Appraisal Report

Market Gateway Apartments Ground Lease 525 South Market Street San Jose, Santa Clara County, California 95113

Report Date: February 13, 2018

FOR: Office of the County Counsel Mr. James R. Williams, Esq. 70 West Hedding Street, 9th Floor San Jose, CA 95110

Valbridge Property Advisors

55 South Market Street, Suite 1210 San Jose, CA 95113 408.279.1520 phone Valbridge File Number: 408.279.3428 fax CA02-17-0538-000 valbridge.com

55 South Market Street, Suite 1210 San Jose, CA 95113 408.279.1520 phone 408.279.3428 fax valbridge.com February 13, 2018 Yvonne J. Broszus, MAI 408.279.1520, ext. 7135 [email protected] Mr. James R. Williams, Esq. Office of the County Counsel 70 West Hedding Street, 9th Floor San Jose, CA 95110

RE: Appraisal Report Market Gateway Apartments Ground Lease 525 South Market Street San Jose, Santa Clara County, California 95113

Dear Mr. Williams:

In accordance with your request, we have performed an appraisal of the above referenced property. This appraisal report sets forth the pertinent data gathered, the techniques employed, and the reasoning leading to our value opinions. This letter of transmittal is not valid if separated from the appraisal report.

The subject property, as referenced above, is located on the west side of South Market Street between West William Street and Pierce Avenue and is further identified as Assessor’s Parcel Number (APN) 264-30-119. The subject is a 1.22-acre or 53,143-square-foot site. The subject is improved with a 54-unit apartment complex and associated parking.

The subject property is encumbered by a ground lease that originated in February 26, 1999. The initial term expires on February 25, 2058, or about 40 years from the effective date of value. The ground lease also has four, 10-year options to extend the term until February 25, 2098. The lessor, or landlord, is the Successor Agency to the Redevelopment Agency of the City of San Jose. The lessee, or tenant, is Market Gateway LLC. The interest appraised within this report is that of the lessor, or landlord. In appraisal terminology, this interest is referred to as the ground leased fee interest,

The ground rent due to the lessor is set at $1 per year, plus participation rent based on a specific formula. Over the past four years, the actual ground rent paid has ranged between $0 and $164,827.

We developed our analyses, opinions, and conclusions and prepared this report in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; and the requirements of our client as we understand them.

The client in this assignment is the County of Santa Clara and the intended users of this report are our client and the Oversight Board. The intended use is for a potential purchase and no other use. The value opinions reported herein are subject to the definitions, assumptions and limiting conditions, and certification contained in this report.

The acceptance of this appraisal assignment and the completion of the appraisal report submitted herewith are subject to the General Assumptions and Limiting Conditions contained in the report. The findings and conclusions are further contingent upon the following extraordinary assumptions and/or hypothetical conditions which might have affected the assignment results:

Extraordinary Assumptions:  The subject is encumbered by an Affordability Restriction which limits the rent of 22 units to families of Moderate Income (the "Moderate Rental Units.") It is our understanding that this restriction requires that these units be rented to families within incomes ranging between 80 to 120% of the Area Median Income (AMI) for the first 30 years of the ground lease term. We have not reviewed the document that discusses the restriction but assume that there are no additional restrictions contained within the document that impact the utility, marketability or value of the subject property.

Hypothetical Conditions:  None

Based on the analysis contained in the following report, my value conclusion is summarized as follows:

Value Conclusion "As Is"

Type of Value Market Value Interest Appraised Ground Leased Fee Date of Value 12/31/2017 Value Conclusion $2,635,000

Respectfully submitted, Valbridge Property Advisors

Yvonne J. Broszus, MAI Director California Certified License #AG019587

Table of Contents

Cover Page Letter of Transmittal Table of Contents ...... i Summary of Salient Facts ...... ii Aerial and Front Views ...... iv Location Map ...... v Introduction ...... 1 Scope of Work ...... 4 Regional and Market Area Analysis ...... 6 City and Neighborhood Analysis ...... 13 Site Description ...... 20 Improvements Description ...... 24 Subject Photos ...... 26 Subject Ground Lease ...... 28 Market Analysis ...... 31 Highest and Best Use ...... 35 Income Capitalization Approach ...... 37 Reconciliation ...... 43 General Assumptions and Limiting Conditions ...... 44 Certification – Yvonne J. Broszus, MAI ...... 50 Addenda ...... 51 Legal Description from Ground Lease ...... 52 Calculations of Land Value and Improvement Assistance for DCF ...... 54 Glossary ...... 56 Qualifications ...... 62 Valbridge Property Advisors Information / Office Locations ...... 64

Summary of Salient Facts

Property Identification Property Name Market Gateway Apartments Ground Lease Property Address 525 South Market Street San Jose, Santa Clara County, California 95113 Latitude & Longitude 37.32784, -121.884984 Tax Parcel Number 264-30-119 Property Owner Successor Agency of the Redevelopment Agency of the City City of San Jose

Site Zoning Planned Development (A(PD)) FEMA Flood Map No. 06085C 0234H Flood Zone D Primary Land Area 1.220 acres

Proposed Improvements Property Use Multifamily Use Number of Units 54 Number of Buildings 4 Year Built 2000 Condition Good Construction Class D - Wood Frame With Stucco / Masonry Exterior Construction Quality Average On-site Parking 82 spaces Valuation Opinions Highest & Best Use - As Vacant Residential development Highest & Best Use - As Improved Existing improvements Reasonable Exposure Time 6 months Reasonable Marketing Time 6 months

Value Conclusion "As Is"

Type of Value Market Value Interest Appraised Ground Leased Fee Date of Value 12/31/2017 Value Conclusion $2,635,000

Our findings and conclusions are further contingent upon the following extraordinary assumptions and/or hypothetical conditions which might have affected the assignment results:

Extraordinary Assumptions:  The subject is encumbered by an Affordability Restriction which limits the rent of 22 units to families of Moderate Income (the "Moderate Rental Units.") It is our understanding that this restriction requires that these units be rented to families within incomes ranging between 80% and 120% of the Area Median Income (AMI) for the first 30 years of the ground lease term. We have not reviewed the document that discusses the restriction but assume that there are no additional restrictions contained within the document that impact the utility, marketability or value of the subject property.

Hypothetical Conditions:  None

Aerial and Front Views

AERIAL VIEW

FRONT VIEW

Location Map

Introduction

Client and Intended Users of the Appraisal The client in this assignment is the County of Santa Clara and the intended users of this report are our client and the Oversight Board.

Intended Use of the Appraisal The intended use of this report is for a potential purchase and no other use.

Real Estate Identification The subject property is located at 525 South Market Street, San Jose, Santa Clara County, California 95113. The subject property is further identified by Assessor Parcel Number 264-30-119. The subject is improved with a 54-unit apartment complex and associated parking.

Legal Description The Legal Description, taken from the subject Ground Lease, is provided in the Addenda of this appraisal.

Use of Real Estate as of the Effective Date of Value As of the effective date of value, the subject was used as a multi-family, apartment complex.

Use of Real Estate as Reflected in this Appraisal The subject is a multifamily, apartment property.

Ownership of the Property It is our understanding that title to the underlying land is vested in the Successor Agency to the Redevelopment Agency of the City of San Jose (“Agency”). Title to the improvements is vested in Market Gateway LLC.

History of the Property Ownership of the subject property has not changed within the past three years.

Listings/Offers/Contracts The subject is not currently listed for sale or under contract for sale. The Agency, however, must dispose of the property as part of the dissolution of redevelopment agencies in California. We are unaware of any listing, offer or contract for sale, however, for the property as of the date of value.

Type and Definition of Value The appraisal problem (the term “Purpose of Appraisal” has been retired from appraisal terminology) is to develop an opinion of the market value of the subject property. “Market Value,” as used in this appraisal, is defined as “the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.” Implicit in this

definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

 Buyer and seller are typically motivated.  Both parties are well informed or well advised, each acting in what they consider their own best interests;  A reasonable time is allowed for exposure in the open market;  Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and  The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale.”1

The value conclusions apply to the value of the subject property under the market conditions presumed on the effective date(s) of value.

Please refer to the Glossary in the Addenda section for additional definitions of terms used in this report.

Valuation Scenarios, Property Rights Appraised, and Effective Dates of Value Per the scope of our assignment we developed opinions of value for the subject property under the following scenarios of value:

Valuation Scenario Effective Date of Value As Is Market Value of the Ground Leased Fee Interest December 31, 2017

The ground leased fee interest is the interest held by the Successor Agency to the Redevelopment Agency of the City of San Jose. This interest is entitled to receive rent during the lease term, plus the reversionary of the property upon termination of the lease.

We completed an appraisal inspection of the subject property on December 31, 2017.

Date of Report The date of this report is February 13, 2018, which is the same as the date of the letter of transmittal.

Assumptions and Conditions of the Appraisal The acceptance of this appraisal assignment and the completion of the appraisal report submitted herewith are subject to the General Assumptions and Limiting Conditions contained in the report. The findings and conclusions are further contingent upon the following extraordinary assumptions and/or hypothetical conditions which might have affected the assignment results:

Extraordinary Assumptions  The subject is encumbered by an Affordability Restriction which limits the rent of 22 units to families of Moderate Income (the "Moderate Rental Units.") It is our understanding that this

1 Source: Code of Federal Regulations, Title 12, Banks and Banking, Part 722.2-Definitions

restriction requires that these units be rented to families within incomes ranging between 80 to 120% of the Area Median Income (AMI) for the first 30 years of the ground lease term. We have not reviewed the document that discusses the restriction but assume that there are no additional restrictions contained within the document that impact the utility, marketability or value of the subject property.

Hypothetical Conditions  None

Scope of Work

The elements addressed in the Scope of Work are (1) the extent to which the subject property is identified, (2) the extent to which the subject property is inspected, (3) the type and extent of data researched, (4) the type and extent of analysis applied, (5) the type of appraisal report prepared, and (6) the inclusion or exclusion of items of non-realty in the development of the value opinion. These items are discussed as below.

Extent to Which the Property Was Identified The three components of the property identification are summarized as follows:  Legal Characteristics - The subject was legally identified via a plat map and the subject ground lease.  Economic Characteristics - Economic characteristics of the subject property were identified via the subject ground lease, the Disposition and Development Agreement, the HUD Regulatory Agreement, market participant surveys, our company database, and third party sources, as well as a comparison to properties with similar locational and physical characteristics.  Physical Characteristics - The subject was physically identified via an appraisal inspection that consisted of exterior observations only.

Extent to Which the Property Was Inspected We inspected the subject on December 31, 2017. The improvements were not measured during the course of the inspection.

Type and Extent of Data Researched We researched and analyzed: (1) market area data, (2) property-specific market data, (3) zoning and land-use data, and (4) current data on comparable listings and transactions. We also interviewed people familiar with the subject market/property type.

Type and Extent of Analysis Applied (Valuation Methodology) We observed surrounding land use trends, the condition of any improvements, demand for the subject property, and relevant legal limitations in concluding a highest and best use. We then valued the subject based on that highest and best use conclusion.

Appraisers develop an opinion of property value with specific appraisal procedures that reflect three distinct methods of data analysis: the cost approach, sales comparison approach, and income capitalization approach. One or more of these approaches are used in all estimations of value.

 Cost Approach - In the cost approach, the value indication reflects the sum of current depreciated replacement or reproduction cost, land value, and an appropriate entrepreneurial incentive or profit.

 Sales Comparison Approach - In the sales comparison approach, value is indicated by recent sales and/or listings of comparable properties in the market, with the appraiser analyzing the impact of material differences in both economic and physical elements between the subject and the comparables.

 Income Capitalization Approach - In the income capitalization approach, value is indicated by the capitalization of anticipated future income. There are two types of capitalization: direct capitalization and yield capitalization, more commonly known as discounted cash flow (DCF) analysis.

 Approaches Applied - All of these approaches to value were considered. We assessed the availability of data and applicability of each approach to value within the context of the characteristics of the subject property and the needs and requirements of the client. Based on this assessment the Income Capitalization Approach was developed. Further discussion of the extent of our analysis and the methodology of each approach is provided later in the valuation section.

Appraisal Conformity and Report Type We developed our analyses, opinions, and conclusions and prepared this report in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; and the requirements of our client as we understand them. This is an Appraisal Report as defined by the Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2a.

Personal Property/FF&E All items of non-realty are excluded from this analysis. The opinion of market value developed herein is reflective of real estate only.

