APPRAISAL OF REAL PROPERTY
Brookings Harbor Shopping Center 97900 Shopping Center Avenue Harbor, Curry County, OR 97415
IN AN APPRAISAL REPORT As of March 19, 2015
Prepared For: Crystal Financial LLC Two International Place, 17th Floor Boston, MA 02110
Prepared By: Cushman & Wakefield of Oregon, Inc. Valuation & Advisory 200 S.W. Market Street, Suite 200 Portland, OR 97201 C&W File ID: 15-34001-900123-004
CUSHMAN & WAKEFIELD OF OREGON, INC. 200 S.W. MARKET STREET, SUITE 200 PORTLAND, OR 97201
Brookings Harbor Shopping Center 97900 Shopping Center Avenue Harbor, Curry County, OR 97415
200 S.W. MARKET STREET, SUITE 200 PORTLAND, OR 97201
March 25, 2015
Mr. Evren Ozargun Managing Director Crystal Financial LLC Two International Place, 17th Floor Boston, MA 02110
Re: Appraisal of Real Property In an Appraisal Report
Brookings Harbor Shopping Center 97900 Shopping Center Avenue Harbor, Curry County, OR 97415 Latitude: 42.049888 Longitude: -124.260634
C&W File ID: 15-34001-900123-004
Dear Mr. Ozargun:
In fulfillment of our agreement as outlined in the Letter of Engagement, we are pleased to transmit our appraisal of the above property in an Appraisal Report dated March 25, 2015. The effective date of value is March 19, 2015.
This is an Appraisal Report, which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of the Uniform Standards of Professional Appraisal Practice. As such, it presents limited discussions of the data, reasoning, or analyses used in the appraisal process to develop the appraisers' opinion of value. Additional supporting documentation concerning the data, reasoning, and analyses is retained in our files. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated below.
This Appraisal Report has been prepared in accordance with our interpretation of your institution’s guidelines, Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), and the Uniform Standards of Professional Appraisal Practice (USPAP).
The subject property consists of a neighborhood shopping center that contains 106,867 square feet of rentable area. The improvements were completed in 1965 and are in average condition. The property is currently 52.56 percent occupied by 18 tenants.
MR. EVREN OZARGUN CUSHMAN & WAKEFIELD OF OREGON, INC. CRYSTAL FINANCIAL LLC MARCH 25, 2015 PAGE 2
Based on the agreed-to Scope of Work, and as outlined in the report, we developed the following opinions of Market Value:
Value Conclusions Value Appraisal Premise Real Property Interest Date Of Value Conclusion Market Value As-Is Leased Fee 3/19/2015 $3,250,000 Prospective Market Value Upon Stabilization Leased Fee 3/19/2017 $4,000,000 Compiled by Cushman & Wakefield of Oregon, Inc. The value opinions in this report are qualified by certain assumptions, limiting conditions, certifications, and definitions, as well as the following extraordinary assumptions and hypothetical conditions, if any.
EXTRAORDINARY ASSUMPTIONS For a definition of Extraordinary Assumptions please see the Glossary of Terms & Definitions. The use of extraordinary assumptions, if any, might have affected the assignment results.
This appraisal does not employ any extraordinary assumptions. HYPOTHETICAL CONDITIONS For a definition of Hypothetical Conditions please see the Glossary of Terms & Definitions. The use of hypothetical conditions, if any, might have affected the assignment results.
This appraisal does not employ any hypothetical conditions.
This letter is invalid as an opinion of value if detached from the report, which contains the text, exhibits, and Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF OREGON, INC.
Christopher P. Sherland Steven A. Zenker, MAI Associate Director Executive Director OR Certified General Appraiser OR Certified General Appraiser License No. C001119 (Expires 8/31/2016) License No. C000202 (Expires 1/31/2016) [email protected] [email protected] (503) 279-1797 Office Direct (503) 279-1736 Office Direct (503) 279-1791 Fax (503) 279-1791 Fax
BROOKINGS HARBOR SHOPPING CENTER CLIENT SATISFACTION SURVEY III
CLIENT SATISFACTION SURVEY As part of our quality monitoring campaign, attached is a short survey pertaining to this appraisal report and the service that you received. Would you please take a few minutes to complete the survey to help us identify the things you liked and did not like?
Each of your responses will be catalogued and reviewed by members of our national Quality Control Committee, and appropriate actions will be taken where necessary. Your feedback is critical to our effort to continuously improve our service to you, and is sincerely appreciated.
To access the questionnaire, please click on the link here: http://www.surveymonkey.com/s.aspx?sm=_2bZUxc1p1j1DWj6n_2fswh1KQ_3d_3d&c=15-34001-900123-004
The survey is hosted by Surveymonkey.com, an experienced survey software provider. Alternatively, simply print out the survey attached in the Addenda of this report and fax it to (716) 852-0890.
BROOKINGS HARBOR SHOPPING CENTER SUMMARY OF SALIENT FACTS AND CONCLUSIONS IV
Summary of Salient Facts and Conclusions
Client: Crystal Financial LLC
Intended Use: This appraisal is intended to provide an opinion of the Market Value of the Leased Fee interest in the property in connection with a proposed first mortgage loan to be made by the Client. This report is not intended for any other use.
Intended User: This Appraisal Report was prepared for the exclusive use of Crystal Financial LLC and participating lenders/bank group. Use of this report by others is not intended by the appraiser.
Identification of Real Brookings Harbor Shopping Center Estate: 97900 Shopping Center Avenue Harbor, Curry County, Oregon 97415 Current Use: The subject property consists of a neighborhood shopping center with net rentable area of 106,867 square feet.
Structural Vacancy: Taking into account the subject’s configuration, existing occupancy level, and the nature of its trade area, we have analyzed the center as having a certain level of “permanent” vacancy. In all, we see the subject’s long-term occupancy within a reasonable range of 80.0 to 85.0± percent. It is noted that prior to the vacancy of the property’s supermarket anchor, total occupancy was in range of 83.5± percent. Accordingly, our vacancy, credit loss, and structural vacancy assumptions should amount to a level of 15.0 to 20.0± percent of total GLA. With this in mind, we have withheld 15,994 square feet of inline and office space, comprising 14.96 percent of total GLA, as reflecting permanent or structural vacancy. Structural vacancy is in addition to our forecasted vacancy and credit loss provision, to be discussed later in this report.
Highest & Best Use A shopping center built to its maximum feasible building area, time and circumstances (As if Vacant): warranting, with an interim use to hold for future development.
Highest & Best Use A shopping center as it is currently improved. (As Improved):
Type of Value Market Value (defined later in this report).
Real Property Interest Leased Fee Valued:
Current Ownership: C&K Market, Inc.
Sale History: To the best of our knowledge, the property has not transferred within the past three years.
Current Disposition: To the best of our knowledge, the property is not under contract of sale nor is it being marketed for sale.
BROOKINGS HARBOR SHOPPING CENTER SUMMARY OF SALIENT FACTS AND CONCLUSIONS V
Personal Property: Personal property was excluded from our valuation.
Date of Inspection: March 19, 2015
Effective Dates of Valuation:
As Is: March 19, 2015
Upon Stabilization: March 19, 2017
Date of Report: March 25, 2015
Extraordinary This appraisal does not employ any extraordinary assumptions. Assumptions:
Hypothetical Conditions: This appraisal does not employ any hypothetical conditions.
BROOKINGS HARBOR SHOPPING CENTER SUMMARY OF SALIENT FACTS AND CONCLUSIONS VI
Market Value Prospective Market Value VALUATION INDICES As-Is Upon Stabilization VALUE DATE 3/19/2015 3/19/2017 SALES COMPARISON APPROACH Indicated Value: $3,500,000 $4,250,000 Per Square Foot (GLA): $32.75 $39.77 INCOME CAPITALIZATION APPROACH Yield Capitalization Projection Period: 13 Years 11 Years Holding Period: 12 Years 10 Years Terminal Capitalization Rate: 10.00% 10.00% Internal Rate of Return: 11.00% 10.50% Indicated Value: $3,150,000 $3,900,000 Per Square Foot (GLA): $29.48 $36.49 Direct Capitalization Net Operating Income: $123,641 $404,261 Capitalization Rate: See stabilized conclusion 9.50% Preliminary Value: See stabilized conclusion $4,255,379 Value (Rounded): See stabilized conclusion $4,250,000 LESS As-Is Adjustment ($750,000) N/A Indicated Value: $3,500,000 $4,250,000 Per Square Foot (GLA): $32.75 $39.77 Income Capitalization Approach Indicated Value: $3,250,000 $4,000,000 Per Square Foot (GLA): $30.41 $37.43 FINAL VALUE CONCLUSION Real Property Interest: Leased Fee Leased Fee Concluded Value: $3,250,000 $4,000,000 Per Square Foot (GLA): $30.41 $37.43 Implied Capitalization Rate: N/A 10.11% EXPOSURE AND MARKETING TIME Exposure Time: 12 Months Marketing Time: 12 Months
BROOKINGS HARBOR SHOPPING CENTER PROPERTY PHOTOGRAPHS VII
Property Photographs AERIAL PHOTOGRAPH
BROOKINGS HARBOR SHOPPING CENTER PROPERTY PHOTOGRAPHS VIII
Eastern elevation of vacant anchor
Northern elevation of inline shops
BROOKINGS HARBOR SHOPPING CENTER PROPERTY PHOTOGRAPHS IX
Eastern elevation of inline shops Interior view of vacant anchor
Eastern elevation of Suites 5 and 6 Interior view of Suite 7
Eastern elevation of Suites 10 - 13 View south toward Suites 17 - 22
BROOKINGS HARBOR SHOPPING CENTER PROPERTY PHOTOGRAPHS X
Northern elevation of Suites 27 and 29 View south toward Suites 31 - 39
Northern elevation of Suite 1 and 2 Wide view along western elevation
Wide view along western elevation Wide view along southern elevation
BROOKINGS HARBOR SHOPPING CENTER PROPERTY PHOTOGRAPHS XI
Eastern elevation of Suite 36 View east across site near vacant anchor
Interior view of Suite #15B Interior view of Suite 24/25
Street scene on Zimmerman Road Street scene on Shopping Center Avenue
BROOKINGS HARBOR SHOPPING CENTER TABLE OF CONTENTS XII
TABLE OF CONTENTS
SUMMARY OF SALIENT FACTS AND CONCLUSIONS ------IV PROPERTY PHOTOGRAPHS ------VII SCOPE OF WORK ------1 OVERVIEW ------1 REPORT OPTION DESCRIPTION ------1 VALUATION PROCESS ------2 REGIONAL ANALYSIS ------3 INTRODUCTION------4 DEMOGRAPHIC TRENDS ------4 ECONOMIC TRENDS ------6 CONCLUSION------10 LOCAL AREA ANALYSIS ------11 LOCATION OVERVIEW ------12 NEIGHBORHOOD ANALYSIS ------12 ACCESS ------13 CONCLUSION------14 RETAIL MARKET ANALYSIS ------15 LOCAL RETAIL MARKET OVERVIEW ------15 CONCLUSION------17 PROPERTY ANALYSIS ------18 SITE DESCRIPTION------18 IMPROVEMENTS DESCRIPTION ------20 REAL PROPERTY TAXES AND ASSESSMENTS ------22 ZONING ------24 VALUATION ------25 HIGHEST AND BEST USE ------25 SALES COMPARISON APPROACH ------26 MARKET VALUE- “AS-IS” ANALYSIS ------30 INCOME CAPITALIZATION APPROACH ------37 C & K MARKET PROFILE ------37 RECONCILIATION AND FINAL VALUE OPINION ------65 ASSUMPTIONS AND LIMITING CONDITIONS ------67 CERTIFICATION OF APPRAISAL ------70 ADDENDA CONTENTS ------71
BROOKINGS HARBOR SHOPPING CENTER SCOPE OF WORK 1
Scope of Work OVERVIEW This report is intended to comply with the reporting requirements outlined under the USPAP for an Appraisal Report. The report was also prepared to comply with the requirements of the Code of Professional Ethics of the Appraisal Institute and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Title XI Regulations.
Cushman & Wakefield of Oregon, Inc. has an internal Quality Control Oversight Program. This Program mandates a “second read” of all appraisals. Assignments prepared and signed solely by designated members (MAIs) are read by another MAI who is not participating in the assignment. Assignments prepared, in whole or in part, by non-designated appraisers require MAI participation, Quality Control Oversight, and signature.
For this assignment, Quality Control Oversight was provided by Steven A. Zenker, MAI. In addition to a qualitative assessment of the Appraisal Report, Mr. Zenker is a signatory to the Appraisal Report and concurs in the value estimate(s) set forth herein.
Completing the assignment required collecting primary and secondary data relevant to the subject property. Improved sales were researched in the subject’s market, rental data was analyzed, and the input of buyers, sellers, brokers, property developers and public officials was considered. To supplement the sales and survey data, we also conducted interviews with market participants.
A physical inspection of the property was made. In addition, the general regional economy as well as the specifics of the subject’s local area was investigated. The data have been analyzed and confirmed with sources believed to be reliable, leading to the value conclusions in this report.
REPORT OPTION DESCRIPTION USPAP identifies two written report options: Appraisal Report and Restricted Appraisal Report. This document is prepared as an Appraisal Report in accordance with USPAP guidelines. The terms “describe,” summarize,” and “state” connote different levels of detail, with “describe” as the most comprehensive approach and “state” as the least detailed. As such, the following provides specific descriptions about the level of detail and explanation included within the report:
Summarizes the real estate and/or personal property that is the subject of the appraisal, including physical, economic, and other characteristics that are relevant States the type and definition of value and its source Summarizes the Scope of Work used to develop the appraisal Summarizes the information analyzed, the appraisal methods used, and the reasoning supporting the analyses and opinions; explains the exclusion of any valuation approaches States the use of the property as of the valuation date Summarizes the rationale for the Highest and Best Use opinion (if included)
BROOKINGS HARBOR SHOPPING CENTER SCOPE OF WORK 2
VALUATION PROCESS There are three generally accepted approaches to developing an opinion of value: Cost, Sales Comparison and Income Capitalization. We considered each in this appraisal to develop an opinion of the market value of the subject property. In appraisal practice, an approach to value is included or eliminated based on its applicability to the property type being valued and the quality of information available. The reliability of each approach depends on the availability and comparability of market data as well as the motivation and thinking of purchasers.
This appraisal employs the Sales Comparison Approach and the Income Capitalization Approach. Based on our analysis and knowledge of the subject property type and relevant investor profiles, it is our opinion that these approaches would be considered applicable and/or necessary for market participants. Typical purchasers do not generally rely on the Cost Approach when purchasing a property such as the subject of this report. Therefore, we have not utilized the Cost Approach to develop an opinion of market value.
BROOKINGS HARBOR SHOPPING CENTER REGIONAL ANALYSIS 3
Regional Analysis REGIONAL MAP
BROOKINGS HARBOR SHOPPING CENTER REGIONAL ANALYSIS 4
INTRODUCTION MARKET DEFINITION Located along the Pacific Coast in the southwest corner of Oregon, Curry County is a predominantly rural county and contains large portions of Siskiyou National Forest. The total population of the county in 2013 was estimated at 22,330, of which 6,353 reside in the city of Brookings, the largest city in the county according to the U.S. Census Bureau. Although the county lacks access to major interstate highways, it is accessible on U.S. Highway 101, a route popular among tourists and outdoor enthusiasts. CURRENT TRENDS The economy of Curry County is driven by forest products, commercial fishing, agriculture, and tourism. With few major sources of growth, a scarcity of skilled workers, and poor accessibility to major markets the region is highly vulnerable to cyclical fluctuations in trade and tourism, the largest private industries in the county. Indications such as negative gross metro product and a decline of the local workforce around 2006 suggest that Curry County entered into a period of contraction earlier than the past national recession. The prolonged local slump appeared to be abating gradually as unemployment levels exhibit downward momentum, but the recovery remains tenuous.
Additional considerations are as follows:
The Port of Brookings Harbor is the busiest recreational Port on the Oregon Coast and is visited by approximately 5,000 commercial fishing vessels annually. The Port is considered one of the most active Chinook salmon harbors along Oregon’s coast, and is a major hub for snapper, albacore tuna, and Dungeness crab as well.
DEMOGRAPHIC TRENDS DEMOGRAPHIC CHARACTERISTICS The demographic characteristics of Curry County are weaker than Oregon and the U.S. by most indicators and will limit growth in the region over the long-term. Residents in the county are generally older than their statewide and national peers, and are less likely to obtain a college degree. Households in Curry County exhibit below average income trends as well, limiting consumer spending and increasing local retailer’s reliance on tourism revenue.
Additional considerations are as follows:
With a median age of 39.0 years, residents in Curry County are significantly older than the national median age of 37.0 years. Only 27.5 percent of residents in Curry County hold a bachelor’s or advanced college degree, compared 28.1 percent of adults across the U.S. both leaving more than 70.0 percent of the population below that educational attainment level. At least 59.8 percent of households in Curry County earn less than $50,000 annually, compared to 50.7 percent of households nationally.
BROOKINGS HARBOR SHOPPING CENTER REGIONAL ANALYSIS 5
Demographic characteristics of Curry County are summarized in the following chart:
Demographic Characteristics Curry County, OR vs. United States 2013 Estimates Curry Unite d Characteristic County States Median Age (years) 39.0 37.0 Average Annual Household Income $54,332 $69,636 Median Annual Household Income $39,379 $49,231 Households by Annual Income Level: <$25,000 32.3% 25.4% $25,000 to $49,999 27.5% 25.3% $50,000 to $74,999 18.0% 18.1% $75,000 to $99,999 10.1% 11.7% $100,000 plus 12.1% 19.5% Education Breakdown: < High School 9.8% 14.6% High School Graduate 24.7% 28.4% College < Bachelor Degree 37.9% 28.9% Bachelor Degree 16.6% 17.7% Advanced Degree 10.9% 10.4% Source: Claritas, Inc., Cushman & Wakefield Valuation & Advisory POPULATION Population growth in Curry County was generally above average between 2002 and 2005, but fell behind Oregon and the U.S. over the following six years. As a rural county with limited industrial diversity and few drivers of growth, Curry County is likely to experience weak population growth going forward as educated residents migrate from the region in search of better opportunities. Population growth in Curry County is expected to remain less than half the national and statewide rate over the next five years.
Additional considerations are as follows:
Population growth in Curry County averaged 0.2 percent between 2003 and 2013, 70 basis points less than national growth of 0.9 percent over the same period of time. Curry County is projected to average annual population growth of 0.4 percent between 2014 and 2018, compared to 0.9 percent across the U.S.
BROOKINGS HARBOR SHOPPING CENTER REGIONAL ANALYSIS 6
Population growth trends in Curry County are summarized in the following graph:
POPULATION GROWTH BY YEAR Curry County vs. United States, 2003-2018 3.3% United States Curry County Forecast 2.8% 2.3% 1.8% 1.3% 0.8% 0.3% -0.2% Annual Percent Change Percent Annual -0.7% -1.2% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: Data Courtesy of Moody's Analytics and Cushman & Wakefield Valuation & Advisory Note: Shaded bars indicate periods of recession
ECONOMIC TRENDS GROSS METRO PRODUCT Curry County exhibited unique Gross Metro Product (GMP) growth trends over the past ten years. Growth in the county generally diverged from statewide trends, and was more severely impacted by recessionary effects in 2008 and 2009. Moody’s Economy.com estimates that GMP growth in Curry County exceeded annual growth in Oregon and the U.S. in 2010 and 2011, but these assumptions are cautious given the relative absence of diversified industrial activity in the region. Curry County should underperform statewide growth levels over the long-term due to weak demographic trends and low industrial diversity.
Additional considerations are as follows:
Gross Metro Product (GMP) growth in Curry County averaged negative 0.6 percent annually between 2003 and 2013, 230 basis points below growth of 1.7 percent nationally over the same period of time. Growth in Curry County is forecast to average 3.2 percent annually between 2014 and 2018, compared to annual growth in the U.S. of 2.8 percent annually.
BROOKINGS HARBOR SHOPPING CENTER REGIONAL ANALYSIS 7
Gross Metro Product growth trends in Curry County are summarized in the following graph:
REAL GROSS PRODUCT GROWTH BY YEAR Curry County vs. United States, 2003-2018
8.0%
5.0%
2.0%
-1.0%
-4.0%
-7.0%
Annual Percent Change -10.0% United States Curry County Forecast -13.0% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: Data Courtesy of Moody's Analytics and Cushman & Wakefield Valuation & Advisory Note: Shaded bars indicate periods of recession
EMPLOYMENT DISTRIBUTION The three largest employment sectors in Curry County as defined by the U.S. Census Bureau are Trade, Transportation, & Utilities, Leisure & Hospitality, and the Government. Occupations in these industries are generally characterized by low hourly wages, which will deter growth in the county over the long-term.
Additional considerations are as follows:
The largest employment sector in Curry County is Trade, Transportation, & Utilities, which comprises 21.9 percent of the regional workforce. Employment in Trade-related industries is heavily concentrated in Retail Trade, which comprises 83.6 percent of all Trade employment in the county. The second largest industry in the county is the Government at 18.4 percent of the local workforce. The nationwide public sector accounts for 15.8 percent of national employment. Employment in Professional & Business Services increased at the greatest annual rate over the past decade, at 3.2 percent between 2003 and 2013. The Natural Resources & Mining industry declined at the greatest annual rate over the same period time, at negative 5.6 percent annually.
BROOKINGS HARBOR SHOPPING CENTER REGIONAL ANALYSIS 8
Employment concentration by sector in Curry County is summarized in the following graph:
EMPLOYMENT BY SECTOR Curry County vs. United States 2014 Estimates
Construction Manufacturing Trade, Transportation & Utilities Information United States Financial Activities Professional & Business Services Curry County Education & Health Services Leisure & Hospitality Other Services (except Govt.) Government 0% 4% 8% 12% 16% 20% 24%
Source: Data Courtesy of Moody's Analytics and Cushman & Wakefield Valuation & Advisory
EMPLOYMENT GROWTH Employment growth in Curry County exhibited greater fluctuations than Oregon and the U.S. over the past decade. Curry County recorded several years of above average growth between 2003 and 2005, but decreased sharply to negative growth between 2007 and 2011. The sudden employment growth decline in 2006 suggests that the past recession was part of a prolonged economic slump in Curry County, weakening already strained conditions. Accordingly, long-term employment prospects in the county are likely to remain subdued despite optimistic forecasts from Moody’s Economy.com.
Additional considerations are as follows:
In Curry County, after reaching its seasonal peak in August and September, total employment trends downward before reaching its usual low point in January and February. Curry County decreased by 3.6 percent in December 2013 and by comparison the sate decreased by 1.9 percent over the same time period. Curry County averaged annual employment growth of negative 0.3 percent between 2003 and 2013, 80 basis points less than employment growth of 0.5 percent nationally over the same period of time. Annual employment is projected to average 2.4 percent in Curry County between 2014 and 2018, compared to expected employment growth of 1.5 percent nationally.
BROOKINGS HARBOR SHOPPING CENTER REGIONAL ANALYSIS 9
Employment growth in Curry County is summarized in the following graph:
TOTAL EMPLOYMENT GROWTH BY YEAR Curry County vs. United States, 2003-2018 6.0% United States Curry County Forecast
3.0%
0.0%
-3.0%
-6.0% Annual Percent Change Percent Annual
-9.0% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: Data Courtesy of Moody's Analytics and Cushman & Wakefield Valuation & Advisory Note: Shaded bars indicate periods of recession
UNEMPLOYMENT Despite following statewide trends between 2003 and 2013, unemployment levels in Curry County generally exceeded statewide and national levels over the past decade. Curry County was more severely affected by the past recession than the rest of Oregon, and regional unemployment only recently fell below double-digits. With low industrial diversity and few major growth drivers, regional unemployment will likely exceed the statewide rate over the long-term, especially as Oregon’s economy rebounds from a prolonged slump.
Additional considerations are as follows:
Unemployment in Curry County reached a peak of 13.6 percent in May 2009. Currently reported at 8.7 percent Curry County’s unemployment is well above that of the state and the nation. Annual unemployment in Curry County averaged 9.5 percent between 2003 and 2013, 160 basis points above average annual unemployment in Oregon of 7.9 percent and 270 basis points higher than average unemployment of 6.8 percent nationally. Curry County is projected to average unemployment of 8.9 percent between 2014 and 2018, compared to average unemployment of 6.5 percent statewide and 5.8 percent across the nation.
BROOKINGS HARBOR SHOPPING CENTER REGIONAL ANALYSIS 10
Unemployment trends in Curry County are summarized in the following graph:
UNEMPLOYMENT RATE BY YEAR Curry County vs. Oregon vs. United States, 2003-2018
15% United States Oregon Curry County Forecast 13%
11%
9%
7%
5%
3% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: Data Courtesy of Moody's Analytics and Cushman & Wakefield Valuation & Advisory Note: Shaded bars indicate periods of recession
CONCLUSION Area Overview Curry County’s long-term outlook will be limited by weak demographic trends, low industrial diversity, and inaccessibility to major markets. Although the county appears to be recovering from a prolonged economic slump, growth over the next five years will likely remain subdued. The Port of Brookings Harbor will provide some relief as a popular destination for recreational and commercial fishing, but will be unlikely to propel the region out of its current downturn alone. The overall outlook of Curry County is therefore cautious, as the region will remain behind statewide growth trends over the long-term but should maintain moderate levels of growth as a fishing and tourist destination.
