APPRAISAL REPORT
HOLIDAY INN EXPRESS LOCATED AT 11818 MIAMI STREET OMAHA, NEBRASKA 68164
AS OF: NOVEMBER 21, 2017
PREPARED FOR: MR. WILLIAM M. LIEN VICE PRESIDENT CREDIT ADMINISTRATION CORNHUSKER BANK P.O. BOX #80009 LINCOLN, NEBRASKA 68501
PREPARED BY: MR. DENNIS J. KNUDSON, MAI KNUDSON APPRAISAL SERVICES 13425 “A” STREET SUITE #11 OMAHA, NEBRASKA 68144 KNUDSON APPRAISAL SERVICES 13425 “A” Street Suite #11 Omaha, Nebraska 68144
(402) 932-4959 – Office (402) 320-2581 – Cell [email protected]
December 7, 2017
Mr. William M. Lien Vice President Credit Administration Cornhusker Bank P.O. Box #80009 Lincoln, Nebraska
RE: Appraisal Report Renovated Holiday Inn Express Located at 11818 Miami Street Omaha, Nebraska 68164
Dear Mr. Lien:
In accordance with your request, I have appraised the above captioned property. The property is legally described within this report.
In making this appraisal I have considered the pertinent data applicable to the appraised property. As a result of my analysis of the factors influencing this valuation, it is my opinion that the market value of the subject property in fee simple estate, subject to my underlying assumptions and limiting conditions, and my certification, as of November 21, 2017, is as follows:
“ As Stabilized ” Furniture, Fixtures & Equipment (FF&E) $ 800,000 Real Estate $ 7,200,000 Total Realty Value $ 8,000,000
It is estimated that it will take approximately one (1) year to reach stabilized occupancy. Therefore, the “As Complete” value or alternatively, “As Is” value is discounted 1 year at 10%. Therefore, the following applies:
“As Stabilized” Value $ 8,000,000 Discount Factor @ 10% for 1 Year . 9091 “As Complete” Value $ 7,272,800 Called $ 7,300,000 Page -2- Mr. William M. Lien Cornhusker Bank
The attached report sets forth my reasoning and methodology in arriving at the preceding conclusion of value.
Respectfully submitted,
Dennis J. Knudson, MAI Nebraska General Certified Appraiser CG920136 APPRAISAL REPORT TABLE OF CONTENTS
Page
Assumptions and Limiting Conditions ...... i
I. INTRODUCTION
Summary of Relevant Data and Conclusions ...... 1 Scope of the Appraisal ...... 3 Purpose of the Appraisal...... 3 Definition of Market Value...... 4 Property Rights Appraised ...... 4 Function of the Appraisal ...... 4 Identification of the Property ...... 4 Owner of Record...... 4 Effective Date of the Appraisal ...... 5 Legal Description ...... 5 Taxes and Assessments...... 5 Zoning...... 5 Floodplain ...... 6 Other Pertinent Environmental Information ...... 6 Utilities ...... 6 History and Current Status of Subject Property ...... 6 Marketing Time ...... 6 Building Accessibility Requirements ...... 7 Intended Use ...... 7 Competency Provision ...... 7 Prior Assignment Disclosure ...... 8
II. PROPERTY DESCRIPTION
Neighborhood Description ...... 9 Site Description...... 11 Description of Improvements ...... 13
III. VALUATION
Highest and Best Use ...... 18 Appraisal Process ...... 22 Cost Approach ...... 24 Sales Comparison Approach...... 51 Income Capitalization Approach ...... 80 Reconciliation and Final Estimate of Value ...... 90 TABLE OF CONTENTS (CONTINUED)
IV. CERTIFICATION AND QUALIFICATIONS
Certification of the Appraiser ...... 94 Qualifications of the Appraiser ...... 95
V. ADDENDUM
Letter of Engagement Nebraska General Appraiser Certification for Dennis J. Knudson Historical Income and Expenses 2016 Owners Five Year Projection Site Plan Omaha & Vicinity Map GO, General Office Zoning Regulations Zoning Map Flood Plain Map Plat Map Comparable Land Sales Map Comparable Improved Sales Map Comparable Rentals Map Interior / Exterior Photographs of Subject Property ASSUMPTIONS & LIMITING CONDITIONS ASSUMPTIONS AND LIMITING CONDITIONS
In conducting this appraisal I have assumed, except as otherwise noted in this report, the following:
1. Title is marketable and free and clear of all liens, encumbrances, encroachments, easements and restrictions. The property is under responsible ownership and is available for its highest and best use.