Regional and Market Area Analysis

REGIONAL MAP

Overview The subject property is located in the San Francisco Bay Region, an area which is comprised of the nine counties bordering the San Francisco Bay. According to the State of California Department of Finance, the area had a combined population of approximately 7.71 million as of January 1, 2017. The Department of Finance characterizes the San Francisco Bay Area by a moderate climate, diversified economy and one of the highest standards of living in the United States.

Population Santa Clara County is the most populous of the nine counties comprising the San Francisco Bay Region, with an estimated 1,938,180 residents as of January 1, 2017 according to the State of California Department of Finance. San Jose is the largest city in the county and the third largest in California, surpassing San Francisco.

According to the Site to Do Business projections, presented on the following page, the county’s population is expected to increase 1.2% between 2017 and 2022, while San Jose will increase approximately 1.2% over the same period.

Population Annual % Annual % Change Estimated Projected Change Area 2000 2010 2000 - 10 2017 2022 2017 - 22 United States of America 281,421,906 308,745,538 1.0% 327,514,334 341,323,594 0.8% California 14 33,871,648 37,253,956 1.0% 39,611,295 41,298,900 0.9% Santa Clara County 1,682,585 1,781,642 0.6% 1,958,087 2,075,690 1.2% San Jose City, CA 3 911,461 952,705 0.5% 1,042,940 1,103,315 1.2% Source: Site-to-Do-Business (STDB Online)

Transportation Excellent transportation routes and linkages to all major cities within the region and throughout the state are primary reasons for the advancement of business activity in the Bay Area, including Santa Clara County.

Air service in the area is provided by Norman Y. Mineta San Jose International Airport, which accommodated almost 9.8 million passengers in 2015. San Francisco and Oakland airports are also within an hour’s drive from most portions of the county. Although air travel is down over the past two years, San Jose International Airport has embarked on a $1.8 billion expansion that will eventually allow the airport to handle 17.3 million travelers a year.

The area has a well-developed freeway system although traffic congestion is unquestionably one of the negative aspects. The county’s transportation network also includes a number of expressways, which provide streamlined access to most interior locations. Lawrence Expressway, San Tomas Expressway and Foothill Expressway run north-south, while Central Expressway and Montague Expressway run roughly east-west.

Employment High-technology employment and a skilled workforce translate into relatively high-income levels, and Santa Clara County is one of the most affluent metropolitan regions in the nation. Silicon Valley’s economy is stable, although its narrow range of driving industries has kept recent growth very slow.

Significant employment sectors within Santa Clara County include manufacturing; professional, scientific, and technical services; health care; retail; and educational services. Some of the largest employers are associated with the computer industry such as Adobe, Apple, AMD, and Hewlett- Packard; hospitals such as the VA Medical Center, Kaiser Permanente, and the San Jose Medical Center; space and aerotech including NASA and Lockheed Martin; and educational facilities such as San Jose State University and Stanford University School of Medicine.

Employment by Industry - Santa Clara County 2017 Percent of Industry Estimate Employment Agriculture/Mining 6,643 0.70% Construction 51,243 5.40% Manufacturing 167,015 17.60% Wholesale trade 19,928 2.10% Retail trade 85,406 9.00% Transportation/Utilities 27,520 2.90% Information 34,162 3.60% Finance/Insurance/Real Estate Services 44,601 4.70% Services 491,556 51.80% Public Administration 20,877 2.20% Total 948,950 100.0% Source: Site-to-Do-Business (STDB Online)

Unemployment The unemployment rate in Santa Clara County is currently less than the rates of the state and nation. The County unemployment rate was 3.0% and the City of San Jose was at 3.3% as of October 2017. The State of California was at 4.9% while the nation was at 4.1% for the same time period.

Unemployment rates locally and nationwide have been on a decreasing trend over the last several years, as shown in the table below.

Unemployment Rates Area YE 2010 YE 2011 YE 2012 YE 2013 YE 2014 YE 2015 YE 2016 2017 YTD United States of America 9.3% 8.5% 7.9% 6.7% 5.6% 5.0% 4.7% 4.3% California 14 12.1% 11.0% 9.6% 8.0% 6.6% 5.6% 5.0% 4.3% Santa Clara County 9.6% 8.4% 7.0% 5.5% 4.3% 3.7% 3.3% 3.0% San Jose City, CA 3 10.7% 9.4% 7.8% 6.1% 4.8% 4.1% 3.7% 3.3%

Source: Bureau of Labor Statistics - Year End - National & State Seasonally Adjusted

The information below and on the following pages was obtained from the “December 2016 Economic Outlook,” presented by the UCLA Anderson School of Management, and an article obtained from The Balance titled, “US Economic Outlook: For 2017 and Beyond”.

The forecast for 2017 and 2018 total employment growth is 1.8% and 1.3%, respectively. Payrolls will grow at about the same rate over the forecast horizon. Real personal income growth is forecast to be 3.6% in 2017 and 3.8% 2018.

The unemployment rate is forecast to fall to around 4.5% by the end of 2017 and remain there through 2018. That's better than the 4.7% rate in 2016, and the Fed's 6.7% target.

However, most job growth is in low-paying retail and food service industries. Many people have been out of work for so long that they find it difficult to return to the high- paying jobs they used to have. That means structural unemployment increased. Federal Reserve Chair Janet Yellen admits a lot of workers are part-time which makes the unemployment rate seem artificially low. She considers the real unemployment rate, which is usually double the official rate, to be more accurate.

Inflation With year-over-year core inflation already rising above 2% (in comparison to the 1.5% rate in 2016, and the 0.7% inflation experienced in 2015), it is not surprising that this rate is expected to accelerate to at least 2.5% as oil prices rebound. Therefore, if the 2017 forecast is right about the economy operating at full employment with an unemployment rate of 4.5%, inflation reaching 2.5% of higher, and the prospect of a one trillion dollar annual federal deficit, we are not surprised to see that interest rates are expected to increase.

Interest Rates The Federal Open Market Committee (FOMC) first raised the federal funds rate to 0.5% in December 2015 and raised interest rates again in December 2016 to 0.75%. It is anticipated to raise the rate again to 1.5% in 2017, 2.0% in 2018 and 3.0% in 2019.

The federal funds rate controls short-term interest rates. These include banks' prime rate, the LIBOR, most adjustable-rate and interest-only loans, and credit card rates. Therefore, as the federal funds rate increases it will change some of the terms by which we borrow money and access credit.

The Federal Reserve Board said it would start selling $4 trillion in Treasuries after the federal funds rate has normalized to about 2.0%. When it does start selling Treasuries, there will be more supply, which should raise the yield on the 10-year Treasury note. That in turn will drive up long-term interest rates, such as fixed-rate mortgages and corporate bonds. But Treasury yields also depend on demand for the dollar. If demand is high, yields will drop, and vice-versa. As the global economy improves, demand for this ultra-safe investment is falling. As a result, long-term and fixed interest rates are expected to rise in 2017 and beyond.

Jobs The Bureau of Labor Statistics publishes the BLS Occupational Outlook Summary for U.S. employment each decade. It goes into great detail about each industry and occupation. Overall, the BLS expects total employment to increase by 20.5 million jobs from 2010-2020. While 88% of all occupations will experience growth, the fastest growth will occur in healthcare, personal care and social assistance, and construction. Furthermore, jobs requiring a master’s degree will grow the fastest while those that only need a high school diploma will grow the slowest.

The BLS assumes that the economy will fully recover from the recession by 2020 and that the labor force will return to full employment or an unemployment rate between 4.0-5.0%. The biggest growth (5.7 million jobs) will occur in healthcare and other forms of social assistance as the American population ages.

The next largest increase (2.1 million jobs) will occur in professional and technical occupations. Most of this is in computer systems design, especially mobile technologies, and management, scientific, and technical consulting. Businesses will need advice on planning and logistics, implementing new technologies, and complying with workplace safety, environmental, and employment regulations.

Other substantial increases will occur in education (1.8 million jobs), retail (1.7 million jobs) and hotel/restaurants (1 million jobs). Another area is miscellaneous services (1.6 million jobs). That includes human resources, seasonal and temporary workers, and waste collection.

As housing recovers, construction will add 1.8 million jobs while other areas of manufacturing will lose jobs due to technology and outsourcing.

Political Forces Contrary to prior expectations, stocks soared and interest rates surged on the election of Donald Trump. Put bluntly, the markets are now anticipating stronger real growth, and at least for a while, higher inflation and higher interest rates.

Writing on behalf of the UCLA Anderson Forecast, Senior Economist David Shulman makes the following policy assumptions, in what he labels a “first pass at Trumponomics.”

• $300 billion/year annual, mostly higher-end personal tax cuts, effective in Q3. • $200 billion/year corporate tax cut effective in Q3, with $50 billion of revenues associated with the repatriation of foreign earnings that quarter. • $20 billion/year infrastructure program, effective in Q4. • $20 billion in higher defense spending in 2018. • $20 billion/year Medicaid/ACA cuts, effective in Q4. • Relaxed energy, environmental and financial regulation. • Modest changes to immigration, except for border wall/fence. • Modest changes to trade policy, yielding net reductions in food and aircraft exports phasing in starting mid-2017.

Shulman says that the net result of these policies is “a massive fiscal stimulus on an economy at or very close to full employment.” He also notes that it is the direction that a host of liberal economists have been advocating for half a decade, though with a different mix of tax cuts and spending. “Make no mistake, this is real or even reckless fiscal stimulus,” writes Shulman. “How so? The federal deficit will roughly double to over one trillion dollars by 2018.” Shulman says that in response to higher inflation and the exploding federal deficit the long-quiescent Fed will become more aggressive, raising the federal funds rate to over 2.0% by the end of 2017 and 3.0% by the end of 2018.

With $500 billion in tax cuts arriving in the third quarter of 2017, the Forecast calls for GDP growth to accelerate from its recent 2.0% growth path to 3.0% for about four consecutive quarters then will slide back to 2.0%. Growth will be hampered by the difficulties of stimulating an economy operating at near full employment and the bite of higher interest rates. Employment will continue to grow on the order of 140,000 jobs per month in 2017 and 120,000 per month in 2018. “To be sure, if the new administration follows through with its campaign rhetoric to engage in mass deportations, job growth and the economic activity associated with it would be far slower than what we forecast,” Shulman writes.

The details of the forecast fall into three categories: the good, the bad and the ugly. As for the “good,” Shulman writes that the economic growth envisioned will be powered by rising consumption along with equipment and defense spending. On the negative side, housing activity will be a casualty, as the spike in long-term interest rates and the prospect of further increases dampen demand. Regarding any potentially “ugly” ramifications of the new administration’s policies, Shulman believes that minor tweaks to trade policy will modestly reduce imports (mostly in the auto sector) and trigger modest retaliatory actions affecting aircraft and farm exports. As a result, imports continue to rise and exports flat line. Shulman emphatically points out that the Forecast does not assume a major trade war with U.S. partners around the world. But the slowdown in trade will only be the beginning, as the global economy becomes more protectionist.

The California Forecast In his quarterly California forecast essay, Senior Economist Jerry Nickelsburg eschews his traditional data-oriented report and cites the various unknowns regarding the state’s economy, providing ruminations on some of the impacts of the anticipated policies of the Donald Trump presidency.

Nickelsburg’s first observation takes into account the U.S. forecast for increased defense spending. “The increase in defense spending will be disproportionately directed to California, as sophisticated airplanes, weaponry, missiles and ships require the technology that is produced here,” writes Nickelsburg. “Moreover, there are few places to build the proposed 150 new warships, and San Diego is one of them. Regionally, we expect a positive impact in the Bay Area and in coastal Southern California.” The U.S. forecast also calls for increased infrastructure spending. While California needs funding for projects, such as the Western Electrical Grid, water infrastructure and road repairs, it’s unclear how much of this federal spending will be directed to the state. Nickelsburg notes the size of the California congressional contingent and its influence regarding funding, but also recognizes the fact that California is a sanctuary state with many sanctuary cities. President-elect Trump has said he will block funds to sanctuary cities, so how much funding headed to the state remains to be seen.

As for the employment environment, Nickelsburg writes that despite its current 5.5% unemployment rate, the state is basically at full employment. Where the state will find people to fill new jobs remains to be seen as the new administration is expected to oppose an expansion of the skilled worker visa program. Instead, expect wages to rise to induce skilled workers to come to California from other states. This in turn will lead to increased demand for housing, pushing prices higher for home buyers. Rents, however, may see a decrease, if the new administration proceeds with its intended plans for mass deportations.

Such deportations will also have an impact on the Central Valley and the state’s agriculture sector. It’s estimated that as many as half of California’s farm workers are undocumented. If these workers are deported, California’s farmers will have trouble harvesting their crops, while paying much higher wages to their documented farm workers.

