | 73 command in the open market as indicated by actual lease amounts being paid for comparable properties as of the date of the appraisal.
Market Rent
In arriving at the final income and expense estimates for this appraisal, the appraiser will value the property by the Income Approach and make the assumption, in todays market, the property would be leased on a net expense basis with the owner being responsible for management/leasing and maintenance/reserve. The tenant would be responsible for payment of taxes, common area maintenance, insurance, and any miscellaneous expense items.
A search and analysis of neighborhood retail leases/rentals similar in type was made in marketing areas similar to the subject property. Neighborhood retail leases are typically written for 3 to 5 year terms, with minimal escalation. The majority of the comparable rents reviewed by the appraiser range from $3.00 - $6.00 for neighborhood retail properties, per year, depending on the location and condition of the property and the expense payment structure. Current leases for the subject property range from $1.35 to $4.54 per square foot and, in the appraiser’s opinion, appear to be below market rent.
The appraiser has analyzed actual income and expense statements of the subject being appraised, analyzed neighborhood retail development information in his data files, and analyzed income and expense information within the industry.
For purposes of this appraisal, we have elected to use for the gross building area an estimated, overall $5.00 per square foot. This is equal to $40,275 per year or $3,356 per month. This amount will be used for valuation estimates in the income approach. The owner is responsible for management/leasing and a small reserve/maintenance fund. Tenants are responsible for reimbursement of taxes, insurance, utilities, and common area maintenance expenses.
Other Income The subject does not generate income from other sources.
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HICKMAN PLAZA TENANT LIST for the building located at 11517 Hickman Mills Drive Kansas City, Missouri 64134
Hickman Mills Drive 11517 League of Lifestyles 5,058 SF Kansas City, Mo
Hickman Mills Drive 885 SF 11517 A Klahn Property Rental, LLC Kansas City, Mo (A & B)
Hickman Mills Drive 11517 B Klahn Property Rental, LLC Kansas City, Mo
Hickman Mills Drive 11519 Phoenix Auto Repair 2,112 SF Kansas City, Mo
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 COMPARABLE LEASES P a g e | 75
COMPARABLE LEASES
Commercial Leases/Rentals Lease 1 Lease 2 Tenant Aardvark Moving Company Raytown Plaza Laundry Street Address 9586 Marion Ridge 6119 Blue Ridge Blvd City and State Kansas City, MO Raytown, MO County Jackson Jackson Building Type Office/Warehouse Retail Square Footage 2,405 3,610 Lease Date/Terms 9/2018 5/2016 Rent Per SF $6.69 $5.50
Commercial Leases/Rentals Lease 3 Lease 4 Tenant Midwest Kustoms Auto Los Amigos Auto Repair Street Address 6707 Prospect Avenue 208 Peculiar Drive City and State Kansas City, MO Belton, MO County Jackson Cass Building Type Retail Retail Square Footage 20,058 4,875 Lease Date/Terms 2/2016 8/2014 Rent Per SF $4.47 $3.21
Commercial Leases/Rentals Lease 5 Lease 6 Tenant Dollface Beauty Salon Diver City Street Address 10901 Hickman Mills Dr. 6612 Blue Ridge Blvd City and State Kansas City, MO Raytown, MO County Jackson Jackson Building Type Retail Retail Square Footage 1,490 1,200 Lease Date/Terms 6/2015 7/2014 Rent Per SF $9.30 $6.00
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COMPARABLE LEASES - Continued
Commercial Leases/Rentals Lease 7 Lease 8 Tenant Discount Smoke & Liquor Charity Thrift Mart Street Address 9033 E. 350 Hwy 11300 Blue Ridge Blvd City and State Raytown, MO Kansas City, MO County Jackson Jackson Building Type Retail Retail Square Footage 3,046 13,041 Lease Date/Terms 2/2015 1/2014 Rent Per SF $6.32 $4.50
Commercial Leases/Rentals Lease 9 Lease 10 Tenant Canaan Worship Center Labor Smart Street Address 5333 E. Bannister Road 6600 Blue Ridge Blvd City and State Kansas City, MO Raytown, MO County Jackson Jackson Building Type Retail Retail Square Footage 46,080 2,400 Lease Date/Terms 3/2015 4/2016 Rent Per SF $5.22 $6.75
Commercial Leases/Rentals Lease 11 Lease 12 Tenant Diva’s Closet Austin Motorsports Street Address 11517 E. 63rd St. 15900 E. US 40 Highway City and State Raytown, MO Kansas City, MO County Jackson Jackson Building Type Retail Office Square Footage 995 10,356 Lease Date/Terms 2/2018 6/2017 Rent Per SF $13.00 $8.14
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THE INCOME APPROACH CALCULATED (As-Is)
Income Approach Calculated Gross Potential Income – Neighborhood Retail Development 8,055 Square Feet of First Floor Area at $5.00 PSF $40,275 Total Potential Income $40,275
Less Vacancy/Collection Loss (8%) $3,222
Effective Gross Income $37,053
Allowable Expenses (Stabilized) Management/Leasing (4%) $1,482 Maintenance/Replacement Reserves/Misc. (5%) $1,853
Total Estimated Expenses $3,335
Effective Gross Income $37,053
Less Allowable Expenses $3,335
Net Operating Income (Effective Gross Income less Allowable Expenses) $33,718
Capitalization Rate (9.00%/0.0900) $374,644
Income Approach to Value Estimate, Total $374,644
INCOME APPROACH TO VALUE ESTIMATE, ROUNDED $375,000
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 ALLOWABLE EXPENSE ESTIMATES P a g e | 78
ALLOWABLE EXPENSE ESTIMATES
In order to estimate the Net Income to be generated by the subject property, operating expenses must be projected and analyzed. In arriving at these estimates, we have reviewed projected expenses incurred by the subject itself and similar type properties in the area. In addition, we have utilized median expense estimates from our data bank, the Institute of Real Estate Management (IREM) and comparable sites. We are confident our estimate of allowable expenses is relevant to the subject site and the current neighborhood retail development rental market within the competitive market area.
Vacancy/Collection Loss
Once potential income has been estimated, an appropriate vacancy and collection factor must be applied. This factor is used to derive an allowance for a period of time when the subject is not leased or rental income becomes uncollectible.
A survey of the area indicates typical vacancy rates ranging from 3% to 10%. Based on prospective lease-up time, the history of the subject, market conditions, multi-tenancy, and the size of the facility, the appraiser will use a rate of 8% of the Potential Gross Income for vacancy and collection loss, or $3,222.