2. There is no existing judgments or pending or threatened litigation, which could affect the value of the property.
3. There are no hidden or undisclosed conditions of the land or of the improvements which would render the property more or less valuable.
4. The revenue stamps placed on any deed to indicate the sale price is in correct relation to the actual dollar amount of the transaction.
5. The land and improvements are in compliance with all applicable building, environmental, zoning and other federal, state and local laws, regulations and codes.
The report is subject to the following limiting conditions, except as otherwise noted in the report:
1. An appraisal is inherently subjective and represents only an estimate of a property's market value.
2. The conclusions stated in the appraisal apply only as of the date indicated and no representation is made as to the effect of subsequent events.
3. No changes in any federal, state or local laws, regulations or codes (including, without limitation, the Internal Revenue Code) are anticipated.
4. No environmental impact studies were either requested or made in conjunction with this appraisal and I reserve the right to revise or rescind any of the value opinions based upon any subsequent environmental impact studies. If any environmental impact statement is required by law the appraisal assumes that such statements would be favorable and will be approved by the appropriate regulatory bodies.
5. By reason of this assignment I am not required to give testimony or to be in attendance in court or any government or other hearing with reference to the property without written contractual arrangements having been made relative to such additional employment.
-i- ASSUMPTIONS AND LIMITING CONDITIONS (CONTINUED)
6. I have not made a survey of the property and assume no responsibility in connection with such matters. Any sketch or survey of the property included in this report is for illustrative purposes only and should not be considered to be accurately scaled for size. The appraisal covers the property as described in this report and the areas and dimensions set forth herein are assumed to be correct.
7. No opinion is expressed as to the value of subsurface oil, gas or mineral rights, if any and I have assumed that the property is not subject to surface entry for the exploration or removal of such materials, unless otherwise noted in the appraisal.
8. No responsibility is accepted by me for considerations requiring expertise in other fields. Such considerations include but are not limited to, legal descriptions and other legal matters, geologic considerations, such as soils and seismic stability, and civil, mechanical, electrical, structural and other engineering and environmental matters.
9. The distribution of the total valuation in this report between land and improvements applies only under the reported highest and best use of the property. The allocations of value for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. This appraisal should be considered only in its entirety. No part of this appraisal is authorized to be utilized separately or out of context.
10. No part of this report (especially any conclusions as to values of the property or the identity of the appraiser) is authorized to be disseminated through advertising media, public relations media, news media or any other means of communication (including without limitation prospectuses, private offering memoranda and other offering material provided to prospective investors) without the prior written consent of the appraiser.
11. Any information, estimates and opinions contained in this report, obtained from sources outside of this office are assumed to be reliable and in some cases have not been independently verified.
12. Any income and expense estimates contained in this appraisal are used only for the purpose of estimating current market value and do not constitute predictions of future operating results.
13. No assurance is provided that the methodology and/or results of the appraisal will not be successfully challenged by the Internal Revenue Service. In particular, the methodology for appraising certain types of properties.
-ii- ASSUMPTIONS AND LIMITING CONDITIONS (CONTINUED)
14. If the property is subject to one or more leases, any estimate of residual value contained in the appraisal may be particularly affected by significant changes in the condition of the economy, of the real estate industry, or of the appraised property at the time the leases expire or otherwise terminate.
15. No consideration has been given to personal property, which might be located on the premises or to the cost of moving or relocating such personal property; only the real property has been considered, unless otherwise stated.
16. The current purchasing power of the dollar is the basis for the value stated in this appraisal; I have assumed that no extreme fluctuations in economic cycles will occur.