Relative to the Subject As noted in the Executive Summary of this report, the subject consists of a commercial site that has been improved with a neighborhood shopping center. We believe that the current economic climate impacting Curry County has a moderate-to-negative influence on the subject property because of its commercial orientation. As long as the current recessionary trends continue, the sphere of potential buyers for the subject will likely be diminished, thus impacting its value.
BROOKINGS HARBOR SHOPPING CENTER LOCAL AREA ANALYSIS 11
Local Area Analysis LOCAL AREA MAP
BROOKINGS HARBOR SHOPPING CENTER LOCAL AREA ANALYSIS 12
LOCATION OVERVIEW The subject is located in the southern aspect of Curry County, approximately 0.5± miles east of Brookings’ city limits. However, the property is located within Brookings’ Urban Growth Boundary (UGB). Situated 5.0± miles north of the California border, Brookings is currently home to an estimated 6,290 residents. The property is one block south of Highway 101, the primary commercial corridor throughout Brookings. The subject’s immediate neighborhood is a transitional area with a variety of commercial/retail, light industrial, and residential uses. Beyond the immediate vicinity, the property is located 0.3± miles east of Brookings Harbor.
The primary influence of the local area is neighborhood-oriented commercial/retail development along Highway 101. As noted, the neighborhood is characterized as transitional in nature with a mix of residential, commercial/ retail, and light industrial uses bordered by the Pacific Ocean to the south, and Chetco River to the west. Downtown Brookings is located on the west side of the Chetco River, 0.5± miles west of the subject. Given its secondary location to the east of Brookings, the local area contains a moderate amount of vacant land available for development.
Nearly all of the existing commercial and retail development within Brookings (including the subject) is located proximate to Highway 101. These properties are characterized as primarily convenience- and neighborhood- oriented. Prominent retail uses along Highway 101 include Fred Meyer, Brookings Harbor Center (the subject property), and South Coast Plaza (0.3 miles southeast of the subject). New development in the local area is very limited due to the lingering impact of the recession and long-term economic weakness.
The local area experienced its first significant wave of growth beginning in the 1970s. Development slowed in the 1980s, and 48.4 percent of the homes within a one mile radius of the subject were constructed after 1990. Local development plunged during the recession and has remained weak over the last several years. During the most recent decade, 23.9 percent of the homes in the local area were constructed, compared with 16.3 percent in Curry County, and 14.4 percent in Oregon.
NEIGHBORHOOD ANALYSIS Location: The subject is located in a transitional neighborhood approximately 0.5± miles east of Brookings' central downtown core. The property is 4.5± miles north of the California border in the extreme southwestern corner of Oregon.
Character: The immediate local area contains a mix of neighborhood shopping centers and low-rise commercial buildings fronting Highway 101, with light industrial development and single-family residences in peripheral locations. Prominent land uses within the immediate vicinity include Brookings Harbor Center and South Coast Plaza. The primary influence of the local area is neighborhood-oriented commercial/retail development along Highway 101. The area has limited regional draw from California residents avoiding sales taxes.
BROOKINGS HARBOR SHOPPING CENTER LOCAL AREA ANALYSIS 13
NEARBY AND ADJACENT USES The defined area primarily has a mixture of residential uses and commercial (office and retail) are secondary.
North: across Shopping Center Avenue are industrial uses, a commercial warehouse building, and single- family homes, followed by Highway 101.
South: the property is adjacent to a trailer park, followed by single-family homes.
East: across Shopping Center Avenue are industrial uses, a commercial warehouse building, and single- family homes, followed by Highway 101.
West: adjacent to the property are an apartment building, trailer park, and single-family homes. SPECIAL HAZARDS OR ADVERSE INFLUENCES We observed no detrimental influences in the local market area, such as landfills, flood areas, noisy or air polluting industrial plants, or chemical factories. LAND USE CHANGES We are aware of no other known planned improvements in the local and immediate area that would cause any change in land uses.
ACCESS Local area accessibility is fair-to-average, relying on the following transportation arteries:
Local: The subject has average local access, with regional accessibility enhanced by highway linkages along the coast. The main north-south arterials are U.S. Highway 101, Shopping Center Avenue, Harbor Road, and Oceanview Drive. The main east/west arterials are Benham Lane and Hoffeldt Lane. Limited bus service along Highway 101 is provided by Curry Public Transit.
Regional: The subject property is just south of Highway 101, the primary north-south freeway along the Oregon Coast. Crossing three states, the over 1,500 mile long route connects Olympia, Washington to Los Angeles, California. Highway 101 was superseded in overall importance for transport along the West Coast by Interstate 5, which is more modern in its physical design and has more direct placement due to significantly easier geography over much of the route. Travelling north along Highway 101, the nearest community with limited regional passenger air transit is Coos Bay/North Bend, 108± miles from the defined area. Crescent City, the seat of Del Norte County, California, is located 25± miles to the south of the property on Highway 101. Medford, Oregon, the nearest regional hub, is situated 125± miles northeast of the subject property.
BROOKINGS HARBOR SHOPPING CENTER LOCAL AREA ANALYSIS 14
CONCLUSION As discussed, the subject property is located in a transitional neighborhood approximately 0.5± miles east of downtown Brookings. Commercial development within the local area is primarily convenience- and neighborhood- oriented. Growth in the subject’s local area, both in terms of real estate development and population, has been lower than other areas of the region and state over the past decade. This trend is expected to continue over the next five years due to the continuing impact of the 2008-2009 recession on tourism and second-home ownership. High unemployment, low industrial diversity, and limited regional access present additional obstacles.
On balance, the long-term outlook for the subject local area is generally cautious, with the near-term being the most challenging. The area’s location is benefitted by fair-to-average local and regional accessibility. Strengths in the local economy include abundant natural resources and the relatively low cost of living. However, the high rate of unemployment, low educational attainment, and lack of industrial diversity will likely contribute to below average economic growth into the foreseeable future.
Overall, we are cautious about the subject’s local area in terms of near-term growth and relative stability. Over the long-term, we believe the prospect for stability and moderate growth should prevail following the current economic downturn.
BROOKINGS HARBOR SHOPPING CENTER RETAIL MARKET ANALYSIS 15
Retail Market Analysis LOCAL RETAIL MARKET OVERVIEW In order to examine the subject property in its proper context, an examination of the subject's most direct competition is necessary. Consideration is also given to the potential for new competition via proposed centers. The potential trade area for the subject is defined by the location and drawing power of surrounding regional retail centers. PRIMARY COMPETITION The subject is one of two primary shopping center destinations in the market area. The primary competitor is the Southcoast Shopping Center (81,000 square feet), which is located east of the subject along U.S. Highway 101. Smaller local retailers are located south and east of the subject, as well as to the north in the central aspect of Brookings, Oregon. OTHER COMPETITION As discussed, the subject is one of two primary shopping center destinations in the market area. The only other notable competition is seen in various retail storefronts and freestanding retail buildings north of the subject in downtown Brookings. Due to distance and/or transportation infrastructure between the subject and the balance of major centers in the region (such as Bandon, OR, etc.), the remaining projects are viewed as being secondary, in nature; or even tertiary. PROPOSED COMPETITION Our research for this assignment included investigation of potential near-term changes in the retail structure of the area. To the best of our knowledge, we are not aware of any proposed retail developments within the immediate area that would compete directly with the subject. COMPETITION SUMMARY Competition is based largely upon the goods and services available at different properties. The subject has an average location within the trade area due to its lack of U.S. Highway 101 frontage. The primary competitor, the Southcoast Shopping Center, is newer and benefits from its more visible U.S. Highway 101 location. Overall, the competitive position of the subject is considered to be average. MARKET VACANCY There is no service in the region that tracks either inventory or vacancy of the retail market. Obviously vacancy rates vary depending upon age/condition, location, accessibility, property configuration, quality and condition of space, anchor tenancy, and competition. Based on our observations, the greatest amount of vacancy is located in older developments with secondary locations away from primary retail nodes.
Based on our informal survey, along with discussions with market participants, vacancy rates range from approximately 5.0 to 15.00 percent for similar neighborhood and community retail projects the region. This observation is supported by the rent comparables presented in the Income Capitalization Approach, which reveal vacancy rates from approximately 1.0 to 15.0 percent.
Over the long-term, with a moderate amount of new construction expected, stable population and income trends; we believe that the subject’s market area should experience a stabilized vacancy rate between 10.0 and 15.00 percent. This is consistent with the age and condition of the subject, as well as various vacancy rates indicated by the market. It also considers the fact that many of the existing vacancies at the subject property have limited utility
BROOKINGS HARBOR SHOPPING CENTER RETAIL MARKET ANALYSIS 16
due to irregular sizes and configurations, which results in a higher overall vacancy rate due some natural/economic vacancy from less desirable tenant spaces. TYPICAL MARKET LEASE TERMS Rental Rates A survey of the market indicates that rental rates for anchor space ranges from $0.20 to $0.60 per square foot per month. Rents for in-line space range from $0.30 to as high as $1.00 per square foot per month with typical rates in the $0.50 to $0.75 per square foot range. The upper end of the range of rental rates is found in newer developments in high traffic/high exposure areas. The lower end of the range is exhibited by larger spaces at older centers with inferior access and/or physical attributes.
Typical Lease Terms Typical lease terms in region for local tenants vary anywhere from month-to-month rental arrangements to three to 10 year lease terms. Larger regional and national tenants command longer terms ranging from seven year to upwards of 15 years.
Expense Reimbursement Typically, retail leases are structured on a net basis, with tenants responsible for a full pro-rata share of taxes and operating expenses. Common area maintenance recoveries (including insurance) will typically have an administrative surcharge of 5.0 to 15.0 percent in addition to the pro-rata pass-through. Periodically, the management fee may be recovered in lieu of this structure.
Rent Escalations Rental increases in the form of a CPI increase or a fixed step-up are usually sought, but not always achieved. The strength of a particular property or location generally dictates the ability of a landlord to command rental increases.
The two most common structures in the subject market appear to be annual escalations or fixed steps. Annual increases are typically based upon CPI, or a lower stipulated rate, usually around 2.0 to 3.0 percent per year. Fixed steps appear to equal nearly 5.0 to 10.0 percent every five years over the course of the term.
Overage Rent In addition to the minimum base rent, many retail tenants contract to pay a percentage of their gross annual sales over a pre-established base amount as overage rent. Most leases in the market appear to have a natural breakpoint. The average overage percentage for small space retail tenants is in a range of 4.0 to 6.0 percent. Anchor tenants typically have the lowest percentage clauses, with ranges of 1.0 to 3.0 percent being most common.
Concessions Concessions will vary considerably by property and tenant type. The level of rent that tenants are willing to pay is often influenced by the magnitude of the build-out offered, as well as the amount, if any, of free rent granted.
Anchor tenants are generally in a better negotiating position to extract concessions in the form of free rent or improvement allowances. However, if an anchor is strongly motivated to be in a particular market, it is not unusual for an owner to be able to maintain a firm bargaining position, yielding little or no concessions.
We typically see tenant improvement allowances from second generation spaces ranging from $1.00 to $5.00 per square foot in this marketplace. Free rent concessions may range from one to three months, but are considered
BROOKINGS HARBOR SHOPPING CENTER RETAIL MARKET ANALYSIS 17
atypical of the subject’s market. When free rent has been given, the tenant has typically been responsible for build-out costs to finish the space.
Leasing Commissions Leasing commissions in the local market area typically vary. Brokers we interviewed indicated each transaction is different depending on tenant quality and the specific property in which it is placed. Generally commissions are about 2.0 to 6.0 percent of the aggregate rent for new tenants, generally paid out up front, with renewal tenant commissions being half the rate. Alternatively, many commission structures have been fixed at a rate per square foot of building area. Typically, we have seen commissions of $1.00 to $5.00 per square foot for new shop leases, and anywhere from $0.50 to $3.00 per square foot for new anchor tenants.
CONCLUSION We analyzed the retail trade history and profile of the subject's region and primary trade area in order to make reasonable assumptions regarding the continued performance of the property.
The following are our key conclusions.
The subject is an older, established, shopping center destination in the market area. It has average general accessibility via the regional highway and local arterials that provide linkages throughout the area. The supply of competitive neighborhood and community centers in the region is somewhat limited, which is consistent with the smaller size of the market. The nearest major competitor is the Southcoast Shopping Center, which is located less than one mile southeast of the subject along U.S. Highway 101. The subject serves a primary market encompassing a radius of five miles. Over the next five years, the population, number of households, and average household income in the subject’s trade area are projected to remain relatively stable. Based on our analysis we conclude that the subject is adequately positioned within its market area and the prospect for net appreciation in real estate values is expected to be limited due to weak population and income growth.
BROOKINGS HARBOR SHOPPING CENTER SITE DESCRIPTION 18
Property Analysis SITE DESCRIPTION
Shape: Irregularly shaped
Topography: Level at and below street grade
Primary Land Area: 6.67 acres / 290,545 square feet
Frontage/Access/Visibility: The subject property has good frontage along Shopping Center Avenue. Local access is considered average, with fair regional access due to the area’s tertiary location. The property’s visibility is considered average. The site is below the grade of Highway 101.
Site Improvements: The site improvements include asphalt paved parking areas, curbing, signage, landscaping, yard lighting and drainage.
Land Use Restrictions: We were not given a title report to review. We do not know of any easements, encroachments, or restrictions that would adversely affect the site's use. However, we recommend a title search to determine whether any adverse conditions exist.
Flood Zone Description: The subject property is located in flood zone X (Areas determined to be outside the 500 year flood plain) as indicated by FEMA Map 410052 1242E, dated September 25, 2009. A map of the property relative to the flood zone boundaries is shown below.
Overall Site Utility: The subject site is functional for its current use.
Location Rating: Average
FLOOD MAP
BROOKINGS HARBOR SHOPPING CENTER SITE DESCRIPTION 19
PLAT MAP
BROOKINGS HARBOR SHOPPING CENTER IMPROVEMENTS DESCRIPTION 20
IMPROVEMENTS DESCRIPTION
GENERAL DESCRIPTION Year Built: 1965
Year Renovated: N/A
Number of Buildings: One
Number of Stories: 1 and 2
Land To Building Ratio: 2.62 to 1
Gross Building Area: 110,867 square feet
Net Rentable Area: 106,867 square feet (excludes owner’s maintenance/storage area)
Layout: The improvements are situated along the south and western boundaries of the site, and are configured in an L-shaped alignment with storefronts facing to the north and east. Loading is available at the rear of the improvements. A portion of the improvements front directly along Shopping Center Avenue. These latter suites are leased to office tenants. A portion of these latter suites was once used as a theater.
SUMMARY Condition: Average
Quality: Average
Actual Age: 50 years
Effective Age: 25 years
Expected Economic Life: 45 years
Remaining Economic Life: 20 years
PHYSICAL DETERIORATION Cost to Cure: Curable physical deterioration refers to those items that are economically feasible to cure as of the effective date of the appraisal. One category of physical deterioration is deferred maintenance and is measured as the cost repairing or restoring the item to new or reasonably new condition. We have not been provided with a capital expenditure plan or an engineering report that would identify specific costs required to repair deficiencies at the subject property. During our inspection, we did not notice any apparent physical deterioration that would require immediate repair. However, several of the tenants interviewed for this assignment indicated that the roof above their suites leak from time to time. No evidence of current moisture intrusion was observed.
BROOKINGS HARBOR SHOPPING CENTER IMPROVEMENTS DESCRIPTION 21
FUNCTIONAL OBSOLESCENCE Description: There is no apparent functional obsolescence present at the subject property.
SITE PLAN
BROOKINGS HARBOR SHOPPING CENTER REAL PROPERTY TAXES AND ASSESSMENTS 22
REAL PROPERTY TAXES AND ASSESSMENTS CURRENT PROPERTY TAXES The subject property is located in the taxing jurisdiction of Curry County, and the assessor’s parcel identification numbers are R17277, R17704, and R17765. According to the local tax collector’s office, taxes are current.
The assessment and taxes for the property are presented below:
PROPERTY ASSESSMENT INFORMATION Assessor's Parcel Numbers: R17277, R17704, and R17765 Assessing Authority: Curry County Current Tax Year: 2014/2015 Are taxes current? Taxes are current Is there a grievance underw ay? Not to our know ledge The subject's assessment and taxes are: Above market levels
ASSESSMENT INFORMATION Assessed Value Totals Land: $909,050 Improvements: 5,140,990 Total Market Assessment: $6,050,040 Taxable Assessment: $5,478,480 TAX LIABILITY Total Tax Rate 0.66805% Total Property Taxes $36,599 Building Area ( SF ) 106,867 Property Taxes per Square Foot $0.34 Compiled by Cushman & Wakefield of Oregon, Inc. According to the Curry County Assessor’s Office, the subject site has an area of 290,545 square feet and an indicated market assessed value of $909,050, or $3.12 per square foot. On an overall basis, the total market assessment for the subject property’s land and improvements of $6,050,040 represents a value of $56.61 per square foot based on 106,867 square feet of owned rentable area.
The effective 2014/2015 tax rate applicable to the subject is 0.67 percent of assessed valuation. The total 2014/2015 property taxes are $36,599, or $0.34 per square foot. OREGON PROPERTY TAX OVERVIEW Valuation Before 1997 property in Oregon was generally assessed at 100 percent of Real Market Value (RMV). Significant changes were made to the law in 1997 when Measure 50 passed. Measure 50 amended the Oregon Constitution to change a property’s Assessed Value (AV) from 100 percent of a property’s RMV to the lesser of: (a) the property’s Maximum Assessed Value (MAV); or (b) the property’s Real Market Value (RMV). Beginning in the 1997/98 tax year, MAV was set at 90 percent of the property’s RMV for the 1995/96 tax year. For each successive year, absent exceptions, the MAV can increase no more than 3.0 percent per year. Since AV is equal to the lower of RMV or MAV, in the event that RMV falls below MAV and becomes the AV for a particular tax year,
BROOKINGS HARBOR SHOPPING CENTER REAL PROPERTY TAXES AND ASSESSMENTS 23
then the MAV shall equal 103 percent of the property’s AV from the prior year or 100 percent of the property’s MAV, whichever is greater. MAV does not change other than through a few exceptions and as a result of the 3.0 percent annual increase.
Exceptions noted above include new construction, a subdivision or partition of a parcel, the reclassification and rezoning of a parcel, the disqualification or expiration of an exemption and the inclusion of previously omitted property that has not been assessed previously.
Exceptions are valued using a Change Property Ratio, which each county assessor estimates on an annual basis by calculating the difference between maximum assessed value and real market value for each property on a class-by-class basis. The maximum assessed value for the excepted property or event is calculated by multiplying the real market value of the exception event by the change property ratio, added back to the maximum assessed value portion not affected by the exemption event.
Taxation Measure 50 introduced maximum assessed value and implemented the process of comparing real market value and maximum assessed value, in order to establish the assessed value of each property which is the lower of the two. Measure 50 also establishes permanent rates which vary widely according to each taxing jurisdictions throughout the state. Measure 50 rates can generally fall between $10 per $1,000 of MAV to as high as $20 per $1,000 of MAV. Measure 5 limits the tax rates to $5 per $1,000 of RMV for schools and $10 per $1,000 of RMV for government.
Taxes are based on the lower of: (a) Measure 5 tax rate limits calculated against Real Market Value (RMV); or (b) Measure 50 tax rates calculated against Maximum Assessed Value (MAV). Any special bonds or levies are added to the resulting tax calculation noted above.
The date of value for taxation purposes is January 1 of each tax year. The sale of a property does not trigger a reassessment of the property. REAL PROPERTY TAX CONCLUSION The current market assessment is well above our current value estimate and above levels typical of the market. We therefore have determined that the property’s current assessment and property taxes are above market levels and may warrant appeal or re-assessment. Based upon historical trends and the property tax increase limitations in effect in Oregon, we have assumed taxes will increase by 3.00 percent per annum over the projection period.
BROOKINGS HARBOR SHOPPING CENTER ZONING 24
ZONING GENERAL INFORMATION The property is zoned C-1, Light Commercial by Curry County. A summary of the subject’s zoning is provided below:
ZONING Municipality Governing Zoning: Curry County Current Zoning: C-1, Light Commercial Current Use: Neighborhood Center Is current use permitted: Yes Change In Zone Likely: No Permitted Uses: Permitted uses within this district include retail and service uses, lodging, multi-family residential, and medical office uses Prohibited Uses: Prohibited uses within this district include single-family residential and industrial uses Compiled by Cushman & Wakefield of Oregon, Inc. We analyzed the zoning requirements in relation to the subject property, and considered the compliance of the existing or proposed use. We are not experts in the interpretation of complex zoning ordinances but based on our review of public information, the subject property appears to be a complying use.
Detailed zoning studies are typically performed by a zoning or land use expert, including attorneys, land use planners, or architects. The depth of our study correlates directly with the scope of this assignment, and it considers all pertinent issues that have been discovered through our due diligence.
This appraisal is not intended to be a detailed determination of compliance, as that determination is beyond the scope of this real estate appraisal assignment.
BROOKINGS HARBOR SHOPPING CENTER HIGHEST AND BEST USE 25
Valuation HIGHEST AND BEST USE HIGHEST AND BEST USE OF PROPERTY AS THOUGH VACANT We considered the legal issues related to zoning and legal restrictions. We also analyzed the physical characteristics of the site to determine what legal uses would be possible, and considered the financial feasibility of these uses to determine the use that is maximally productive. Considering the subject site’s physical characteristics and location, as well as the state of the local market, it is our opinion that the Highest and Best Use of the subject site as though vacant is a shopping center built to its maximum feasible building area, time and circumstances warranting, with an interim use to hold for future development, as demands warrants. HIGHEST AND BEST USE OF PROPERTY AS IMPROVED In the reconciliation section, we concluded to a market value for the subject property, as improved, of $3,250,000. In our opinion, the improvements contribute significantly to the value of the site. It is likely that no alternate use would result in a higher return.
It is our opinion that the existing building adds value to the site as though vacant, dictating a continuation of its current use. It is our opinion that the Highest and Best Use of the subject property as improved is a shopping center as it is currently improved. MOST LIKELY BUYER The subject is currently leased to 18 tenants. Its size, type, and configuration make it ideally suited for multiple- tenant occupancy. An examination of recent rental activity in the area suggests that there is demand for similar space in such properties by tenants within the market, and recent comparable sales indicate such properties are typically purchased by real estate investors. As a result, we conclude that the most likely purchaser of the subject is an investor, who would typically rely on the income approach to value the property.
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 26
SALES COMPARISON APPROACH METHODOLOGY Using the Sales Comparison Approach, we developed an opinion of value by comparing the subject property to similar, recently sold properties and current offerings in the surrounding or competing area. This approach relies on the principle of substitution, which holds that when a property is replaceable in the market, its value tends to be set at the cost of acquiring an equally desirable substitute property, assuming that no costly delay is encountered in making the substitution.
Due to the nature of the subject property and the level of detail available for the comparable data, we elected to analyze the comparables through the application of a traditional adjustment grid using percentage adjustments.
In the Sales Comparison Approach we determined the Prospective Market Value Upon Stabilization.
Comparable Selection Due to the lack of sales in the subject’s area, we have expanded our search of comparable properties to other areas of Oregon and Northern California. Comparable data sheets are provided in the Addenda of the report. ADJUSTMENT PROCESS The sales we have used were the best available comparables to the subject property. The major points of comparison for this type of analysis include the property rights conveyed, the financial terms incorporated into the transaction, the conditions or motivations surrounding the sale, changes in market conditions since the sale, the location of the real estate, its physical traits and the economic characteristics of the property.
The first adjustment made to the market data takes into account differences between the subject property and the comparable property sales with regard to the legal interest transferred. Advantageous financing terms or atypical conditions of sale are then adjusted to reflect a normal market transaction. Next, changes in market conditions are accounted for, creating a time adjusted price. Lastly, adjustments for location, physical traits and the economic characteristics of the market data are made in order to generate the final adjusted unit rate for the subject property.
We have made a downward adjustment to those comparables considered superior to the subject and an upward adjustment to those comparables considered inferior. ANALYSIS OF COMPARABLE DATA Property Rights Conveyed The property rights conveyed in a transaction typically have an impact on the price that is paid. Acquiring the fee simple interest implies that the buyer is acquiring the full bundle of rights. Acquiring a leased fee interest typically means that the property being acquired is encumbered by at least one lease, which is a binding agreement transferring rights of use and occupancy to the tenant. A leasehold interest involves the acquisition of a lease, which conveys the rights to use and occupy the property to the buyer for a finite period of time. At the end of the lease term, there is typically no reversionary value to the leasehold interest. Like the subject property, all of the sales included within this analysis involved the leased fee interest. Therefore, no adjustments for property rights are required.
Financial Terms The financial terms of a transaction can have an impact on the sale price of a property. A buyer who purchases an asset with favorable financing might pay a higher price, as the reduced cost of debt creates a favorable debt
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 27
coverage ratio. A transaction involving above-market debt will typically involve a lower purchase price tied to the lower equity returns after debt service. We have analyzed all of the transactions to account for atypical financing terms. To the best of our knowledge, all of the sales used in this analysis were accomplished with cash or market- oriented financing.