Management/Leasing
In addition, a deduction must be taken from the total estimated, collected lease amounts for management and leasing expenses. The typical management fee for similar building space is 3% to 6% of the Effective Gross Income (EFI). Due to the long-term occupancy, on- site management and multi-tenancy, the appraiser will use a combined 4% of the Effective Gross Income for management and leasing expenses, or $1,482.
Maintenance/Reserve for Replacement/Miscellaneous This expense category covers miscellaneous on-going expenses, maintenance repairs and replacement reserve required to account for the eventual replacement of items having shorter lives than the structure itself. Specific items include floor coverings, roof coverings, paving, etc. These total expense items are estimated to be 5% of the Effective Gross Income (EFI), or $1,853.
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Total Expenses
The estimated expense total after vacancy and collection allowance, including management/leasing and maintenance/ reserve for replacement is estimated to be approximately $3,335 or 9% of the Effective Gross Income for the subject property. Upon re- examination of each category of expense, the appraiser is of the opinion that these expenses appear to be indicative of the market and appropriate for the subject property.
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FINAL VALUE INDICATION BY THE INCOME APPROACH
The Income Approach to value is actually a discounting process whereby the projected net income expectancy is capitalized into a present day value. To have a successful real estate investment, an attractive return on invested capital plus recapture should be present. The rate of return depends on the risk involved, i.e., location, functional characteristics, condition and demand. The capitalization rate should reflect the risk involved in the property being appraised, mortgage terms and rates from alternate investments. It is acknowledged that different types of investors may be willing to pay different prices for the same property due to different tax liabilities, investment objectives and motivations for ownership. The appraiser will analyze the net income of the subject property by consideration of the overall rates analyzed by direct capitalization and band of investment.
Direct Capitalization and Band of Investment
Direct Capitalization is an effective method of capitalization, being the capitalization at the “overall rate”. The appraiser examines the market, researches and analyzes the sales prices of comparable properties, and estimates or obtains the applicable net income before recapture for each sale property. From this data, a range of overall rates can be developed. The appraiser was able to review meaningful estimated/indicated overall rates from his comparable sales database, as previously noted. Therefore, meaningful “Direct Capitalization” analysis was reviewed and considered, in the appraiser’s opinion.
The appraiser has also given consideration to the Band of Investment where the overall rate is a blend of the weighted mortgage percent and the mortgage constant and the weighted equity position and the equity dividend rate. The appraiser is of the opinion that a typical Investor or lessor/occupant as of date of appraisal in the subject’s specific area would be able to secure financing in regard to a 70% to 80% Loan-T-Value ratio, correlated at 70%. An interest rate tied/keyed to an indicator such as “prime” or “T-bills” would likely be in the range of 6.0% to 8.0%, correlated to 7.0% interest rate. Amortization would be based on a 15, 20 or 25 year term, correlated to 20 Years, payable monthly, with possible call/balloon provisions in 3, 5 or 7 years. A dividend rate in the area of 6% to 10%, correlated to 7%, would appear supportable in consideration of the income/risk characteristics of the property and motivations of a typical buyer of a facility such as the subject. Therefore, an overall rate via the band of investment analysis can be indicated as follows:
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70% (Mortgage) x 0.1003728 (Constant) = 0.0702610 30% (Equity) x 0.0700000 (Equity Dividend Rate) = 0.0210000 100% = 0.912610
Therefore, in consideration of overall rates reviewed by the “Direct Capitalization” analysis and the “Band of Investment” Analysis, an Overall Rate of 9.00% is considered supportable for the Subject.
Overall Rate: 9.00%
Using this information, an overall rate is developed as follows:
OVERALL RATE 70% Mortgage: .70 x .1003728 Equals .0702610
Plus 30% Equity: .30 x .0700000 Equals .0210000
100% of Property .0912610
INDICATED CAPITALIZATION RATE, ROUNDED 9.00%
INCOME APPROACH VALUE
VALUE ESTIMATE BY INCOME APPROACH Net Income $33,718
Divided by Overall Rate (9.00%) Equals Estimated Value of Property $374,644
Indicated Value Estimate, Including All Land $374,644
VALUE ESTIMATE BY INCOME APPROACH, ROUNDED $375,000
Final Indicated Value By The Income Approach, Rounded, “As-Is”:
Three Hundred Seventy-five Thousand Dollars $375,000
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RECONCILIATION AND FINAL ESTIMATE OF VALUE
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RECONCILIATION AND FINAL ESTIMATE OF VALUE
This appraisal assignment is for a neighborhood retail development located at the following Jackson County Assessment Department/US Postal Service addresses: 11517 Hickman Mills Drive, Kansas City, Missouri 64134, 11517A Hickman Mills Drive, Kansas City, Missouri 64134, 11517B Hickman Mills Drive, Kansas City, Missouri 64134 and 11519 Hickman Mills Drive, Kansas City, Missouri 64134.
As per conversations with commercial real estate brokers and other appraisers, the marketing time for this type of facility is estimated to be one year. Based on the subject property’s amenities and location, we have estimated that the subject would sell within twelve months. The appraiser is unaware of a current pending sale or a sale within the previous three years prior to the date of appraisal.
It should be noted that many factors can affect the marketing time of a property: its exposure to the market; its occupancy, condition, and desirability; the marketing company and agent; current economic conditions; the supply and demand for this particular type of property; and the availability and affordability of financing. The marketing time does not negatively impact the value of the subject property, as the properties in competition with the subject property would have similar marketing times. The appraiser believes the 'hypothetical' exposure time in relation to the subject would be similar to marketing time, or approximately nine to twelve months. Our value estimate reflects reasonable recent market sales and return parameters and these should, realistically, generate investor interest in the subject property.
Reconciliation is "the process by which the appraiser evaluates, chooses, and selects among two or more alternatives, conclusions or indications to reach a single answer or final value estimate." A correlation or reconciliation is a continuing process throughout the report. The appraiser has summarized the information gathered at the end of each section of the appraisal report. The valuation methods used in this report indicate the following:
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MARKET VALUE INDICATIONS “As-Is”
Cost Direct Sales Comparison Income Approach Approach Approach N/A $362,000 $375,000
Cost Approach
The Cost Approach is based upon the principle of substitution, which states that a rational, informed purchaser will pay no more for a property than the costs of acquiring an acceptable substitute with like utility, assuming that no costly delay will be encountered in making the substitution. In the Cost Approach, the land must first be valued as if vacant and ready for development at its highest and best use. A value is then derived for the land, after making adjustments for dissimilarities.