Uncertainty around trade policies clouds the forecast. Depending on how these policies shake down, the reverberations will likely be felt throughout the California economy.

Median Household Income In Santa Clara County, San Jose, the county seat, ranks first out of the entire nation in terms of median household income for major metropolitan areas. San Francisco, about 50 miles to the north of San Jose, also ranked as one of the wealthiest cities in the nation: it holds the number two spot with a median household income of about 9% less than San Jose.

Total median household income for the region is presented in the following table. Overall, the subject compares favorably to the state and the country.

Median Household Income Estimated Projected Annual % Change Area 2017 2022 2017 - 22 United States of America $56,124 $62,316 2.2% California 14 $65,223 $74,370 2.8% Santa Clara County $99,069 $108,576 1.9% San Jose City, CA 3 $88,028 $100,012 2.7% Source: Site-to-Do-Business (STDB Online)

Conclusions Historically, the Santa Clara County region has been considered a desirable place to both live and work. Physical features and a strong local economy attract both businesses and residents. It is a worldwide leader in technology and a regional employment center, with an increasingly diversified economy. While traffic congestion will continue to be a problem, residents remain among the most affluent in the country.

The election of Donald Trump signaled a major regime change in economic policy. In the short run, many expect that the new policy will bring with it more real growth and inflation along with higher interest rates. However, because the economy is operating at or close to full employment, the growth spurt is expected to be short-lived. Nevertheless, 2018 is expected to be a prosperous year as we continue to say goodbye to the effects of the financial crisis.

City and Neighborhood Analysis

NEIGHBORHOOD MAP

The subject is located in the City of San Jose. San Jose is the largest city in the county and is the County Seat. Historically, San Jose was a support city for the surrounding agricultural industry, acting as a cannery and distribution center. More recently, San Jose served as a bedroom community for Sunnyvale and Santa Clara (the original “Silicon Valley”), providing affordable housing for workers. Today, San Jose has come into its own right as an industrial and commercial center.

San Jose is located in the heart of “Silicon Valley,” in the central portion of Santa Clara County. San Jose is bordered by the City of Santa Clara and the San Francisco Bay to the north, the City of Morgan Hill to the south, and the cities of Saratoga and Cupertino to the west.

San Jose is the largest city in Santa Clara County, both in terms of population and area. The Urban Service Area is approximately 87,000 acres, of which 20% is vacant or unused. About 40% of this vacant land is designated for residential development. These residential land reserves will enable San Jose to accommodate demands for new housing created by future economic development.

Newer industrial development in San Jose consists of administrative offices, research and development, and light manufacturing uses, replacing many of the heavier manufacturing uses that historically characterized the central city industrial areas. In fact, some of the older, heavy-industrial

development is being rehabilitated and converted to new, high-technology uses. Most of San Jose’s industrial development has a low-profile, landscaped industrial park character.

San Jose has excellent access to local transportation and is served by many regional transportation networks. Interstate 280 runs within the central region of the city in an east-west direction and provides access to the San Mateo peninsula and San Francisco to the northwest. Interstate 280 eventually turns into Interstate 680, where it crosses east of Highway 101. At this point it veers northeast toward the East Bay and Tri-Valley areas of Alameda County. Interstate 880 originates in the East Bay and slashes through San Jose where it changes into Highway 17 and continues onward toward the Pacific Ocean and Santa Cruz.

The Bayshore Freeway, Highway 101, traverses the city in a generally north-south direction and also links to the peninsula and San Francisco with San Jose. The Stevens Creek Freeway, Highway 85, runs along the western boundary of the city and links the two major east-west routes. Highway 85 was recently extended from Interstate 280 south to the southern portions of San Jose, Los Gatos, and Saratoga. This extension has dramatically improved access to these desirable residential areas with the northern employment centers in Mountain View. Similarly, Highway 237 runs in an east-west direction through the northern portion of San Jose connecting Mountain View to the west with the City of Milpitas to the east.

The San Jose downtown core has undergone major renovation and revitalization over the last 15 years. Improvements to the freeway system, as well as construction of the new light rail system, have significantly improved access to the downtown core from other areas of the city and county. Today, San Jose’s revitalized Downtown Core has evolved into financial, office, cultural and entertainment centers. Outside the Downtown Core Area, commercial development exists in the form of neighborhood and community commercial centers, strip commercial developments along arterial streets, and regional shopping centers.

Neighborhood Location and Boundaries The subject neighborhood is located in the Downtown Core section of San Jose. The area is urban in nature. The neighborhood is bounded by West San Carlos Street to the north, Fourth Street to the east, Interstate 280 to the south, and Highway 87 to the west.

The larger Downtown Core is bounded by Julian Street to the north, Interstate 280 to the south, Highway 87 to the west and 4th Street to the east. This area has undergone major renovation and revitalization over the last two decades with over $2 billion in public and private investment. Improvements to the freeway system, as well as construction of the new light rail system, have significantly improved access to the downtown core from other areas of the city and county. Other major downtown public projects include the Children’s Discovery Museum, revamped City Hall, the new San Jose Convention Center, as well as the SAP Center - home of the San Jose Sharks of the National Hockey League. Additionally, the downtown is home to San Jose State University. Today, San Jose’s revitalized Downtown Core has evolved into a financial, office, cultural and entertainment center.

In the 1950s, the downtown area began declining, as automobile access became increasingly important to the survival of commercial centers. As with many cities, traffic congestion and parking

problems have plagued downtown San Jose since the 1950s when automobile ownership became almost universal. During this period, suburban residential development sprawled outward from the urban core, allowing commercial centers to be established in outlying districts. Construction of Valley Fair Shopping Center, three miles west of downtown, began a mass exodus of businesses to suburban shopping centers. Some established retailers remained in the downtown area only to see business continue to decline, and neighborhood buildings fall into deterioration

An aerial map identifying the overall downtown core is presented below.

AERIAL MAP OF DOWNTOWN SAN JOSE (CORE AREA OUTLINED IN YELLOW)

The Downtown Core area of San Jose can be broken up into two areas, a Northern and a Southern Downtown Core area. The central downtown core area is bound by Julian Street to the north and West San Carlos Street to the south. The southern downtown core area, which includes the subject, is bound to the north by West San Carlos Street and to the south by Interstate 280.

Properties in the Downtown Core are dominated by downtown core offices, retail and supporting high density residential. To this day, much of the downtown office space is occupied by attorneys, accountants, financial services, title and insurance companies. The major banks all have offices in downtown. These include regional, administrative and trust offices for some of largest banks in California. All of the nation’s major accounting firms have downtown offices.

More recently, downtown San Jose has attracted high-technology companies in the fields of communications and computer software, notably Adobe Systems. Federal and State Courts are located downtown, county government offices are a short distance away at North First Street and Hedding Street, and City Hall recently relocated downtown.

Over the past several years, there has been significant new development in downtown San Jose. A current development map of downtown San Jose is presented on the following page. Take note that areas colored in blue are sites currently under construction. Areas colored in yellow are proposed development projects and areas colored in green are development projects that were completed since 2015.

There are five projects that merit discussion. Developer Essex Property Trust constructed a 23-story, 312-unit apartment project at One South Market Street. Simeon Residential Properties developed Centerra, a 21 story, 347-unit tower located at the corner of Notre Dame Avenue and Carlysle Street. The project cost about $149 million.

The third project is under construction and includes a two-tower residential development located across from San Pedro Square Market. This project will include a 22-story and a 20-story tower with 612 total units over ground floor retail.

Directly across the street from the subject, Sares Regis recently completed a 2-acre apartment complex at the corner of South First Street and Pierce Avenue. This project includes 232 units and 4,300 square feet of retail space on the ground floor.

A 101-unit condominium project is currently under construction at 180 Balbach Street, just a few blocks from the subject. This project will represent a 4-story project with underground parking. Many more residential projects are slated for the downtown area. Most of the projects, however, will be high rises with over 100 units per acre.

There are many office developments planned for the downtown area as well. Of course, the largest of these developments is the Trammell Crow/Google project proposed within the Diridon Station Plan Area. This approved project originally called for three office towers, between 10 and 13 stories, with 325 residential units, 1,000,000 square feet of Class A office space and 35,000 square feet of retail, a large public plaza and a repurposed San Jose Water Company building.

There is currently one office project under construction in the downtown area and seven proposed office projects at this time. Wolff Urban Development/J.P. DiNapoli Cos. has received entitlements at 333 W. San Fernando for an 18-story, 750,000-square-foot office tower. This site is reportedly in escrow to Adobe Systems whose headquarters is across the street.

The River Corporate Center was always envisioned as a three-building campus—in fact, the parking has already been built for the third building. The dotcom crash put this project on hiatus leaving only two mid-rise buildings completed. Building #3 will be located at 353 Julian Street and contain 192,000 square feet. The six-story building has upgraded amenities over what was originally envisioned.

DEVELOPMENT MAP OF DOWNTOWN SAN JOSE

Subject

Blue parcels are under construction

Yellow parcels are proposed or approved

Green parcels were completed since 2015

Transportation Routes Within the immediate area of the subject, transportation access helps define the character of its development. Major travel and commuter routes within the area of the subject include Highway 280 and South Market Street. Access to the area is considered excellent.

To the north, South Market and South First Streets split into two streets. At this juncture is a small parkway. Less than two miles to the south of the subject property, Second Street merges with First Street and becomes Monterey Highway (also known as Highway 82).

Other significant north/south thoroughfares within the subject area are South 7th and South 10th Streets, both of which have more of an industrial/ commercial orientation. William and San Carlos Streets are the most significant arterials in an east/west direction.

As noted above, access to Interstate 280/680 is within a few blocks of the subject, via South First Street and South Almaden Avenue. Highway 87 access is within a half mile to the west via Auzerais Avenue and Woz Way. Interstate 280 is a major arterial running east and west through San Jose and into the downtown area. The highway changes route numbers at Highway 101 and becomes Highway 680, and then turns north and continues through the east side of the Bay Area. Highway 87 runs north and south, and provides access to San Jose International Airport, downtown San Jose, Highway 101 to the north and Highway 85 to the South.

The presence of the Diridon Station near downtown connects the subject areas to the region. Moreover, Diridon Station is expected to grow into a central transportation hub of stops for every major rail service in the region: BART, Amtrak, Caltrain, the ACE Train and planned high-speed rail.

Phase II of BART to Silicon Valley is expected to bring BART to downtown San Jose in the next eight years. In addition, a bullet train, linking California’s Central Valley to Silicon Valley, is planned to be running by 2025. About 21 miles of the railway runs through San Jose city limits, generally aligning with the Caltrain and Union Pacific tracks from Coyote Valley through the Monterey corridor, Communications Hill, Tamien Station and into Diridon Station in downtown. The 220-mph train would cut down the three-hour commute from the state’s agricultural center to the Bay Area to an hour. That would make it easier for Bay Area workers to escape the region’s sky-high housing costs and may inspire more companies to build workplaces near transit centers, such as San Jose’s downtown train station.

Neighborhood Land Use The subject neighborhood is located in the southern peripheral of the Downtown Core of San Jose. It is bounded on the north by West San Carlos, to the south by Interstate 280, to the west side by Highway 87 and to the east by Fourth Street.

In the vicinity of the subject, south of West San Carlos, there is only one large office building containing approximately 300,000 square feet. The other uses in the immediate area include the Children’s Discovery Museum, the San Jose McEnery Convention Center, a few hotels and motels, some low-rise office and service commercial buildings and older residential properties. There are two large apartment projects in the immediate area, 360 Residences (built as for sale condominiums

but used as apartments) and the Piece Street project, a recently constructed apartment project located immediately south of the subject.

Directly east of the subject, across South Market Street are various industrial and commercial buildings. Directly east is the Metro Newspaper. To the north of this building is the San Jose Institute of Art and to the south of this building is an Enterprise Car Rental building. Notre Dame High School is located further east. The area east of this is primarily residential in use. The Kelly Park and Zoo and Historic San Jose are located one mile to the east of the subject.

Conclusions Overall, the property is located on the southern peripheral of the downtown core of San Jose. The existing land use mix is typical of downtown areas and includes a combination of office and residential buildings, ground-floor retail uses, restaurants, bars, public space, government buildings, cultural and entertainment attractions.

The subject has good exposure and is located on a heavily traveled arterial. This area is primarily commercial in nature, although residential land uses are proximate. Within the larger downtown area, there are several new and large apartment projects recently constructed, under construction, or planned for construction. These projects will add a significant number of units to the downtown area. There is also a significant amount of new commercial development planned for the area.

The subject benefits from its good access to local and regional transportation. Both commercial and residential uses on the subject are appropriate for the subject site. Overall, the subject neighborhood is in the redevelopment stage of its life cycle.