17. The value found herein is subject to these and to any other assumptions or conditions set forth in the body of this report but which may have been omitted from these Underlying Assumptions and Limiting Conditions.
18. The analysis contained in this report necessarily incorporates numerous estimates and assumptions regarding property performance, general and local business and economic conditions, the absence of the material changes in the competitive environment and other matters. Some estimates or assumptions however, inevitably will not materialize and unanticipated events and circumstances may occur; therefore actual results achieved during the period covered by my analysis will vary from my estimates and the variations may be material.
19. The Americans with Disabilities Act (ADA) became effective January 26, 1992. There has not been a specific survey or analysis of this property made, to determine whether the physical aspects of the improvements meet the ADA accessibility guidelines. Given that compliance can change with each owner's financial ability to cure non accessibility, the value of the subject does not consider possible non compliance. Specific study of both the owner's financial ability and the cost to cure any deficiencies would be needed for the Department of Justice to determine compliance.
-iii- I. INTRODUCTION SUMMARY OF RELEVANT DATA AND CONCLUSIONS
Effective Date of Appraisal: November 21, 2017
Property Being Appraised: An 80 unit, budget type motel, located at 11818 Miami Street, Omaha, Nebraska 68164
Legal Description: Lot 3, North Park 2nd Replat, as surveyed, platted and recorded in Douglas County, Nebraska
Owner of Record: LBUBS 2006-C1 Miami Street, L.L.C. c/o Rudy Rincon & Jason Nick 1601 Washington Avenue Suite #700 Miami Beach, Florida 33139
Highest and Best Use: Commercial Use
Zoning: GO, General Office District
Site Size: 83,305 Square Feet or 1.91 acres
Gross Building Area: Three stories containing a total area of 44,640 square feet. The individual floor sizes are as follows:
SF Area Wall Height First Floor 14,904 14' Second Floor 14,868 11' Third Floor 14,868 11' Total Square Foot Area 44,640
Age: 1998 / Remodeled and Renovated to Holiday Inn Express in 2016
-1- SUMMARY OF RELEVANT DATA AND CONCLUSIONS (CONTINUED)
Indications of Value
“AS STABILIZED” Cost Approach Land Value $1,080,000 Improvement Value 6,920,000 Total Cost Approach $8,000,000
Sales Comparison Approach $8,000,000
Income Capitalization Approach $8,000,000
Reconciled Fee Simple Value $8,000,000
Furthermore, the segregated breakdown of the total value is as follows:
“AS STABILIZED” Land Value $1,080,000 Personal Property (FF&E) $ 800,000 Total Improvement Value $6,120,000 Total Realty Value $8,000,000
The “As Complete”, or “As Is” Value is discounted 1 Year at 10%
Present Worth Factor . 9091 “As Complete” Value $ 7,272,800 Called $ 7,300,000
-2- SCOPE OF THE APPRAISAL
The purpose of this appraisal is to estimate the market value of the fee simple title to the subject property's land and improvements “As Is” as a Holiday Inn Express and “As Stabilized” as a Holiday Inn Express (80 Units).
This written report leads the reader through the valuation analysis of a parcel of real property located in Omaha, Nebraska and the major factors which influence value. An opinion of value is supported with market data and analysis, which is documented as thoroughly as possible in this report. Other data and analysis is contained either in this particular file or in the appraiser's files of similar assignments.
The subject property is an existing 80 unit three-story motel constructed in 1998. The improvements are located 11818 Miami Street, in northwest Omaha, Nebraska. The hotel has recently been renovated at a total cost of $2,809,355 into a Holiday Inn Express. This appraisal will value the property “As Is” and “As Stabilized” as a Holiday Inn Express.