The replacement cost new is then calculated for the subject improvements, deductions are made for appropriate types of depreciation, and the result is then added to the land value. The Cost Approach is most applicable when applied to newer and special use properties, or sites with increasing land values or large tracts of ground.
Direct Sales Comparison Approach
The Direct Sale Comparison Approach compares the subject property with recently sold comparable properties. The Direct Sales Comparison Approach also rests upon the principle of substitution. In this approach, the subject property is compared to comparable sale properties and adjustments are made for factors of dissimilarity. This is an effective valuation methodology in an active real estate market.
Income Approach
The Income Approach to value can best be defined as the present worth of future benefits arising from ownership of property. The Income Approach is most applicable in dealing with commercial properties in which an income stream is anticipated. The income stream for the subject must first be analyzed and comparable income information must be processed to establish a reasonable income stream for the subject property and a typical holding period. The income stream is then discounted, using a discount rate and an overall rate derived
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 FINAL ESTIMATE OF VALUE P a g e | 85 from comparable data sources. This method is most reliable when dealing with properties that are expected to generate an income stream, as most investors are interested in the income stream of a property when buying or selling.
Conclusion
All the approaches to value have varying strengths and weaknesses. The Cost Approach was not developed as the market for properties of this age and type generally base purchase decisions on sales comparisons and/or income potential. The Market Data Approach was felt to be an effective basis of market value estimate due to good sales data. The Income Approach was also felt to be a reliable indicator of value due to the availability of income and expense data from both the subject and similar sites.
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FINAL ESTIMATE OF VALUE
In consideration of the aforementioned, it is estimated that the Market Value of the subject property located at 11517 Hickman Mills Drive, Kansas City, Missouri in the County of Jackson County as of May 23, 2014 was the sum of:
Final Estimate of Leased Fee Value for the subject property, “As-Is”:
Three Hundred Seventy Thousand Dollars $370,000
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CERTIFICATE OF VALUE
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CERTIFICATE OF VALUE
I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest with respect to the parties involved. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. My engagement in this assignment was not contingent upon developing or reporting predetermined results. My compensation for completing this assignment is not contingent upon the development or reporting of a pre-determined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal report. My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. Mr. Jack C. Cardwell made a personal inspection of the property that is the subject of this report. Ms. Sherri Blandford provided professional assistance to the person signing this certification, including research and data collection. My analyses, opinions, and conclusions were developed and this report is intended to comply with the appraisal related mandates. The appraiser has not performed an appraisal or other services regarding the property that is the subject of this appraisal within the three-year period immediately preceding acceptance of this assignment. The original current report is a market value appraisal. The date of this report, May 23, 2014, indicates that the perspective of the appraiser on the market conditions as of the effective date of the appraisal was current. The appraiser's estimate of the “As Is” leased fee value for the subject property as of the date of May 23, 2014, is the sum of:
Three Hundred Seventy Thousand Dollars $370,000
CARDWELL AND ASSOCIATES, INC.
Mr. Jack C. Cardwell President Missouri State Certified General Real Estate Appraiser (Certificate No. RA-001194) Kansas Certified General Real Property Appraiser (Certificate No. G-1449)
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ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal is subject to the following assumptions and limiting conditions:
1. This appraisal is subject to the accuracy of the legal description furnished the appraiser; however, we can assume no responsibility of matters legal in nature, nor can we render an opinion as to the title. All existing liens, mortgages or other encumbrances have been disregarded and the property is appraised as though free and clear of any such impediments that might affect value unless otherwise stated in the appraisal, and that the property is under responsible ownership and competent management.
2. The exhibits in the report are included to assist the reader in visualizing and understanding the property. We have made no survey of the property and assume no responsibility in connection for their legal accuracy.
3. We believe to be reliable the information which was furnished to us by reliable sources. We cannot, however, guarantee or assume responsibility for the accuracy of information furnished by others.
4. By reason of and upon completion of this appraisal, we are relieved of any and all obligation to give further consultation or testimony or appear in court or other similar bodies by reason of this report with reference to the property in question, unless arrangements have been previously made in writing.
5. The distribution of the total valuation in this report between leasehold interest in land and improvements applies only under the existing program of utilization and valuation analysis concept. The separate valuations for land and improvements must not be used in conjunction with any other report and are invalid if so used.
6. Subsurface rights (minerals, oil, gas, etc.) or unusual riparian rights were not considered in making this appraisal, unless otherwise stated.
7. It is assumed that there is full compliance with all applicable Federal, State and Local environ- mental regulations and laws unless non-compliance is stated, defined and considered in the appraisal.
8. Unless otherwise stated in this report, the existence of hazardous substances or materials including without limitation asbestos, polychlorinated biphenyl, petroleum leakage, or agricultural chemicals, which may or may not be present on the property, or other environmental conditions, were not called to the appraiser’s attention nor did the appraiser become aware of such during the inspection. The appraiser, however, is not qualified to test or detect such substances or conditions. If the presence of substances
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 ASSUMPTIONS/LIMITING CONDITIONS P a g e | 90 such as asbestos, urea-formaldehyde foam insulation, radon gas, or other hazardous materials or substances or environmental conditions may affect the value of the property, the value estimate is predicated on the assumption(s) that there is no such condition, substance, or material on or in the property or in such proximity thereto that it would cause a loss in value. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in the field of environmental impacts upon real estate if so desired. Additionally, the appraisal and any value conclusions are specifically subject to any significant impact or requirements in regard to the subject property caused by or a result of environmental considerations and/or legislation not known or imparted to the appraiser. Specific factors or influences such as, but not limited to, hazardous or toxic waste, tank or well water, ground water-table contamination, radon gas, asbestos removal, violation of any specific legislation such as the Clean Water Act, Air Quality Standards, Endangered Species, Federal required permits, impact legislation, etc. has not been considered unless noted or so stated by the appraiser in this appraisal.
9. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless a non-conformity has been stated, defined and considered in the appraisal.
10. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state or national governmental or private entity or organization have been or can be obtained or renewed for any use on which the value estimate is predicted.
11. All trade fixtures, furnishings and other equipment, except those specifically indicated, have been disregarded by the appraiser. Only the real property has been considered.
12. The appraiser has confined the valuation to the real property only and equipment, special items/equipment, etc., are considered personal property rather than real property, per se, and were not specifically valued by the appraiser, unless so stated.
13. The comparable sales data relied upon in this appraisal is believed to be from reliable sources; however, it was not possible to inspect the comparables completely, and it was necessary to rely on information furnished by others as to said data. Therefore, the value conclusions are subject to the correctness of said data.