Site Description

The subject site is located on the west side of South Market Street between West William Street and Pierce Avenue. The characteristics of the site are summarized as follows:

Site Characteristics Location: On the west side of South Market Street between West William Street and Pierce Avenue

Gross Land Area: 1.22 Acres or 53,143 SF Usable Land Area: 1.22 Acres or 53,143 SF Usable Land %: 100.0% Shape: Irregular Topography: Level Drainage: Assumed adequate Grade: At street grade Utilities: All to site Off-Site Improvements: Curbs, gutters, sidewalks Interior or Corner: Corner Signalized Intersection: No: Traffic signal nearby that enhances access to the site

Street Frontage / Access Frontage Road Primary Secondary Street Name: South Market Street Pierce Avenue Street Type: Commercial arterial Residential Frontage (Linear Ft.): 156 270

Flood Zone Data Flood Map Panel/Number: 06085C 0234H Flood Map Date: 05-18-2009

Flood Zone: D An area where there are possible but undetermined flood hazards. No analysis of flood hazards has been conducted. Mandatory flood insurance purchase requirements do not apply, but coverage is available.

Site Area in Flood: 0.00%

Other Site Conditions Soil Type: Typical Environmental Issues: None known Easements/Encroachments: Assumed to be typical

Earthquake Zone: While all of California is prone to earthquakes, the subject is not in an Alquist-Priolo fault zone.

Adjacent Land Uses North: Newly renovated two-story building occupied by BCA Architects South: The Pierce Apartments East: Various industrial and commercial buildings; Metro Newspaper West: Residential

Site Ratings Access: Good Visibility: Average

Zoning Designation Zoning Jurisdiction: City of San Jose Zoning Classification: A(PD), Planned Development General Plan Designation: DT - Downtown / RN - Residential Neighborhood Permitted Uses: Various commercial and residential uses

Zoning Comments: A Planned Development Permit PDC 97-039 was issued on January 14, 1998. This permit allowed for the development of a 54-unit, multi-family project on the 1.22-acre site indicating a density of 44 dwelling units/acre. The subject property is also under the jurisdiction of the City of San Jose General Plan. The General Plan designation is "Downtown" along the South Market Street frontage, and "Residential Neighborhood" further back along Pierce Avenue. Any use under the Planned Community/ Precise Plan must be approved by the City. Overall, the subject improvements and on-site parking have been approved by the City of San Jose and represent a legal and conforming use.

Analysis/Comments on Site In summary, the subject site is an irregularly shaped site that is mostly level and at street grade. The subject has frontage along two streets: South Market Street and Pierce Avenue. Overall visibility is considered average considering the subject`s configuration. However, access to the site is considered excellent. The site benefits from the surrounding residential neighborhoods and proximity to a signalized intersection.

We are unaware of any on-site contamination, issues with title, or any other factors that would affect the utility, marketability and/or value of the subject property. Overall, the site is well suited for its existing use.

TAX/PLAT MAP

Improvements Description

The subject is improved with a 54-unit apartment project and associated parking. The project appears to be of wood-frame construction and is three- and four-story in height. The improvements were constructed by the Tenant/Developer (Market Gateway LLC). They are also owned by the Tenant.

According to the project’s website, the property includes a mix of market-rate and below market-rate (BMR) townhomes, flats and live/work lofts. The individual units consist of 1- and 2-bedroom units, with 1- to 2.5-bathrooms. The square footages of the units range from 717 to 1,565 square feet. Rents range between $2,175 and $3,050 per month. Amenities include a business center, playground and fitness center. Unit amenities include maple cabinetry, gourmet kitchens with state-of-the-art appliances, breakfast counters and in-unit washer and dryers. The website indicted that three floorplans were currently available for lease.

According to the Disposition and Development Agreement reviewed for the project, the project includes no less than 22 units that are required to be rented to families of “moderate-income.” While a copy of the Affordability Restriction document was not provided for our review, the HUD level of income for “moderate income” level is 80% to 120% of the Area Median Income. The “Affordability Restriction” reportedly has a term of 30 years.

The project was completed in 2000 and appears to be in good condition based on an exterior inspection. The actual age of the improvements is 17 years; the effective age is estimated at 15 years. The remaining life is estimated at 40 years.

The functional utility of the property appears to be good based upon a comparison of similar properties in the market area.

The total cost to construct the improvements, including on- and off-site improvements was approximately $10,494,000, based on Exhibit A of the Second Amendment to Disposition and Development Agreement. Of this amount, $597,821 was allocated to off-site improvements. The total cost of the project and all on-site improvements, then, was $9,896,179 ($10,494,000 less $597,821).

Construction of the improvements was financed in part by the former Redevelopment Agency of the City of San Jose, which contributed $3,780,000 in “Improvement Assistance.” This is essentially a loan that is paid back over time through participation in the cash flow of the project, as discussed in the next section, “Subject Lease Agreement.” The loan is secured by the project and bears simple interest at the rate of 4.0%. As of December 31, 2016, the principal balance and accrued interest on the loan was $3,780,000 and $2,350,797, respectively, for a total balance of $6,130,798.

The project is also encumbered by a loan that was obtained on June 18, 2010 in the amount of $6,096,400. The loan bears interest at the rate of 4.8% per annum. The loan is insured by HUD. Principal and interest are due in monthly instalments of $28,594. The loan matures July 1, 2050, at which time it will be fully amortized. As of December 31, 2016, the principal balance and accrued interest on this loan was $5,717,811 and $35,850, respectively.

The HUD guarantee provides HUD the option to acquire the fee title to the demised premises for $1,350,000, if HUD acquires title to the leasehold interest. It is my understanding that this would only occur in the case of bankruptcy by the Tenant and foreclosure of the leasehold interest by HUD. However, in the case of bankruptcy, the Landlord also has the right to acquire the leasehold interest, which would be in its best interest, thus making the likelihood of HUD acquiring the leasehold interest and having the option to purchase the fee title, very unlikely.

Subject Photos

Rear view of building fronting South Market Street.

Front view of residential buildings located along Pierce Street.

South Market Street looking south. Subject located to right of photo.

Pierce Street looking east. Subject located to right of photo.

Subject Ground Lease

The subject is encumbered by a long-term ground lease (“Lease”). The Successor Agency to the Redevelopment Agency of the City of San Jose is the “Landlord,” as successor in interest, and Market Gateway, LLC is the “Tenant.” The Lease is dated February 26, 1999, which is also the commencement date of the Lease.

The initial lease term is 59 years. In addition, there are four, 10-year options to extend the term for a total term of 99 years. The initial term will expire February 25, 2058, with the maximum term expiring on February 25, 2098. However, the Tenant has an option to purchase the underlying fee interest in the property (as discussed later). Based on my analysis, the Tenant is likely to exercise this option prior to the maximum 99-year term.

The rent includes a base rent of $1.00 per calendar year, plus Participation Rent. The Participation Rent equates to 75% of the Distributable Cash Flow of the project, until Landlord’s Improvement Assistance has been repaid to Landlord in full. After the Improvement Assistance amount has been repaid, the Participation Rent shall be reduced to 25% of the Distributable Cash Flow.

The Landlord’s Improvement Assistance was discussed earlier and represents a loan from the former Redevelopment Agency of the City of San Jose in the initial amount of $3,780,000. The loan bears interest at 4% per annum. The Improvement Assistance amount referenced in the Lease includes both the initial amount of $3,780,000, plus the accrued interest. This amount equated to $6,130,798 as of December 31, 2016.

The Distributable Cash Flow is defined within the ground lease as Surplus Cash less debt service and a 12% preferred return on the “Tenant’s Cash Equity.” Both the Lease and the HUD Regulatory Agreement (for the third-party financing) define Surplus Cash. The HUD definition is applicable while the loan guarantee is in place. Essentially, Surplus Cash equates to the project’s cash flow (gross revenues less all operating expenses), reduced by debt service. The Surplus Cash for 2013 through 2016 is shown below, as reported in audited financial reports prepared by Novogradac & Company LLP for these four time periods.

HUD Approved Surplus Cash

2013 Actual $182,260 2014 Actual $55,040 2015 Actual $345,796 2016 Actual $266,873

The Surplus Cash is reduced by a 12% preferred return on the “Tenant’s Cash Equity” to arrive at the Distributable Cash Flow. The initial cash equity amount was $400,000. Additional equity was contributed in the amount of $650,222. These equity positions result in annual deductions of $48,000 and $78,027 based on a 12% return. The Distributable Cash Flow for the past four years, therefore, equated to between $0 and $219,769. (Note that the Participation Rent equates to 75% of the

Distributable Cash Flow, unless that amount is less than $0, at which point, the Participation Rent equates to $0.)

The Participation Rent due between 2013 and 2016, then, is summarized in the table below.

Actual Participation Rent Due 2013 - 2016 Less 12% Less 12% Participation Return on Return on Rent of 75% of HUD defined Deferred Equity Add'l Equity Distributable Distributable Surplus Cash of $400,000 of $650,222 Cash Flow Cash Flow 2013 $182,260 $48,000 $78,027 $56,233 $42,175 2014 $55,040 $48,000 $78,027 -$70,987 $0 2015 $345,796 $48,000 $78,027 $219,769 $164,827 2016 $266,873 $48,000 $78,027 $140,846 $105,635*

* Actual amount paid was $84,036 due to potential double-counting of Reserve Fund deduction.

In 2016, the formula indicates that a participation rent of $105,635 was due to the Landlord. However, only $84,036 was paid. Based on my review of the audited financial statements, it appears that the discrepancy is due to a deduction for a Reserve Fund expense of $21,600 per year. However, this reserve fund appears to already be accounted for in HUD’s calculation of Surplus Cash, and thus an additional deduction for it as part of the calculation for the Distributable Cash Flow appears to be double-counting this expense. In prior years, this expense was not separately deducted after HUD’s calculation of the Surplus Cash, further suggesting that this expense has already been accounted for in the Surplus Cash calculation and should not be deducted again when estimating the Participation Rent due to the Landlord.

As noted earlier, the Participation Rent is applied to the outstanding balance of the Improvement Assistance, which was $6,130,798 as of December 31, 2016. If more Participation Rent is paid, the Improvement Assistance loan is paid off quicker. Once this loan is paid off, the Participation Rent is reduced to 25% of the Distributable Cash Flow.

The Lease also provides the Tenant with a Purchase Option to buy the fee interest in the land. The purchase price will be the Fair Market Value of the land, valued as improved with restrictions, if any, but in no event less than $2,970,000 plus the outstanding balance of the Improvement Assistance loan. If the Tenant exercised the option today, therefore, the minimum purchase price would be about $9,100,798, or $2,970,000 plus $6,130,798. This exceeds the current value of the land as will be discussed in the Valuation section of this appraisal. However, in the future, it is likely that the Tenant will exercise this option.

The expense terms of the Lease are “triple net,” in which the Tenant pays all operating expenses. A summary of the Lease is provided on the following page.

LEASE ABSTRACT

Date of Lease: February 26, 1999

Address: 535 S. Market Street Lessor: City of San Jose Redevelopment Agency

Lessee: Market Gateway, LLC

Term: 59 Yrs.; commencing upon occupancy

Option: Four, 10-yr. options at market

Rent: $1.00/year plus participation rent

Size (s.f.): 1.22 acres of land area (53,143 square feet)

EXPENSES Lessor Lessee All Taxes: X Fire Insurance/Liability X

Utilities: X Maintenance: Exterior X Interior X Janitorial X Trash: X Management: X

Comments: Tenant has option to purchase at fair market value of the land, valued as improved with restrictions, no less than $2,970,000 plus the amount of Landlord’s Improvement Assistance ($3,780,000 plus accrued interest).

Market Analysis

The subject represents a site encumbered by a long-term ground lease of a site improved with an apartment complex. The ground rent generated by the Lease consists primarily of Participation Rent. Thus, an overview of the apartment market is provided in this appraisal.

The apartment market is very strong, with low vacancy, despite supply increases over the past several years. Rents have increased, as a result, everywhere in the Bay Area. The regional supply injections will have peaked, however, in 2017.

According to the Third Quarter 2017 Multifamily Research Market Report, published by Institutional Property Advisors, a division of Marcus & Millichap, Peninsula projects dominated the pipeline in 2017, with mid-rise buildings being most prominent. Broadly, the San Francisco metro remains the most active, accounting for more than 43% of all Bay Area completions this year. Meanwhile, deliveries in San Jose and Oakland are historically elevated but more benign than peninsula assets. These conditions will mute the impact of new supply, leading to tighter vacancy and rising rents.