For every appraisal problem there are valuation questions to be answered. By answering the questions, a supported opinion of value can be offered. The appraisal problems solved by the appraiser can be described in the following questions:
1. Does the location result in a demand for such a parcel as a hotel/motel property? 2. Do the physical characteristics hinder or help the marketability of the subject site? 3. What is the competition and supply for similar vacant land in the neighborhood? 4. What is the availability of commercial land in the immediate area? 5. Is there an alternative use for the land besides the current land use? 6. What is the current climate of the Omaha real estate market? 7. How does the typical buyer and seller analyze real property in this market and what data/methods do they rely on? 8. What types of improvements have demand and value in the subject neighborhood? 9. How do the subject improvements compare in relation to other improved parcels in the area? 10. Do the subject improvements meet the highest and best use expectations for the site? 11. Is there a demand for hotels/motels in the Omaha area? 12. What final considerations lead to a value opinion?
The appraisal documented in this report answers these questions and supports a final opinion of value by the three approaches to value.
PURPOSE OF THE APPRAISAL
The purpose of this appraisal is to estimate the market value of the fee simple title to the subject property land and improvements.
-3- DEFINITION OF MARKET VALUE
Market value as defined in The Appraisal of Real Estate, 14th Edition, published by the Appraisal Institute in 2015 on Page 58 is as follows:
“The most probable price, as of a specified date, in cash, or terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.”
*(Source: The Appraisal of Real Estate 14th Edition)
PROPERTY RIGHTS APPRAISED
The unencumbered fee simple interest in the property is being appraised. Property rights appraised are defined as follows in The Appraisal of Real Estate, 14th Edition, published by the Appraisal Institute in 2015, on page 90:
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."
The subject property rights are subject to any leases, easements, restrictions, and/or covenants of record.
FUNCTION OF THE APPRAISAL REPORT
The function of the appraisal report is for mortgage financing purposes.
IDENTIFICATION OF THE PROPERTY
The property being appraised consists of an existing three-story Holiday Inn Express motel property constructed in 1998. In 2016, the existing Country Inn and Suites was renovated into the current Holiday Inn Express.
OWNER OF RECORD
The owner of record for the subject property is:
Miami Street Hospitality, L.L.C. 6007 Norman Road Lincoln, Nebraska 68512
-4- EFFECTIVE DATE OF THE APPRAISAL
The effective date of this appraisal is November 21, 2017. On this date, Dennis J. Knudson made an inspection of the subject parcel. All interior/exterior digital photographs were taken as of that date.
LEGAL DESCRIPTION
The property being appraised is legally described as:
Lot 3, North Park 2nd Replat, as surveyed, platted and recorded in Douglas County, Nebraska
TAXES AND ASSESSMENTS
Ad valorem real estate taxes in Douglas County are levied on the basis of the actual value of each parcel of real estate as determined by the County Assessor. Real estate taxes in Nebraska are payable April 1st and August 1st.
The current property valuation and real estate taxes are:
Parcel 4239 0504 18 Land $ 595,600 Improvements 1,424,100 Total $2,019,700 2015 Real Estate Taxes Payable in 2016 $43,641,08
Taxes are current as of the date of appraisal.
ZONING
The subject property is zoned GO, General Office District. The City of Omaha Zoning Ordinance, Article Seven, Section 55-322, states:
"The GO general office district is intended to provide office locations serving community and city-wide needs. The GO district allows for relatively intense office development, together with selected complementary commercial uses integrated into such developments. Site development regulations are designed to ensure compatibility with adjacent or neighboring residential development. GO districts are most appropriately found along or near minor and major arterial streets, on the edge of residential areas, in areas of existing office development, and in areas appropriate for new development. The GO district, through conditional use permits, also provides for large office developments and projects which in appropriate urban settings exceed allowed use intensities and regulations provided.”
For permitted uses, conditional uses, special permit uses, site development regulations, and additional regulations, please refer to the Addendum section of this report for a copy of the zoning regulations for the GO General Office District.
-5- FLOODPLAIN
According to the National Flood Insurance Program, Flood Insurance Rate Map, the subject property is not in a flood hazard area. The Community Panel examined by the appraiser was , effective December 2, 2005, for Douglas County, Nebraska. These Flood Insurance Rate Maps are published by the Federal Emergency Management Agency.
OTHER PERTINENT ENVIRONMENTAL INFORMATION
The appraiser is not aware of any other environmental hazards affecting the subject property site or improvements.