14. The comparable (sales, leases, income, expenses) data sources utilized, typically included buyers, sellers, sales and leasing agents, brokers, bank trust departments, appraisers, government agencies, and sales contracts and closing statements, etc., as specific viewing and/or copies of comparable data could not always be carried out or obtained.
15. 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 components within the improvements. Therefore, no representations are made herein as to these matters and unless specifically
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 ASSUMPTIONS/LIMITING CONDITIONS P a g e | 91 considered in the report, the value estimate is subject to any such conditions that could cause a loss in value. Condition 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.
16. The land, and particularly the soil, of the area under appraisement appears firm and solid. Subsidence in the area is unknown or uncommon, but the appraiser does not warrant against this condition or occurrence.
17. The appraiser inspected the building(s) involved, if any, in this appraisal report and damage, if any, by termites, dry rot, wet rot, or other infestations was reported as a matter of information, and no guarantee of the amount or degree of damage, if any, is implied.
18. This appraisal should not be considered a detailed report on the physical items that are a part of the subject property. Although the report may contain information about the physical items being appraised/analyzed (including their adequacy and/or condition), it should be clearly understood that this information is only to be used as a general guide and is not a complete or detailed physical report. Further, because no detailed inspection was made, and because such knowledge goes beyond the scope of this appraisal, any observed condition comments given in the report should not be taken as a guarantee as to the adequacy or condition of the foundation, roof, exterior walls, interior walls, floors, heating system, air conditioning system, plumbing, electrical service, insulation, or any other detailed construction matters. If any interested party is concerned about the existence, condition, or adequacy of any particular item, we would strongly suggest that a construction expert be hired for a detailed investigation. Also, in the context of the assignment, the appraiser did not hold him/herself out to be a construction, engineering, or legal expert, and any opinion given on these matters in the appraisal should be considered preliminary in nature.
19. The appraisal is as of a specific date. Any value estimate or conclusions are based on economic and real estate conditions as of the effective date. The appraiser cannot predict or control changes, which might occur in these conditions. The value estimate may change at any point in the future, beyond the effective date of the appraisal.
20. The estimated market value has the basic inherent assumptions that the subject property will be competently and professionally managed and maintained.
21. This appraisal is based on an analysis of information known at the time the appraisal was made. If new information of significance comes to light, the value given in the appraisal is subject to change without notice. Specifically, prior to investment and/or financing, items accepted should be verified for use and accuracy by an expert of the investor/buyer’s choice.
22. Any projections of future rents, expenses, net operating income, mortgage debt service, capital outlays, cash flows, inflation, capitalization rates, discount rates or interest rates, etc., are intended solely for analytical purposes and are not to be construed as predictions of Cardwell And Associates, Inc. They represent only the
Neighborhood Retail Development, Kansas City, Missouri; CAA14-1725 ASSUMPTIONS/LIMITING CONDITIONS P a g e | 92 judgment of the appraiser as to the assumptions likely to be used by purchasers and sellers active in the marketplace, and their accuracy is in no way guaranteed. Further, any estimates, conclusions, values, etc., may not be valid in other time periods or as conditions change, which are inherently subject to uncertainty and variation depending upon evolving events, we do not represent them as results that will actually be achieved.
23. Possession of this appraisal or a copy thereof does not carry with it the right of publication or use for any purpose by any other than the addressee, without the written consent of the appraiser.
24. Neither all nor any part of this contents of the appraisal or a copy thereof shall be disseminated to the public nor to any person nor to an individual through advertising, general public verbally or through public relations, news, sales-promotion, or other media nor for any purpose by anyone, without the prior written consent and approval of the appraiser, particularly as to valuation conclusions, the identity of the appraiser or firm with which he/she is associated. Further, this appraisal is not to be used for purposes of syndication or unlawful or fraudulent purpose(s).
25. This appraisal and any value conclusions are specifically subject to any significant impact or requirements in regard to the subject property caused by a result of any significant special assessments or impact legislation, likely keyed to development scenarios, unless same has been made known to the appraiser and so stated and considered by the appraiser in the appraisal assignment.
26. No reliance was placed on the USPAP departure provision and this appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan.
27. This is an Appraisal Report, which is intended to comply with the reporting requirements set forth under Standards Rule 2-2 b,c,i 8-2 b,c,i of the Uniform Standards of Professional Appraisal Practice 2014 for an Appraisal Report. As such, it presents “a summary” of all information significant to the solution of the appraisal problem including discussions of the data, reasoning and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. Additional and supporting documentation concerning the data, reasoning and analyses is retained in the appraiser’s file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use below. The appraiser is not responsible for unauthorized use of this report.
28. The appraiser has examined the available flood maps that are provided by the Federal Emergency Management Agency (or other data) and has noted in the appraisal report whether the subject site is located in an identified Special Flood Hazard Area. Because the appraiser is not a surveyor, the appraiser makes no guarantees, express or implied, regarding this determination.
29. Calculations in the appraisal report have been made using the Microsoft Excel spreadsheet program. The figures in the calculations may not exactly match figures obtained using a manually operated calculator due to internal rounding in Excel.
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30. The client(s) by receipt of this appraisal, shall indemnify and hold harmless Cardwell And Associates, Inc., its owners and/or its individual staff members, appraisers, employees, and any independent contractors from and against all damages, expenses, claims, demands, and costs, including legal fees incurred in investigating and defending any claims arising from or in any way connected to the inclusion of the aforesaid reference to Cardwell And Associates, Inc. an/or its individual staff members for damages and expenses resulting from Cardwell And Associates, Inc. or its individual staff members’ failure to render the opinion(s) of value or produce the appraisal in a manner consistent with sound appraisal practice. In any event, the maximum damages recoverable from Cardwell And Associates, Inc. or its employees relative to this engagement shall be the amount of monies actually collected by Cardwell And Associates, Inc. for this assignment, and under no circumstances shall any claim for consequential damages be made. In addition, there is no accountability or liability to any third party.
31. The use of this report constitutes acceptance of all assumptions and limiting conditions and, if any, special limiting conditions.
32. All files, work papers, or documents developed during the course of the appraisal assignment shall be the property of Cardwell And Associates, Inc., which is required to retain same for at least a five year period.
33. The Americans with Disabilities Act (ADA) became effective January 26, 1992. Unless otherwise specified within this report, we have not made a specific compliance survey or 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 we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of the ADA in estimating the value of the property.
34. If the structure or parts thereof were construction prior to 1978, lead based paint may be a consideration. The appraiser is not an expert in this field and the client/owner should seek an opinion from an expert in that field, if they consider it necessary.