Conditions of Sale Adjustments for conditions of sale usually reflect the motivations of the buyer and the seller. In many situations the conditions of sale may significantly affect transaction prices. This was found to be the case for Sale 8, which involved bank-owned/distressed properties and were adjusted upward. All of the remaining sales used in this analysis are considered to be "arm’s-length" market transactions between both knowledgeable buyers and sellers on the open market.
Market Conditions The comparable data analyzed occurred between April 2012 and November 2014. As the market has improved over this time period, we applied an annual adjustment of 2.50 percent.
Location Adjustments were made as follows.
The majority of the comparable sales are located in larger markets with superior regional drawing power and accessibility. As a result, Sales 1, 3, 5, 6, 7, and 8 were adjusted downward by varying degrees for superior location. Sale 2 is located in a smaller, more tertiary, market and required upward adjustment for inferior location.
Physical Traits In this instance the following adjustments were applied.
Sales 2, 4, 6, and 7 were adjusted downward for smaller size. Upward adjustments were made to Sales 1 and 8 for larger size. Sales 3 and 5 were considered to be in-range of the property’s size and did not require adjustment. The subject property is generally in inferior quality and condition to the comparable sales. All but one of the comparables were adjusted downward by varying degrees for superior age, quality, and condition. The exception is Sale 2, which was considered similar overall to the property and did not require adjustment. Downward adjustments were made to Sales 1, 3, 4, 6, and 7 for superior land-to-building ratio. Sale 2 was adjusted upward by this measure. Downward adjustments were made to Sales 1 and 6 for superior parking ratio. Sales 1 and 8 were adjusted downward for superior utility. An upward adjustment was made to Sale 7 for inferior utility.
Economic Characteristics The economic characteristics of a property include its occupancy levels, operating expense ratios, tenant quality, and other items not covered under prior adjustments that would have an economic impact on the transaction.
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 28
The following adjustments were applied.
Downward adjustments were made to Sales 1, 4, 5, and 8 under Economics for superior tenancy and rent levels. Sale 6 required upward adjustment under Economics for inferior tenancy, vacancy, and other factors.
Other This category accounts for any other adjustments not previously discussed. Based on our analysis of these sales, none required any additional adjustment. DISCUSSION OF COMPARABLE SALES Sale No. 1 Hermiston Plaza is a Safeway-anchored neighborhood shopping center located in the southern aspect of Hermiston. The occupancy at the time of sale and cap rate were verified with the buyer. The center was marketed by Capital Pacific.
Sale No. 2 Pleasant Hill Shopping Center is situated in a primarily rural area about 11 miles southeast of downtown Eugene. The center was formerly anchored by Ray`s Food Place, which closed following the company`s bankruptcy in 2013. The buyer plans to renovate the center as "Pisgah Public Market."
Sale No. 3 Mid Valley Plaza is located on the northwest quadrant of Highway 99E and Mount Hood Avenue in the eastern aspect of Woodburn. The property was originally anchored by Safeway and Rite Aid. Both of the former anchors closed prior to the most recent renovation of the center in 2004. Both anchor spaces now include use restrictions which prohibit future supermarket and drugstore uses.
Sale No. 4 Bandon Shopping Center is located on the Southern Oregon Coast, approximately 25 miles south of Coos Bay. The center is anchored by Ray`s Food Place, which reportedly executed a new 20 year net lease upon closing of the sale. The buyer leased approximately 10,000 square feet at the northern end of the center to Dollar Tree at $8.00 per square foot. The center was marketed at $4,925,000 over an approximately four month exposure period.
Sale No. 5 Canby Square is a Safeway-anchored neighborhood center at the southwest corner of Oregon 99E and SW Berg Parkway, directly west of Canby High School. The vacant anchor space is a former Rite Aid pharmacy. Rite Aid vacated in 2009 and reached expiration in February 2014. Safeway reaches expiration in August 2023 and pays base rent of $11.83 per square foot. The cap rate presented is based on in-place NOI. The property was marketed at $8,739,000 over a roughly two month exposure period.
Sale No. 6 This center consists of one main building and two pad buildings. The main building includes both retail and office tenants, with the office tenants being family service related. The vacant anchor was previously occupied by Sacramento County. The pad buildings are occupied by a Tacqeria and a European mini-mart. The property was listed at $2,795,640, and was purchased by an owner-user that will occupy the vacant anchor space as Dollar & Thrifty.
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 29
Sale No. 7 This comparable is a strip shopping center that is shadow anchored by Winco. The property is just west of Interstate 5, but is located behind a hotel and does not have direct frontage or exposure on Barnett Road, a primary commercial corridor. The exposure period was approximately eight months, with an asking price of $1,650,000. No adverse sale conditions were noted.
Sale No. 8 According to Michael Horwitz, the listing agent with Capital Pacific, the property was actively marketed for approximately 30 days. The asking price was $10,430,000, reflecting a capitalization rate of 8.50 percent based on in-place net operating income. According to Mr. Horwitz, the property received significant interest, including “five-to-six firm offers, with several at full price.” Mr. Horwitz noted that the seller elected to take the best offer that came in and then counter under terms “to sell today.” Mr. Horwitz described these terms as a “contingent free deal” and noted that the sale was market-oriented, “reflected in the depth of offers and price above list.” However, the property was marketed as an REO disposition. CONCLUSION As shown in the grid that follows, adjustments were applied to the comparable sales to reflect what we believe is appropriate in the marketplace. They were subjectively derived, since the lack of paired sales prevents the application of a more empirical analysis.
It is noted that the percentage rate adjustments are provided for analysis purposes only and are not intended to be precise measurements of the differences between the comparables and the subject. Rather, they are used to provide a better understanding of the thinking used herein.
With this in mind, larger percentage adjustments (say, 20.0 to 25.0 percent) would indicate more substantial differences between the sales and the subject. Smaller adjustments therefore indicate only minor differences. We acknowledge that the adjustment process is somewhat subjective in nature. However, we have been unable to support the magnitude of the adjustments by paired sale analysis.
Despite the subjectivity, the adjustments were considered reasonable and were applied consistently. The resulting adjusted value range is from $34.52 to $42.11 per square foot with an average adjusted price of $38.53 per square foot. A summary of our reconciliation of each comparable sale is presented below:
. Sale 1 is superior overall to the subject in location, condition, and economics.
. Additional weight has been placed on Sale 2 due to its overall similarity to the subject and modest adjustment level.
. While superior overall in location and quality/condition, Sale 3 was given some additional weight considering its similar occupancy and economics.
. Less emphasis was placed on Sales 4 and 5 due to their higher adjustment levels.
. More limited weight has been placed on Sale 6 due to its location in California.
. Sale 7 was given more limited emphasis considering its much smaller size and inferior utility.
. Finally, additional consideration has been given to Sale 8 due to its similar tenancy and economic factors, despite the somewhat distressed sale conditions and older date of sale.
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 30
After complete analysis, the most comparable sales bracket a sale price of approximately $40.00 per square foot for the subject property on a stabilized basis. Therefore, we concluded that the indicated value by the Sales Comparison Approach was:
APPLICATION TO SUBJECT Prospective Market Value Upon Stabilization Indicated Value per Square Foot GLA $40.00 Net Rentable Area in Square Feet x 106,867 Indicated Value $4,274,680 Rounded to nearest $50,000 $4,250,000 Per square foot $39.77
Compiled by Cushman & Wak efield of Oregon, Inc.
MARKET VALUE- “AS-IS” ANALYSIS We can also attempt to apply the Sales Comparison Approach to the subject on the basis of its position "as-is" on March 19, 2015. A higher level of subjectivity exists with respect to looking at a property for which a certain amount of space remains vacant, requiring lease-up and absorption projections. In the case of the subject, absorption of vacant space and transition of temporarily leased space to market is projected over an approximate 24-month period. When analyzing the subject on the basis of its first year income, an investor would be cognizant of the additional risks and costs associated with bringing the property to stabilization. Typically, consideration must be given to any costs of lease-up, including tenant improvements, leasing commissions, and any concessions to be given.
Method 1 In order to estimate the value of the subject property on an "as-is" valuation premise as of March 19, 2015, we have discounted the future stabilized value indications and all appropriate costs and interim cash flows into a present value. Therefore, by deducting all appropriate lease-up costs, plus the interim income until the subject property reaches stabilization on a present value basis, the following present value calculation is evidenced:
Sales Comparison Approach "As Is" Operating Basis
Future Low Value Mid Value High Value
Stabilized Market Value Conclusions Owned GLA 106,867 106,867 106,867 x Value Per Sq/Ft $35.00 $40.00 $45.00 = Value $3,740,345 $4,274,680 $4,809,015
Net Present Value @ 11.00% Net Cash Flow $3,004,707 $3,433,951 $3,863,195 NPV of FY 2015 Cash Flow $4,069 $3,647 $3,647 $3,647 NPV of FY 2016 Cash Flow $105,151 $84,470 $84,470 $84,470 Subtotal: $109,220 $3,092,824 $3,522,068 $3,951,312
Rounded Value $3,100,000 $3,500,000 $3,950,000
The interim costs and cash flows during our estimated holding period until the subject property reaches stabilization in Year 3 are detailed in the Income Capitalization Approach section of this report, and reference is made thereto. The discount rate selected is consistent with the discounted cash flow method in the income approach.
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 31
Method 2 With this first value indication in mind, we have also pursued a more traditional adjustment method to the prospective value. In this second method of estimating an “as-is” value of the property, we have again utilized the Prospective Market Value indication of $4,250,000 “at stabilization” (depreciating the prospective value by 1.0 percent per year), and deducted the costs associated with reaching stabilization such as rent loss during absorption, leasing commissions, and tenant improvement costs. We believe the 1.0 percent annual depreciation applied is a conservative estimate that is supported by current market conditions. It is possible that as economic conditions improve values in the local area will appreciate by a higher rate over the next two years, say 2.0 percent to 3.0 percent. However, given the current state of the local economy, we believe a rate of 1.0 percent is most appropriate.
NET INCOME LOST DURING ABSORPTION The loss of income during absorption has been calculated by taking the difference between the net operating income “at stabilization” and the net operating income “as-is.” This calculation has been based on our projected NOI at stabilization ($404,261) calculated as follows:
2015 2016 2017
Net Operating Income: $123,641 $226,562 $404,261
Calculated Rent Loss: ($102,921) ($177,699)
TENANT IMPROVEMENTS This deduction is based upon our estimate that, “as is,” there remains a certain amount of space to be leased. For this analysis, we have included specific deductions for TIs based upon the “as-is” cash flow projection included in the Income Capitalization Approach, and reference is made thereto.
LEASING COMMISSIONS For this analysis, we have taken a specific deduction for leasing commissions, which has also been based upon the “as-is” cash flow projection developed in the Income Capitalization Approach.
LEASE-UP RISK Finally, since the buyer of the project “as is” is taking on additional risks associated with the lease-up and construction completion, we have included an entrepreneurial profit here to account for these risks. We have applied a 15.0 percent risk factor to the above figures to account for a buyer’s potential risk with absorption at the property.
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 32
SUMMARY Therefore, by deducting all appropriate lease-up costs, plus the interim income until the subject property reaches stabilization on a present value basis, the following value calculation is evidenced:
Application of Sales Comparison Approach -- Method 2 "As Is Ope ra ting Ba sis"
Prospective Value Upon Stabilization $4,250,000 Depreciated Value $4,166,258
Le ss: Net Income Loss During Absorption: ($280,620) Tenant Improvement Allowances: ($69,240) Commissions: ($117,641) Developer's Profit & Overhead: 15.00% ($70,125)
Subtotal: $3,628,632
Rounded $3,650,000
SUMMARY/CONCLUSION- “AS-IS” As-Is Market Value- Method 1 $ 3,500,000 As-Is Market Value- Method 2 $ 3,650,000 Overall, the two methods utilized in the Sales Comparison Approach would imply that the variance between the prospective value upon stabilization and the “as-is” value ranges from $600,000 to $750,000. By comparison, the two discounted cash flow projections suggest a variance between $3,200,000 (as-is) and $3,950,000 (stabilized), or $750,000.
On balance, we have considered a $750,000 adjustment for the analysis. This adjustment figure has been used in the Sales Comparison Approach and the Direct Capitalization method of the Income Capitalization Approach to determine the “as-is” value of the project.
In the final analysis, we have estimated that the Market Value As-Is of the subject property, as indicated by the Sales Comparison Approach, as of March 19, 2015, the date of analysis, is appropriately reflected at $3,500,000.
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 33
IMPROVED SALE LOCATION MAP
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 34
SUMMARY OF IMPROVED SALES PROPERTY INFORMATION TRANSACTION INFORMATION
Land to Tota l Parking Property Name Building Center Anchor Year Ratio per Value Sale No. Address, City, State Ratio GLA Sold GLA Anchors Ratio Built Year Ren. 1,000 sf Grantor Grantee Interest Date Sale Price $/SF NOI/SF OAR Occup. S Subject Property 2.62:1 110,867 106,867 Vacant (former 25.2% 1965 N/A 2.37 Shop Smart)
1 Hermiston Plaza 3.72:1 150,217 150,217 Safeway, Big 67.4% 1978 1999 4.33 Hermiston Dickerhoof Leased 11/14 $14,000,000 $93.20 $6.76 7.25% 90% 930 S Highway 395 Lots, Dollar Tree, Station LLC Properties Fee Hermiston, OR and Bealls
2 Pleasant Hill Shopping Center 1.01:1 36,489 36,489 Vacant (fmr Rays) 65.7% N/A N/A 3.70 Pudding Creek Pisgah Public Leased 7/14 $1,150,000 $31.52 N/A N/A N/A 35831 Highway 58 Land Co. Market LLC Fee Pleasant Hill, OR
3 Mid Valley Plaza 3.58:1 110,982 110,982 Dollar Tree and 37.1% 1978 2004 3.89 Mid Valley Argo Leased 7/14 $6,401,421 $57.68 N/A N/A 70% 1543 Mount Hood Avenue Vacant Plaza, LLC Woodburn, Fee Woodburn, OR LLC
4 Bandon Shopping Center 3.79:1 60,974 60,974 Ray`s Food Place 46.8% 1986 N/A N/A Bandon Northgate Leased 2/14 $4,100,000 $67.24 $5.66 8.42% 91% 66 Michigan Avenue Shopping Enterprises Fee Bandon, OR Center LLC
5 Canby Square 2.94:1 115,701 115,701 Safeway, Vacant, 83.8% 1976 1995 3.37 KRC Canby Argo Canby Leased 1/14 $8,500,000 $73.47 $6.80 9.26% 67% 1025 SW 1st Avenue Ace Hardware, Square LLC LLC Fee Canby, OR and Dollar Tree
6 10625-10675 Coloma Rd. 4.49:1 56,055 56,055 Vacant 51.5% 1984 2000 5.67 Omand Living Ki J Song Leased 6/13 $2,500,000 $44.60 N/A N/A 40% 10625-10675 Coloma Rd Trust Fee Rancho Cordova, CA
7 Winco Plaza 4.06:1 24,122 24,122 N/A N/A 1979 2003 N/A Denise D Radical Leased 10/12 $1,395,000 $57.83 $5.54 9.58% 75% 259 E Barnett Road Jensen In ve stm e n ts Fee Medford, OR LLC
8 Klamath Falls Town Center 2.29:1 168,860 168,860 Sherm`s Market, 86.6% 2006 N/A 3.80 Evergreen Argo K Falls Leased 4/12 $10,700,000 $63.37 $5.39 8.50% 61% 1815 Avalon Street Vacant, and Environmental LLC & TRV Fee Klamath Falls, OR Michael`s Development Properties Co LLC
STATISTICS Low 1.01:1 24,122 24,122 1976 1995 3.37 4/12 $1,150,000 $31.52 $5.39 7.25% 40% High 4.49:1 168,860 168,860 2006 2004 5.67 11/14 $14,000,000 $93.20 $6.80 9.58% 91% Av erage 3.24:1 90,425 90,425 1984 2000 4.13 10/13 $6,093,303 $61.11 $6.03 8.60% 71% Compiled by Cushman & Wak efield of Oregon, Inc.
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 35
IMPROVED SALE ADJUSTMENT GRID ECONOMIC ADJUSTMENTS (CUMULATIVE) PROPERTY CHARACTERISTIC ADJUSTMENTS (ADDITIVE)
Price PSF Property Land- Adj . & Rights Conditions Market (1) Age, Quality Building Parking Price No. Date Conveyed of Sale Financing Conditions Subtotal Location Size & Condition Ratio Ratio Utility (2) Economics Other PSF Overall 1 $93.20 Leased Fee Arm's-Length None Inferior $96.46 Superior Larger Superior Superior Superior Superior Superior Similar $38.58 Superior 11/14 0.0% 0.0% 0.0% 3.5% 3.5% -10.0% 5.0% -20.0% -5.0% -5.0% -5.0% -20.0% 0.0% -60.0% 2 $31.52 Leased Fee Arm's-Length None Inferior $32.87 Inferior Smaller Similar Inferior Similar Similar Similar Similar $34.52 Inferior 7/14 0.0% 0.0% 0.0% 4.3% 4.3% 10.0% -10.0% 0.0% 5.0% 0.0% 0.0% 0.0% 0.0% 5.0% 3 $57.68 Leased Fee Arm's-Length None Inferior $60.16 Superior Similar Superior Superior Similar Similar Similar Similar $42.11 Superior 7/14 0.0% 0.0% 0.0% 4.3% 4.3% -10.0% 0.0% -15.0% -5.0% 0.0% 0.0% 0.0% 0.0% -30.0% 4 $67.24 Leased Fee Arm's-Length None Inferior $70.87 Similar Smaller Superior Superior Similar Superior Superior Similar $38.98 Superior 2/14 0.0% 0.0% 0.0% 5.4% 5.4% 0.0% -10.0% -15.0% -5.0% 0.0% -5.0% -10.0% 0.0% -45.0% 5 $73.47 Leased Fee Arm's-Length None Inferior $77.58 Superior Similar Superior Similar Similar Similar Superior Similar $38.79 Superior 1/14 0.0% 0.0% 0.0% 5.6% 5.6% -15.0% 0.0% -15.0% 0.0% 0.0% 0.0% -20.0% 0.0% -50.0% 6 $44.60 Leased Fee Arm's-Length None Inferior $47.81 Superior Smaller Superior Superior Superior Similar Inferior Similar $35.86 Superior 6/13 0.0% 0.0% 0.0% 7.2% 7.2% -10.0% -10.0% -5.0% -5.0% -5.0% 0.0% 10.0% 0.0% -25.0% 7 $57.83 Leased Fee Arm's-Length None Inferior $62.98 Superior Smaller Superior Superior Similar Inferior Similar Similar $40.94 Superior 10/12 0.0% 0.0% 0.0% 8.9% 8.9% -15.0% -10.0% -15.0% -5.0% 0.0% 10.0% 0.0% 0.0% -35.0% 8 $63.37 Leased Fee Bank-owned None Inferior $76.88 Superior Larger Superior Similar Similar Superior Superior Similar $38.44 Superior 4/12 0.0% 10.0% 0.0% 10.3% 21.3% -15.0% 10.0% -25.0% 0.0% 0.0% -10.0% -10.0% 0.0% -50.0% STATISTICS $31.52 - Low Low - $34.52 $93.20 - High High - $42.11 $61.11 - Average Average - $38.53 Compiled by Cushman & Wak efield of Oregon, Inc. (1) Market Conditions Adjustment (2) Utility Footnote Compound annual change in market conditions: 2.50% Utility includes site layout, signage, visibility Date of Value (for adjustment calculations): 3/19/16
BROOKINGS HARBOR SHOPPING CENTER SALES COMPARISON APPROACH 36
CONFIRMATION INFORMATION The following chart outlines the source of the sales and the parties that were contacted in reference to the enclosed transactions used in this analysis.
Sale No. Source Confirmation Contact
1 C&W Appraiser Buyer and public records
2 CoStar/LoopNet Research service and public records
3 C&W Appraiser Seller and public records
4 CoStar/LoopNet Offering memorandum and Coos County records
5 CoStar/LoopNet Selling agent and public records
6 CoStar/LoopNet Selling agent and public records
7 CoStar/LoopNet Representatives of both the buyer and seller
8 C&W Appraiser Representatives of both the buyer and seller
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 37
INCOME CAPITALIZATION APPROACH METHODOLOGY The Income Capitalization Approach determines the value of a property based on the anticipated economic benefits. The principle of “anticipation” is essential to this approach, which recognizes the relationship between an asset’s potential future income and its value. To value the anticipated economic benefits of a property, potential income and expenses must be projected, and the most appropriate capitalization method must be selected.
The most common methods of converting net income into value are Direct Capitalization and Yield Capitalization. In direct capitalization, net operating income is divided by an overall capitalization rate to indicate an opinion of market value. In the yield capitalization method, anticipated future cash flows and a reversionary value are discounted to an opinion of net present value at a chosen yield rate (internal rate of return).
Investors acquiring this type of asset will typically look at year one returns but must also consider long-term strategies. Hence, depending on certain factors, each of the income approach methods has merit. We used both Yield and Direct capitalization, and each method is well-supported by ample, recent market data. As a result, we placed roughly equal reliance on each of the techniques, and feel that a prospective purchaser would follow this approach. SUBJECT TENANCY The subject property is demised for multi-tenant occupancy. On the following pages we will discuss the subject's occupancy, lease structure and rent levels, and we will contrast this information against comparable properties in the market.
C & K MARKET PROFILE The following information was reproduced from the property owner’s corporate website (www.ckmarket.com):
C & K Market Inc. began in 1957 when Raymond L. Nidiffer, "Ray", purchased a one-half interest in the 3,200 square foot C & K Market in Brookings, Oregon. Mr. Nidiffer became the sole partner in 1969 and began growing the company. The company grew slowly but steadily in the ensuing forty plus years, reaching a total of 51 stores in 2004. As of this writing, C & K Market Inc. currently operates 60 stores located throughout southern Oregon and northern California.
In 1997, Ray decided to retire and passed the responsibility of running the company to his son, Doug Nidiffer. C & K Market, Inc. remains a closely held family-owned company, earning the ranking of #21 in 2004 in the Oregon Private 150. As the 21st largest privately owned company in Oregon, C & K operates a diverse size and style of supermarket.
The company owns the Ray’s Food Place chain of conventional, full service stores, several Shop Smart stores, which offer everyday low pricing in a warehouse format, and several Price Less Foods, also operating in the "box store" or warehouse format.
C&K Market, Inc. filed a voluntary petition for Chapter 11 bankruptcy protection on November 19, 2013. A press release issued by the company stated that the filing was necessary to address legacy costs, sell or close underperforming stores and resolve debt issues. C&K Market later announced that it would close or sell 16 of its existing stores, representing nearly one-third of its total store base. The company emerged from bankruptcy in July 2014.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 38
The attained base rent listed for each tenant equals current monthly base rent annualized, excluding any future contractual rent increases.
ATTAINED RENT SCHEDULE As Of Value Date: Mar-15 Start End Area Contract Contract Lease Tenant Name Suite Date Date ( SF ) Rent/Year Rent/SF Type(1)
< 5,000 SF CC's Clothes for Cancer 17, 19-20 Dec-12 Jul-15 2,495 $13,344 $5.35 Net Copy All 22A Jan-07 Oct-15 455 $4,056 $8.91 Net Fely's Cafe 4 May-15 Apr-20 967 $7,548 $7.81 Net Har-Brook Jewelers 22-23 Mar-05 Oct-15 1,950 $17,604 $9.03 Net iRepair 31 Mar-12 Feb-16 270 $3,900 $14.44 Net Marian's Barber Shop 2 May-06 Oct-15 350 $3,156 $9.02 Net Old Wash House 3 Jul-10 Oct-15 2,582 $21,588 $8.36 Net One Cool Dog 5A Dec-10 Oct-15 380 $3,516 $9.25 Net Oregon DMV 32 Jan-12 Jul-15 1,790 $23,316 $13.03 Gross South Coast Appliance 11 Dec-14 Nov-17 2,976 $18,744 $6.30 Net Ultimate Touch Salon 21 Jul-08 Jun-15 730 $6,876 $9.42 Net 11 tenants subtotal 14,945 $123,648 $8.27
5,001 to 15,000 SF Baron's Furniture 29 Jul-06 Nov-19 11,600 $56,352 $4.86 Net Childrens Theater 37-39 Aug-10 Dec-15 5,799 $16,200 $2.79 Net Pacific Coast Antiques 7 Dec-02 Oct-15 8,248 $45,912 $5.57 Net Sears 27 Apr-02 Aug-15 7,809 $53,856 $6.90 Net South Coast Fitness 33 Jan-06 Oct-15 5,620 $40,464 $7.20 Net 5 tenants subtotal 39,076 $212,784 $5.45
Office Old Wash House 5B Dec-10 Oct-15 355 $2,544 $7.17 Net Pat Foley 6 Feb-01 Oct-15 1,797 $14,376 $8.00 Net 2 tenants subtotal 2,152 $16,920 $7.86
GRAND-TOTALS 21 tenants in occupancy 56,173 $353,352 $6.29
Note: Attained rent equals current rent annualized for twelve months, and it excludes contractual rent increases Compiled by Cushman & Wakefield of Oregon, Inc. (1) Lease Types as defined by The Appraisal Institute (2) The equivalency adjustment is applied to atypical leases to reflect a common lease standard for this building or space category Month-to-Month Leases There are a number of month-to-month at the subject property that reportedly have been in occupancy for a number of years. For purposes of this analysis, we assumed that these tenants will remain in place for six months, after which the standard speculative renewal assumptions are applied.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 39
ANALYSIS OF COMPARABLE ANCHOR RENTS We have expanded our survey of lease comparables across Southern and Western Oregon due to the lack of inventory and recent transaction within the subject’s immediate area. The following table summarizes rental activity for comparable space across the defined region.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 40
RETAIL RENT COMPARABLES PROPERTY INFORMATION LEASE INFORMATION
Property Name NO. Address, City, State COMMENTS SUB-TYPE YEAR BUILT YEAR RENOVATED TENANT NAME LEASE DATE SIZE (NRA) (yrs.) TERM INITIAL RENT/SF RENT STEPS TYPE LEASE S Subject Property 1965 N/A
1 Bandon Shopping Center Neighborhood 1986 2015 Dollar Tree 2014 10,020 10 $8.00 10% in year 6 Net This comparable is a new major tenant lease in a neighborhood 120 Michigan Avenue NE Center shopping center anchored by Ray's Food Place. Bandon, OR
2 Heritage Mall Regional 1988 Hobby Lobby 2014 61,060 15 $8.00 10% every 5 Net New lease of vacant former Gottschalk's space. 1871 SE 14th Avenue Center years Albany, OR
3 Confidential Regional N/A Discount Dept. Store 2014 21,256 10 $6.52 10% in year 6 Net This is a new major tenant lease within a regional shopping center Primary Commercial Corridor Center in a tertiary Southern Oregon market. The tenant received a TI Southern Oregon, OR allowance of $23.20 per square foot.