UTILITIES
All public utilities, including electricity, sanitary and storm sewer, city water, natural gas, and telephone service are available and connected to the subject site.
HISTORY AND CURRENT STATUS OF THE SUBJECT PROPERTY
According to Douglas County Records, the current owners have owned the property since March 2015. The price paid was $3,800,000 with $600,000 held back for improvements and repairs. In 2016, the owners renovated the existing Country Inn and Suites was renovated into the current Holiday Inn Express at a cost of $2,809,355.
MARKETING TIME
A typical marketing time for a hotel/motel property such as the subject would be six months to one year after construction is completed, if a proper marketing plan is utilized.
A proper marketing plan would include, but is not limited to, the following:
a. The utilization of a specialized hotel/motel broker.
b. A marketing plan which would include advertising the listing in all of the major metropolitan newspapers in the Midwest.
c. Advertising in various hotel publications.
d. A close working relationship with the on-site manager.
-6- BUILDING ACCESSIBILITY REQUIREMENTS
The Americans with Disabilities Act (ADA) is a federal statute which requires accessibility and certain other building features to allow access and use by persons with specified disabilities. Based on my inspection of the building plans, it appears that the motel property is handicapped accessible and that public restrooms are handicapped accessible. Furthermore, there is handicapped parking stalls available. It is assumed that the motel property is in full compliance with all of the requirements of the ADA. Consequently, this appraisal report is made subject to the following limiting condition:
“The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative impact on the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of ADA in estimating the value of the property.”
INTENDED USE
This appraisal report is intended to be used for mortgage financing purposes only by Cornhusker Bank, its designees and assigns.
COMPETENCY PROVISION
The competency provision of the Uniform Standards of Professional Appraisal Practice states in brief that, prior to accepting an appraisal assignment, an appraiser must have the knowledge and experience to complete the assignment competently or disclose the lack thereof; and take all necessary steps and describe in the appraisal report the steps taken to complete the assignment competently.
The person signing this report have the necessary knowledge and experience to competently complete this appraisal assignment. Dennis J. Knudson, MAI, has 45 years appraisal experience and has operated his commercial appraisal business for the past 27 years. This experience, as well as my education, appraisal training, and continuing education in appraising, provide me with the background and necessary education to provide a professionally derived opinion of the estimated market value of the subject property.
-7- PRIOR ASSIGNMENT DISCLOSURE
In accordance with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation, an appraiser must disclose to the client any services regarding the subject property, provided as an appraiser or in any other capacity during the three years prior to accepting a new assignment. I have previously appraised the subject property on May 23, 2016. The appraisal was for Council Bluffs Savings Bank, which is as certified in the Certification section of this report.
-8- II. PROPERTY DESCRIPTION NEIGHBORHOOD DESCRIPTION
The subject property is located in northwest Omaha, approximately 10½ miles northwest of the Central Business District of Omaha. Your attention is directed to the Omaha and Vicinity Map in the Addendum of this report for the subject's location within the city and its relationship to the Central Business District.
The neighborhood boundaries are considered to be Fort Street on the north; Blondo Street on the south; North 168th Street on the west; and North 108th Street on the east.
The immediate area of the subject property is primarily commercial along the frontage of North 120th Street and along West Maple Road, located to the north. The main thoroughfares within the neighborhood include east/west Blondo Street, West Maple Road, and Fort Street, and north/south 108th, 120th, and 132nd Streets.
The City of Omaha Traffic Engineering Division reports the latest 24 hour traffic volumes at the major intersections to the subject property. These estimated two-way 24 hour traffic volumes are reported as:
Date Intersection EADT North South East West Counted 114th and West Maple Road 39,258 2,258 460 38,300 37,498 11/09 120th and West Maple Road 58,158 13,342 22,806 40,662 39,506 12/13 132nd and West Maple Road 51,536 19,326 18,440 33,928 31,378 6/11
Accessibility to the area is good from the main thoroughfares described above. West Maple Road is a four-lane divided median thoroughfare, which connects with Interstate 680 approximately 1 ½ miles to the east. Topography for the area is considered to be slightly rolling with low lying areas to the east along the Papillion Creek, which meanders through the area east of the subject addition. Streets in the area are paved concrete with concrete and asphalt surfacing and have concrete curbs and gutters.