35. Appraiser has not examined the borrower’s credit report. Appraiser has not analyzed the borrower’s income, tax returns, W-2′s, financial statement, nor any other financial instrument with regard to borrower’s credit worthiness or capacity to repay any loan. Appraiser has not been engaged to assist in the underwriting criteria and decision making for any loan with regards to the subject. The determination of the borrower’s ability to repay a loan or the rating class of the final loan placed on the subject is determined solely by the lender – (the borrower’s ability to repay the loan note and not on the subject’s overall value). It is further understood that any lending decision made is the sole discretion and burden of the lender who qualifies the borrower’s ability to repay the loan and not the real estate which has been valued. Appraiser warrants that they are not part of any credit or loan making decision in conjunction with this transaction.
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Appraiser’s engagement is to render a value conclusion totally disconnected from the lending underwriting process without bias. Appraiser has valued the subject relative to the market and has analyzed any special condition or feature relevant to the subject’s value. Appraiser has no financial connection or undisclosed business relationship with lender.
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ADDENDA
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QUALIFICATIONS OF APPRAISER
JACK C. CARDWELL CERTIFIED GENERAL REAL ESTATE APPRAISER LICENSE NUMBER RA001194
PROFESSIONAL EDUCATION Introduction to Real Estate Appraisals Rural Properties Appraisal Capitalization, Theory and Techniques An Introduction to Appraising Real Property Intermediate Income Approach to Valuation Commercial Appraisal Course, Income Approach (40 Hours) Farm Appraisal Course (40 Hours) Income, Market, Cost and Site Analysis Residential Appraisal Course (40 Hours) National USPAP Update Course Forms Seminar Residential Market Analysis & Highest & Best Use Fair Housing for the Appraiser Marshall & Swift Cost Estimation Two to Four Unit Residential Case Study Appraisal Reviews: Residential & Commercial
OTHER EDUCATION Central Missouri State University at Warrensburg B.S. Business Administration Rockhurst University at Kansas City Major Course of Study: Real Estate and Appraisal classes, night classes Real Estate Sales License (Inactive)
EXPERIENCE 07/01/91 to Present: CARDWELL AND ASSOCIATES, INC. 221 West Lexington, Suite 210 Independence, Missouri 64050 Position: President Duties: Full time Residential and Commercial Fee Appraisals. All property and sales data information gathered and researched to provide accurate market value appraisals. Presentation of appraisals to taxing authorities, assisting the taxpayers' attorney in appeal hearings and appraisals of income properties for investors.
02/02/90 to 06/30/91: RESOLUTION TRUST CORPORATION 4900 Main Street Kansas City, Missouri Position: Senior Review Appraiser
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Duties: Supervise appraisal department Mid-Central Consolidated Office, appraisal preparation and review of sites being handled through the government program regarding insolvent savings and loan institutions.
11/15/75 to 01/31/90: CARDWELL AND ASSOCIATES, INC. 211 North Osage Independence, Missouri 64050 Position: President Duties: Residential and Commercial Fee Appraisals combined with analysis of property taxes to determine equity, preparation of appraisals of commercial presentation of appraisals to taxing authorities, assisting the taxpayer's attorney in appeal hearing and appraisals of income properties for investors.
05/18/80 to 10/20/87: MISSOURI MASS APPRAISAL COMPANY 211 North Osage Independence, Missouri 64050 Position: President Duties: All supervision of activities within the corporate structure. All public relations and personal contact with county officials. Total supervision of all appraisals of real estate in eight Missouri counties totaling over 100,000 parcels.
04/19/70 to 11/15/75: JACKSON COUNTY DIVISION OF ASSESSMENT 415 East 12th Street Kansas City, Missouri 64106 Position: Department Supervisor - Farm Section Duties: Duties included appraisals of agricultural properties, the supervision of five farm appraisers and appearing as a witness for Jackson County in Board of Equalization and State Tax Commission Hearings.
Position: Appraiser - Commercial, Industrial Section Duties: Appraisals of commercial and industrial properties and appearing as a witness in Board of Equalization and State Tax Commission hearings.
Position: Department Supervisor - Residential Duties: Appraisals of residential properties and supervision of eight residential appraisers.
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REPRESENTATIVE LIST OF APPRAISAL CLIENTS Governmental Agencies, Missouri Governmental Agencies, Kansas Andrew County, Missouri Allen County, Kansas Buchanan County, Missouri Anderson County, Kansas Clinton County, Missouri Butler County, Kansas Grain Valley, Missouri Cowley County, Kansas Grandview, Missouri Doniphan County, Kansas Independence, Missouri Harvey County, Kansas Jefferson County, Missouri Kingman County, Kansas Pike County, Missouri Leavenworth County, Kansas Pratt County, Missouri Woodson County, Kansas Taney County, Missouri Commercial Appraisal Clients Cosentino's Food Stores Johnson Controls American Lodging, Inc. Kansas City Cold Storage American Properties Management Co. Key Commercial Mortgage Metcalf Bank Larry Mock & Company Arrow Truck Sales, Inc. Linville Management Arthur Anderson LLP Lipton Tea Hawthorn Bank Mansion Apartments Bank of America Medical Plaza Partners Bank of Grain Valley Meridian Properties First National Bank of Missouri Missouri American Water Co. Bank of Lee's Summit NorthStar Bank Best Mortgage Payless Cashways Blue Ridge Bank & Trust People's Bank Blue Springs Realty Percy Kent Bag Central Bank Perkins Hoffman Cortes Co. Citizen's Bank Pinnacle Bank Community Bank of Raymore Prestige Agency, R. E. Fund Community of Christ Church (former RLDS) Prudential Insurance Days Inn Motels Quaker Oats Dr. D. F. Tutera Properties Quality Wood Products First Community Bank Raupp Realty U S Bank Raytown Water Department Forrest T. Jones Company Re/Max Realtors Foundation for Cooperative Housing Sellers & Marquis Roofing Co. J E Dunn Construction Company Shryock Realty GMAC/General Motors Acceptance Corp. Garden State Bank Gold Bank US Department of Housing & Urban Development Hawley Realty Valley View Bank Heavy Construction Workers Volunteers of America Housing Humphrey, Farrington, McClain & Edgar PC Volvo International Independence Examiner Wendy's Restaurants International Association of Teamsters White, Goss, Bowers, March, Schulte & Weisenfels International Brotherhood of Firefighters United Missouri Bank
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GLOSSARY A Abstract of Title: A brief history of the transfers of a piece of land, including all claims that could be made against it.
Acre: A unit of measurement equal to 43,560 square feet.