4 Confidential Regional N/A Confidential 2013 23,010 10 $7.75 Flat Net New major tenant lease in a regionally-oriented shopping center Primary Commercial Corridor Center within the Eugene MSA. Eugene-Springfield MSA, OR
5 Confidential Freestanding N/A Confidential 2013 38,000 10 $8.58 $0.50/SF in Year Modified New supermarket lease in a vacant former big box space. Primary Commercial Corridor 6 Eugene-Springfield MSA, OR
6 Confidential Regional N/A Confidential 2013 25,000 10 $9.00 $0.50/SF every Net This lease involves a vacant former national chain anchor space. Primary Commercial Corridor Center 5 years Douglas County, OR
7 Former Albertson's Free Standing 1966 N/A Big Lots 2012 37,944 10 $4.00 Annual Net New lease of a vacant former Albertson's. The property is located 2121 Newmark Street Retail - Grocery Increases adjacent to an older Bi-Mart store on a commercial corridor North Bend, OR Store between North Bend, Coos Bay, and Empire.
STATISTICS Low 1966 2015 2012 10,020 10 $4.00 High 1988 2015 2014 61,060 15 $9.00 Average 1980 2015 2013 30,899 11 $7.41
Compiled by Cushman & Wak efield of Oregon, Inc.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 41
COMPARABLE ANCHOR RENTAL LOCATION MAP
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 42
CONCLUSION OF MARKET RENT FOR ANCHOR SPACE We analyzed recent leases negotiated in competitive buildings in the marketplace. The comparables range in size from 10,020 square feet to 61,060 square feet. They are generally located in buildings similar in class to the subject, and in the subject’s competitive region. The comparable leases have terms ranging from 10 to 15 years, and exhibit a range of rents from $4.00 to $9.00 per square foot, with an average of $7.41 per square foot.
Free rent concessions were not evident. Tenant improvement allowances ranged from $0.00 to $34.78 per square foot, averaging $8.30 per square foot. Rent escalation clauses vary, with most having fixed steps every 5 years. All but one of these are net leases in which the tenant is required to pay a pro-rata share of CAM, real estate taxes, and property insurance. Less weight has been placed on Leases 2, 4, and 6 due to their locations within larger shopping centers in more prominent markets.
The remaining comparables, ranging from $4.00 per square foot to $9.00 per square foot, are all reasonable to somewhat high indicators for the subject. These comparables reflect generally older stores like the subject, with most having better exposure, but located in more competitive markets. Based upon our preceding analysis of the comparable rentals, a rate toward the lower-end of the overall range appears most achievable for the subject property. We therefore concluded to a market rent of $5.00 per square foot for the subject’s anchor space. ANALYSIS OF COMPARABLE RETAIL AND OFFICE RENTS The following table summarizes rental activity for comparable space in competing buildings in the market.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 43
RETAIL RENT COMPARABLES PROPERTY INFORMATION LEASE INFORMATION
Property Name NO. Address, City, State COMMENTS SUB-TYPE BUILT YEAR YEAR RENOVATED TENANT NAME LEASE DATE SIZE (NRA) (yrs.) TERM INITIAL RENT/SF RENT STEPS TYPE LEASE S Subject Property 1965 N/A
1 547 Chetco Lane Retail/ N/A 2014 Confidential 11/14 800 2 $10.80 Flat Gross New lease for commercial/retail space in downtown Brookings. The Bro o ki n g s, OR Commercial property is one block north of Highway 101.
2 777 Cottage Street Restaurant 1940 N/A Restaurant 11/14 2,680 5 $7.20 Annual Net This is a new lease for restaurant space in downtown Brookings. Bro o ki n g s, OR increases The property has frontage on Highway 101.
3 Blue Pacific Center Low-rise Office 2002 N/A Deringer Investments 7/12 502 1 $12.55 Flat Modified This comparable is a new lease in an office building located across 16289 Highway 101 Highway 101 from the subject. Bro o ki n g s, OR 4 16261 Highway 101 Professional 1989 N/A State Human 7/12 1,895 2 $13.21 Annual CPI Gross New lease for field office is a cluster of professional and medical Bro o ki n g s, OR Office Services Department uses just north of Fred Meyer.
5 16261 Highway 101 Commercial/ 1999 N/A Fish & Wildlife 1/12 878 5 $9.38 Annual CPI Net This property is located one block west of Highway 101 near South Bro o ki n g s, OR Retail Department Coast Plaza.
6 South Coast Plaza Neighborhood 1984 N/A State Employment 12/11 377 5 $17.88 Annual CPI Mod. Interagency sublease in Grocery Outlet and Rite Aid-anchored 16261 Highway 101 Center Department center located just south of the subject property. Bro o ki n g s, OR 7 South Coast Plaza Neighborhood 1984 N/A State Employment 10/11 2,700 5 $16.24 Annual CPI Mod. New lease in Grocery Outlet and Rite Aid-anchored center located 16261 Highway 101 Center Department just south of the subject property. Bro o ki n g s, OR STATISTICS Low 1940 N/A 10/11 377 1 $7.20 High 2002 N/A 11/14 2,700 5 $17.88 Average 1983 N/A 11/12 1,405 4 $12.47 Compiled by Cushman & Wak efield of Oregon, Inc.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 44
COMPARABLE RENTAL LOCATION MAP
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 45
CONCLUSION OF MARKET RENT FOR RETAIL AND OFFICE SPACE We analyzed recent leases negotiated in competitive buildings in the marketplace. The comparables range in size from 377 square feet to 2,700 square feet. They are generally located in buildings similar in class to the subject, and in the subject’s competitive market. The comparable leases have terms ranging from 1 to 5 years, and exhibit a range of rents from $7.20 to $17.88 per square foot, with an average of $12.47 per square foot.
Rent escalation clauses vary, with most having annual CPI increases. A mix of lease structures was observed, although triple-net reimbursements are typical of the market
Inline Market Rent Conclusion The majority of the rent comparables are located along Highway 101 and have superior visibility and exposure compared to the subject. Additionally, the comparables are generally superior in age, quality, and condition. Leases 6 and 7 also benefit from their location within a larger anchored shopping center. Based upon these considerations, we believe that an appropriate market rental rate for the property’s inline retail space would most likely fall below the indications from the rent comparables. We have also considered the existing leasing at the subject, as well as recent asking rental rates. Finally, a lower market rent was utilized for the property’s inline suites in excess of 5,000 square feet. Our market rent conclusions are summarized in the table to follow.
Office Market Rent Conclusion Similar to the inline market rent conclusion, we believe that a market rental rate for the subject’s office suites would most likely fall below the indications of the comparables. We have also considered the existing leasing at the subject, as well as recent asking rental rates.
Our market rent conclusions for each space category are summarized in the following table
MARKET RENT SYNOPSIS 5,001 to TENANT CATEGORY < 5,000 SF 15,000 SF Office Anchor Storage Market Rent $7.80 $6.00 $5.40 $5.00 $1.80 Lease Term (years) 5 5 5 15 5 Lease Type (reimbursements) Net Net Net Net Gross Contract Rent Increase Projection 2.5% Annual 2.5% Annual 2.5% Annual 10% Bumps 2.5% Annual
Compiled by Cushman & Wakefield of Oregon, Inc. COMPARISON OF CONTRACT RENTS TO MARKET We previously outlined an attained rent schedule for all current tenants of the subject property. Adjustments were made to the subject leases to account for lease type equivalency, so all of the subject’s rents could be analyzed on a like-kind basis. For comparison to the market, we will look at the lease type equivalent rates that were developed earlier in this report. It should be noted that attained rents are calculated without reference to tenant contributions over expense stops.
The following chart outlines our estimated market rent for each tenant space in the subject property and the attained equivalent rent exclusive of contributions of each lease. Comparing these figures allows us to identify whether the attained rent levels are at, above or below the market. The results of this comparison will have an impact on our selection of the investment rates used in evaluating this property.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 46
ATTAINED RENT LEVELS MARKET RENT COMPARISON Contract Rent Market Rent Comparison Area Equiv. Contract Rent Tenant Name ( SF ) Rent/SF Rent/SF Annualized Versus Market Rent
< 5,000 SF CC's Clothes for Cancer 2,495 $5.35 $7.80 $19,461 31.43% below market Copy All 455 $8.91 $7.80 $3,549 14.29% above market Fely's Cafe 967 $7.81 $7.80 $7,543 0.07% above market Har-Brook Jewelers 1,950 $9.03 $7.80 $15,210 15.74% above market iRepair 270 $14.44 $7.80 $2,106 85.19% above market Marian's Barber Shop 350 $9.02 $7.80 $2,730 15.60% above market Old Wash House 2,582 $8.36 $7.80 $20,140 7.19% above market One Cool Dog 380 $9.25 $7.80 $2,964 18.62% above market Oregon DMV 1,790 $13.03 $7.80 $13,962 67.00% above market South Coast Appliance 2,976 $6.30 $7.80 $23,213 19.25% below market Ultimate Touch Salon 730 $9.42 $7.80 $5,694 20.76% above market 14,945 $8.27 $7.80 $116,571 6.07% above market
5,001 to 15,000 SF Baron's Furniture 11,600 $4.86 $6.00 $69,600 19.03% below market Childrens Theater 5,799 $2.79 $6.00 $34,794 53.44% below market Pacific Coast Antiques 8,248 $5.57 $6.00 $49,488 7.23% below market Sears 7,809 $6.90 $6.00 $46,854 14.94% above market South Coast Fitness 5,620 $7.20 $6.00 $33,720 20.00% above market 39,076 $5.45 $6.00 $234,456 9.24% below market
Office Old Wash House 355 $7.17 $5.40 $1,917 32.71% above market Pat Foley 1,797 $8.00 $5.40 $9,704 48.15% above market 2,152 $7.86 $5.40 $11,621 45.60% above market
GRAND-TOTALS 56,173 $6.29 $6.46 $362,648 2.56% below market
Note: Attained rent equals current rent annualized for twelve months, and it excludes contractual rent increases Compiled by Cushman & Wakefield of Oregon, Inc. As shown above, the subject property’s average contract rent is currently 2.6 percent below market. We therefore view the existing leasing as market-oriented.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 47
ABSORPTION OF VACANT SPACE The subject property is presently 52.56 percent occupied, with 50,694 square feet of vacant space in 18 tenant spaces. The following chart summarizes our absorption forecast for this property:
ABSORPTION SCHEDULE Tenant Market Vacant Space Name GLA Date Category Rent (1) Annual Vacant Anchor *** 8 & 9 27,958 Mar-17 Anchor $5.00 $139,790 Vacant Inline *** 1 700 Mar-16 < 5,000 SF $7.80 $5,460 Vacant Inline *** 10 2,640 Mar-17 < 5,000 SF $7.80 $20,592 Vacant Inline *** 13 1,842 Sep-17 < 5,000 SF $7.80 $14,368 Vacant Inline *** 14 1,320 Mar-18 < 5,000 SF $7.80 $10,296 Vacant Office *** 36 4 240 Sep-16 Office $5.40 $1,296 Vacant [Perm] Inline *** 12 592 Perm. < 5,000 SF N/A N/A Vacant [Perm] Inline *** 15A 560 Perm. < 5,000 SF N/A N/A Vacant [Perm] Inline *** 15B 1,100 Perm. < 5,000 SF N/A N/A Vacant [Perm] Inline *** 24 4,034 Perm. < 5,000 SF N/A N/A Vacant [Perm] Inline *** 26 1,832 Perm. < 5,000 SF N/A N/A Vacant [Perm] Inline *** 35 1,446 Perm. < 5,000 SF N/A N/A Vacant [Perm] Inline *** 9B 910 Perm. Office N/A N/A Vacant [Perm] Office *** 36 1 2,242 Perm. < 5,000 SF N/A N/A Vacant [Perm] Office *** 36 2-3 1,318 Perm. Office N/A N/A Vacant [Perm] Office *** 36A 1,100 Perm. Office N/A N/A Vacant [Perm] Office *** 4A 522 Perm. Office N/A N/A Vacant [Perm] Office *** 6A 338 Perm. Office N/A N/A Total (excludes permanent vacancy) 34,700 $5.53 $191,802 (1) Reflects current market rent, which will grow at our forecasted growth rate discussed herein.
ABSORPTION STATISTICS Analysis Start Date 04/01/15 Absorption Commencement 03/01/16 Absorption Completion 03/01/18 Total Absorption Period (Months) 36 Absorption Per Month (SF) 964 Compiled by Cushman & Wakefield of Oregon, Inc. We forecast an absorption period of 36 months to lease the spaces that were not withheld as permanent vacancy. The market rent noted in the chart reflects a current market rent estimate. If the space is forecast to lease beyond year one of the analysis, the market rent listed above will have grown at our market rent growth rate derived in this report. VACANCY AND COLLECTION LOSS Based on the historical occupancy of the subject, the current vacancy in the market, and our perception of future market vacancy, we projected a global stabilized vacancy rate of 7.00 percent. We also deducted a collection loss of 1.00 percent. Total vacancy and collection loss is equal to 8.00 percent. In year one, vacancy and collection loss is projected to be $3,808.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 48
REVENUE & EXPENSE ANALYSIS We developed an opinion of the property’s annual operating expenses after reviewing both its historical performance and the operating performance of similar buildings. We analyzed each item of expense and developed an opinion regarding what an informed investor would consider typical.
An operating history for the property, and our opinion of future income and expenses are presented on the following page.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 49
REVENUE AND EXPENSE ANALYSIS
Year of Record 2012 2013 2014 2015 2017 Actual/Budget/Annualized Actual Actual Actual C&W Year One C&W Forecast Stabilized
REVENUE Total PSF Total PSF Total PSF Total PSF Total PSF Rental Revenue $538,424 $5.04 $523,070 $4.89 $350,057 $3.28 $284,601 $2.66 $530,662 $4.97 Reimbursement N/A N/A N/A N/A 82,399 0.77 96,201 0.90 189,470 1.77 Total REVENUE $538,424 $5.04 $523,070 $4.89 $432,457 $4.05 $380,802 $3.56 $720,132 $6.74 Vacancy and Collection Loss 0 0.00 0 0.00 0 0.00 (3,808) (0.04) (37,869) (0.35) EFFECTIVE GROSS REVENUE $538,424 $5.04 $523,070 $4.89 $432,457 $4.05 $376,994 $3.53 $682,263 $6.38
OPERATING EXPENSES Common Area Maintenance $105,105 $0.98 $65,268 $0.61 $135,193 $1.27 $160,301 $1.50 $168,416 $1.58 Insurance 0 0.00 0 0.00 0 0.00 21,373 0.20 22,455 0.21 Advertising and Marketing 5,654 0.05 33,860 0.32 25,622 0.24 20,000 0.19 21,012 0.20 General and Administrative (20,684) (0.19) 11,203 0.10 5,040 0.05 0 0.00 0 0.00 Management Fees 0 0.00 0 0.00 27,357 0.26 15,080 0.14 27,291 0.26 Total Operating Expenses $90,075 $0.84 $110,332 $1.03 $193,212 $1.81 $216,754 $2.03 $239,174 $2.24
Real Estate Taxes $10,576 $0.10 $3,595 $0.03 $0 $0.00 $36,599 $0.34 $38,828 $0.36 TOTAL EXPENSES(Including Taxes) $100,651 $0.94 $113,926 $1.07 $193,212 $1.81 $253,353 $2.37 $278,002 $2.60 Percent of Effective Gross Income 18.69% 21.78% 44.68% 67.20% 40.75% NET OPERATING INCOME $437,773 $4.10 $409,143 $3.83 $239,245 $2.24 $123,641 $1.16 $404,261 $3.78
(1) Fiscal Year Beginning: 4/01/2015 Fiscal Year Ending: 3/31/2016 Compiled by Cushman & Wakefield of Oregon, Inc.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 50
INCOME AND EXPENSE PRO FORMA The following chart summarizes our opinion of income and expenses for year three, which is the first stabilized year in this analysis.
SUMMARY OF REVENUE AND EXPENSES
Stabilized Year For Direct Capitalization: Year Three Rev enue Annual $/SF % of EGI Rental Revenue $530,662 $4.97 Reimbursement 189,470 1.77 Total REVENUE $720,132 $6.74 Vacancy and Collection Loss (37,869) (0.35) EFFECTIVE GROSS REVENUE $682,263 $6.38 100.00%
Operating Expenses Common Area Maintenance $168,416 $1.58 24.68% Insurance 22,455 0.21 3.29% Advertising and Marketing 21,012 0.20 3.08% Management Fees 27,291 0.26 4.00% Total Operating Expenses $239,174 $2.24 35.06% Real Estate Taxes $38,828 $0.36 5.69%
TOTAL EXPENSES(Including Taxes) $278,002 $2.60 40.75% NET OPERATING INCOME $404,261 $3.78 59.25% Compiled by Cushman & Wakefield of Oregon, Inc. OPERATING EXPENSE COMPARABLES The following table illustrates detailed expense levels at properties considered to be similar to the subject property, based on location and physical attributes.
COMPARABLE EXPENSE ANALYSIS Comparable Number One Two Three Four Five Property Name Confidential Confidential Confidential Confidential Dollars & Cents Property State OR OR OR WA Community/Power Centers Statement Type Actual Actual Actual Actual Actual Year of Record 2012 2012 2011 2011 2008-2009
GLA (SF) GLA (SF) GLA (SF) GLA (SF) GLA (SF) OPERATING EXPENSES Property Insurance 0.17 0.13 0.15 0.15 0.25 Management Fees 0.52 0.51 0.45 0.50 0.52 Common Area Charges 1.70 0.38 1.21 1.10 1.63 TOTAL OPERATING EXPENSES $2.39 $1.02 $1.81 $1.75 $2.40 Real Estate Taxes 1.47 2.91 0.96 1.70 1.63 TOTAL EXPENSES $3.86 $3.93 $2.77 $3.45 $4.03 Compiled by Cushman & Wakefield of Oregon, Inc. The comparable properties reflect operating expenses (excluding real estate taxes) ranging from $1.02 per square foot to $2.40 per square foot, averaging $1.87 per square foot.
Based on our analysis of the expense levels at comparable properties, we concluded that there is adequate support for our operating expense conclusions.
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INVESTMENT CONSIDERATIONS Attained Rents Versus Market: The subject's attained rents (exclusive of expense contributions) are 2.56 percent below market. Given this comparison, the investment rates selected will be in line with market indicators.
NOI Growth: The subject's NOI is expected to grow 1.77 percent per annum from the first stabilized year of the analysis through the holding period. This rate of growth is considered acceptable.
Lease Expiration Exposure: Within the first five years of the analysis a total of 54.31 percent of the total net rentable area is scheduled to rollover. Extending to a ten-year period, a total of 115.84 percent of the space is scheduled to expire. The peak expiration occurs in year 12, when a total of 59,544 square feet is scheduled to expire. This is considered a high rollover exposure within this market.
Real Estate Market Trends: Real estate market trends have a significant bearing on the value of real property. The real estate market in which the subject property is located is currently stable.
Tenant Quality: The quality of a property's tenant base is an important factor that is scrutinized by investors prior to acquiring real property. The quality of the subject's tenant roster is considered to be fair-to-average.
Property Rating: After considering all of the physical characteristics of the subject, we have concluded that this property has an overall rating that is average, when measured against other properties in this marketplace.
Location Rating: After considering all of the locational aspects of the subject, including regional and local accessibility as well as overall visibility, we have concluded that the location of this property is average.
Overall Investment Appeal: There are many factors that are considered prior to investing in this type of property. After considering all of these factors, we conclude that this property has fair-to-average overall investment appeal.
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CAPITALIZATION RATE ANALYSIS An appropriate capitalization rate is selected by any combination of:
Analyzing recent comparable sales Reviewing investor survey data Calculating a weighted-average rate from the return rate attributable to each component of the capital investment (Mortgage Equity Analysis) CAPITALIZATION RATE FROM COMPARABLE SALES The following table summarizes overall capitalization rates derived from the improved property sales.
CAPITALIZATION RATE SUMMARY Capitalization No. Name and Location Sale Date Rate 1 Hermiston Plaza 11/2014 7.25% 930 S Highway 395 Hermiston, OR
2 Pleasant Hill Shopping Center 7/2014 N/A 35831 Highway 58 Pleasant Hill, OR
3 Mid Valley Plaza 7/2014 N/A 1543 Mount Hood Avenue Woodburn, OR
4 Bandon Shopping Center 2/2014 8.42% 66 Michigan Avenue Bandon, OR
5 Canby Square 1/2014 9.26% 1025 SW 1st Avenue Canby, OR
6 10625-10675 Coloma Rd. 6/2013 N/A 10625-10675 Coloma Rd Rancho Cordova, CA
7 Winco Plaza 10/2012 9.58% 259 E Barnett Road Medford, OR
8 Klamath Falls Town Center 4/2012 8.50% 1815 Avalon Street Klamath Falls, OR STATISTICS Sample Size 8 5 Low 4/2012 7.25% High 11/2014 9.58% Median 1/2014 8.50% Average 10/2013 8.60%
Compiled by Cushman & Wak efield of Oregon, Inc.
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As shown, capitalization rates among the comparable sales range from 7.25 to 9.58 percent, with an overall average of 8.60 percent and a median of 8.50 percent. We believe that the subject property would likely fall toward the upper-end of this range given its location and occupancy. As a result, the comparable sales suggest an overall capitalization rate for the subject of around 9.5 percent. CAPITALIZATION RATE FROM INVESTOR SURVEYS We considered data extracted from the PwC Real Estate Investor Survey for competitive properties. Earlier in the report, we presented historical capitalization rates for the prior four-year period. The most recent information from this survey is listed below:
INVESTOR SURVEY HISTORICAL RESULTS Survey: PwC End Quarter:
Property Type: NATIONAL STRIP SHOPPING CENTER 4Q 14
Quarter 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 OAR (average) 7.40% 7.33% 7.20% 7.16% 7.18% 7.18% 7.06% 7.06% 7.04% 6.95% 6.91% 6.98% 6.97% 7.09% 7.05% 7.05% Terminal OAR (average) 8.10% 7.97% 7.93% 7.93% 7.80% 7.77% 7.69% 7.66% 7.61% 7.53% 7.44% 7.39% 7.33% 7.44% 7.34% 7.22% IRR (average) 8.97% 8.85% 8.61% 8.44% 8.41% 8.41% 8.43% 8.43% 8.42% 8.19% 8.06% 8.05% 8.06% 8.31% 8.23% 8.11% INVESTOR SURVEY HISTORICAL RESULTS
OAR (average) Terminal OAR (average) IRR (average)
9.00%
8.75%
8.50%
8.25%
8.00% RATES 7.75%
7.50%
7.25%
7.00%
6.75%
6.50% 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 ANALYSIS PERIOD
Source: Pw C Real Estate Investor Survey
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 54
As the chart illustrates, the return requirements cited by investors climbed to more conservative levels from Third Quarter 2008 through Third Quarter 2009. The financial crisis has made investors more cautious and risk-averse resulting in higher return requirements. Investment rates have subsequently stabilized and declined as access to capital has increased and a greater number of quality properties have traded.