San Jose Market Tight vacancy and rebounding rent growth have kept investors engaged during the first half of 2017. A four- property portfolio to a REIT kicked off the year and two recently completed developments closed with prices per unit in the high $700,000-range. Transaction activity has focused mainly in Sunnyvale and San Jose as investors seek to stay close to the heart of the Silicon Valley and major employers.

Transaction velocity remained steady over the past year as just over $1.3 billion in sales closed for $20 million plus properties. Furthermore, all assets types from newly developed projects to well- located garden properties have piqued investor demand.

Average cap rates and per unit pricing have also maintained steady levels over the past 4 quarters with capitalization rates at 4.8% and per unit prices at $396,000. A portfolio transaction and several older projects held pre unit pricing in check despite two closing in excess of $700,000 per unit. Competition

for assets will stay high as investor demand far out strip the numbers current listings throughout Silicon Valley.

Development accelerated moderately over the past year, boosted by projects in Santa Clara, where more than 1,292 rentals were completed. In the subject area, Central San Jose was also active, with 1,167 units delivered. Construction will remain elevated through year end, with 2,344 apartments slated for completion.

Over the past year, vacancy fell to 2.8%, driven by a 170-basis-point fall in the North San Jose/Milpitas submarket to 2.6%. Only two submarkets recorded an uptick in vacancy during the last year. Central San Jose increased 120 basis points to 4.3% and South San Jose rose 90 basis points to 3.8%.

Tighter vacancy translated into higher effective rents, rising 2.8% to $2,598 per month. The Central San Jose and Mountain View/Palo Alto/Los Altos submarkets were outperformers, rising 5.9% to $2,459 per month and 5.6% to $3,233 per month. North Sunnyvale posted the only decline, with rents falling 0.5% to $2,749 per square foot.

As noted above, the effective rent within the Central San Jose market is $2,459 per month. The subject rents, which range between $2,175 and $3,050 per month, appear to be in in-line with market.

We note that 22 of the subject units are required to be rented to “Moderate-Income” families. Moderate-income families earn income within 80% to 120% of the Area’s Median Income (AMI). According to information from the City of San Jose’s website, the Santa Clara County Income and Rent Limits for 80% to 120% of the AMI ranged between $1,698 and $2,719 for a 1-bedroom apartment, and between $1,910 and $3,059 for a 2-bedroom apartment. This appears to be within the market rental range for apartments within the subject’s immediate area. The restriction on rent, therefore, does not appear to have a significant impact on the subject’s revenue potential.

Market Conclusion Despite heavy competition from new apartments, multi-family properties have remained a preferred investment over other property types due to their favorable risk/return position. Inventory of apartment projects available for sale and for lease have increased significantly over the past year, but

investor demand for such properties is also anticipated to remain high. The demand for housing in the entire Bay Area remains high as well, with projected demand still exceeding supply.

Although rental rates for multi-family properties have increased dramatically over the past few years, the rate of rental growth is anticipated to slow and stabilize in the coming years, as more new multifamily product is delivered to the Santa Clara County market. Despite the slowing and stabilizing anticipated in the local housing market, rental rates are not anticipated to decline. Instead, rental rates are anticipated to grow at a mild to moderate pace into the long-term future.

Highest and Best Use

The Highest and Best Use of a property is the use that is legally permissible, physically possible, and financially feasible which results in the highest value. An opinion of the highest and best use results from consideration of the criteria noted above under the market conditions or likely conditions as of the effective date of value. Determination of highest and best use results from the judgment and analytical skills of the appraiser. It represents an opinion, not a fact. In appraisal practice, the concept of highest and best use represents the premise upon which value is based.

Analysis of Highest and Best Use As If Vacant The primary determinants of the highest and best use of the property as if vacant are the issues of (1) Legal permissibility, (2) Physical possibility, (3) Financial feasibility, and (4) Maximum productivity.

Legally Permissible The subject site is zoned A(PD), Planned Development which controls the general nature of permissible uses but is appropriate for the location and physical elements of the subject property, providing for a consistency of use with the general neighborhood. The location of the subject property is appropriate for the uses allowed, as noted previously, and a change in zoning is unlikely. There are no known easements, encroachments, covenants or other use restrictions that would unduly limit or impede development.

Physically Possible The physical attributes allow for a number of potential uses. Elements such as size, shape, availability of utilities, known hazards (flood, environmental, etc.), and other potential influences are described in the Site Description and have been considered. There are no items of a physical nature that would materially limit appropriate and likely development.

Financially Feasible The probable use of the site for multifamily development conforms to the pattern of land use in the market area. A review of published yield, rental and occupancy rates suggests that there is an undersupply and demand is sufficient to support construction costs and ensure timely absorption of additional inventory in this market. Therefore, near-term speculative development of the subject site is financially feasible.

Maximally Productive Among the financially feasible uses, the use that results in the highest value (the maximally productive use) is the highest and best use. Considering these factors, the maximally productive use as though vacant is for multi-family use.

Conclusion of Highest and Best Use As If Vacant The conclusion of the highest and best use as if vacant is for multi-family use.

Analysis of Highest and Best Use as Improved In determining the highest and best use of the property as improved, the focus is on three possibilities for the property: (1) continuation of the existing use, (2) modification of the existing use, or (3) demolition and redevelopment of the land.

Retaining the improvements as they exist meets the tests for physical possibility, legal permissibility and financial feasibility. The improvements are in good condition and any alternative use of the existing improvements is unlikely to be economically feasible. The market value of the property as improved exceeds the combination of vacant site value plus cost of demolition of the improvements.

In addition, the site is encumbered by a long-term ground lease and the improvements are owned by the Tenant. Redevelopment by the Landlord, therefore, would not be legally permissible. Therefore, demolition and redevelopment of the site is not maximally productive.

Conclusion of Highest and Best Use As Improved The highest and best use of the subject property, as improved, is the existing use.

Most Probable Buyer As of the date of value, the most probable buyer of the subject interest (ground leased fee) in the property is an investor.

Income Capitalization Approach

Methodology The income approach is developed by converting a forecast of future installments of income into a present value by a capitalization process. There are two types of capitalization: direct capitalization and yield capitalization, also known as discounted cash flow (DCF) analysis.

Direct capitalization converts a single year’s income into value. It is most applicable when income is stable and compares well to other competing investments.

Yield capitalization requires a forecast of the income stream a property may produce during its remaining useful life or during a specific holding period, and a value reversion (i.e., resale of the property) at the end of the holding period. Development of the cash flow is a forecast predicated upon various assumptions about the property’s future performance. The income stream and reversion are discounted to a present value at an appropriate yield rate. Yield capitalization allows modeling of an income stream to reflect potential fluctuations over the holding period, and is of particular importance to investors as it enables one to compare the financial return of the subject with alternative investments.

Income-producing properties, by nature, are developed and purchased for investment purposes, where earning power, including an income stream and return of investment, are the most critical elements affecting value. The forecast of income and selection of appropriate rate(s) are therefore important aspects of the valuation process.

Application of Methodologies The subject ground leased fee position is governed by the terms of the ground lease. The value of the ground leased fee position is reflected in the income stream during the term of the lease, plus the reversionary value at the end of the term. Given the unique terms created by the subject ground lease, the Discounted Cash Flow (DCF) is the preferred Income Approach method.

Discounted Cash Flow Analysis The details of the ground lease were previously presented. The current base annual rental rate is $1 per year flat over the term of the lease. The initial lease term is 59-years, plus there are four, 10-year options. However, the Tenant has the option to purchase the underlying fee interest in the land at any time during the term of the Lease. The actual lease term, therefore, can range significantly, depending if, and when, the Tenant exercises this option. If the option is exercised, however, the Tenant must pay, at a minimum, Fair Market Value for the property.

For purposes of this analysis, we considered both the initial term expiring in 2058, as well as the full extended term, expiring in 2098. As will be seen, both scenarios render similar values.

The rent for the property consists of fixed rent of $1 per year, plus Percentage Rent based on the Distributable Cash Flow. Initially the Percentage Rent equates to 75% of the Distributable Cash Flow. After the Improvement Assistance is paid off (including accrued interest), the Percentage Rent will equate to 25% of the Distributable Cash Flow. The Distributable Cash Flow for 2013 – 2016 is

provided below, with the actual Participation Rent due. For future years, we have projected a 3.0% increase over the 2016 HUD defined Surplus Cash levels, less the 12% returns on the Developer’s Equity, as shown below, multiplied by the 75% rate for distribution to the Landlord.

Actual and Projected Participation Rent Less 12% Less 12% Participation Return on Return on Rent of 75% of HUD defined Deferred Equity Add'l Equity Distributable Distributable Surplus Cash of $400,000 of $650,222 Cash Flow Cash Flow 2013 Actual $182,260 $48,000 $78,027 $56,233 $42,175 2014 Actual $55,040 $48,000 $78,027 -$70,987 $0 2015 Actual $345,796 $48,000 $78,027 $219,769 $164,827 2016 Actual $266,873 $48,000 $78,027 $140,846 $105,635 2017 Estimates $274,879 $48,000 $78,027 $148,853 $111,639 2018 Estimates $283,126 $48,000 $78,027 $157,099 $117,824 2019 Estimates $291,619 $48,000 $78,027 $165,593 $124,195

In 2050, the Surplus Cash Flow is expected to increase, as the HUD-guaranteed loan will be paid off. The payments for this loan are $28,594 per month, or $343,128 per year. In 2050, the Surplus Cash Flow is increased by these amounts.

In 2057, or near the end of the initial Lease term, the Improvement Assistance, plus accrued interest, is expected to be paid off. At that time, therefore, the Percentage Rent payments are reduced to 25% of the Distributed Cash Flow.

The reversionary value of the property is reflected in the underlying land value. No value is given to the improvements as these are expected to be fully depreciated when the property reverts to the Landlord. The Lease requires that the Tenant demolish the improvements at the end of the term, upon the Landlord’s request.

The reversionary interest in the land is not expected to contribute significant value to the Landlord’s ground leased fee interest given that the land will not revert back to the owner for many years. Most of the value in the subject interest is in the income stream.

To estimate the reversionary value of the land, the current value of the land is first estimated. The sales summarized below were analyzed so as to provide an indication of the subject’s land value. Prior to adjustment, the sales range between $30.35 and $348.88 per square foot, and between $24,435 and $131,384 per unit.

Land Sales Summary Comp. Date Usable Usable # of Density Sales Price Per Per No. of Sale Acres Sq. Ft. Units Location (Un/Ac) Actual Sq. Ft. Unit 1 December-16 0.323 14,079 62 466-470 W San Carlos San Jose 192 $1,515,000 $107.61 $24,435 2 January-17 0.241 10,519 116 117 North 5th Street San Jose 480 $1,600,000 $152.11 $13,793 3 April-17 1.480 64,449 313 217 West Julian Street San Jose 212 $10,000,000 $155.16 $31,949 4 April-17 1.513 65,926 226 250-252 N 1st Street San Jose 149 $23,000,000 $348.88 $101,770 5 December-16 0.295 12,850 8 16873 Monterey Rd. Morgan Hill 27 $390,000 $30.35 $48,750 6 April-16 9.020 392,911 318 1401 S Milpitas Blvd Milpitas 35 $41,780,000 $106.33 $131,384

In general, higher density sites sell for more per square foot of land area, but less on a “per-unit” basis. The subject density is 44 units per acre. This falls toward the lower end of the range indicated by the comparables, closer to Sales 5 and 6. Sales 1-4 are located in closer proximity to the subject, but all these sales have significantly higher densities than the subject.

Sales 5 and 6 are most similar to the density of the subject, as noted above. These sales best bracket the subject’s potential land value. Based on my analysis of these sales, as well as the others within the subject’s immediate area, the current land value of the subject is estimated at $90 per square foot, or $4,780,000 ($90/s.f. x 53,143 s.f., rounded). This equates to a per-unit value of $88,572.

The land value is grown at 3.0% per year. The future land value is 2058 is estimated at $15,601,903. The future land value in 2098 is estimated at $50,893,996. These values are discounted later to arrive at the present value of the future reversionary interest.

As noted earlier, the Tenant holds an option to purchase the underlying land at any time during the term of the lease. The minimum purchase price will be the fair market value of the land, or the unpaid Improvement Assistance (with accrued interest). The controlling price is expected to shift around 2037 or 2038. However, the total rent paid by the Tenant to the Landlord represents a favorable, below-market ground rent rate of return (ranging between 1% and 5% of the land value or price over the Lease term), thus making an early exercise of the purchase option by the Tenant unlikely.