Adjustable Rate Mortgage (ARM): A debt secured by real estate with an interest rate that may change following a specific schedule or in accordance with the movements of a standard or index to which the interest rate is tied.
Adjustment Cap: The limit upon how much the interest rate can be adjusted for an adjustable rate mortgage.
Ad Valorem Tax: A real estate tax based on the assessed value of the property, which is not necessarily equal to the market value. Often the assessed value is a percentage of market value.
Amortization: The process of retiring a debt through periodic scheduled payments of the principal.
Annual Percentage Rate (APR): The actual cost of borrowing, including interest, points, fees, etc., calculated as a yearly rate. This rate is calculated over the life of the loan.
Appraisal: Appraisal is defined as the act or process of estimating value. Real estate appraisal involves selective research into appropriate market area; the assemblage of pertinent data; the application of appropriate analytical techniques, and the use of knowledge, experience, and professional judgment to develop an appropriate solution to the appraisal problem (Appraisal Institute, 10).
Appraisal Report: The written or oral communication of an appraisal; the document transmitted to the client upon completion of an appraisal assignment.
Appreciation: A rise in value or price, especially over time.
Approaches to Value: Systematic procedures used to derive value indications in real property appraisal. See Cost Approach, Income Approach, and Sales Comparison Approach.
Assessed Value: The official valuation of property for ad valorem taxation.
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Assessment: 1. The official valuation of property for ad valorem taxation. 2. A charge levied against a tract of real estate to off-set the cost of public improvements.
Assessment Ratio: The relationship between assessed value and market value.
Assessor: 1. The head of an assessment jurisdiction. 2. One who discovers, lists, and values real property for ad valorem taxation.
Assumable Mortgage: A mortgage in which the existing debt may be transferred to a third party without approval of the lender.
Assumption of Mortgage: A purchase of mortgaged property in which the buyer accepts liability for existing debt. The seller remains liable to the lender unless the lender releases the seller from the obligation. B Basis Point: One one-hundredth of one percent. Used to express changes in interest rates.
Building Code: A local or state ordinance or regulation that controls the design, construction, alteration, etc.; enforced by police power.
Building Restrictions: Limitations on building imposed by codes, easements, deed restrictions, or statutes.
Buyer’s Market: A depressed market in which buyers have the advantage. A buyer’s market exists when market prices are low due to an oversupply of property. C Call Provision: A mortgage clause that gives the lender the right to accelerate payment of the debt if the property serving as collateral is sold or transferred. Also known as a due on sale provision.
Closing: A meeting of the parties to a real estate transaction held to execute and deliver documents pertaining to the transaction.
Closing Costs: The costs incurred in the transferring of real property ownership.
Closing Date: The date on which ownership of a property is transferred from the seller to the buyer.
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Closing Statement: A listing of the debits and credits of the buyer and seller in the closing of a real estate transaction.
Comparables: A shortened term for comparable property sales used in the valuation process. Also known as Comps.
Complete Appraisal: The act or process of estimating value or an estimate of value performed without invoking the Departure Provision of the Uniform Standards of Professional Appraisal Practice [Uniform Standards of Professional Appraisal Practice (USPAP), 1995].
Contract: An agreement between parties that represents their promise to do or not to do a particular thing. In real estate, a dated, written, signed agreement between two or more parties who agree to perform or not to perform a legal act within a specified period of time.
Contract Date: The date on which the buyer and seller agree to the sale of a property. Typically precedes the closing date.
Cost Approach: A set of procedures through which a value indication is estimated for the fee simple interest in a property. This approach is performed by estimating the current cost to reproduce or replace the existing improvements, making a deduction for accrued depreciation, and adding the land value and any profit. D Date of Opinion: The date for which an appraisal is valid.
Debt Service: The periodic payment that covers interest and principal payments for retiring debt. Annual debt service is the annual amount of the monthly payments, often expressed as ADS.
Deed: A written, legal instrument that conveys an estate or interest in real property.
Deed of Release: A legal instrument by which mortgaged property is absolved from the lien of the mortgage.
Deed of Trust: A legal instrument similar to a mortgage which conveys property title to a trustee.
Deed Restriction: A limitation that passes with the land, regardless of the owner.
Depreciation: In appraising, a loss in property value from any cause.
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Discount Points: A percentage of the loan amount that a lender charges a borrower for funding a loan. Can also be interest paid in advance. Also called Points.
Down Payment: Cash buyer pays at the time of purchase. E Easement: An interest in real property that conveys use, but not ownership, of a portion of an owner’s property.
Effective Gross Income Multiplier (EGIM): The ratio between the sale price of a property and its effective gross income.
Effective Tax Rate (ETR): The tax rate multiplied by the assessment ratio.
Eminent Domain: The right of government to take private property for public use with the payment of just compensation.
Encroachment: The intrusion of a structure on the property of another.
Encumbrances: A lien or claim on property.
Equity: The net value of an owner’s interest in a property after subtracting all liens and other encumbrances against it.
Escheat: The right of government that gives the government titular ownership of a property when its owner dies with no will and no heirs.
Escrow: A fund held by a third party until the conditions of a contract are met.
Estate: A right or interest in property.
Executor: An individual or trust institution designated in a will or appointed by a court to settle an estate. F Fee Simple Estate: Absolute ownership unencumbered by any other interest or estate, subject only to limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat (Appraisal Institute, 122).
First Mortgage: A mortgage that has priority over all other liens on a property.
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Fixed Rate Mortgage: A conventional mortgage with an interest rate that does not change over the life of the mortgage.
Fixture: An article that was once personal property, but has subsequently been installed or attached to the land or building in a permanent manner.
Foreclosure: The legal process in which a lender forces the sale of a property to recover all or a part of a loan on which the borrower has defaulted. G General Warranty Deed: A covenant of warranty inserted in a deed that binds the seller and heirs to defend the title conveyed to the buyer against the lawful claims of all persons.
Gift Deed: A deed given without compensation or consideration.
Going Concern Value: The value created by a proven property operation; considered as a separate entity to be value with a specific business establishment. Most commonly associated in the appraisal field with lodging and health care properties where it can often be difficult to separate the value of the business from the value of the real property.
Grantee: The person to whom property is transferred or conveyed by deed. Buyer.
Grantor: The person who transfers property by deed or other document. Seller.
Gross Building Area (GBA): The total floor area of a building, including below grade space, but excluding unenclosed areas; measured from the exterior walls.