The PwC Non-institutional category most accurately reflects the market position of the subject property. The most recent information from this survey is listed below:
CAPITALIZATION RATES Survey Date Range Average Pw C Fourth Quarter 2014 5.00% - 10.00% 7.05% Pw C Noninstitutional Fourth Quarter 2014 8.35% Sale Comparables 7.25% - 9.58% 8.60% PwC - Refers to National Strip Shopping Center market regardless of class or occupancy PwC Noninstitutional - Reflects the average rate for this property type, adjusted by the average premium
DERIVATION OF RO FROM MORTGAGE-EQUITY ANALYSIS Most properties are purchased with debt and equity capital; therefore, the overall capitalization rate must satisfy the market return requirements of both investment positions. The lender/mortgagee must anticipate a rate of return that is appropriate for the investment’s perceived risk in order to make the loan; the loan principal is typically repaid through periodic amortization payments. The equity investor/mortgagor must also anticipate a rate of return that is commensurate with the investment’s perceived risk or they opt for an alternative investment.
Mortgage-equity analysis is defined by the fifth edition of The Dictionary of Real Estate Appraisal as “capitalization and investment analysis procedures that recognize how mortgage terms and equity requirements affect the value of income-producing property.” This analysis is also known as the Ellwood Formula, which is defined as a “yield capitalization method that provides a formulaic solution for developing a capitalization rate for various combinations of equity yields and mortgage terms. The formula is applicable only to properties with stable or stabilized income streams and properties with income streams expected to change according to the J- or K- factor pattern.” Thus, rates of return for debt and equity are analyzed as well as anticipated changes in both income and value.
The Ellwood formula is as follows:
YE – M(YE + P1/Sn – RM) - ∆O1/Sn RO = 1 + ∆IJ Where:
RO = overall capitalization rate
YE = equity yield rate
M = loan-to-value ratio
P = percentage of loan paid off
1/Sn = sinking fund factor at the equity yield rate
RM = mortgage capitalization rate or mortgage constant
∆O = change in total property value
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∆I = total ratio change in income
J = J factor
The portion of the formula represented as: YE – M(YE + P1/Sn – RM) can be referred to as the basic capitalization rate, which satisfies the lender’s requirement and adjustments for amortization; it also satisfies the investor’s equity requirement before an adjustment is made for income and value changes. Therefore, the basic rate starts with an investor’s yield requirement and adjusts it to reflect the effect of financing. The resulting basic capitalization rate is the building block from which an overall capitalization rate can be developed with additional assumptions.
If level income and no change in value are anticipated, the basic rate will be identical to the overall capitalization rate. The last part of the numerator, ∆O1/Sn, allows the appraiser to adjust the basic rate to reflect an expected change in overall property value. If the value change is positive, referred to as property appreciation, the overall capitalization rate is reduced to reflect this anticipated monetary benefit; if the change is negative, referred to as depreciation, the overall capitalization rate is increased.
Finally, the denominator, 1 + ∆IJ, accounts for any change in income. The J-factor is always positive. Thus, if the change in income is positive, the denominator will be greater than one and the overall rate will be reduced. If the change in income is negative, the overall rate will be increased. For level-income applications, ∆ = 0, so the denominator is 1 + 0, or 1.
The mortgage-equity procedure developed by Charles B. Akerson substitutes an arithmetic format for the algebraic equation in the Ellwood formula. This format is applicable to level income situations; when modified with the J or K factors, it can also be applied to changing income situations.
The Akerson formula for a level income situation is:
Loan Ratio x Annual Mortgage Constant = Mortgage Component + (Equity Ratio x Equity Yield Rate) + Equity Component =
- (Loan Ratio x % Paid off in Projection Period x 1/Sn) – Credit for Equity Buildup = Basic Rate = Basic Capitalization Rate
+ depreciation or – appreciation x 1/Sn ± Appreciation/Depreciation adjustment
= Overall Capitalization Rate = RO
In the following sections, we discuss the various components used in the Akerson formula, which are then followed by a calculation of the overall capitalization rate.
Mortgage Terms The following mortgage interest rate is based on periodic conversations with representatives of lending institutions providing local mortgage financing. Thus, given the physical and economic characteristics of the subject property, and on the basis of our research, the market terms for conventional loans made on properties similar to the subject are as follows:
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MORTGAGE COMPONENT TYPICAL LOAN TERMS Mortgage Rate 5.50% Amortization Term (Years) 25 Number of Payments 300 Loan-to-Value Ratio (M) 50.00% Equity Ratio (E) 50.00%
Mortgage Constant (RM) 7.37% Compiled by Cushman & Wakefield of Oregon, Inc.
The preceding data are used in the development of an overall capitalization rate (RO) for the subject property.
The capitalization rate for debt (indicated in the preceding table) is known as the mortgage constant (RM); it is the ratio of annual debt service to the principal amount of the mortgage loan. It is calculated as follows:
Monthly Payment x 12 R = M Amount of Loan The monthly payment of a loan is calculated using the following formula:
Interest Rate (i) Monthly Payment = 1 – Present Value Factor The Present Value Factor can be obtained from financial tables that show the six functions of a dollar.
Equity Yield Rate (Ye ) The Appraisal Institute defines equity yield rate as a rate of return on equity capital over the investment period. It is the equity investor’s internal rate of return. The equity yield rate that will be employed in this analysis is a reflection of current rates of return sought by equity investors.
Our selected YE is as follows:
EQUITY COMPONENT
Equity Yield Rate (YE) 14.00% Compiled by Cushman & Wakefield of Oregon, Inc. Projection Assumptions Projection assumptions are as follows:
PROJECTION ASSUMPTIONS Projection Period (n) 10 Years Annual Appreciation/Depreciation 1.00% per Year Total Appreciation/Depreciation 10.46% Compiled by Cushman & Wakefield of Oregon, Inc. The projection period represents a typical holding period for commercial real estate; this projected holding period is also consistent with the typical yield capitalization projections. The annual appreciation/depreciation is projected based on our view of current market conditions as well as future conditions anticipated during the holding period. Both assumptions are considered reasonable for the subject property.
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Sinking Fund Factor & Percentage of Loan Paid Off
The Sinking Fund Factor (1/Sn) that is employed in this analysis is calculated based on the estimated Equity Yield
Rate (YE) and the Projection Period using the following formula:
n 1/Sn = YE ÷ ((1+ YE) – 1) The portion of the loan that is paid off during the projection period is calculated based on the mortgage rate, mortgage amortization term and the length of the projection period; this calculation is as follows:
1/S Percentage of Loan Paid Off = n 1/SNp Where:
(Mortgage Rate ÷ 12) 1/S = nP ((1 + (Mortgage Rate ÷ 12))n in months – 1) The sinking fund factor and the percentage of the loan paid off during the projection period, which are calculated based on the foregoing assumptions, are as follows:
SINKING FUND FACTOR & PERCENTAGE PAID OFF
Sinking Fund Factor (1/Sn) 5.17% Percentage of Loan Paid Off 24.84% Compiled by Cushman & Wakefield of Oregon, Inc.
Calculation of Overall Capitalization Rate (RO )
The calculation of the overall capitalization rate (RO) using the mortgage-equity technique is as follows:
MORTGAGE-EQUITY PROCEDURE - DEVELOPMENT OF CAPITALIZATION RATE Loan-to-Value Ratio x Mortgage Constant = 50.00% x 7.37% = 3.68% Equity Ratio x Equity Yield Rate = 50.00% x 14.00% = 7.00% Weighted Average 10.68%
Less Credit for Equity Build-up Loan-to-Value Ratio x % of Loan Paid off x Sinking Fund Factor = 50.00% x 24.84% x 5.17% = 0.64% Basic Rate 10.04%
Less Appreciation/Depreciation Appreciation/Depreciation x Sinking Fund Factor = 10.46% x 5.17% = 0.54%
Indicated Overall Rate (RO) 9.50%
Compiled by Cushman & Wakefield of Oregon, Inc.
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CAPITALIZATION RATE CONCLUSION The subject is a noninvestment-grade asset in a tertiary location, with existing rents that are near market, but with significant near-term leasing risk. We considered OARs indicated by sales of comparable properties, national investor surveys, and the opinions of brokers, owners, and prospective purchasers. The indications from these various sources are:
CAPITALIZATION RATE SUMMARY Comparable Sales 9.65% Investor Survey Data 8.35% Mortgage Equity Analysis 9.50% Conclusion 9.50%
Compiled by Cushman & Wakefield of Oregon, Inc. Given the property attributes and prevailing market return rates, we conclude that a 9.50 percent OAR is applicable to the subject NOI forecast on a stabilized basis. The rate selected is at the upper-end of the recent sales comparables identified due to the subject’s tertiary location and near-term leasing risk. DIRECT CAPITALIZATION METHOD CONCLUSION In the Direct Capitalization Method, we developed an opinion of market value by dividing year three net operating income by our selected overall capitalization rate. Our conclusion using the Direct Capitalization Method is as follows:
DIRECT CAPITALIZATION METHOD Prospectiv e Market Value Upon Stabilization NET OPERATING INCOME $404,261 $3.78 Sensitivity Analysis (0.25% OAR Spread) Value $/SF GLA Based on Low-Range of 9.25% $4,370,389 $40.90 Based on Most Probable Range of 9.50% $4,255,379 $39.82 Based on High-Range of 9.75% $4,146,267 $38.80 Preliminary Value $4,255,379 $39.82 Rounded to nearest $50,000 $4,250,000 $39.77 Compiled by Cushman & Wakefield of Oregon, Inc. Adjustment for Market Value As-Is Overall, the two methods utilized in the Sales Comparison Approach would imply that the variance between the prospective value upon stabilization and the “as-is” value ranges from $600,000 to $750,000. By comparison, the two discounted cash flow projections suggest a variance between $3,200,000 (as-is) and $3,950,000 (stabilized), or $750,000.
On balance, we have considered a $750,000 adjustment for the analysis. This adjustment figure has been used in the Sales Comparison Approach and the Direct Capitalization method of the Income Capitalization Approach to determine the “as-is” value of the project.
In the final analysis, we have estimated that the Market Value As-Is of the subject property, as indicated by the Direct Capitalization Method, as of March 19, 2015, the date of analysis, is appropriately reflected at $3,500,000.
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YIELD CAPITALIZATION METHOD In the Yield Capitalization Method, we employed ARGUS - Version 15 software to model the income characteristics of the property and to make a variety of cash flow assumptions. We attempted to reflect the most likely investment assumptions of typical buyers and sellers in this market segment. GENERAL CASH FLOW ASSUMPTIONS The start date of the Yield Capitalization analysis is April 01, 2015. We performed this analysis on a fiscal year basis. The analysis incorporates a forecast period of 13 years, and a holding period of 12 years.
The following table outlines the assumptions used in the Yield Capitalization analysis.
DISCOUNTED CASH FLOW MODELING ASSUMPTIONS VALUATION SCENARIO: Market Value As-Is GENERAL CASH FLOW ASSUMPTIONS GROWTH RATES Cas h Flow Sof tw are: ARGUS - Version 15 Market Rent: 1.00% Cash Flow Start Date: 4/1/2015 Consumer Price Index (CPI): 2.50% Calendar or Fiscal Analysis: Fiscal Expenses: 2.50% Investment Holding Period: 12 Years Tenant Improvements: 2.50% Analysis Projection Period: 13 Years Real Estate Taxes: 3.00% na na
VACANCY & COLLECTION LOSS RATES OF RETURN Global Vacancy: 7.00% Internal Rate of Return: (Cash Flow ) 11.00% Global Collection Loss: 1.00% Internal Rate of Return: (Reversion) 11.00% Total Vacancy & Collection Loss: 8.00% Terminal Capitalization Rate: 10.00% Reversionary Sales Cost: 4.00% Credit Tenant Overide Rate (Vacancy): N/A Basis Point Spread (OARout vs. OARin) 50 pts Credit Tenant Overide Rate (Collection Loss): N/A VALUATION CAPITAL EXPENDITURES Market Value As-Is $3,141,648 Reserves for Replacement ($/SF): $0.25 LESS Curable Depreciation $0 Other Deductions ($) N/A Adjusted Value $3,141,648 Rounded to nearest $50,000 $3,150,000 Value $/SF $29.48
Compiled by Cushman & Wakefield of Oregon, Inc. The following information was extracted from the PwC Investor Survey and was used to help determine our growth rate assumptions.
OTHER INVESTOR SURVEY INFORMATION Survey Data Range Average Pw C Fourth Quarter 2014 Rent Change Rate 0.00% - 5.00% 1.97% Expense Change Rate 0.00% - 3.00% 2.72% PwC - Refers to National Strip Shopping Center market regardless of class or occupancy LEASING ASSUMPTIONS The contract lease terms for the existing tenants were used within the Yield Capitalization analysis with market leasing assumptions applied for renewals and absorption tenants. The income and expense information that was previously presented has been used as the basis for our market leasing projections.
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The following chart summarizes the leasing assumptions that were used in preparing our Yield Capitalization analysis.
LEASING ASSUMPTIONS 5,001 to TENANT CATEGORY < 5,000 SF 15,000 SF Office Anchor Storage WEIGHT ED IT EM S Renew al Probability 75.00% 75.00% 75.00% 75.00% 75.00% Market Rent $7.80 $6.00 $5.40 $5.00 $1.80 Months Vacant 12.00 12.00 12.00 24.00 12.00 Tenant Improvements New Leases $5.00 $5.00 $5.00 $0.00 $0.00 Renew al Leases $0.00 $0.00 $0.00 $0.00 $0.00 First Generation (shell) Leasing Commissions (1) New Leases 6.00% 6.00% 6.00% $2.00 0.00% Renew al Leases 3.00% 3.00% 3.00% $1.00 0.00% Free Rent New Leases 0 0 0 0 0 Renewal Leases 00000
NON-WEIGHTED ITEM S Lease Term (years) 5 5 5 15 5 Lease Type (reimbursements) Net Net Net Net Gross Contract Rent Increase Projection 2.5% Annual 2.5% Annual 2.5% Annual 10% Bumps 2.5% Annual Compiled by Cushman & Wakefield of Oregon, Inc. (1) Leasing Commissions are detailed below
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FINANCIAL ASSUMPTIONS The financial assumptions used in the Yield Capitalization process are discussed in the following commentary.
Terminal Capitalization Rate Selection A terminal capitalization rate was used to develop an opinion of the market value of the property at the end of the assumed investment holding period. The rate is applied to the net operating income following year 12 before making deductions for leasing commissions, tenant improvement allowances and reserves for replacement. We developed an opinion of an appropriate terminal capitalization rate based on rates in current investor surveys.
TERMINAL CAPITALIZATION RATES (OARout) Survey Date Range Average Pw C Fourth Quarter 2014 5.00% - 10.00% 7.22% Pw C Noninstitutional Fourth Quarter 2014 8.52% PwC - Refers to National Strip Shopping Center market regardless of class or occupancy PwC Noninstitutional - Reflects the average rate for this property type, adjusted by the average premium Investors will typically use a slightly more conservative overall rate when exiting an investment versus the rate that would be used going into the investment. This accounts both for the aging associated with the improvements over the course of the holding period, and for any unforeseen risks that might arise over that time period.
As a result, we applied a terminal rate of 10.00 percent in our analysis. This rate is 50 basis points above the overall rate going into the investment, which is considered reasonable.
Reversionary Sales Costs We estimated the cost of sale at the time of reversion to be 4.00 percent, which is in keeping with local market practice.
Discount Rate Selection We developed an opinion of future cash flows, including property value at reversion, and discounted that income stream at an internal rate of return (IRR) currently required by investors for similar-quality real property. The IRR (also known as yield) is the single rate that discounts all future equity benefits (cash flows and equity reversion) to an opinion of net present value.
The discount rate is influenced by a myriad of macro-market considerations, including the perceived risks associated with the local market and property type (supply and demand dynamics), expectations on interest rates and inflation trends, and returns offered by alternative investments. The rate is further impacted by the perceived quantity, quality, and durability of the property’s income stream.
The PwC Investor survey indicates the following internal rates of return for competitive properties:
DISCOUNT RATES (IRR) Survey Date Range Average Pw C Fourth Quarter 2014 6.00% - 11.00% 8.11% Pw C Noninstitutional Fourth Quarter 2014 10.21% PwC - Refers to National Strip Shopping Center market regardless of class or occupancy PwC Noninstitutional - Reflects the average rate for this property type, adjusted by the average premium
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The above table summarizes the investment parameters of some of the most prominent investors currently acquiring similar investment properties in the United States, and reflects target rather than transactional rates. Transactional rates from closed sales are usually difficult to obtain in the verification process.
All factors that influence our selection of a discount rate for the subject property were identified in the Investment Considerations section of this report. Given these elements, our cash flow and reversionary value projections are discounted at an internal rate of return of 11.00 percent. The selected rate is at the upper-end of the survey range and reflects the subject’s tertiary location and vacancy issues.
Yield Capitalization Method Conclusion The results of the Yield Capitalization analysis are presented below:
PRICING MATRIX - Market Value As-Is Terminal Discount Rate (IRR) for Cash Flow Cap Rates 10.50% 10.75% 11.00% 11.25% 11.50% 9.50%$ 3,340,104 $ 3,273,957 $ 3,209,464 $ 3,146,577 $ 3,085,251 9.75%$ 3,303,391 $ 3,238,226 $ 3,174,687 $ 3,112,726 $ 3,052,299 10.00%$ 3,268,513 $ 3,204,282 $ 3,141,648 $ 3,080,568 $ 3,020,995 10.25%$ 3,235,337 $ 3,171,993 $ 3,110,222 $ 3,049,978 $ 2,991,219 10.50%$ 3,203,740 $ 3,141,242 $ 3,080,291 $ 3,020,845 $ 2,962,860
IRR Reversion 10.50% 10.75% 11.00% 11.25% 11.50% Cost of Sale at Rev ersion: 4.00% Percent Residual: 41.01% Rounded to nearest $50,000 $3,150,000 $29.48 Based on the rates selected, the value via the Yield Capitalization analysis is estimated at $3,150,000, rounded. The reversion contributes 41.01 percent to this value estimate. Our cash flow projection is presented as follows.
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 63
ANNUAL CASH FLOW REPORT Annual Annual Brookings Harbor Shopping Center Grow th Grow th 12345678910111213Year 1 - Year 3 - For the Years Beginning Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24 Apr-25 Apr-26 Apr-27 For the Years Ending Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25 Mar-26 Mar-27 Mar-28 Year 12 Year 12
Base Rental Revenue $ 542,451 $ 543,424 $ 551,889 $ 562,787 $ 577,059 $ 592,568 $ 593,881 $ 616,738 $ 628,224 $ 639,788 $ 653,669 $ 670,069 $ 702,137 2.17% 2.44% Absorption & Turnover Vacancy (257,850) (172,572) (21,227) 0 (18,013) (50,854) (26,343) (10,944) (6,382) (6,793) (29,276) (85,270) (84,492) -8.88% 14.81% Scheduled Base Rental Revenue $ 284,601 $ 370,852 $ 530,662 $ 562,787 $ 559,046 $ 541,714 $ 567,538 $ 605,794 $ 621,842 $ 632,995 $ 624,393 $ 584,799 $ 617,645 6.67% 1.53%
Property Insurance 9,418 12,201 18,525 19,571 19,421 18,949 20,212 21,305 21,970 22,455 22,313 20,915 21,008 6.91% 1.27% Common Area Maintenance 70,650 91,508 138,919 146,788 145,660 142,123 151,597 159,786 164,769 168,422 167,340 156,857 157,561 6.91% 1.27% Real Estate Taxes 16,133 20,994 32,026 34,007 33,910 33,247 35,640 37,747 39,113 40,174 40,111 37,781 38,136 7.43% 1.76% Total Reimbursement Revenue $ 96,201 $ 124,703 $ 189,470 $ 200,366 $ 198,991 $ 194,319 $ 207,449 $ 218,838 $ 225,852 $ 231,051 $ 229,764 $ 215,553 $ 216,705 7.00% 1.35%
TOTAL GROSS REVENUE $ 380,802 $ 495,555 $ 720,132 $ 763,153 $ 758,037 $ 736,033 $ 774,987 $ 824,632 $ 847,694 $ 864,046 $ 854,157 $ 800,352 $ 834,350 6.75% 1.48%
General Vacancy 0 0 (30,668) (53,421) (36,311) (4,228) (29,750) (47,546) (53,403) (54,166) (32,564) 0 0 -100.00% Collection Loss (3,808) (4,956) (7,201) (7,632) (7,580) (7,360) (7,750) (8,246) (8,477) (8,640) (8,542) (8,004) (8,343) 6.75% 1.48% EFFECTIVE GROSS REVENUE $ 376,994 $ 490,599 $ 682,263 $ 702,100 $ 714,146 $ 724,445 $ 737,487 $ 768,840 $ 785,814 $ 801,240 $ 813,051 $ 792,348 $ 826,007 6.75% 1.93%
Property Insurance 21,373 21,908 22,455 23,017 23,592 24,182 24,787 25,406 26,041 26,692 27,360 28,044 28,745 2.50% 2.50% Management 15,080 19,624 27,291 28,084 28,566 28,978 29,499 30,754 31,433 32,050 32,522 31,694 33,040 6.75% 1.93% Common Area Maintenance 160,301 164,308 168,416 172,626 176,942 181,365 185,899 190,547 195,311 200,193 205,198 210,328 215,586 2.50% 2.50% Advertising and Promotion 20,000 20,500 21,012 21,538 22,076 22,628 23,194 23,774 24,368 24,977 25,602 26,242 26,898 2.50% 2.50% Real Estate Taxes 36,599 37,697 38,828 39,993 41,192 42,428 43,701 45,012 46,363 47,753 49,186 50,662 52,181 3.00% 3.00% TOTAL OPERATING EXPENSES $ 253,353 $ 264,037 $ 278,002 $ 285,258 $ 292,368 $ 299,581 $ 307,080 $ 315,493 $ 323,516 $ 331,665 $ 339,868 $ 346,970 $ 356,450 2.89% 2.52%
NET OPERATING INCOME $ 123,641 $ 226,562 $ 404,261 $ 416,842 $ 421,778 $ 424,864 $ 430,407 $ 453,347 $ 462,298 $ 469,575 $ 473,183 $ 445,378 $ 469,557 11.76% 1.51%
Replacement Reserve 26,717 27,385 28,069 28,771 29,490 30,228 30,983 31,758 32,552 33,366 34,200 35,055 35,931 2.50% 2.50% Tenant Improvements 46,704 22,536 20,518 0 16,005 19,505 41,671 6,660 6,542 0 20,108 68,179 7,535 -14.10% -9.53% Leasing Commissions 46,151 71,490 12,354 0 14,203 19,560 39,251 7,682 7,548 0 18,256 65,261 55,693 1.58% 16.25% TOTAL LEASING & CAPITAL COSTS$ 119,572 $ 121,411 $ 60,941 $ 28,771 $ 59,698 $ 69,293 $ 111,905 $ 46,100 $ 46,642 $ 33,366 $ 72,564 $ 168,495 $ 99,159 -1.55% 4.99%
CASH FLOW BEFORE DEBT SERVICE$ 4,069 $ 105,151 $ 343,320 $ 388,071 $ 362,080 $ 355,571 $ 318,502 $ 407,247 $ 415,656 $ 436,209 $ 400,619 $ 276,883 $ 370,398 -- 0.76%
Implied Overall Rate 3.93% 7.19% 12.83% 13.23% 13.39% 13.49% 13.66% 14.39% 14.68% 14.91% 15.02% 14.14% Cash on Cash Return 0.13% 3.34% 10.90% 12.32% 11.49% 11.29% 10.11% 12.93% 13.20% 13.85% 12.72% 8.79%
BROOKINGS HARBOR SHOPPING CENTER INCOME CAPITALIZATION APPROACH 64
ADDITIONAL VALUATION SCENARIOS & ASSUMPTIONS As the property is not currently operating at stabilized occupancy, we also prepared the prospective values discussed below.
Yield Capitalization Method Conclusion – Prospective Value Upon Stabilization The following table summarizes the parameters used to determine the prospective value of the subject property upon stabilization. The value conclusion is also presented below:
DISCOUNTED CASH FLOW MODELING ASSUMPTIONS VALUATION SCENARIO: Prospective Market Value Upon Stabilization ADDITIONAL ASSUMPTIONS VALUATION Holding Period: 10 Years Prospective Market Value Upon Stabiliza $3,881,289 Projection Period: 11 Years LESS Curable Depreciation $0 Start Date: 4/1/2017 Adjusted Value $3,881,289 Internal Rate of Return: (Cash Flow ) 10.50% Rounded to nearest $50,000 $3,900,000 Internal Rate of Return: (Reversion) 10.50% Value $/SF $36.49 Terminal Capitalization Rate: 10.00% Reversionary Sales Cost: 4.00%
Compiled by Cushman & Wak efield of Oregon, Inc. The value matrix correlating to this valuation is presented below:
PRICING MATRIX - Prospective Market Value Upon Stabilization Terminal Discount Rate (IRR) for Cash Flow Cap Rates 10.00% 10.25% 10.50% 10.75% 11.00% 9.50%$ 4,098,215 $ 4,032,752 $ 3,968,703 $ 3,906,035 $ 3,844,713 9.75%$ 4,051,308 $ 3,986,897 $ 3,923,875 $ 3,862,209 $ 3,801,864 10.00%$ 4,006,745 $ 3,943,335 $ 3,881,289 $ 3,820,574 $ 3,761,157 10.25%$ 3,964,357 $ 3,901,897 $ 3,840,780 $ 3,780,970 $ 3,722,436 10.50%$ 3,923,987 $ 3,862,434 $ 3,802,200 $ 3,743,252 $ 3,685,559
IRR Reversion 10.00% 10.25% 10.50% 10.75% 11.00% Cost of Sale at Rev ersion: 4.00% Percent Residual: 42.79% Rounded to nearest $50,000 $3,900,000 $36.49
BROOKINGS HARBOR SHOPPING CENTER RECONCILIATION AND FINAL VALUE OPINION 65
RECONCILIATION AND FINAL VALUE OPINION VALUATION METHODOLOGY REVIEW AND RECONCILIATION This appraisal employs the Sales Comparison Approach and the Income Capitalization Approach. Based on our analysis and knowledge of the subject property type and relevant investor profiles, it is our opinion that these approaches would be considered applicable and/or necessary for market participants. Typical purchasers do not generally rely on the Cost Approach when purchasing a property such as the subject of this report. Therefore, we have not utilized the Cost Approach to develop an opinion of market value.