Discount Rate The final step in the Discounted Cash Flow analysis is to select and apply an appropriate discount rate. The discount rate selected needs to reflect a competitive rate of return on investment. While real estate is secured by an asset, the investment tends to be illiquid, location-sensitive, and often characterized by the need for specialized investment expertise. Therefore, real estate as an investment generally commands a premium in yield relative to other long-term investments. This is particularly true for leasehold interests, since they have no ultimate reversion.

In examining the overall yield market, we have considered yields on intermediate and long-term investments, as well as current interest and inflation rates and projections. We have also considered surveys of institutional investors applying discount rates to existing apartment and land properties.

Excerpts from the investor surveys prepared by Real Estate Research Corporation (RERC) and Korpacz/PWC are provided below. These surveys are of the Second and Third Quarter 2017 (most recent) and indicate yield rates for apartment complexes ranging from 5.25% to 10.0% with an average ranging between 6.7% and 7.8%. Additionally, we have reviewed Korpacz reports for development land. These rates are considerably higher, ranging between 10.0 and 20.0%, and averaging at 16.0%. A summary of the yield rates for these various categories is summarized below.

SUMMARY OF DISCOUNT RATES Range Avg. RERC- 3rd Quarter 2017 (Apartments) 6.00% to 9.00% 7.20% Korpacz - 3rd Quarter 2017 (Pacific Region Apts) 5.25% to 10.00% 6.73% Korpacz - 3rd Quarter 2017 (NNN Lease) 6.00% to 10.00% 7.81% Korpacz - 2nd Quarter 2017 (Land) 10.00% to 20.00% 16.00%

Generally, the discount rate applicable to a ground leased fee interest should be lower than the rates for the actual apartment project, given that ground rent is typically based on a fixed rent. This would be true for the subject, given the subject’s desirable submarket.

However, in the subject’s case, the ground rent is directly tied to the operation of the apartment complex. This makes it more similar to the risk relative to the rates reflected above. The risk to the subject interest is even greater than that indicated by the above rates, however, given that the Landlord has no control over the income or the expenses of the complex. This lack of control increases the risk and puts upward pressure on the discount rate.

Given the lack of control relative to the income stream, a yield rate that reflects the upper end of the apartment and NNN lease discount rate range for the local submarket, is considered appropriate. The local submarket ranges between about 5.25% and 10.0%, with an average of 6.73%. In conclusion, then, we conclude a yield rate of 8.0%, to be appropriate for the subject’s income stream.

For the reversionary land value, we considered the land development rates ranging between 10.0% and 20.0%. Given the subject’s desirable sub-market, we conclude a rate near the lower end of this range, at 12.0%, to be appropriate.

The Discounted Cash Flow Model is presented on the following two pages. Two different terms are discounted, based on the initial term expiring in 2058, and the full potential term expiring in 2098. Although the model shows the reversionary land value for both years, note that the actual calculations reflect a reversionary value for only the appropriate year for the scenario.

The estimates and calculations applied in the model for the future land value, as well as the Improvement Assistance (with accrued interest), are provided in the Addenda of this report.

Reconciliation

Summary of Value Indications The indicated values from the two valuation scenarios applied in the valuation of the subject interest are summarized in the following table.

Summary of Value Scenarios Income Residual Total Leased Fee Rounded Scenario 8% 12% Value to Landlord to: 1 Term expires in 2058 $2,481,312 $149,706 $2,631,018 $2,630,000 2 Term expires in 2098 $2,637,582 $5,248 $2,642,830 $2,640,000

To reach a final opinion of value, we considered the reliability and relevance of each value indication. The value indications are very similar, providing a consistent indication of value. In conclusion, the subject interest is valued at $2,635,000.

Value Conclusion "As Is"

Type of Value Market Value Interest Appraised Ground Leased Fee Date of Value 12/31/2017 Value Conclusion $2,635,000

Exposure Time and Marketing Periods Based on statistical information about days on market, escrow length, and marketing times gathered through national investor surveys, sales verification, and interviews of market participants, marketing and exposure time estimates of six months are considered reasonable and appropriate for the subject property.

General Assumptions and Limiting Conditions

This appraisal is subject to the following limiting conditions:

1. The legal description – if furnished to us – is assumed to be correct.

2. No responsibility is assumed for legal matters, questions of survey or title, soil or subsoil conditions, engineering, availability or capacity of utilities, or other similar technical matters. The appraisal does not constitute a survey of the property appraised. All existing liens and encumbrances have been disregarded and the property is appraised as though free and clear, under responsible ownership and competent management unless otherwise noted.

3. Unless otherwise noted, the appraisal will value the property as though free of contamination. Valbridge Property Advisors | Hulberg and Associates will conduct no hazardous materials or contamination inspection of any kind. It is recommended that the client hire an expert if the presence of hazardous materials or contamination poses any concern.

4. The stamps and/or consideration placed on deeds used to indicate sales are in correct relationship to the actual dollar amount of the transaction.

5. Unless otherwise noted, it is assumed there are no encroachments, zoning violations or restrictions existing in the subject property.

6. The appraiser is not required to give testimony or attendance in court by reason of this appraisal, unless previous arrangements have been made.

7. Unless expressly specified in the engagement letter, the fee for this appraisal does not include the attendance or giving of testimony by Appraiser at any court, regulatory, or other proceedings, or any conferences or other work in preparation for such proceeding. If any partner or employee of Valbridge Property Advisors | Hulberg and Associates is asked or required to appear and/or testify at any deposition, trial, or other proceeding about the preparation, conclusions or any other aspect of this assignment, client shall compensate Appraiser for the time spent by the partner or employee in appearing and/or testifying and in preparing to testify according to the Appraiser’s then current hourly rate plus reimbursement of expenses.

8. The values for land and/or improvements, as contained in this report, are constituent parts of the total value reported and neither is (or are) to be used in making a summation appraisal of a combination of values created by another appraiser. Either is invalidated if so used.

9. The dates of value to which the opinions expressed in this report apply are set forth in this report. We assume no responsibility for economic or physical factors occurring at some point at a later date, which may affect the opinions stated herein. The forecasts, projections, or operating estimates contained herein are based on current market conditions and anticipated short-term supply and demand factors and are subject to change with future conditions.

10. The sketches, maps, plats and exhibits in this report are included to assist the reader in visualizing the property. The appraiser has made no survey of the property and assumed no responsibility in connection with such matters.

11. The information, estimates and opinions, which were obtained from sources outside of this office, are considered reliable. However, no liability for them can be assumed by the appraiser.

12. Possession of this report, or a copy thereof, does not carry with it the right of publication. Neither all, nor any part of the content of the report, or copy thereof (including conclusions as to property value, the identity of the appraisers, professional designations, reference to any professional appraisal organization or the firm with which the appraisers are connected), shall be disseminated to the public through advertising, public relations, news, sales, or other media without prior written consent and approval.

13. No claim is intended to be expressed for matters of expertise that would require specialized investigation or knowledge beyond that ordinarily employed by real estate appraisers. We claim no expertise in areas such as, but not limited to, legal, survey, structural, environmental, pest control, mechanical, etc.

14. This appraisal was prepared for the sole and exclusive use of the client for the function outlined herein. Any party who is not the client or intended user identified in the appraisal or engagement letter is not entitled to rely upon the contents of the appraisal without express written consent of Valbridge Property Advisors | Hulberg and Associates and Client. The Client shall not include partners, affiliates, or relatives of the party addressed herein. The appraiser assumes no obligation, liability or accountability to any third party.

15. Distribution of this report is at the sole discretion of the client, but third-parties not listed as an intended user on the face of the appraisal or the engagement letter may not rely upon the contents of the appraisal. In no event shall client give a third-party a partial copy of the appraisal report. We will make no distribution of the report without the specific direction of the client.

16. This appraisal shall be used only for the function outlined herein, unless expressly authorized by Valbridge Property Advisors | Hulberg and Associates.

17. This appraisal shall be considered in its entirety. No part thereof shall be used separately or out of context.

18. Unless otherwise noted in the body of this report, this appraisal assumes that the subject property does not fall within the areas where mandatory flood insurance is effective. Unless otherwise noted, we have not completed nor have we contracted to have completed an investigation to identify and/or quantify the presence of non-tidal wetland conditions on the subject property. Because the appraiser is not a surveyor, he or she makes no guarantees, express or implied, regarding this determination.

19. The flood maps are not site specific. We are not qualified to confirm the location of the subject property in relation to flood hazard areas based on the FEMA Flood Insurance Rate Maps or other surveying techniques. It is recommended that the client obtain a confirmation of the subject property’s flood zone classification from a licensed surveyor.

20. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures which would render it more or less valuable. No responsibility is assumed for such conditions or for engineering which may be required to discover them.

21. Our inspection included an observation of the land and improvements thereon only. It was not possible to observe conditions beneath the soil or hidden structural components within the improvements. We inspected the buildings involved, and reported damage (if any) by termites, dry rot, wet rot, or other infestations as a matter of information, and no guarantee of the amount or degree of damage (if any) is implied. Condition of heating, cooling, ventilation, electrical and plumbing equipment is considered to be commensurate with the condition of the balance of the improvements unless otherwise stated. Should the client have concerns in these areas, it is the client’s responsibility to order the appropriate inspections. The appraiser does not have the skill or expertise to make such inspections and assumes no responsibility for these items.

22. This appraisal does not guarantee compliance with building code and life safety code requirements of the local jurisdiction. It is assumed that all required licenses, consents, certificates of occupancy 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 conclusion contained in this report is based unless specifically stated to the contrary.

23. When possible, we have relied upon building measurements provided by the client, owner, or associated agents of these parties. In the absence of a detailed rent roll, reliable public records, or “as-built” plans provided to us, we have relied upon our own measurements of the subject improvements. We follow typical appraisal industry methods; however, we recognize that some factors may limit our ability to obtain accurate measurements including, but not limited to, property access on the day of inspection, basements, fenced/gated areas, grade elevations, greenery/shrubbery, uneven surfaces, multiple story structures, obtuse or acute wall angles,

immobile obstructions, etc. Professional building area measurements of the quality, level of detail, or accuracy of professional measurement services are beyond the scope of this appraisal assignment.

24. We have attempted to reconcile sources of data discovered or provided during the appraisal process, including assessment department data. Ultimately, the measurements that are deemed by us to be the most accurate and/or reliable are used within this report. While the measurements and any accompanying sketches are considered to be reasonably accurate and reliable, we cannot guarantee their accuracy. Should the client desire a greater level of measuring detail, they are urged to retain the measurement services of a qualified professional (space planner, architect or building engineer). We reserve the right to use an alternative source of building size and amend the analysis, narrative and concluded values (at additional cost) should this alternative measurement source reflect or reveal substantial differences with the measurements used within the report.

25. In the absence of being provided with a detailed land survey, we have used assessment department data to ascertain the physical dimensions and acreage of the property. Should a survey prove this information to be inaccurate, we reserve the right to amend this appraisal (at additional cost) if substantial differences are discovered.

26. Unless otherwise stated in this report, the value conclusion is predicated on the assumption that the property is free of contamination, environmental impairment or hazardous materials. Unless otherwise stated, the existence of hazardous material was not observed by the appraiser and the appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required for discovery. The client is urged to retain an expert in this field, if desired.

27. The Americans with Disabilities Act (“ADA”) became effective January 26, 1992. We have not made a specific compliance survey of the property to determine if it is in conformity with the various requirements of the ADA. It is possible that a compliance survey of the property, together with an 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 could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible noncompliance with the requirements of ADA in developing an opinion of value.

28. This appraisal applies to the land and building improvements only. The value of trade fixtures, furnishings, and other equipment, or subsurface rights (minerals, gas, and oil) were not considered in this appraisal unless specifically stated to the contrary.

29. No changes in any federal, state or local laws, regulations or codes (including, without limitation, the Internal Revenue Code) are anticipated, unless specifically stated to the contrary.

30. Any income and expense estimates contained in the appraisal report are used only for the purpose of estimating value and do not constitute prediction of future operating results. Furthermore, it is inevitable that some assumptions will not materialize and that unanticipated events may occur that will likely affect actual performance.

31. The data gathered in the course of this assignment (except data furnished by the Client) shall remain the property of the Appraiser. The appraiser will not violate the confidential nature of the appraiser-client relationship by improperly disclosing any confidential information furnished to the appraiser. Notwithstanding the foregoing, the Appraiser is authorized by the client to disclose all or any portion of the appraisal and related appraisal data to appropriate representatives of the Appraisal Institute if such disclosure is required to enable the appraiser to comply with the Bylaws and Regulations of such Institute now or hereafter in effect.