Gross Leasable Area (GLA): The total floor area designed for the occupancy and use of tenants, including basements and mezzanines, and measured from the center of interior partitions walls to outside wall surfaces. H Highest and Best Use: 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 (Appraisal Institute, 275). I Improvements: Buildings or other relatively permanent structures or developments attached to land.
Ingress/Egress: The means of entering or exiting a property.
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Interest: Money paid for, or earned by, the use of capital.
Interest Rate: The price of money. The rate of return. Usually expressed as the minimal annual percentage of the loan amount.
Intestate: An estate with no will.
Investment Value: The specific value of an investment to a particular investor or class of investors based on certain individual investment guidelines and requirements. J Joint Tenancy: Joint ownership by two or more persons with the right of survivorship.
L Leased Fee Estate: A leased fee estate is 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 leased fee are specified by contract terms contained within the lease (Appraisal Institute, 123).
Leasehold Estate: A leasehold estate is the right to use and occupy real estate for a stated term under conditions conveyed in the lease. Also referred to as the lessee’s or tenant’s estate (Appraisal Institute, 123).
Lease-Option Agreement: An agreement between a tenant and an owner that a portion of the monthly rent is credited toward the purchase of the rented property. The tenant has the option to purchase the property by a certain time and under certain conditions.
Legal Description: A description of land that identifies the property according to a system established or approved by law.
Lender: The person or entity that funds a loan at interest. Also known as the mortgagee.
Lien: A charge against a property in which the property is the security for payment of the debt.
Life Estate: Total rights of use, occupancy, and control, limited to the lifetime of a certain party.
Life Tenant: One who owns a life estate for his or her own lifetime.
Limited Appraisal: The act or process of estimating value or an estimate of value performed
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Listing: A written contract in which an owner employs a broker to sell his or her real estate.
Listing Contract: The written agreement between an owner and a broker to sell real estate. Also known as a listing agreement.
Loan to Value Ratio: The ratio between a mortgage loan and the value of the property pledged as collateral.
Lot and Block System: A system for the legal description of land that refers to a parcel’s lot and block numbers which appear on recorded plats of subdivisions. M Marketable Title: A title not subject to reasonable doubt or suspicion of invalidity.
Marketing Period: The time it takes to sell real property on the market.
Market Value: From an appraisal perspective, Market Value means 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 that 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 creative financing or sales concessions granted by anyone associated with the sale.
Metes and Bounds System: A system for the legal description of land that refers to a parcel’s boundaries that are formed by the point of beginning and all intermediate points and the course of each point.
Mortgage: A pledge of a property interest as collateral or security for the repayment of a loan under specified terms and conditions.
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Mortgagee: A party who advances funds for a loan. Lender.
Mortgagor: The borrower. N Nominal Interest Rate: A stated or contract rate of interest, usually annual. O Overall Capitalization Rate (Ro): An income rate that reflects the relationship between a single year’s net operating income and total property price or value (Vo). P Parcel: A tract of land of any size in one ownership.
Plat: A map showing a subdivision of land.
Points: A percentage of the loan amount that a lender charges a borrower for making a loan. Points may be for services rendered or additional interest to the lender payable in advance.
Police Power: The right of government under which property is regulated to protect public safety, health, morals, and general welfare. Zoning laws are an example of this.
Prepayment Penalty: An extra charge paid by the buyer for paying off a mortgage before the maturity date.
Prime Rate: The interest rate that a commercial bank charges for short-term loans to borrowers with high credit ratings.
Property Tax: A tax levied against real or personal property.
Prospective Value Estimate: A forecast of the value expected at a future date. Most commonly used in connection with proposed projects or projects which are under construction.
Purchase Money: Money that is paid for property. Q Quit-Claim Deed: A form of conveyance in which any interest the seller possesses in the property is conveyed to the buyer with no warranty of title.
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R Range Line: In the government survey system, one of a series of government survey lines that extend due north and south at six mile intervals, and are numbered east and west from the principal meridian. Range lines are the eastern and western boundaries of Townships.
Real Estate: Physical land and appurtenances attached to the land.
Real Property: All interests, rights, benefits inherent in the ownership of physical real estate.
Realtor: A registered trademark that identifies a member of the National Association of Realtors.
Recording: The filing of a copy of a legal document or instrument in a government office provided for this purpose. Recording gives constructive notice to the public at large.
Rectangular Survey System: A system for the legal description of land that refers to the parcel’s location in a township.
Refinance: Obtain a new loan, the proceeds of which are used to repay an existing loan.
Remainder: A future ownership interest in real estate that is given to a third party and matures upon the termination of a limited fee such as a life estate. Also, in eminent domain, the property remaining in possession of the owner after a partial taking.
Reversion: A lump sum benefit that an investor receives or expects to receive at the termination of an investment.
Right of First Refusal: An option that gives the holder the right to purchase a property before any other offer to purchase can be made by a third party. S Sale Contract: A written document signed by a buyer and seller agreeing to the transfer of ownership. Sales Commission: A fee paid to an agent or broker who arranges the sale of a property; usually a percentage of the sale price.
Sales Comparison Approach: A set of procedures in which a value indication is estimated by comparing the property being appraised to similar properties that have been sold recently. Adjustments are made to the comparable sales to account for differences with the property being appraised.
Satisfaction of Mortgage: A certificate issued by the lender when a mortgage is paid off. The
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Second and Third Mortgages: Mortgages that are subordinate to the first mortgage. Also called junior mortgages.
Section: In the government survey system of land description, one of the 36 sections in a township. Each section is one mile square, or approximately 640 acres.
Seller’s Market: An active market in which the sellers of property can obtain higher prices than those attainable in the immediately proceeding period. A market in which only a few properties are available, but are demanded by many purchasers.
Senior Mortgage: A mortgage that has preferences over another encumbrance.
Setback: Zoning regulation that designates the distance a building must be set back from the front property line or street.
Special Assessment: An assessment against real estate levied by a public authority to pay for public improvements.
Special Warranty Deed: A warranty clause inserted in a deed in which the seller covenants that he and his heirs will defend title to the property against legal claims created by the actions or omissions of the seller or his heirs.
Subdivision: A tract of land that has been divided into blocks or plots with streets, open areas and other facilities appropriate for development.
Survey: The process in which the quantity and/or location of a piece of land is scientifically ascertained. A map or plot that describes the courses, distances, and quantity of land and shows the boundary lines. T Taking: The acquisition of a tract of land through condemnation.
Tenancy by the Entirety: An estate held by a husband and wife in which neither has a disposable interest in the property during the lifetime of the other, except through joint action.
Tenancy in Common: An estate held by two or more persons, each of whom holds an undivided interest.