The approaches indicated the following:
FINAL VALUE RECONCILIATION Market Value Prospective Market Value As-Is PSF Upon Stabilization PSF Date of Value March 19, 2015 March 19, 2017 Sales Comparison Approach Percentage Adjustment Method $3,500,000 $32.75 $4,250,000 $39.77
Income Capitalization Approach Yield Capitalization $3,150,000 $29.48 $3,900,000 $36.49 Direct Capitalization $3,500,000 $32.75 $4,250,000 $39.77 Conclusion $3,250,000 $30.41 $4,000,000 $37.43
Final Value Conclusion $3,250,000 $30.41 $4,000,000 $37.43 Compiled by Cushman & Wakefield of Oregon, Inc. The tables above summarize the estimates from each of the methods utilized. Because of certain vulnerable characteristics in the Sales Comparison Approach is has been used as supporting evidence and as a final check on the value conclusion indicated by the Income Capitalization Approach methodologies. SALES COMPARISON APPROACH The Sales Comparison Approach has arrived at a value for the subject property by analyzing historical arms- length transactions, reducing the gathered information to common units of comparison, adjusting the sale data for differences with the subject, and interpreting the results to yield a meaningful value conclusion. The basis of these conclusions was the cash-on-cash return based on net income and the adjusted price per square foot of gross leasable area sold.
The process of comparing historical sales data to assess what purchasers have been paying for similar type properties is weak in estimating future expectations. Although the unit sale price yields comparable conclusions, it is not the primary tool by which the investor market for a property like the subject operates. In addition, no two properties are alike with respect to quality of construction, location, market segmentation and income profile. As such, subjective judgment necessarily becomes a part of the comparative process.
The usefulness of this approach is that it interprets specific investor parameters established in their analysis and ultimate purchase of a property. In light of the above, this methodology is best suited as support for the conclusions of the Income Capitalization Approach. It provides useful market extracted rates of return, such as overall rates, to simulate investor behavior in the Income Capitalization Approach.
BROOKINGS HARBOR SHOPPING CENTER RECONCILIATION AND FINAL VALUE OPINION 66
INCOME CAPITALIZATION APPROACH YIELD CAPITALIZATION ANALYSIS The subject property is suited to analysis by the yield capitalization method as it will be bought and sold in investment circles. The focus on property value in relation to anticipated income is well founded since the basis for investment is profit in the form of return or yield on invested capital.
The subject property, as an investment vehicle, is sensitive to all changes in the economic climate and the economic expectations of investors. The discounted cash flow analysis may easily reflect changes in the economic climate of investor expectations by adjusting the variables used to qualify the model. In the case of the subject property, the DCF can analyze probabilities of future rollovers and turnovers. Essentially, the yield capitalization method can model many of the dynamics of a complex shopping center.
DIRECT CAPITALIZATION Direct capitalization has its basis in capitalization theory and uses the premise that the relationship between income and sales price may be expressed as a rate or its reciprocal, a multiplier. This process selects rates derived from the marketplace, in much the same fashion as the Sales Comparison Approach, and applies this to a projected net operating income to derive a sale price.
The weakness here is the idea of using one year of cash flow as the basis for calculating a sale price. This is simplistic in its view of expectations and may sometimes be misleading. If the year chosen for the analysis of the sale price contains an income stream that is over or understated, this error is compounded by the capitalization process. Nonetheless, real estate of the subject's caliber is commonly purchased on a direct capitalization basis. Overall, this methodology has been given limited consideration in our total analysis of the subject property.
Value Conclusions Value Appraisal Premise Real Property Interest Date Of Value Conclusion Market Value As-Is Leased Fee 3/19/2015 $3,250,000 Prospective Market Value Upon Stabilization Leased Fee 3/19/2017 $4,000,000 Compiled by Cushman & Wakefield of Oregon, Inc. The implied “going in” capitalization rate is 10.11 percent. The overall capitalization rates derived from the improved property sales are between 7.25 percent and 9.58 percent, averaging 8.60 percent. The implied going- in cap rate is higher than the going-in capitalization rates indicated by the sales and the most recent Investor Surveys due to the subject’s more tertiary location and high vacancy level.
BROOKINGS HARBOR SHOPPING CENTER ASSUMPTIONS AND LIMITING CONDITIONS 67
ASSUMPTIONS AND LIMITING CONDITIONS "Report" means the appraisal or consulting report and conclusions stated therein, to which these Assumptions and Limiting Conditions are annexed. "Property" means the subject of the Report. "C&W" means Cushman & Wakefield, Inc. or its subsidiary that issued the Report. "Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report. The Report has been made subject to the following assumptions and limiting conditions: No opinion is intended to be expressed and no responsibility is assumed for the legal description or for any matters that are legal in nature or require legal expertise or specialized knowledge beyond that of a real estate appraiser. Title to the Property is assumed to be good and marketable and the Property is assumed to be free and clear of all liens unless otherwise stated. No survey of the Property was undertaken. The information contained in the Report or upon which the Report is based has been gathered from sources the Appraiser assumes to be reliable and accurate. The owner of the Property may have provided some of such information. Neither the Appraiser nor C&W shall be responsible for the accuracy or completeness of such information, including the correctness of estimates, opinions, dimensions, sketches, exhibits and factual matters. Any authorized user of the Report is obligated to bring to the attention of C&W any inaccuracies or errors that it believes are contained in the Report. The opinions are only as of the date stated in the Report. Changes since that date in external and market factors or in the Property itself can significantly affect the conclusions in the Report. The Report is to be used in whole and not in part. No part of the Report shall be used in conjunction with any other analyses. Publication of the Report or any portion thereof without the prior written consent of C&W is prohibited. Reference to the Appraisal Institute or to the MAI designation is prohibited. Except as may be otherwise stated in the letter of engagement, the Report may not be used by any person(s) other than the party(ies) to whom it is addressed or for purposes other than that for which it was prepared. No part of the Report shall be conveyed to the public through advertising, or used in any sales, promotion, offering or SEC material without C&W's prior written consent. Any authorized user(s) of this Report who provides a copy to, or permits reliance thereon by, any person or entity not authorized by C&W in writing to use or rely thereon, hereby agrees to indemnify and hold C&W, its affiliates and their respective shareholders, directors, officers and employees, harmless from and against all damages, expenses, claims and costs, including attorneys' fees, incurred in investigating and defending any claim arising from or in any way connected to the use of, or reliance upon, the Report by any such unauthorized person(s) or entity(ies). Except as may be otherwise stated in the letter of engagement, the Appraiser shall not be required to give testimony in any court or administrative proceeding relating to the Property or the Appraisal. The Report assumes (a) responsible ownership and competent management of the Property; (b) there are no hidden or unapparent conditions of the Property, subsoil or structures that render the Property more or less valuable (no responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them); (c) full compliance with all applicable federal, state and local zoning and environmental regulations and laws, unless noncompliance is stated, defined and considered in the Report; and (d) all required licenses, certificates of occupancy and other governmental consents have been or can be obtained and renewed for any use on which the value opinion contained in the Report is based. The physical condition of the improvements considered by the Report is based on visual inspection by the Appraiser or other person identified in the Report. C&W assumes no responsibility for the soundness of structural components or for the condition of mechanical equipment, plumbing or electrical components. The forecasted potential gross income referred to in the Report may be based on lease summaries provided by the owner or third parties. The Report assumes no responsibility for the authenticity or completeness of lease information provided by others. C&W recommends that legal advice be obtained regarding the interpretation of lease provisions and the contractual rights of parties.
BROOKINGS HARBOR SHOPPING CENTER ASSUMPTIONS AND LIMITING CONDITIONS 68
The forecasts of income and expenses are not predictions of the future. Rather, they are the Appraiser's best opinions of current market thinking on future income and expenses. The Appraiser and C&W make no warranty or representation that these forecasts will materialize. The real estate market is constantly fluctuating and changing. It is not the Appraiser's task to predict or in any way warrant the conditions of a future real estate market; the Appraiser can only reflect what the investment community, as of the date of the Report, envisages for the future in terms of rental rates, expenses, and supply and demand. Unless otherwise stated in the Report, the existence of potentially hazardous or toxic materials that may have been used in the construction or maintenance of the improvements or may be located at or about the Property was not considered in arriving at the opinion of value. These materials (such as formaldehyde foam insulation, asbestos insulation and other potentially hazardous materials) may adversely affect the value of the Property. The Appraisers are not qualified to detect such substances. C&W recommends that an environmental expert be employed to determine the impact of these matters on the opinion of value. Unless otherwise stated in the Report, compliance with the requirements of the Americans with Disabilities Act of 1990 (ADA) has not been considered in arriving at the opinion of value. Failure to comply with the requirements of the ADA may adversely affect the value of the Property. C&W recommends that an expert in this field be employed to determine the compliance of the Property with the requirements of the ADA and the impact of these matters on the opinion of value. If the Report is submitted to a lender or investor with the prior approval of C&W, such party should consider this Report as only one factor, together with its independent investment considerations and underwriting criteria, in its overall investment decision. Such lender or investor is specifically cautioned to understand all Extraordinary Assumptions and Hypothetical Conditions and the Assumptions and Limiting Conditions incorporated in this Report. In the event of a claim against C&W or its affiliates or their respective officers or employees or the Appraisers in connection with or in any way relating to this Report or this engagement, the maximum damages recoverable shall be the amount of the monies actually collected by C&W or its affiliates for this Report and under no circumstances shall any claim for consequential damages be made. If the Report is referred to or included in any offering material or prospectus, the Report shall be deemed referred to or included for informational purposes only and C&W, its employees and the Appraiser have no liability to such recipients. C&W disclaims any and all liability to any party other than the party that retained C&W to prepare the Report. Any estimate of insurable value, if included within the agreed upon scope of work and presented within this Report, is based upon figures derived from a national cost estimating service and is developed consistent with industry practices. However, actual local and regional construction costs may vary significantly from our estimate and individual insurance policies and underwriters have varied specifications, exclusions, and non-insurable items. As such, C&W strongly recommends that the Intended Users obtain estimates from professionals experienced in establishing insurance coverage for replacing any structure. This analysis should not be relied upon to determine insurance coverage. Furthermore, C&W makes no warranties regarding the accuracy of this estimate. Unless otherwise noted, we were not given a soil report to review. However, we assume that the soil’s load-bearing capacity is sufficient to support existing and/or proposed structure(s). We did not observe any evidence to the contrary during our physical inspection of the property. Drainage appears to be adequate. Unless otherwise noted, we were not given a title report to review. We do not know of any easements, encroachments, or restrictions that would adversely affect the site’s use. However, we recommend a title search to determine whether any adverse conditions exist. Unless otherwise noted, we were not given a wetlands survey to review. If subsequent engineering data reveal the presence of regulated wetlands, it could materially affect property value. We recommend a wetlands survey by a professional engineer with expertise in this field. Unless otherwise noted, we observed no evidence of toxic or hazardous substances during our inspection of the site. However, we are not trained to perform technical environmental inspections and recommend the hiring of a professional engineer with expertise in this field. Unless otherwise noted, we did not inspect the roof nor did we make a detailed inspection of the mechanical systems. The appraisers are not qualified to render an opinion regarding the adequacy or condition of these components. The client is urged to retain an expert in this field if detailed information is needed.
BROOKINGS HARBOR SHOPPING CENTER ASSUMPTIONS AND LIMITING CONDITIONS 69
By use of this Report each party that uses this Report agrees to be bound by all of the Assumptions and Limiting Conditions, Hypothetical Conditions and Extraordinary Assumptions stated herein.
BROOKINGS HARBOR SHOPPING CENTER CERTIFICATION OF APPRAISAL 70
CERTIFICATION OF APPRAISAL We certify that, to the best of our knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions. We 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. We have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. Our 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 the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 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 & Standards of Professional Appraisal Practice of the Appraisal Institute, which include the Uniform Standards of Professional Appraisal Practice. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. Christopher P. Sherland made a personal inspection of the subject property (interior and exterior) on March 19, 2015. Mr. Sherland has previously inspected Sales 3, 4, 5, 7, and 8; as well as all of the anchor rental comparables. Steven A. Zenker, MAI did not inspect the subject property or any of the comparables. We have performed prior services involving the subject property within the three-year period immediately preceding the acceptance of the assignment. The services include a previous appraisal two times within the prior three-year period immediately preceding the acceptance of the assignment. No one provided significant real property appraisal assistance to the persons signing this report. As of the date of this report, Steven A. Zenker, MAI has completed the continuing education program for Designated Members of the Appraisal Institute. As of the date of this report, Christopher P. Sherland has completed the Standards and Ethics Education Requirements for Candidates/Practicing Affiliates of the Appraisal Institute.
Christopher P. Sherland Steven A. Zenker, MAI Associate Director Executive Director OR Certified General Appraiser OR Certified General Appraiser License No. C001119 (Expires 8/31/2016) License No. C000202 (Expires 1/31/2016) [email protected] [email protected] (503) 279-1797 Office Direct (503) 279-1736 Office Direct (503) 279-1791 Fax (503) 279-1791 Fax
BROOKINGS HARBOR SHOPPING CENTER ADDENDA CONTENTS
ADDENDA CONTENTS
ADDENDUM A: GLOSSARY OF TERMS & DEFINITIONS ADDENDUM B: CLIENT SATISFACTION SURVEY ADDENDUM C: SALE COMPARABLE DATASHEETS ADDENDUM D: RENT COMPARABLE PHOTOGRAPHS ADDENDUM E: HISTORICAL OPERATING STATEMENTS ADDENDUM F: ARGUS REPORTS ADDENDUM G: QUALIFICATIONS OF THE APPRAISERS
BROOKINGS HARBOR SHOPPING CENTER ADDENDA CONTENTS
ADDENDUM A: GLOSSARY OF TERMS & DEFINITIONS
The following definitions of pertinent terms are taken from The Dictionary of Real Estate Appraisal, Fifth Edition (2010), published by the Appraisal Institute, Chicago, IL, as well as other sources. AS IS MARKET VALUE The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal date. (Proposed Interagency Appraisal and Evaluation Guidelines, OCC-4810-33-P 20%) BAND OF INVESTMENT A technique in which the capitalization rates attributable to components of a capital investment are weighted and combined to derive a weighted-average rate attributable to the total investment. CASH EQUIVALENCY An analytical process in which the sale price of a transaction with nonmarket financing or financing with unusual conditions or incentives is converted into a price expressed in terms of cash. DEPRECIATION 1. In appraising, a loss in property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date. 2. In accounting, an allowance made against the loss in value of an asset for a defined purpose and computed using a specified method. DISPOSITION VALUE The most probable price that a specified interest in real property is likely to bring under all of the following conditions:
Consummation of a sale will occur within a limited future marketing period specified by the client.
The actual market conditions currently prevailing are those to which the appraised property interest is subject.
The buyer and seller is each acting prudently and knowledgeably.
The seller is under compulsion to sell.
The buyer is typically motivated.
Both parties are acting in what they consider their best interest.
An adequate marketing effort will be made in the limited time allowed for the completion of a sale.
Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Note that this definition differs from the definition of market value. The most notable difference relates to the motivation of the seller. In the case of Disposition value, the seller would be acting under compulsion within a limited future marketing period. ELLWOOD FORMULA A yield capitalization method that provides a formulaic solution for developing a capitalization rate for various combinations of equity yields and mortgage terms. The formula is applicable only to properties with stable or stabilized income streams and properties with income streams expected to change according to the J- or K-factor pattern. The formula is RO = [YE – M (YE + P 1/Sn¬ – RM) – ∆O 1/S n¬] / [1 + ∆I J] where RO = Overall Capitalization Rate YE = Equity Yield Rate M = Loan-to-Value Ratio P = Percentage of Loan Paid Off 1/S n¬ = Sinking Fund Factor at the Equity Yield Rate RM =Mortgage Capitalization Rate ∆O = Change in Total Property Value ∆I = Total Ratio Change in Income J = J Factor Also called mortgage-equity formula.
BROOKINGS HARBOR SHOPPING CENTER ADDENDA CONTENTS
EXPOSURE TIME 1. The time a property remains on the market. 2. The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based on an analysis of past events assuming a competitive and open market. See also marketing time. EXTRAORDINARY ASSUMPTION An assumption, directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions.
Comment: Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. FEE SIMPLE ESTATE Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. HIGHEST AND BEST USE The most probable use of a property which is physically possible, appropriately justified, legally permissible, financially feasible, and which results in the highest value of the property being valued. HIGHEST AND BEST USE OF PROPERTY AS IMPROVED The use that should be made of a property as it exists. An existing improvement should be renovated or retained as is so long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing a new one. HYPOTHETICAL CONDITIONS A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.
Comment: Hypothetical conditions are contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. INSURABLE VALUE A type of value for insurance purposes. INTENDED USE The use or uses of an appraiser’s reported appraisal, appraisal review, or appraisal consulting assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment. INTENDED USER The client and any other party as identified, by name or type, as users of the appraisal, appraisal review, or appraisal consulting report by the appraiser on the basis of communication with the client at the time of the assignment. LEASED FEE INTEREST A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (i.e., a lease). LEASEHOLD INTEREST The tenant’s possessory interest created by a lease. See also negative leasehold; positive leasehold. LIQUIDATION VALUE The most probable price that a specified interest in real property is likely to bring under all of the following conditions:
Consummation of a sale will occur within a severely limited future marketing period specified by the client.
The actual market conditions currently prevailing are those to which the appraised property interest is subject.
The buyer is acting prudently and knowledgeably.
The seller is under extreme compulsion to sell.
BROOKINGS HARBOR SHOPPING CENTER ADDENDA CONTENTS
The buyer is typically motivated.
The buyer is acting in what he or she considers his or her best interest.
A limited marketing effort and time will be allowed for the completion of a sale.
Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Note that this definition differs from the definition of market value. The most notable difference relates to the motivation of the seller. Under market value, the seller would be acting in his or her own best interests. The seller would be acting prudently and knowledgeably, assuming the price is not affected by undue stimulus or atypical motivation. In the case of liquidation value, the seller would be acting under extreme compulsion within a severely limited future marketing period. MARKET RENT The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the lease agreement, including permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIs). MARKET VALUE As defined in the Agencies’ appraisal regulations, the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
Implicit in this definition are 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, and 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 sales concessions granted by anyone associated with the sale.1 MARKETING TIME An opinion of the amount of time it might take to sell a 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 Opinion 7 of the Appraisal Standards Board of The Appraisal Foundation and Statement on Appraisal Standards No. 6, “Reasonable Exposure Time in Real Property and Personal Property Market Value Opinions” address the determination of reasonable exposure and marketing time.) See also exposure time. MORTGAGE-EQUITY ANALYSIS Capitalization and investment analysis procedures that recognize how mortgage terms and equity requirements affect the value of income-producing property. OPERATING EXPENSES Other Taxes, Fees & Permits - Personal property taxes, sales taxes, utility taxes, fees and permit expenses. Property Insurance – Coverage for loss or damage to the property caused by the perils of fire, lightning, extended coverage perils, vandalism and malicious mischief, and additional perils. Management Fees - The sum paid for management services. Management services may be contracted for or provided by the property owner. Management expenses may include supervision, on-site offices or apartments for resident managers, telephone service, clerical help, legal or accounting services, printing and postage, and advertising. Management fees may occasionally be included among recoverable operating expenses Total Administrative Fees – Depending on the nature of the real estate, these usually include professional fees and other general administrative expenses, such as rent of offices and the services needed to operate the property. Administrative expenses can be provided either in the following expense subcategories or in a bulk total. 1) Professional Fees – Fees paid for any professional services contracted for or incurred in property operation; or 2) Other Administrative – Any other general administrative expenses incurred in property operation. Heating Fuel - The cost of heating fuel purchased from outside producers. The cost of heat is generally a tenant expense in single-tenant, industrial or retail properties, and apartment projects with individual heating units. It is a major expense item shown in operating statements for office buildings and many apartment properties. The fuel consumed may be coal, oil, or public steam. Heating supplies, maintenance, and workers’ wages are included in this expense category under certain accounting methods. Electricity - The cost of electricity purchased from outside producers. Although the cost of electricity for leased space is frequently a tenant expense, and therefore not included in the operating expense statement, the owner may be responsible for lighting public areas and for the power needed to run elevators and other building equipment.
1 “Interagency Appraisal and Evaluation Guidelines.” Federal Register 75:237 (December 10, 2010) p. 77472.
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Gas - The cost of gas purchased from outside producers. When used for heating and air conditioning, gas can be a major expense item that is either paid by the tenant or reflected in the rent. Water & Sewer - The cost of water consumed, including water specially treated for the circulating ice water system, or purchased for drinking purposes. The cost of water is a major consideration for industrial plants that use processes depending on water and for multifamily projects, in which the cost of sewer service usually ties to the amount of water used. It is also an important consideration for laundries, restaurants, taverns, hotels, and similar operations. Other Utilities - The cost of other utilities purchased from outside producers. Total Utilities - The cost of utilities net of energy sales to stores and others. Utilities are services rendered by public and private utility companies (e.g., electricity, gas, heating fuel, water/sewer and other utilities providers). Utility expenses can be provided either in expense subcategories or in a bulk total. Repairs & Maintenance - All expenses incurred for the general repairs and maintenance of the building, including common areas and general upkeep. Repairs and maintenance expenses include elevator, HVAC, electrical and plumbing, structural/roof, and other repairs and maintenance expense items. Repairs and Maintenance expenses can be provided either in the following expense subcategories or in a bulk total. 1) Elevator - The expense of the contract and any additional expenses for elevator repairs and maintenance. This expense item may also include escalator repairs and maintenance. 2) HVAC – The expense of the contract and any additional expenses for heating, ventilation and air-conditioning systems. 3) Electrical & Plumbing - The expense of all repairs and maintenance associated with the property’s electrical and plumbing systems. 4) Structural/Roof - The expense of all repairs and maintenance associated with the property’s building structure and roof. 5) Pest Control – The expense of insect and rodent control. 6). Other Repairs & Maintenance - The cost of any other repairs and maintenance items not specifically included in other expense categories. Common Area Maintenance - The common area is the total area within a property that is not designed for sale or rental, but is available for common use by all owners, tenants, or their invitees, e.g., parking and its appurtenances, malls, sidewalks, landscaped areas, recreation areas, public toilets, truck and service facilities. Common Area Maintenance (CAM) expenses can be entered in bulk or through the sub-categories. 1) Utilities – Cost of utilities that are included in CAM charges and passed through to tenants. 2) Repair & Maintenance – Cost of repair and maintenance items that are included in CAM charges and passed through to tenants. 3) Parking Lot Maintenance – Cost of parking lot maintenance items that are included in CAM charges and passed through to tenants. 4) Snow Removal – Cost of snow removal that are included in CAM charges and passed through to tenants. 5) Grounds Maintenance – Cost of ground maintenance items that are included in CAM charges and passed through to tenants. 6) Other CAM expenses are items that are included in CAM charges and passed through to tenants. Painting & Decorating - This expense category is relevant to residential properties where the landlord is required to prepare a dwelling unit for occupancy in between tenancies. Cleaning & Janitorial - The expenses for building cleaning and janitorial services, for both daytime and night-time cleaning and janitorial service for tenant spaces, public areas, atriums, elevators, restrooms, windows, etc. Cleaning and Janitorial expenses can be provided either in the following subcategories or entered in a bulk total. 1) Contract Services - The expense of cleaning and janitorial services contracted for with outside service providers. 2) Supplies, Materials & Misc. - The cost any cleaning materials and any other janitorial supplies required for property cleaning and janitorial services and not covered elsewhere. 3) Trash Removal - The expense of property trash and rubbish removal and related services. Sometimes this expense item includes the cost of pest control and/or snow removal .4) Other Cleaning/Janitorial - Any other cleaning and janitorial related expenses not included in other specific expense categories. Advertising & Promotion - Expenses related to advertising, promotion, sales, and publicity and all related printing, stationary, artwork, magazine space, broadcasting, and postage related to marketing. Professional Fees - All professional fees associated with property leasing activities including legal, accounting, data processing, and auditing costs to the extent necessary to satisfy tenant lease requirements and permanent lender requirements. Total Payroll - The payroll expenses for all employees involved in the ongoing operation of the property, but whose salaries and wages are not included in other expense categories. Payroll expenses can be provided either in the following subcategories or entered in a bulk total. 1) Administrative Payroll - The payroll expenses for all employees involved in on-going property administration. 2) Repair & Maintenance Payroll - The expense of all employees involved in on-going repairs and maintenance of the property. 3) Cleaning Payroll - The expense of all employees involved in providing on-going cleaning and janitorial services to the property 4) Other Payroll - The expense of any other employees involved in providing services to the property not covered in other specific categories. Security - Expenses related to the security of the Lessees and the Property. This expense item includes payroll, contract services and other security expenses not covered in other expense categories. This item also includes the expense of maintenance of security systems such as alarms and closed circuit television (CCTV), and ordinary supplies necessary to operate a security program, including batteries, control forms, access cards, and security uniforms. Roads & Grounds - The cost of maintaining the grounds and parking areas of the property. This expense can vary widely depending on the type of property and its total area. Landscaping improvements can range from none to extensive beds, gardens and trees. In addition, hard-surfaced public parking areas with drains, lights, and marked car spaces are subject to intensive wear and can be costly to maintain. Other Operating Expenses - Any other expenses incurred in the operation of the property not specifically covered elsewhere. Real Estate Taxes - The tax levied on real estate (i.e., on the land, appurtenances, improvements, structures and buildings); typically by the state, county and/or municipality in which the property is located. PROSPECTIVE OPINION OF VALUE A value opinion effective as of a specified future date. The term does not define a type of value. Instead, it identifies a value opinion as being effective at some specific future date. An opinion of value as of a prospective date is frequently sought in connection with projects that are proposed, under construction, or under conversion to a new use, or those that have not yet achieved sellout or a stabilized level of long-term occupancy. PROSPECTIVE VALUE UPON REACHING STABILIZED OCCUPANCY The value of a property as of a point in time when all improvements have been physically constructed and the property has been leased to its optimum level of long-term occupancy. At such point, all capital outlays for tenant improvements, leasing commissions, marketing costs and other carrying charges are assumed to have been incurred.