32. You and Valbridge Property Advisors | Hulberg and Associates both agree that any dispute over matters in excess of $5,000 will be submitted for resolution by arbitration. This includes fee disputes and any claim of malpractice. The arbitrator shall be mutually selected. If Valbridge Property Advisors | Hulberg and Associates and the client cannot agree on the arbitrator, the presiding head of the Local County Mediation & Arbitration panel shall select the arbitrator. Such arbitration shall be binding and final. In agreeing to arbitration, we both acknowledge that, by agreeing to binding arbitration, each of us is giving up the right to have the dispute decided in a court of law before a judge or jury. In the event that the client, or any other party, makes a claim against Hulberg and Associates or any of its employees in connections with or in any way relating to this assignment, the maximum damages recoverable by such claimant shall be the amount actually received by Valbridge Property Advisors | Hulberg and Associates for this assignment, and under no circumstances shall any claim for consequential damages be made.

33. Valbridge Property Advisors | Hulberg and Associates shall have no obligation, liability, or accountability to any third party. Any party who is not the “client” or intended user identified on the face of the appraisal or in the engagement letter is not entitled to rely upon the contents of the appraisal without the express written consent of Valbridge Property Advisors | Hulberg and Associates. “Client” shall not include partners, affiliates, or relatives of the party named in the engagement letter. Client shall hold Valbridge Property Advisors | Hulberg and Associates and its employees harmless in the event of any lawsuit brought by any third party, lender, partner, or part-owner in any form of ownership or any other party as a result of this assignment. The client also agrees that in case of lawsuit arising from or in any way involving these appraisal services, client will hold Valbridge Property Advisors | Hulberg and Associates harmless from and against any liability, loss, cost, or expense incurred or suffered by Valbridge Property Advisors | Hulberg and Associates in such action, regardless of its outcome.

34. The Valbridge Property Advisors office responsible for the preparation of this report is independently owned and operated by Hulberg and Associates. Neither Valbridge Property Advisors, Inc., nor any of its affiliates has been engaged to provide this report. Valbridge

Property Advisors, Inc. does not provide valuation services, and has taken no part in the preparation of this report.

35. If any claim is filed against any of Valbridge Property Advisors, Inc., a Florida Corporation, its affiliates, officers or employees, or the firm providing this report, in connection with, or in any way arising out of, or relating to, this report, or the engagement of the firm providing this report, then (1) under no circumstances shall such claimant be entitled to consequential, special or other damages, except only for direct compensatory damages, and (2) the maximum amount of such compensatory damages recoverable by such claimant shall be the amount actually received by the firm engaged to provide this report.

36. This report and any associated work files may be subject to evaluation by Valbridge Property Advisors, Inc., or its affiliates, for quality control purposes.

37. Acceptance and/or use of this appraisal report constitutes acceptance of the foregoing general assumptions and limiting conditions.

Certification – Yvonne J. Broszus, MAI

I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report and no personal interest with respect to the parties involved. 4. The undersigned has not performed services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. 5. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. 6. My engagement in this assignment was not contingent upon developing or reporting predetermined results. 7. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 8. My analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. 9. Yvonne J. Broszus, MAI has personally inspected the exterior of the subject property. 10. No one provided significant real property appraisal assistance to the person signing this certification, unless otherwise noted. 11. The reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. 12. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 13. As of the date of this report, the undersigned has completed the continuing education program for Designated Members of the Appraisal Institute.

Yvonne J. Broszus, MAI Director California Certified License #AG019587

Addenda

Legal Description from Ground Lease Calculations of Land Value and Improvement Assistance for DCF Glossary Qualifications  Yvonne J. Broszus, MAI - Director Information on Valbridge Property Advisors Office Locations

Legal Description from Ground Lease

Calculations of Land Value and Improvement Assistance for DCF

Glossary Definitions are taken from The Dictionary of Real Estate Appraisal, 6th Edition (Dictionary), the Uniform Standards of Professional Appraisal Practice (USPAP), and Building Owners and Managers Association International (BOMA).

Absolute Net Lease Certificate of Occupancy (COO) A lease in which the tenant pays all expenses including A formal written acknowledgment by an appropriate structural maintenance, building reserves, and unit of local government that a new construction or management; often a long-term lease to a credit tenant. renovation project is at the stage where it meets (Dictionary) applicable health and safety codes and is ready for commercial or residential occupancy. (Dictionary) Amortization The process of retiring a debt or recovering a capital Common Area Maintenance (CAM) investment, typically through scheduled, systematic The expense of operating and maintaining common repayment of the principal; a program of periodic areas; may or may not include management charges and contributions to a sinking fund or debt retirement fund. usually does not include capital expenditures on tenant (Dictionary) improvements or other improvements to the property. (Dictionary) As Is Market Value The estimate of the market value of real property in its The amount of money charged to tenants for their current physical condition, use, and zoning as of the shares of maintaining a [shopping] center’s common appraisal date. (Dictionary) area. The charge that a tenant pays for shared services and facilities such as electricity, security, and Base Rent maintenance of parking lots. Items charged to common The minimum rent stipulated in a lease. (Dictionary) area maintenance may include cleaning services, parking Base Year lot sweeping and maintenance, snow removal, security The year on which escalation clauses in a lease are and upkeep. (ICSC – International Council of Shopping th based. (Dictionary) Centers, 4 Ed.) Building Common Area Condominium In office buildings, the areas of the building that provide A multiunit structure, or a unit within such a structure, services to building tenants but which are not included with a condominium form of ownership. (Dictionary) in the office area or store area of any specific tenant. Conservation Easement These areas may include, but shall not be limited to, An interest in real estate restricting future land use to main and auxiliary lobbies, atrium spaces at the level of preservation, conservation, wildlife habitat, or some the finished floor, concierge areas or security desks, combination of those uses. A conservation easement conference rooms, lounges or vending areas, food may permit farming, timber harvesting, or other uses of service facilities, health or fitness centers, daycare a rural nature as well as some types of conservation- facilities, locker or shower facilities, mail rooms, fire oriented development to continue, subject to the control rooms, fully enclosed courtyards outside the easement. (Dictionary) exterior walls, and building core and service areas such as fully enclosed mechanical or equipment rooms. Contributory Value Specifically excluded from building common area are A type of value that reflects the amount a property or floor common areas, parking space, portions of loading component of a property contributes to the value of docks outside the building line, and major vertical another asset or to the property as a whole. penetrations. (BOMA) The change in the value of a property as a whole, Building Rentable Area whether positive or negative, resulting from the addition The sum of all floor rentable areas. Floor rentable area is or deletion of a property component. Also called the result of subtracting from the gross measured area deprival value in some countries. (Dictionary) of a floor the major vertical penetrations on that same floor. It is generally fixed for the life of the building and is rarely affected by changes in corridor size or configuration. (BOMA)

Debt Coverage Ratio (DCR) Effective Date The ratio of net operating income to annual debt service 1) The date on which the appraisal or review opinion (DCR = NOI/Im), which measures the relative ability of a applies. (SVP) property to meet its debt service out of net operating 2) In a lease document, the date upon which the lease income; also called debt service coverage ratio (DSCR). A goes into effect. (Dictionary) larger DCR typically indicates a greater ability for a property to withstand a reduction of income, providing Effective Gross Income (EGI) an improved safety margin for a lender. (Dictionary) The anticipated income from all operations of the real estate after an allowance is made for vacancy and Deed Restriction collection losses and an addition is made for any other A provision written into a deed that limits the use of income. (Dictionary) land. Deed restrictions usually remain in effect when title passes to subsequent owners. (Dictionary) Effective Rent Total base rent, or minimum rent stipulated in a lease, Depreciation over the specified lease term minus rent concessions; 1) In appraisal, a loss in property value from any cause; the rent that is effectively paid by a tenant net of the difference between the cost of an improvement financial concessions provided by a landlord. (TIs). on the effective date of the appraisal and the (Dictionary) market value of the improvement on the same date. 2) In accounting, an allocation of the original cost of EPDM an asset, amortizing the cost over the asset’s life; Ethylene Propylene Diene Monomer Rubber. A type of calculated using a variety of standard techniques. synthetic rubber typically used for roof coverings. (Dictionary) (Dictionary)

Disposition Value Escalation Clause The most probable price that a specified interest in A clause in an agreement that provides for the property should bring under the following conditions: adjustment of a price or rent based on some event or  Consummation of a sale within a specified time, index. e.g., a provision to increase rent if operating which is shorter than the typical exposure time for expenses increase; also called escalator clause, expense such a property in that market. recovery clause or stop clause. (Dictionary)  The property is subjected to market conditions Estoppel Certificate prevailing as of the date of valuation; A signed statement by a party (such as a tenant or a  Both the buyer and seller are acting prudently and mortgagee) certifying, for another’s benefit, that certain knowledgeably; facts are correct, such as that a lease exists, that there  The seller is under compulsion to sell; are no defaults, and that rent is paid to a certain date.  The buyer is typically motivated; (Black’s) In real estate, a buyer of rental property  Both parties are acting in what they consider to be typically requests estoppel certificates from existing their best interests; tenants. Sometimes referred to as an estoppel letter.  An adequate marketing effort will be made during (Dictionary) the exposure time;  Payment will be made in cash in U.S. dollars (or the Excess Land local currency) or in terms of financial arrangements Land that is not needed to serve or support the existing comparable thereto; and use. The highest and best use of the excess land may or  The price represents the normal consideration for may not be the same as the highest and best use of the the property sold, unaffected by special or creative improved parcel. Excess land has the potential to be financing or sales concessions granted by anyone sold separately and is valued separately. (Dictionary) associated with the sale. (Dictionary) Excess Rent Easement The amount by which contract rent exceeds market rent The right to use another’s land for a stated purpose. at the time of the appraisal; created by a lease favorable (Dictionary) to the landlord (lessor) and may reflect unusual management, unknowledgeable or unusually motivated EIFS parties, a lease execution in an earlier, stronger rental Exterior Insulation Finishing System. This is a type of market, or an agreement of the parties. (Dictionary) exterior wall cladding system. Sometimes referred to as dry-vit.

Expense Stop Gross Building Area (GBA) A clause in a lease that limits the landlord’s expense 1) Total floor area of a building, excluding unenclosed obligation, which results in the lessee paying operating areas, measured from the exterior of the walls of expenses above a stated level or amount. (Dictionary) the above-grade area. This includes mezzanines and basements if and when typically included in the Exposure Time market area of the type of property involved. 1) The time a property remains on the market. 2) Gross leasable area plus all common areas. 2) The estimated length of time that the property 3) For residential space, the total area of all floor levels interest being appraised would have been offered measured from the exterior of the walls and on the market prior to the hypothetical including the superstructure and substructure consummation of a sale at market value on the basement; typically does not include garage space. effective date of the appraisal; Comment: Exposure (Dictionary) time is a retrospective opinion based on an analysis of past events assuming a competitive and open Gross Measured Area market. (Dictionary) The total area of a building enclosed by the dominant portion (the portion of the inside finished surface of the Extraordinary Assumption permanent outer building wall which is 50% or more of An assumption, directly related to a specific assignment, the vertical floor-to-ceiling dimension, at the given point as of the effective date of the assignment results, which, being measured as one moves horizontally along the if found to be false, could alter the appraiser’s opinions wall), excluding parking areas and loading docks (or or conclusions. Comment: Extraordinary assumptions portions of same) outside the building line. It is presume as fact otherwise uncertain information about generally not used for leasing purposes and is calculated physical, legal, or economic characteristics of the subject on a floor by floor basis. (BOMA) property; or about conditions external to the property such as market conditions or trends; or about the Gross Up Method integrity of data used in an analysis. (USPAP, 2016-2017 A method of calculating variable operating expenses in ed.) income-producing properties when less than 100% occupancy is assumed. Expenses reimbursed based on Fee Simple Estate the amount of occupied space, rather than on the total Absolute ownership unencumbered by any other building area, are described as “grossed up.” (Dictionary) interest or estate, subject only to the limitations imposed by the governmental powers of taxation, Gross Retail Sellout eminent domain, police power, and escheat. (Dictionary) The sum of the separate and distinct market value opinions for each of the units in a condominium, Floor Common Area subdivision development, or portfolio of properties, as In an office building, the areas on a floor such as of the date of valuation. The aggregate of retail values washrooms, janitorial closets, electrical rooms, does not represent the value of all the units as though telephone rooms, mechanical rooms, elevator lobbies, sold together in a single transaction; it is simply the total and public corridors which are available primarily for the of the individual market value conclusions. Also called use of tenants on that floor. (BOMA) the aggregate of the retail values, aggregate retail selling Full Service (Gross) Lease price or sum of the retail values. (Dictionary) A lease in which the landlord receives stipulated rent Ground Lease and is obligated to pay all of the property’s operating A lease that grants the right to use and occupy land. and fixed expenses; also called a full service lease. Improvements made by the ground lessee typically (Dictionary) revert to the ground lessor at the end of the lease term. Furniture, Fixtures, and Equipment (FF&E) (Dictionary) Business trade fixtures and personal property, exclusive Ground Rent of inventory. (Dictionary) The rent paid for the right to use and occupy land Going-Concern Value according to the terms of a ground lease; the portion of An outdated label for the market value of all the the total rent allocated to the underlying land. tangible and intangible assets of an established and (Dictionary) operating business with an indefinite life, as if sold in aggregate; more accurately termed the market value of the going concern or market value of the total assets of the business. (Dictionary) © 2018 VALBRIDGE PROPERTY ADVISORS Page 58 MARKET GATEWAY APARTMENTS GROUND LEASE ADDENDA