Tenancy in Severalty: An estate in real estate held by one owner.
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Terms of Sale: Conditions and agreements in a contract for sale.
Testate: One who dies leaving a valid will, or the condition of dying with a valid will.
Title: The combination of all elements that constitute proof of ownership.
Title Company: A company or corporation that issues or insures titles to real property.
Title Defect: A legal right held by another to claim property or make demands on a property owner.
Title Insurance: Insurance against financial loss from claims arising out of defects in the title to real property that were not disclosed at the time the policy was issued.
Title Search: An investigation of public records to abstract the nature of any instruments that relate to a specific property.
Township: In the government survey system of land description, the area between two township lines and two range lines, normally containing 36 sections of approximately 640 acres each.
Township Lines: Survey lines that run east and west at six mile intervals north and south of a baseline, forming the northern and southern boundaries of townships.
Trust: A temporary, conditional or permanent fiduciary relationship in which the legal title to, and control of, property are placed in the hands of a trustee for the benefit of another person.
Trust Agreement: A written agreement between a grantor and a trustee establishing the terms of a trust.
Trustee: A person who controls legal title to a property under a trust agreement. U Underlying Loan: The loan or loans covered by a wraparound mortgage.
Undivided Interest: Fractional ownership without physical division into shares.
Undivided Partial Interest: An interest in a property that is shared by co-owners.
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V Value in Use: A value in use is the value a specific property has for a specific use. The concept of use value is based on the productivity of an economic good. It focuses on the contributory value of the real estate to the enterprise of which it is a part, without regard to its highest and best use or the monetary amount that might be realized upon its sale. W Warranty Deed: See General Warranty Deed.
Wraparound Mortgage: A mortgage that is subordinate to, but inclusive of, any existing mortgage or mortgages on a property. Z Zoning: The public regulation of the character and extent of the use of real estate through police power. This is accomplished by establishing districts with uniform restrictions relating to improvements.
Zoning Ordinance: A statute enacted under the police powers of government to regulate and control the use of real estate.
Zoning Permit: A permit issued by government officials authorizing the use of real estate for a stated purpose.
Zoning Variance: A legally authorized modification of the use of property at a particular location that does not conform to the existing zoning ordinance.
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DEFINITION OF TERMS
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.
Depreciation- A loss of utility and hence value from any cause. An effect caused by deterioration and/or obsolescence.
Discount Rate- A rate of return on capital used to convert future payments or receipts into present value.
External Obsolescence- Impairment of desirability or useful life arising from factors external to the property, such as economic factors 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 obsolesce.
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.
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.
Functional Obsolescence- Impairment of functional capacity of efficiency. Functional obsolescence reflects the loss in value brought about by such factors as over capacity, 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.
Gross Sales Proceeds- The total amount of invoiced sales, before deducting returns, allowances, etc. over the forecasted sellout period.
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.
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
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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.
Leased Fee Estate- An ownership interest held by a landlord with the right to use and occupancy conveyed by the lease to others; usually consists of the right to receive rent and the right to repossession at the termination of the lease.
Leasehold Estate- The right to use and occupy real estate for a stated term and under certain conditions, conveyed by a lease.
Market Price- The amount actually paid, or to be paid, for a property in a particular transaction. 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 by the parties, of absence of undue stimulus or of any other condition basis to the market value concept.
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.
Market Value- The most probably 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, 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 each acting in what he (or she) considers his (or her) own best interest; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in United States 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.
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.
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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.
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 for Glossary, Abbreviations, and Definition of Terms The Appraisal of Real Estate, Appraisal Institute. Tenth Edition. Chicago, IL. 1992. The Dictionary of Real Estate Appraisal, The American Institute of Real Estate Appraisers. Real Estate Terminology, Boyce, Byrl N. The American Institute of Real Estate Appraisers and The Society of Real Estate Appraisers. Cambridge, MA. Ballinger Publishing Company, 1981.
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MINIMUM APPRAISAL STANDARDS Per Section 323.4, Title XI of the Federal Financial Institution Reform, Recovery and Enforcement Act of 1989 (FIRREA) Effective August 24, 1990
I. Minimum Standards
A. Conform to the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Standard Board of the Appraisal Foundation, except that the Departure Provision of the USPAP shall not apply to federally related transactions. B. Disclose any steps taken that were necessary or appropriate to comply with the Competency Provision of the USPAP. C. Be based upon the definition of market value as set forth in 323.2 (f):
1. Be written and presented on a narrative format or on forms that satisfy all the requirements of this section; 2. Be sufficiently descriptive to enable the reader to ascertain the estimated market value and the rationale for the estimate; and 3. Provide detail and depth of analysis that reflect that complexity of the real estate appraised.
D. Analyze and report in reasonable detail any prior sales of the property being appraised that occurred within the following time periods:
1. For 1 to 4 family residential property, one year preceding the date when the appraisal was prepared; and 2. For all other property, three years preceding the date when the appraisal was prepared.
E. Analyze and report data on current revenues, expenses, and vacancies for the property if it is and will continue to be income-producing. F. Analyze and report a reasonable marketing period for the subject property. G. Analyze and report current market conditions and trends that will affect projected income or the absorption period, to the extent they affect the value of the subject property. H. Analyze and report appropriate deductions and discounts for any proposed construction, or any completed properties that are partially leased or leased at other than market rents as of the date of the appraisal, or any tract developments with unsold units. I. Include in the certificate required by the USPAP an additional statement that
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the appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. J. Contain sufficient supporting documentation with all pertinent information reported so that the appraiser’s logic, reasoning, judgment, and analysis in arriving at a conclusion indicate to the reader the reasonableness of the market value reported. K. Include a legal description of the real estate being appraised, in addition to the description required by the USPAP. L. Identify and separately value any personal property, fixtures, or intangible items that are not real property but are included in the appraisal, and discuss the impact of the inclusion or exclusion on the estimate of market value; and M. Follow a reasonable valuation method that addresses that direct sales comparison, income and cost approaches to market value, reconciles those approaches and explains the elimination of each approach not used.
II. Unavailability Of Information
If information required deemed pertinent to the completion of an appraisal is unavailable, that fact shall be disclosed and explained in the appraisal.
III. Additional Standards
The standards listed herein are minimum standards. Nothing contained herein shall prevent a regulated institution from requiring additional appraisal standards if deemed appropriate.
MINIMUM APPRAISAL STANDARDS SOURCE Title XI, Section 323.4 Federal Financial Institution Reform, Recovery and Enforcement Act of 1989. (FIRREA). United States. Federal Register. 55.163 (1990): 34228-29.
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