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SPECIAL, UNUSUAL, OR EXTRAORDINARY ASSUMPTIONS Before completing the acquisition of a property, a prudent purchaser in the market typically exercises due diligence by making customary enquiries about the property. It is normal for a Valuer to make assumptions as to the most likely outcome of this due diligence process and to rely on actual information regarding such matters as provided by the client. Special, unusual, or extraordinary assumptions may be any additional assumptions relating to matters covered in the due diligence process, or may relate to other issues, such as the identity of the purchaser, the physical state of the property, the presence of environmental pollutants (e.g., ground water contamination), or the ability to redevelop the property.
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ADDENDUM B: CLIENT SATISFACTION SURVEY
Survey Link: http://www.surveymonkey.com/s.aspx?sm=_2bZUxc1p1j1DWj6n_2fswh1KQ_3d_3d&c=15- 34001-900123-004 C&W File ID: 15-34001-900123-004 Fax Option: (716) 852-0890
1. Given the scope and complexity of the assignment, please rate the development of the appraisal relative to the adequacy and relevance of the data, the appropriateness of the techniques used, and the reasonableness of the analyses, opinions, and conclusions:
__ Excellent __ Good __ Average __ Below Average __ Poor
Comments:______
2. Please rate the appraisal report on clarity, attention to detail, and the extent to which it was presentable to your internal/external users without revisions:
__ Excellent __ Good __ Average __ Below Average __ Poor
Comments:______
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3. The appraiser communicated effectively by listening to your concerns, showed a sense of urgency in responding, and provided convincing support of his/her conclusions:
__ Not Applicable __ Excellent __ Good __ Average __ Below Average __ Poor
Comments:______
4. The report was on time as agreed, or was received within an acceptable time frame if unforeseen factors occurred after the engagement:
__ Yes __ No
5. Please rate your overall satisfaction relative to cost, timing, and quality:
__ Excellent __ Good __ Average __ Below Average __ Poor
Comments:______
6. Any additional comments or suggestions?
______
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7. Would you like a representative of Cushman & Wakefield’s National Quality Control Committee to contact you?
__ Yes __ No
Your Name: ______Your Telephone Number: ______
Contact Information: Scott Schafer Managing Director, National Quality Control (716) 852-7500, ext. 121
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ADDENDUM C: SALE COMPARABLE DATASHEETS
IMPROVED SALE COMPARABLE - 1
Hermiston Plaza 930 S Highway 395 Hermiston OR 97838 MSA: N/A Umatilla County
Property Type: Shopping Center Property Subtype: Neighborhood Center ID: 306147 APN: 132191
Included PROPERTY INFORMATION Anchors in Sale GLA (SF) Site Area (Acres): 12.83 Safeway X 50,000 Site Area (SqFt): 558,875 Big Lots X 23,728 L:B Ratio: 3.72:1 Dollar Tree X 14,000 Parking Spaces: 650 Bealls X 13,500 Parking Ratio: 4.33:1,000 Year Built: 1978 Last Renovation: 1999 Total Anchor GLA 101,228 Quality: Average Inline GLA X 48,989 Condition: Average Total GLA 150,217 Sold GLA 150,217 SALE INFORMATION Sale Status: Recorded Sale OAR: 7.25% Transaction Date: 11/2014 NOI: $1,015,000 Sale Price: $14,000,000 NOI per SqFt: $6.76 Price per SqFt: $93.20 Occupancy: 90.00% Value Interest: Leased Fee Expense Ratio: N/A Grantor: Hermiston Station LLC EGIM: N/A Grantee: Dickerhoof Properties Condition of Sale: None
VERIFICATION COMMENTS Chris Sherland verified this sale with the buyer, Darren Dickerhoof.
COMMENTS Hermiston Plaza is a Safeway-anchored neighborhood shopping center located in the southern aspect of Hermiston. The occupancy at the time of sale and cap rate were verified with the buyer. The center was marketed by Capital Pacific.
VALUATION & ADVISORY IMPROVED SALE COMPARABLE - 2
Pleasant Hill Shopping Center 35831 Highway 58 Pleasant Hill OR 97455 MSA: Eugene-Springfield Lane County
Property Type: Shopping Center Property Subtype: Neighborhood Center ID: 306174 APN: 0573814, 1001781, 0573822, 0997716, 1028339, 1048642, 1369691, 1369709
Included PROPERTY INFORMATION Anchors in Sale GLA (SF) Site Area (Acres): 0.85 Vacant (fmr Rays) X 23,969 Site Area (SqFt): 37,026 L:B Ratio: 1.01:1 Parking Spaces: 135 Parking Ratio: 3.70:1,000 Year Built: N/A Last Renovation: N/A Total Anchor GLA 23,969 Quality: Average Inline GLA X 12,520 Condition: Average Total GLA 36,489 Sold GLA 36,489 SALE INFORMATION Sale Status: Recorded Sale OAR: N/A Transaction Date: 7/2014 NOI: N/A Sale Price: $1,150,000 NOI per SqFt: N/A Price per SqFt: $31.52 Occupancy: N/A Value Interest: Leased Fee Expense Ratio: N/A Grantor: Pudding Creek Land Co. EGIM: N/A Grantee: Pisgah Public Market LLC Condition of Sale: None
VERIFICATION COMMENTS VERIFICATION IN PROGRESS
COMMENTS Pleasant Hill Shopping Center is situated in a primarily rural area about 11 miles southeast of downtown Eugene. The center was formerly anchored by Ray's Food Place, which closed following the company's bankruptcy in 2013. The buyer plans to renovate the center as "Pisgah Public Market."
VALUATION & ADVISORY IMPROVED SALE COMPARABLE - 3
Mid Valley Plaza 1543 Mount Hood Avenue Woodburn OR 97071 MSA: Salem Marion County
Property Type: Shopping Center Property Subtype: Neighborhood Center ID: 306173 APN: R335122 and R335123
Included PROPERTY INFORMATION Anchors in Sale GLA (SF) Site Area (Acres): 9.13 Dollar Tree X 21,142 Site Area (SqFt): 397,703 Vacant X 20,000 L:B Ratio: 3.58:1 Parking Spaces: 432 Parking Ratio: 3.89:1,000 Year Built: 1978 Last Renovation: 2004 Total Anchor GLA 41,142 Quality: Average Inline GLA X 63,540 Condition: Average Other GLA: X 6,300 Total GLA 110,982 Sold GLA 110,982 SALE INFORMATION Sale Status: Recorded Sale OAR: N/A Transaction Date: 7/2014 NOI: N/A Sale Price: $6,401,421 NOI per SqFt: N/A Price per SqFt: $57.68 Occupancy: 70.00% Value Interest: Leased Fee Expense Ratio: N/A Grantor: Mid Valley Plaza, LLC EGIM: N/A Grantee: Argo Woodburn, LLC Condition of Sale: None
VERIFICATION COMMENTS Chris Sherland verified this comparable with the seller.
COMMENTS Mid Valley Plaza is located on the northwest quadrant of Highway 99E and Mount Hood Avenue in the eastern aspect of Woodburn. The property was originally anchored by Safeway and Rite Aid. Both of the former anchors closed prior to the most recent renovation of the center in 2004. Both anchor spaces now include use restrictions which prohibit future supermarket and drugstore uses.
VALUATION & ADVISORY IMPROVED SALE COMPARABLE - 4
Bandon Shopping Center 66 Michigan Avenue Bandon OR 97411 MSA: N/A Coos County
Property Type: Shopping Center Property Subtype: Neighborhood Center ID: 306176 APN: 1002255200
Included PROPERTY INFORMATION Anchors in Sale GLA (SF) Site Area (Acres): 5.31 Ray's Food Place X 28,543 Site Area (SqFt): 231,304 L:B Ratio: 3.79:1 Parking Spaces: N/A Parking Ratio: N/A Year Built: 1986 Last Renovation: N/A Total Anchor GLA 28,543 Quality: Average Inline GLA X 32,431 Condition: Average Total GLA 60,974 Sold GLA 60,974 SALE INFORMATION Sale Status: Recorded Sale OAR: 8.42% Transaction Date: 2/2014 NOI: $345,315 Sale Price: $4,100,000 NOI per SqFt: $5.66 Price per SqFt: $67.24 Occupancy: 91.00% Value Interest: Leased Fee Expense Ratio: N/A Grantor: Bandon Shopping Center EGIM: N/A Grantee: Northgate Enterprises LLC Condition of Sale: None
VERIFICATION COMMENTS Chris Sherland verified this sale with the offering memorandum and Coos County records. The center was marketed by Alan Evans with Evans, Elder & Brown.
COMMENTS Bandon Shopping Center is located on the Southern Oregon Coast, approximately 25 miles south of Coos Bay. The center is anchored by Ray's Food Place, which reportedly executed a new 20 year net lease upon closing of the sale. The buyer leased approximately 10,000 square feet at the northern end of the center to Dollar Tree at $8.00 per square foot. The center was marketed at $4,925,000 over an approximately four month exposure period.
VALUATION & ADVISORY IMPROVED SALE COMPARABLE - 5
Canby Square 1025 SW 1st Avenue Canby OR 97013 MSA: Portland-Vancouver Clackamas County
Property Type: Shopping Center Property Subtype: Neighborhood Center ID: 274236 APN: 01563169 and 01002809
Included PROPERTY INFORMATION Anchors in Sale GLA (SF) Site Area (Acres): 7.80 Safeway X 46,293 Site Area (SqFt): 339,768 Vacant X 27,465 L:B Ratio: 2.94:1 Ace Hardware X 14,785 Parking Spaces: 390 Dollar Tree X 8,438 Parking Ratio: 3.37:1,000 Year Built: 1976 Last Renovation: 1995 Total Anchor GLA 96,981 Quality: Average Inline GLA X 18,720 Condition: Average Total GLA 115,701 Sold GLA 115,701 SALE INFORMATION Sale Status: Recorded Sale OAR: 9.26% Transaction Date: 1/2014 NOI: $786,771 Sale Price: $8,500,000 NOI per SqFt: $6.80 Price per SqFt: $73.47 Occupancy: 67.00% Value Interest: Leased Fee Expense Ratio: N/A Grantor: KRC Canby Square LLC EGIM: N/A Grantee: Argo Canby LLC Condition of Sale: None
VERIFICATION COMMENTS Chris Sherland verified this transaction with the selling agent, Kevin Adatto with Capital Pacific.
COMMENTS Canby Square is a Safeway-anchored neighborhood center at the southwest corner of Oregon 99E and SW Berg Parkway, directly west of Canby High School. The vacant anchor space is a former Rite Aid pharmacy. Rite Aid vacated in 2009 and reached expiration in February 2014. Safeway reaches expiration in August 2023 and pays base rent of $11.83 per square foot. The cap rate presented is based on in-place NOI. The property was marketed at $8,739,000 over a roughly two month exposure period.
VALUATION & ADVISORY IMPROVED SALE COMPARABLE - 6
10625-10675 Coloma Rd Rancho Cordova CA 95670 MSA: Sacramento Sacramento County
Property Type: Shopping Center Property Subtype: Neighborhood Center ID: 262220 APN: 056-0222-021, 022, 023, & 004
Included PROPERTY INFORMATION Anchors in Sale GLA (SF) Site Area (Acres): 5.78 Vacant X 28,874 Site Area (SqFt): 251,777 L:B Ratio: 4.49:1 Parking Spaces: 318 Parking Ratio: 5.67:1,000 Year Built: 1984 Last Renovation: 2000 Total Anchor GLA 28,874 Quality: Average Inline GLA X 27,181 Condition: Average Total GLA 56,055 Sold GLA 56,055 SALE INFORMATION Sale Status: Recorded Sale OAR: N/A Transaction Date: 6/2013 NOI: N/A Sale Price: $2,500,000 NOI per SqFt: N/A Price per SqFt: $44.60 Occupancy: 40.00% Value Interest: Leased Fee Expense Ratio: N/A Grantor: Omand Living Trust EGIM: N/A Grantee: Ki J Song Condition of Sale: None
VERIFICATION COMMENTS Mark Engemann, Colliers, 916.563.3007
COMMENTS This center consists of one main building and two pad buildings. The main building includes both retail and office tenants, with the office tenants being family service related. The vacant anchor was previously occupied by Sacramento County. The pad buildings are occupied by a Tacqeria and a European mini-mart. The property was listed at $2,795,640, and was purchased by an owner-user that will occupy the vacant anchor space as Dollar & Thrifty.
VALUATION & ADVISORY IMPROVED SALE COMPARABLE - 7
Winco Plaza 259 E Barnett Road Medford OR 97501 MSA: Medford-Ashland Jackson County
Property Type: Shopping Center Property Subtype: Convenience/Strip Center ID: 235507 APN: N/A
Included PROPERTY INFORMATION Anchors in Sale GLA (SF) Site Area (Acres): 2.25 Site Area (SqFt): 98,010 L:B Ratio: 4.06:1 Parking Spaces: N/A Parking Ratio: N/A Year Built: 1979 Last Renovation: 2003 Total Anchor GLA N/A Quality: Average Inline GLA X 24,122 Condition: Average Total GLA 24,122 Sold GLA 24,122 SALE INFORMATION Sale Status: Recorded Sale OAR: 9.58% Transaction Date: 10/2012 NOI: $133,650 Sale Price: $1,395,000 NOI per SqFt: $5.54 Price per SqFt: $57.83 Occupancy: 75.00% Value Interest: Leased Fee Expense Ratio: 22.84% Grantor: Denise D Jensen EGIM: N/A Grantee: Radical Investments LLC Condition of Sale: None
VERIFICATION COMMENTS Chris Sherland verified this sale with the listing agent, Jeremy Leever with Pulver & Leever Real Estate.
COMMENTS This comparable is a strip shopping center that is shadow anchored by Winco. The property is just west of Interstate 5, but is located behind a hotel and does not have direct frontage or exposure on Barnett Road, a primary commercial corridor. The exposure period was approximately eight months, with an asking price of $1,650,000. No adverse sale conditions were noted.
VALUATION & ADVISORY IMPROVED SALE COMPARABLE - 8
Klamath Falls Town Center 1815 Avalon Street Klamath Falls OR 97603 MSA: N/A Klamath County
Property Type: Shopping Center Property Subtype: Community Center ID: 276120 APN: R896302, R896305, R896306, R896309, R894824
Included PROPERTY INFORMATION Anchors in Sale GLA (SF) Site Area (Acres): 8.86 Sherm's Market X 67,059 Site Area (SqFt): 385,942 Vacant X 62,080 L:B Ratio: 2.29:1 Michael's X 17,101 Parking Spaces: 641 Parking Ratio: 3.80:1,000 Year Built: 2006 Last Renovation: N/A Total Anchor GLA 146,240 Quality: Average Inline GLA X 22,620 Condition: Good Total GLA 168,860 Sold GLA 168,860 SALE INFORMATION Sale Status: Recorded Sale OAR: 8.50% Transaction Date: 4/2012 NOI: $909,500 Sale Price: $10,700,000 NOI per SqFt: $5.39 Price per SqFt: $63.37 Occupancy: 61.00% Value Interest: Leased Fee Expense Ratio: N/A Grantor: Evergreen Environmental Development Co EGIM: N/A Grantee: Argo K Falls LLC & TRV Properties LLC Condition of Sale: Buyers influence
VERIFICATION COMMENTS Chris Sherland verified this transaction with a representatives of both the buyer and seller.
COMMENTS According to Michael Horwitz, the listing agent with Capital Pacific, the property was actively marketed for approximately 30 days. The asking price was $10,430,000, reflecting a capitalization rate of 8.50 percent based on in- place net operating income. According to Mr. Horwitz, the property received significant interest, including “five-to-six firm offers, with several at full price.” Mr. Horwitz noted that the seller elected to take the best offer that came in and then counter under terms “to sell today.” Mr. Horwitz described these terms as a “contingent free deal” and noted that the sale was market-oriented, “reflected in the depth of offers and price above list.” However, the property was marketed as an REO disposition.