HVAC Investment Value Heating, ventilation, air conditioning (HVAC) system. A The value of a property to a particular investor or class unit that regulates the temperature and distribution of of investors based on the investor’s specific heat and fresh air throughout a building. (Dictionary) requirements. Investment value may be different from market value because it depends on a set of investment Highest and Best Use criteria that are not necessarily typical of the market. 1) The reasonably probable use of property that (Dictionary) results in the highest value. The four criteria that the highest and best use must meet are legal Just Compensation permissibility, physical possibility, financial In condemnation, the amount of loss for which a feasibility, and maximum productivity. property owner is compensated when his or her 2) The use of an asset that maximizes its potential and property is taken. Just compensation should put the that is possible, legally permissible, and financially owner in as good a position pecuniarily as he or she feasible. The highest and best use may be for would have been if the property had not been taken. continuation of an asset’s existing use of for some (Dictionary) alternative use. This is determined by the use that a market participant would have in mind for the asset Leased Fee Interest when formulating the price that it would be willing The ownership interest held by the lessor, which to bid. (IVS) includes the right to receive the contract rent specified 3) [The] highest and most profitable use for which the in the lease plus the reversionary right when the lease property is adaptable and needed or likely to be expires. (Dictionary) needed in the reasonably near future. (Uniform Leasehold Interest Appraisal Standards for Federal Land Acquisitions) The right held by the lessee to use and occupy real (Dictionary) estate for a stated term and under the conditions Hypothetical Condition specified in the lease. (Dictionary) 1) A condition that is presumed to be true when it is Lessee (Tenant) known to be false. (SVP – Standards of Valuation One who has the right to occupancy and use of the Practice, effective January 1, 2015) property of another for a period of time according to a 2) A condition, directly related to a specific lease agreement. (Dictionary) assignment, which is contrary to what is known by the appraiser to exist on the effective date of the Lessor (Landlord) assignment results, but is used for the purpose of One who conveys the rights of occupancy and use to analysis. Comment: Hypothetical conditions are others under a lease agreement. (Dictionary) contrary to known facts about physical, legal, or economic characteristics of the subject property; or Liquidation Value about conditions external to the property, such as The most probable price that a specified interest in property should bring under the following conditions: market conditions or trends; or about the integrity of data used in an analysis. (USPAP, 2016-2017 ed.)  Consummation of a sale within a short time period. (Dictionary)  The property is subjected to market conditions prevailing as of the date of valuation. Industrial Gross Lease  Both the buyer and seller are acting prudently and A type of modified gross lease of an industrial property knowledgeably. in which the landlord and tenant share expenses. The  The seller is under extreme compulsion to sell. landlord receives stipulated rent and is obligated to pay  The buyer is typically motivated. certain operating expenses, often structural  Both parties are acting in what they consider to be maintenance, insurance and real property taxes, as their best interests. specified in the lease. There are significant regional and  A normal marketing effort is not possible due to the local differences in the use of this term. (Dictionary) brief exposure time. Insurable Value  Payment will be made in cash in U.S. dollars (or the A type of value for insurance purposes. (Typically this local currency) or in terms of financial arrangements includes replacement cost less basement excavation, comparable thereto. foundation, underground piping and architect’s fees).  The price represents the normal consideration for (Dictionary) the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (Dictionary)

Loan to Value Ratio (LTV) Opinion 7 of the Appraisal Standards Board of the The ratio between a mortgage loan and the value of the Appraisal Foundation and Statement on Appraisal property pledged as security, usually expressed as a Standards No. 6, “Reasonable Exposure Time in Real percentage. (Dictionary) Property and Personal Property Market Value Opinions” address the determination of reasonable exposure and Major Vertical Penetrations marketing time.) (Dictionary) Stairs, elevator shafts, flues, pipe shafts, vertical ducts, and the like, and their enclosing walls. Atria, lightwells Master Lease and similar penetrations above the finished floor are A lease in which the fee owner leases a part or the entire included in this definition. Not included, however, are property to a single entity (the master lease) in return vertical penetrations built for the private use of a tenant for a stipulated rent. The master lessee then leases the occupying office areas on more than one floor. property to multiple tenants. (Dictionary) Structural columns, openings for vertical electric cable or Modified Gross Lease telephone distribution, and openings for plumbing lines A lease in which the landlord receives stipulated rent are not considered to be major vertical penetrations. and is obligated to pay some, but not all, of the (BOMA) property’s operating and fixed expenses. Since Market Rent assignment of expenses varies among modified gross The most probable rent that a property should bring in a leases, expense responsibility must always be specified. competitive and open market reflecting the conditions In some markets, a modified gross lease may be called a and restrictions of a specified lease agreement, double net lease, net net lease, partial net lease, or semi- including the rental adjustment and revaluation, gross lease. (Dictionary) permitted uses, use restrictions, expense obligations; Operating Expense Ratio term, concessions, renewal and purchase options and The ratio of total operating expenses to effective gross tenant improvements (TIs). (Dictionary) income (TOE/EGI); the complement of the net income Market Value ratio, i.e., OER = 1 – NIR (Dictionary) The most probable price that a property should bring in Option a competitive and open market under all conditions A legal contract, typically purchased for a stated requisite to a fair sale, the buyer and seller each acting consideration, that permits but does not require the prudently and knowledgeably, and assuming the price is holder of the option (known as the optionee) to buy, sell, not affected by undue stimulus. Implicit in this definition or lease real estate for a stipulated period of time in is the consummation of a sale as of a specified date and accordance with specified terms; a unilateral right to the passing of title from seller to buyer under conditions exercise a privilege. (Dictionary) whereby:  Buyer and seller are typically motivated; Partial Interest  Both parties are well informed or well advised, and Divided or undivided rights in real estate that represent acting in what they consider their own best less than the whole, i.e., a fractional interest such as a interests; tenancy in common, easement, or life interest.  A reasonable time is allowed for exposure in the (Dictionary) open market;  Payment is made in terms of cash in United States Pass Through dollars or in terms of financial arrangements A tenant’s portion of operating expenses that may be comparable thereto; and composed of common area maintenance (CAM), real  The price represents the normal consideration for property taxes, property insurance, and any other the property sold unaffected by special or creative expenses determined in the lease agreement to be paid financing or sales concessions granted by anyone by the tenant. (Dictionary) associated with the sale. Potential Gross Income (PGI) (Dictionary) The total income attributable to property at full Marketing Time occupancy before vacancy and operating expenses are An opinion of the amount of time it might take to sell a deducted. (Dictionary) real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal. (Advisory © 2018 VALBRIDGE PROPERTY ADVISORS Page 60 MARKET GATEWAY APARTMENTS GROUND LEASE ADDENDA

Prospective Future Value Upon Completion the type of value with this term is appropriate, e.g., A prospective market value may be appropriate for the “retrospective market value opinion.” (Dictionary) valuation of a property interest related to a credit Sandwich Leasehold Estate decision for a proposed development or renovation The interest held by the sandwich leaseholder when the project. According to USPAP, an appraisal with a property is subleased to another party; a type of prospective market value reflects an effective date that leasehold estate. (Dictionary) is subsequent to the date of the appraisal report. … The prospective market value –as completed- reflects the Sublease property’s market value as of the time that development An agreement in which the lessee in a prior lease is expected to be complete. (Dictionary) conveys the right of use and occupancy of a property to Prospective Future Value Upon Stabilization another, the sublessee, for a specific period of time, which may or may not be coterminous with the A prospective market value may be appropriate for the underlying lease term. (Dictionary) valuation of a property interest related to a credit decision for a proposed development or renovation Subordination project. According to USPAP, an appraisal with a A contractual arrangement in which a party with a claim prospective market value reflects an effective date that to certain assets agrees to make his or her claim junior, is subsequent to the date of the appraisal report …The or subordinate, to the claims of another party. prospective market value – as stabilized – reflects the (Dictionary) property’s market value as of the time the property is projected to achieve stabilized occupancy. For an Surplus Land income-producing property, stabilized occupancy is the Land that is not currently needed to support the existing occupancy level that a property is expected to achieve use but cannot be separated from the property and sold after the property is exposed to the market for lease off for another use. Surplus land does not have an over a reasonable period of time and at comparable independent highest and best use and may or may not terms and conditions to other similar properties. contribute value to the improved parcel. (Dictionary) (Dictionary) Triple Net (Net Net Net) Lease Replacement Cost An alternative term for a type of net lease. In some The estimated cost to construct, at current prices as of a markets, a net net net lease is defined as a lease in specific date, a substitute for a building or other which the tenant assumes all expenses (fixed and improvements, using modern materials and current variable) of operating a property except that the standards, design, and layout. (Dictionary) landlord is responsible for structural maintenance, building reserves, and management; also called NNN Reproduction Cost lease, net net net lease, or fully net lease. (Dictionary) The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or (The market definition of a triple net lease varies; in replica of the building being appraised, using the same some cases tenants pay for items such as roof repairs, materials, construction standards, design, layout, and parking lot repairs, and other similar items.) quality of workmanship and embodying all of the deficiencies, superadequacies, and obsolescence of the Usable Area subject building. (Dictionary) The measured area of an office area, store area, or building common area on a floor. The total of all the Retrospective Value Opinion usable areas for a floor shall equal floor usable area of A value opinion effective as of a specified historical date. that same floor. (BOMA) The term retrospective does not define a type of value. Instead, it identifies a value opinion as being effective at Value-in-Use some specific prior date. Value as of a historical date is The value of a property assuming a specific use, which frequently sought in connection with property tax may or may not be the property’s highest and best use appeals, damage models, lease renegotiation, deficiency on the effective date of the appraisal. Value in use may judgments, estate tax, and condemnation. Inclusion of or may not be equal to market value but is different conceptually. (Dictionary)

Qualifications

Qualifications of Yvonne J. Broszus, MAI Director Valbridge Property Advisors | Northern California

Independent Valuations for a Variable World State Certifications Membership/Affiliations Member: Appraisal Institute MAI Designation Certified General Chairman: AI Fall Conference Committee (2006) State of California AI Spring Litigation Conference (2017)

Committee Member: AI Spring Litigation Conference (2014-current) Education AI Silicon Valley Subchapter (2006-07) AI Fall Conference (2004, 2005)

Bachelor of Science, Award: AI Claudia B. Carleton Leadership Award Marketing Santa Clara University Appraisal Institute & Related Courses Continuing education courses taken through the Appraisal Institute and other real estate organizations. Contact Details Experience 408-279-1520 ext. 7135 (p) Director 408-279-3428 (f) Valbridge Property Advisors | Northern California (2013-Present) [email protected] (e) Vice President Valbridge Property Advisors | Hulberg & Associates, Inc. (1988-2013) Northern California (joined to create Valbridge in 2013)

55 South Market, Suite 1210 Appraisal/valuation and consulting assignments include: retail San Jose, CA 95113 buildings (community, specialty, neighborhood and strip), office buildings (professional and medical/dental), vacant and agricultural www.valbridge.com land, warehouses, manufacturing, light industrial, research and development, apartments, single-family, condominiums, subdivisions, mobile home parks, auto dealerships, service stations, worship facilities, truck stops, food processing and cold storage facilities, fixed base operators at airports, and other special purpose properties.

Ms. Broszus has provided valuation services in a wide variety of complex civil litigation cases involving real estate. These matters have included condemnation issues, contract disputes, bankruptcy/creditors matters, and environmental lawsuits, among other issues. She also specializes in property tax appeals, having helped clients recover millions of dollars in property tax refunds.

Qualified as an expert witness, Ms. Broszus has testified in state and federal courts, major arbitrations, and at Assessment Appeal Board hearings. She is a highly experienced forensic appraiser.

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