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ADDENDUM D: RENT COMPARABLE PHOTOGRAPHS
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ADDENDUM E: HISTORICAL OPERATING STATEMENTS
Property Name Brookings Harbor Shopping Center Total Square Feet 110,850
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec TOTAL $ PSF INCOME
Rental Income 28,583.81 28,592.60 28,592.60 28,616.56 28,616.56 28,616.56 28,644.38 28,644.38 28,487.38 28,487.38 28,549.26 28,555.81 342,987.28 3.09 CAM & Ins. Reimbursements 3,496.49 3,663.12 3,682.79 3,496.49 3,548.24 3,506.84 3,620.69 3,537.89 3,496.49 3,507.87 3,651.74 3,579.29 42,787.92 0.39 Property Taxes Reimbursement 1,075.00 1,075.00 1,075.00 1,075.00 1,075.00 1,075.00 1,075.00 1,075.00 1,075.00 1,075.00 1,075.00 1,075.00 12,900.00 0.12 TOTAL INCOME 33,155.30 33,330.72 33,350.39 33,188.05 33,239.80 33,198.40 33,340.07 33,257.27 33,058.87 33,070.25 33,276.00 33,210.10 398,675.20 3.60
EXPENSES
Administrative Expenses Accounting Fee 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 1,200.00 0.01 Management Fee 2,250.00 2,250.00 2,250.00 2,250.00 2,250.00 2,250.00 2,250.00 2,250.00 2,250.00 2,250.00 2,250.00 2,250.00 27,000.00 0.24 Professional / Legal Fee 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 4,200.00 0.04 Total Administrative Expenses 2,700.00 2,700.00 2,700.00 2,700.00 2,700.00 2,700.00 2,700.00 2,700.00 2,700.00 2,700.00 2,700.00 2,700.00 32,400.00 0.29
Repairs and Maintenance Fire System 1,200.00 1,200.00 0.01 Maintenance -Ext. Lighting 1,000.00 1,000.00 1,000.00 3,000.00 0.03 Maintenance-Building 1,000.00 1,000.00 1,000.00 1,000.00 4,000.00 0.04 Maintenance - Grounds Cleanup/Landscape 1,750.00 1,750.00 1,750.00 1,750.00 1,750.00 1,750.00 1,750.00 1,750.00 1,750.00 1,750.00 1,750.00 1,750.00 21,000.00 0.19 Maintenance Common Area 750.00 750.00 750.00 750.00 750.00 750.00 750.00 750.00 750.00 750.00 750.00 750.00 9,000.00 0.08 Maintenance-Parking Lot 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 3,900.00 0.04 Maintenance-Window Washing 360.00 360.00 720.00 0.01 Maintenance-Painting 250.00 250.00 500.00 0.00 Maintenance-Pest Control 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 3,600.00 0.03 Maintenance/Repairs - Occupied Unit 1,500.00 1,500.00 1,500.00 1,500.00 6,000.00 0.05 HVAC - Maintenance/Repairs 500.00 500.00 500.00 1,500.00 0.01 Repairs - Building 200.00 200.00 200.00 600.00 0.01 Repairs - Locks & Keys 100.00 100.00 200.00 0.00 Repairs-Electrical 250.00 250.00 500.00 0.00 Repairs-Floors 200.00 200.00 400.00 0.00 Repairs-Landscape/Improvements 500.00 500.00 1,000.00 0.01 Repairs-Windows/Doors 250.00 250.00 500.00 0.00 Repairs - Parking Lot 400.00 400.00 400.00 1,200.00 0.01 Repairs & Maint. -Plumbing 500.00 500.00 500.00 500.00 2,000.00 0.02 Repairs-Roof/Gutters 500.00 500.00 1,000.00 0.01 Total Repairs and Maintenance 5,075.00 4,735.00 5,625.00 5,125.00 4,525.00 4,375.00 7,575.00 4,525.00 4,625.00 5,735.00 5,625.00 4,275.00 61,820.00 0.56 Property Name Brookings Harbor Shopping Center Total Square Feet 110,850
Utilities Electricity - House Meter 3,500.00 3,500.00 3,300.00 3,100.00 3,000.00 2,600.00 2,500.00 2,500.00 2,500.00 2,500.00 3,000.00 3,400.00 35,400.00 0.32 Water - Vacant Unit 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 204.00 0.00 Water - Common Area 425.00 425.00 425.00 425.00 425.00 425.00 425.00 425.00 425.00 425.00 425.00 425.00 5,100.00 0.05 Sewer - Common Area 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00 13,200.00 0.12 Sewer - Vacant Unit 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 720.00 0.01 Total Utilities 5,102.00 5,102.00 4,902.00 4,702.00 4,602.00 4,202.00 4,102.00 4,102.00 4,102.00 4,102.00 4,602.00 5,002.00 54,624.00 0.49
Other Expenses - Insurance-Property 7,500.00 7,500.00 0.07 Refuse 625.00 625.00 625.00 625.00 625.00 625.00 625.00 625.00 625.00 625.00 625.00 625.00 7,500.00 0.07 Security Patrol 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 24,000.00 0.22 Signs/Music/Decorations 175.00 175.00 175.00 175.00 175.00 175.00 175.00 175.00 175.00 175.00 175.00 175.00 2,100.00 0.02 Advertising /Promotional 2,125.00 2,125.00 2,125.00 2,125.00 2,125.00 2,125.00 2,125.00 2,125.00 2,125.00 2,125.00 2,125.00 2,125.00 25,500.00 0.23 Taxes-Property 7,500.00 7,500.00 7,500.00 22,500.00 0.20 Total Other Expenses 4,925.00 12,425.00 4,925.00 4,925.00 12,425.00 4,925.00 4,925.00 4,925.00 4,925.00 12,425.00 12,425.00 4,925.00 89,100.00 0.80
TOTAL EXPENSES 17,802.00 24,962.00 18,152.00 17,452.00 24,252.00 16,202.00 19,302.00 16,252.00 16,352.00 24,962.00 25,352.00 16,902.00 237,944.00 2.15
NOI BEFORE CAPITAL IMPROVEMENTS 160,731.20 1.45
Capital / Tenant Improvements 5,000.00 21,000.00 5,000.00 5,000.00 5,000.00 41,000.00 0.37 Total 5,000.00 - 21,000.00 - - 5,000.00 - - 5,000.00 - - 5,000.00 41,000.00 0.37
NOI AFTER IMPROVEMENTS 119,731.20 1.08 Property Name Brookings Harbor Shopping Center Total Square Feet 110,850
RENTAL INCOME JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL Vacant (AT&T) ------Barron's - 29-30 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 48,000.00 Barron's - WH 1 62.00 62.00 62.00 62.00 62.00 62.00 62.00 62.00 62.00 62.00 62.00 62.00 744.00 Barron's WH 2 88.00 88.00 88.00 88.00 88.00 88.00 88.00 88.00 88.00 88.00 88.00 88.00 1,056.00 Post Office 354.54 354.54 354.54 354.54 354.54 354.54 365.18 365.18 365.18 365.18 365.18 365.18 4,318.32 Sears - Past Due 157.00 157.00 157.00 157.00 157.00 157.00 157.00 157.00 1,256.00 Sears - Current 4,330.64 4,330.64 4,330.64 4,330.64 4,330.64 4,330.64 4,330.64 4,330.64 4,330.64 4,330.64 4,330.64 4,330.64 51,967.68 Sears Warehouse ------Children's Theater 1,350.00 1,350.00 1,350.00 1,350.00 1,350.00 1,350.00 1,350.00 1,350.00 1,350.00 1,350.00 1,350.00 1,350.00 16,200.00 Vacant (CCPM) ------Harbor Copy All 337.90 337.90 337.90 337.90 337.90 337.90 337.90 337.90 337.90 337.90 337.90 337.90 3,041.10 Harbrook Jewelers 1,467.24 1,467.24 1,467.24 1,467.24 1,467.24 1,467.24 1,467.24 1,467.24 1,467.24 1,467.24 1,467.24 1,467.24 17,606.88 iRepair 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 325.00 3,900.00 Marian's 263.37 263.37 263.37 263.37 263.37 263.37 263.37 263.37 263.37 263.37 271.27 271.27 3,176.24 Patrick Foley 1,197.81 1,197.81 1,197.81 1,221.77 1,221.77 1,221.77 1,221.77 1,221.77 1,221.77 1,221.77 1,221.77 1,221.77 14,589.36 The Old Wash House 1,799.29 1,799.29 1,799.29 1,799.29 1,799.29 1,799.29 1,799.29 1,799.29 1,799.29 1,799.29 1,853.27 1,853.27 21,699.44 The Old Wash House - Office 218.55 218.55 218.55 218.55 218.55 218.55 218.55 218.55 218.55 218.55 218.55 225.10 2,629.15 One Cool Dog 293.08 301.87 301.87 301.87 301.87 301.87 301.87 301.87 301.87 301.87 301.87 301.87 3,613.65 Oregon DMV 1,943.49 1,943.49 1,943.49 1,943.49 1,943.49 1,943.49 1,943.49 1,943.49 1,943.49 1,943.49 1,943.49 1,943.49 23,321.88 Pacific Coast Antiques 3,826.45 3,826.45 3,826.45 3,826.45 3,826.45 3,826.45 3,826.45 3,826.45 3,826.45 3,826.45 3,826.45 3,826.45 45,917.40 South Coast Appliance 1,562.40 1,562.40 1,562.40 1,562.40 1,562.40 1,562.40 1,562.40 1,562.40 1,562.40 1,562.40 1,562.40 1,562.40 18,748.80 South Coast Fitness 3,372.00 3,372.00 3,372.00 3,372.00 3,372.00 3,372.00 3,372.00 3,372.00 3,372.00 3,372.00 3,372.00 3,372.00 40,464.00 Ultimate Touch 572.67 572.67 572.67 572.67 572.67 572.67 589.85 589.85 589.85 589.85 589.85 589.85 6,975.12 CC's Clothes for Cancer 1,062.38 1,062.38 1,062.38 1,062.38 1,062.38 1,062.38 1,062.38 1,062.38 1,062.38 1,062.38 1,062.38 1,062.38 12,748.56 28,583.81 28,592.60 28,592.60 28,616.56 28,616.56 28,616.56 28,644.38 28,644.38 28,487.38 28,487.38 28,549.26 28,555.81 342,987.28 BROOKINGS HARBOR SHOPPING CENTER ADDENDA CONTENTS
ADDENDUM F: ARGUS REPORTS
Brookings-Harbor Center Oregon Schedule Of Prospective Cash Flow In Inflated Dollars for the Fiscal Year Beginning 4/1/2015
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 For the Years Ending Mar-2016 Mar-2017 Mar-2018 Mar-2019 Mar-2020 Mar-2021 Mar-2022 Mar-2023 Mar-2024 Mar-2025 Mar-2026 Mar-2027 Potential Gross Revenue Base Rental Revenue $542,451 $543,424 $551,889 $562,787 $577,059 $592,568 $593,881 $616,738 $628,224 $639,788 $653,669 $670,069 Absorption & Turnover Vacancy (257,850) (172,572) (21,227) 0 (18,013) (50,854) (26,343) (10,944) (6,382) (6,793) (29,276) (85,270) Scheduled Base Rental Revenue 284,601 370,852 530,662 562,787 559,046 541,714 567,538 605,794 621,842 632,995 624,393 584,799 Expense Reimbursement Revenue 96,201 124,703 189,470 200,366 198,991 194,319 207,449 218,838 225,852 231,051 229,764 215,553 Total Potential Gross Revenue 380,802 495,555 720,132 763,153 758,037 736,033 774,987 824,632 847,694 864,046 854,157 800,352 General Vacancy 0 0 (30,668) (53,421) (36,311) (4,228) (29,750) (47,546) (53,403) (54,166) (32,564) 0 Collection Loss (3,808) (4,956) (7,201) (7,632) (7,580) (7,360) (7,750) (8,246) (8,477) (8,640) (8,542) (8,004) Effective Gross Revenue 376,994 490,599 682,263 702,100 714,146 724,445 737,487 768,840 785,814 801,240 813,051 792,348 Operating Expenses Property Insurance 21,373 21,908 22,455 23,017 23,592 24,182 24,787 25,406 26,041 26,692 27,360 28,044 Management 15,080 19,624 27,291 28,084 28,566 28,978 29,499 30,754 31,433 32,050 32,522 31,694 Common Area Maintenance 160,301 164,308 168,416 172,626 176,942 181,365 185,899 190,547 195,311 200,193 205,198 210,328 Advertising and Promotion 20,000 20,500 21,012 21,538 22,076 22,628 23,194 23,774 24,368 24,977 25,602 26,242 Real Estate Taxes 36,599 37,697 38,828 39,993 41,192 42,428 43,701 45,012 46,363 47,753 49,186 50,662 Total Operating Expenses 253,353 264,037 278,002 285,258 292,368 299,581 307,080 315,493 323,516 331,665 339,868 346,970 Net Operating Income 123,641 226,562 404,261 416,842 421,778 424,864 430,407 453,347 462,298 469,575 473,183 445,378 Leasing & Capital Costs Tenant Improvements 46,704 22,536 20,518 0 16,005 19,505 41,671 6,660 6,542 0 20,108 68,179 Leasing Commissions 46,151 71,490 12,354 0 14,203 19,560 39,251 7,682 7,548 0 18,256 65,261 Replacement Reserve 26,717 27,385 28,069 28,771 29,490 30,228 30,983 31,758 32,552 33,366 34,200 35,055 Total Leasing & Capital Costs 119,572 121,411 60,941 28,771 59,698 69,293 111,905 46,100 46,642 33,366 72,564 168,495 Cash Flow Before Debt Service $4,069 $105,151 $343,320 $388,071 $362,080 $355,571 $318,502 $407,247 $415,656 $436,209 $400,619 $276,883 & Taxes ======Brookings-Harbor Center Oregon Schedule Of Prospective Cash Flow In Inflated Dollars for the Fiscal Year Beginning 4/1/2015
Year 13 For the Years Ending Mar-2028 Potential Gross Revenue Base Rental Revenue $702,137 Absorption & Turnover Vacancy (84,492) Scheduled Base Rental Revenue 617,645 Expense Reimbursement Revenue 216,705 Total Potential Gross Revenue 834,350 General Vacancy 0 Collection Loss (8,343) Effective Gross Revenue 826,007 Operating Expenses Property Insurance 28,745 Management 33,040 Common Area Maintenance 215,586 Advertising and Promotion 26,898 Real Estate Taxes 52,181 Total Operating Expenses 356,450 Net Operating Income 469,557 Leasing & Capital Costs Tenant Improvements 7,535 Leasing Commissions 55,693 Replacement Reserve 35,931 Total Leasing & Capital Costs 99,159 Cash Flow Before Debt Service $370,398 & Taxes ======Brookings-Harbor Center Oregon Schedule Of Expense Reimbursement Revenue Fiscal Year Reimbursable Operating Expenses Adjusted for Actual Occupancy
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 For the Years Ending Mar-2016 Mar-2017 Mar-2018 Mar-2019 Mar-2020 Mar-2021 Mar-2022 Mar-2023 Mar-2024 Mar-2025 Mar-2026 Mar-2027 Reimbursable Expenses Property Insurance $21,373 $21,908 $22,455 $23,017 $23,592 $24,182 $24,787 $25,406 $26,041 $26,692 $27,360 $28,044 Management 15,080 19,624 27,291 28,084 28,566 28,978 29,499 30,754 31,433 32,050 32,522 31,694 Common Area Maintenance 160,301 164,308 168,416 172,626 176,942 181,365 185,899 190,547 195,311 200,193 205,198 210,328 Advertising and Promotion 20,000 20,500 21,013 21,538 22,076 22,628 23,194 23,774 24,368 24,977 25,602 26,242 Real Estate Taxes 36,599 37,697 38,828 39,993 41,192 42,428 43,701 45,012 46,363 47,753 49,186 50,662 Total Reimbursable Expenses $253,353 $264,037 $278,003 $285,258 $292,368 $299,581 $307,080 $315,493 $323,516 $331,665 $339,868 $346,970 ======
Resulting Fiscal Year Property Expense Reimbursement Revenue
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 For the Years Ending Mar-2016 Mar-2017 Mar-2018 Mar-2019 Mar-2020 Mar-2021 Mar-2022 Mar-2023 Mar-2024 Mar-2025 Mar-2026 Mar-2027 Expense Reimbursements Property Insurance $9,418 $12,201 $18,525 $19,571 $19,421 $18,949 $20,212 $21,305 $21,970 $22,455 $22,313 $20,915 Management 0 0 0 0 0 0 0 0 0 0 0 0 Common Area Maintenance 70,650 91,508 138,919 146,788 145,660 142,123 151,597 159,786 164,769 168,422 167,340 156,857 Advertising and Promotion 0 0 0 0 0 0 0 0 0 0 0 0 Real Estate Taxes 16,133 20,994 32,026 34,007 33,910 33,247 35,640 37,747 39,113 40,174 40,111 37,781 Total Expense Reimbursement $96,201 $124,703 $189,470 $200,366 $198,991 $194,319 $207,449 $218,838 $225,852 $231,051 $229,764 $215,553 ======
Percentage of Reimbursable Expenses Collected as Expense Reimbursement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 For the Years Ending Mar-2016 Mar-2017 Mar-2018 Mar-2019 Mar-2020 Mar-2021 Mar-2022 Mar-2023 Mar-2024 Mar-2025 Mar-2026 Mar-2027 Expense Reimbursements Property Insurance 44.06% 55.69% 82.50% 85.03% 82.32% 78.36% 81.54% 83.86% 84.37% 84.13% 81.55% 74.58% Management 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Common Area Maintenance 44.07% 55.69% 82.49% 85.03% 82.32% 78.36% 81.55% 83.86% 84.36% 84.13% 81.55% 74.58% Advertising and Promotion 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Real Estate Taxes 44.08% 55.69% 82.48% 85.03% 82.32% 78.36% 81.55% 83.86% 84.36% 84.13% 81.55% 74.57% Total Expense Reimbursement 37.97% 47.23% 68.15% 70.24% 68.06% 64.86% 67.56% 69.36% 69.81% 69.66% 67.60% 62.12% ======Brookings-Harbor Center Oregon Schedule Of Expense Reimbursement Revenue Fiscal Year Reimbursable Operating Expenses Adjusted for Actual Occupancy
Year 13 For the Years Ending Mar-2028 Reimbursable Expenses Property Insurance $28,745 Management 33,040 Common Area Maintenance 215,586 Advertising and Promotion 26,898 Real Estate Taxes 52,181 Total Reimbursable Expenses $356,450 ======
Resulting Fiscal Year Property Expense Reimbursement Revenue
Year 13 For the Years Ending Mar-2028 Expense Reimbursements Property Insurance $21,008 Management 0 Common Area Maintenance 157,561 Advertising and Promotion 0 Real Estate Taxes 38,136 Total Expense Reimbursement $216,705 ======
Percentage of Reimbursable Expenses Collected as Expense Reimbursement
Year 13 For the Years Ending Mar-2028 Expense Reimbursements Property Insurance 73.08% Management 0.00% Common Area Maintenance 73.08% Advertising and Promotion 0.00% Real Estate Taxes 73.08% Total Expense Reimbursement 60.80% ======Brookings-Harbor Center Oregon Schedule Of Sources & Uses Of Capital Equity is Based on Property Value, Leverage and Operating Requirements
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 For the Years Ending Mar-2016 Mar-2017 Mar-2018 Mar-2019 Mar-2020 Mar-2021 Mar-2022 Mar-2023 Mar-2024 Mar-2025 Mar-2026 Mar-2027 Sources Of Capital Net Operating Gains $123,641 $226,562 $404,261 $416,842 $421,778 $424,864 $430,407 $453,347 $462,298 $469,575 $473,183 $445,378 Initial Equity Contribution 3,141,648 0 0 0 0 0 0 0 0 0 0 0 Net Proceeds from Sale 0 0 0 0 0 0 0 0 0 0 0 4,507,747 Total Sources Of Capital $3,265,289 $226,562 $404,261 $416,842 $421,778 $424,864 $430,407 $453,347 $462,298 $469,575 $473,183 $4,953,125 ======
Uses Of Capital Property Present Value $3,141,648 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Tenant Improvements 46,704 22,536 20,518 0 16,005 19,505 41,671 6,660 6,542 0 20,108 68,179 Leasing Commissions 46,151 71,490 12,354 0 14,203 19,560 39,251 7,682 7,548 0 18,256 65,261 Capital Costs & Reserves 26,717 27,385 28,069 28,771 29,490 30,228 30,983 31,758 32,552 33,366 34,200 35,055 Defined Uses Of Capital 3,261,220 121,411 60,941 28,771 59,698 69,293 111,905 46,100 46,642 33,366 72,564 168,495 Cash Flow Distributions 4,069 105,151 343,320 388,071 362,080 355,571 318,502 407,247 415,656 436,209 400,619 4,784,630 Total Uses Of Capital $3,265,289 $226,562 $404,261 $416,842 $421,778 $424,864 $430,407 $453,347 $462,298 $469,575 $473,183 $4,953,125 ======
Unleveraged Cash On Cash Return Cash to Purchase Price 0.13% 3.35% 10.93% 12.35% 11.53% 11.32% 10.14% 12.96% 13.23% 13.88% 12.75% 8.81% NOI to Book Value 3.79% 6.70% 11.74% 12.00% 11.94% 11.80% 11.59% 12.06% 12.15% 12.23% 12.10% 10.92% Cash to Purchase Price & Costs 0.13% 3.35% 10.93% 12.35% 11.53% 11.32% 10.14% 12.96% 13.23% 13.88% 12.75% 8.81% Brookings-Harbor Center Oregon Prospective Property Resale
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 For the Years Ending Mar-2016 Mar-2017 Mar-2018 Mar-2019 Mar-2020 Mar-2021 Mar-2022 Mar-2023 Mar-2024 Mar-2025 Mar-2026 Mar-2027 Resale Amount Gross Proceeds from Sale $2,265,620 $4,042,610 $4,168,420 $4,217,780 $4,248,640 $4,304,070 $4,533,470 $4,622,980 $4,695,750 $4,731,830 $4,453,780 $4,695,570 Commissions & Adjustments (90,625) (161,704) (166,737) (168,711) (169,946) (172,163) (181,339) (184,919) (187,830) (189,273) (178,151) (187,823) Net Proceeds From Sale $2,174,995 $3,880,906 $4,001,683 $4,049,069 $4,078,694 $4,131,907 $4,352,131 $4,438,061 $4,507,920 $4,542,557 $4,275,629 $4,507,747 ======Brookings-Harbor Center Oregon Direct Capitalization Value Summary In Inflated Dollars for the Fiscal Year Beginning 4/1/2015
25-36 For the Months Total Potential Gross Revenue Base Rental Revenue $551,889 Absorption & Turnover Vacancy (21,227) Scheduled Base Rental Revenue 530,662 Expense Reimbursement Revenue 189,470 Total Potential Gross Revenue 720,132 General Vacancy (30,668) Collection Loss (7,201) Effective Gross Revenue 682,263 Operating Expenses Property Insurance 22,455 Management 27,291 Common Area Maintenance 168,416 Advertising and Promotion 21,012 Real Estate Taxes 38,828 Total Operating Expenses 278,002 Net Operating Income 404,261
Capitalization Rate 9.50% Capitalized Value $4,255,379 Brookings-Harbor Center Oregon Prospective Present Value Cash Flow Before Debt Service plus Property Resale Discounted Annually (Endpoint on Cash Flow & Resale) over a 12-Year Period
For the P.V. of P.V. of P.V. of P.V. of P.V. of Analysis Year Annual Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Period Ending Cash Flow @ 10.50% @ 10.75% @ 11.00% @ 11.25% @ 11.50%
Year 1 Mar-2016 $4,069 $3,682 $3,674 $3,666 $3,658 $3,649 Year 2 Mar-2017 105,151 86,117 85,729 85,343 84,959 84,580 Year 3 Mar-2018 343,320 254,456 252,736 251,032 249,344 247,670 Year 4 Mar-2019 388,071 260,293 257,951 255,635 253,345 251,080 Year 5 Mar-2020 362,080 219,782 217,313 214,877 212,473 210,102 Year 6 Mar-2021 355,571 195,323 192,692 190,102 187,554 185,045 Year 7 Mar-2022 318,502 158,335 155,849 153,409 151,012 148,658 Year 8 Mar-2023 407,247 183,214 179,932 176,716 173,563 170,474 Year 9 Mar-2024 415,656 169,229 165,822 162,490 159,234 156,049 Year 10 Mar-2025 436,209 160,720 157,129 153,626 150,208 146,874 Year 11 Mar-2026 400,619 133,582 130,302 127,110 124,003 120,979 Year 12 Mar-2027 276,883 83,550 81,315 79,144 77,036 74,989 Total Cash Flow 3,813,378 1,908,283 1,880,444 1,853,150 1,826,389 1,800,149 Property Resale @ 10% Cap Rate 4,507,747 1,360,230 1,323,838 1,288,498 1,254,178 1,220,847 Total Property Present Value $3,268,513 $3,204,282 $3,141,648 $3,080,567 $3,020,996 ======
Rounded to Thousands $3,269,000 $3,204,000 $3,142,000 $3,081,000 $3,021,000 ======
Per SqFt 30.58 29.98 29.40 28.83 28.27
Percentage Value Distribution
Assured Income 10.34% 10.50% 10.66% 10.82% 10.99% Prospective Income 48.04% 48.19% 48.33% 48.47% 48.60% Prospective Property Resale 41.62% 41.31% 41.01% 40.71% 40.41% ======100.00% 100.00% 100.00% 100.00% 100.00% Brookings-Harbor Center Oregon Property Summary Report
Timing & Inflation Reporting Period: April 1, 2015 to March 31, 2027; 12 years Inflation Month: Analysis Start General Inflation Rate: 2.50%
Property Size & Occupancy Property Size: 106,867 Square Feet Alternate Size: 1 Square Foot Number of rent roll tenants: 39 Total Occupied Area: 55,206 Square Feet, 51.66%, during first month of analysis
General Vacancy Method: Percent of Potential Gross Revenue Rate: 7.00%
Credit & Collection Loss Method: Percent of Potential Gross Revenue Rate: 1.00%
Property Purchase & Resale Purchase Price: - Resale Method: Capitalize Net Operating Income Cap Rate: 10.00% Cap Year: Year 13 Commission/Closing Cost: $187,823 Net Cash Flow from Sale: $4,507,747
Present Value Discounting Discount Method: Annually (Endpoint on Cash Flow & Resale) Unleveraged Discount Rate: 11.00% Unleveraged Present Value: $3,141,648 at 11.00% BROOKINGS HARBOR SHOPPING CENTER ADDENDA CONTENTS
ADDENDUM G: QUALIFICATIONS OF THE APPRAISERS
A PROPOSAL FOR
C&W BIOGRAPHY PROFESSIONAL QUALIFICATIONS
CHRISTOPHER P. SHERLAND ASSOCIATE DIRECTOR | VALUATION & ADVISORY PRACTICE GROUP MEMBER | RETAIL INDUSTRY PRACTICE GROUP
CUSHMAN & WAKEFIELD OF OREGON, INC.
Christopher P. Sherland joined the Valuation & Advisory group of Cushman & Wakefield of Oregon, Inc. in 2007. Prior to joining C&W, Mr. Sherland completed the Management Training Program and worked as an Account Executive at a national wholesale mortgage lender. During this period Mr. Sherland gained significant experience in all aspects of mortgage finance including underwriting, appraisal review, capital markets, and business development.
EXPERIENCE Mr. Sherland has a broad range of experience in counseling and valuation for a full array of property types. As a member of C&W’s Retail Industry Group, Mr. Sherland’s primary focus is major retail properties, including regional malls, specialty centers, department stores, power and lifestyle centers, and other retail formats. Mr. Sherland’s counseling experience includes market & feasibility studies, market rent analysis, and occupancy cost studies for a broad range of institutional and retail industry clients.
EDUCATION Linfield College (McMinnville, Oregon) − Degree: Bachelor of Science (BS) in Business
APPRAISAL EDUCATION To date, Mr. Sherland has completed the requirements of the continuing education program of the Appraisal Institute.
MEMBERSHIPS, LICENSES AND PROFESSIONAL AFFILIATIONS Candidate for Designation, Appraisal Institute Certified General Real Estate Appraiser in the following states: − Oregon – C001119 − Washington – 1102211 State of Oregon Approved Market Analyst Affiliate Member, International Council of Shopping Centers, ICSC
GUEST SPEAKER/PUBLICATIONS Portland State University- National Retail Market Dynamics, 2011 Oregon Public Broadcasting- Big Shifts On Main Street, 2010 The Oregonian- Retail’s Riding It Out, 2009
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Urban Land Institute- Frugal Is Fashionable, 2009 Portland State University Real Estate Quarterly- Retail Condominiums: A New Frontier of Portland Retailing, 2008 Oregon Business- Outlets Upswing, 2008 In addition to the publications noted above, Mr. Sherland is the author or a regular contributor to several periodic retail research briefings provided to clients, brokers and analysts. Selections and quotations from these briefings have been published by CoStar, GlobeSt.com, The New York Times, Real Estate Forum, RetailTraffic, and Shopping Centers Today. Over the past five years, Mr. Sherland has authored a variety of Cushman & Wakefield Research Reports, produced generally one to two times per year and are provided to clients, brokers and analysts: − National Retail Overview − Lifestyle Center Industry Overview − Movie Theatre Industry Overview − Outlet Center Industry Overview − Mart Industry Overview − Supermarket Industry Overview − Drug Store Industry Overview − Retail Net Lease Overview PricewaterhouseCoopers (Korpacz) Real Estate Investors Survey: − “Retail Special Report: The Perfect Storm or More Hot Air,” 2Q 2009 − “Retail Special Report: The 100-Million Square Foot Hangover,” 1Q 2009 “Exuberance in Control, Outlet Sector on a Roll,” Value Retail News, May 2011 (cover) “The Numbers Don't Lie–Outlet=Opportunity,” Value Retail News, September 2009 Cushman & Wakefield Business Briefings: − “When The Storm Passes,” September 2009 − “Race to The Bottom,” January 2009 − “Frugal is Fashionable,” November 2008 − “Changing Tides—Outlook for the Retail Sector,” July 2008 Cushman & Wakefield Retail TrendWatch: − “Outlet Sector Investment and Productivity at Record Levels,” September 26, 2011 Developed a two-hour WebEx seminar entitled, “Retail Industry Overview and Valuation Issues,” which the Appraisal Institute approved for continuing education.
OTHER Member, City of West Linn Historic Review Board
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OREGON
WASHINGTON
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STEVEN A. ZENKER, MAI EXECUTIVE DIRECTOR | VALUATION & ADVISORY
CUSHMAN & WAKEFIELD OF OREGON, INC.
Mr. Zenker has been involved in the real estate appraisal industry since 1986. He joined Cushman & Wakefield of Oregon, Inc. in 1991 in the Valuation & Advisory group in Portland, Oregon. Mr. Zenker was named an Associate Director in 1993, given Directorship in 1997 and was named a Senior Director in 2002. He was appointed Executive Director in 2012. Prior to joining Cushman & Wakefield Valuation & Advisory, Mr. Zenker was employed from 1986 to 1991 with Diversified Realty Appraisal in Newport Beach, California. From 1986 to 1991, Mr. Zenker was a general real estate appraiser focusing on all property types, including residential, commercial, industrial and special use properties throughout the California.
EXPERIENCE Appraisal and consulting assignments have included vacant land, office buildings, shopping centers, industrial complexes, commercial properties, multi-family residential properties, motels and other investment properties throughout the United States. Valuations have been made of proposed, partially completed, renovated and existing structures. Since 1991, Mr. Zenker’s primary focus has been on the valuation and consultation on office, retail, multi-family and industrial properties.
EDUCATION University of California, Irvine – Graduated 1983 − Degree: Bachelor of Arts – Economics/Mathematics
MEMBERSHIPS, LICENSES AND PROFESSIONAL AFFILIATIONS Designated Member, Appraisal Institute − As of the current date, Steven Zenker, MAI has completed the requirements of the continuing education program of the Appraisal Institute. Certified General Real Estate Appraiser in the following states: − Alaska – AA 169 − Arizona – 31107 − California – AG001948 − Idaho – CGA-159 − Montana – 830 − Oregon – C000202 − Utah – 5476698-CG00 − Washington – 1100232 California Real Estate Broker
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ALASKA
ARIZONA
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CALIFORNIA
IDAHO
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MONTANA
OREGON
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UTAH
WASHINGTON
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