Commercial developments are extensive in the area and include branch banking facilities, convenient stores, office buildings, neighborhood shopping centers, freestanding restaurants, and single-family residential homes typically ranging in value from $150,000 to over $750,000 in surrounding neighborhood subdivisions.
All utilities including water, sanitary sewer, gas, electricity, and telephone service are available within the area. This area of the city has developed rapidly over the past twenty-five years, and continues to see significant commercial and residential development where there is undeveloped land, primarily to the west of the subject. There do not appear to be any special hazards or adverse influences which would significantly affect the subject neighborhood.
-9- NEIGHBORHOOD DESCRIPTION (CONTINUED)
After analyzing the neighborhood and with knowledge of the overall development of the City, it is the appraiser's opinion that trends affecting the subject neighborhood will improve into the foreseeable future.
The age of the neighborhood, the good condition of the improvements, and the overall pride of ownership maintained within the neighborhood are all considered to be assets in evaluating the neighborhood. The area is conveniently located with respect to the city's main employment centers and the transportation system is considered good.
Your attention is directed to the neighborhood map in the Addendum of this report, which delineates the subject neighborhood.
-10- SITE DESCRIPTION
The subject property site is located at the north side of Miami Street just to the east of 120th Street in northwest Omaha, Nebraska.
The appraiser does not have the benefit of the land survey for the subject parcel. The estimated land area was based on my physical inspection and square foot areas as computed by the Douglas County Assessor’s office.
Characteristics of the subject site are as follows:
Size: 83,305 square feet or 1.91 acres
Shape: The subject site is irregular in shape.
Topography: The subject property site appears to have good drainage away from the existing building improvements.
Floodplain: The entire area of the subject parcel lies outside of any established floodplain limits.
Visibility: The subject site has good visibility from all directions.
Access: Access to the site is available from Miami Street on the south.
Traffic Patterns: The traffic patterns in the immediate area appear to be good.
Utilities. All utilities including gas, water, electricity, sanitary sewer, and telephone service are available and connected to the improvements.
Soil Conditions: The appraiser is not aware of any soil conditions, which would have any effect on the improvements to the site or which would prevent any future remodeling or expansion of the site and no conditions are assumed.
Surrounding Land Uses: The immediate area of the subject property location is comprised of office buildings to the east and Culver’s fast food restaurant adjacent to the west. West of 120th Street is primarily residential infill with single-family residential units and multi-family units on the periphery.
-11- SITE DESCRIPTION (CONTINUED)
Other: The only easements pertaining to the subject property would be standard utility easements connecting the subject to established service for local utilities.
Please refer to the Addendum of this report for a site plan and photographs depicting the subject property site.
-12- DESCRIPTION OF THE IMPROVEMENTS
The subject property is located on the north side of Miami, just to the east of 120th Street in northwest Omaha, Nebraska. The site is improved with an 80 unit Holiday Inn Express motel containing 83,305 square feet. The improvements were constructed in 1998. In 2016 the current owners spent $2,809,355 in renovating the existing Country Inn and Suites into the current Holiday Inn Express.
The subject property motel improvements are located in a good environment for motel usage in northwest Omaha.
Accommodations
Guest Rooms. The subject has 80 guest rooms. According to the on-site manager, there are 35 standard double queen units, 22 standard king units, 3 single queen units, 12 suites and 8 king whirlpool units
Guest Services. Guest services include continental breakfast served daily, non- smoking room availability, acceptance of major credit cards, vending machines for ice, snack, soft drinks, and free on-site parking.
Physical Characteristics
Various construction components and physical characteristics of the subject property are itemized below:
Size. The subject property consists of a three-story Holiday Inn Express motel containing 44,640 square feet.
SF Area Wall Height First Floor 14,904 14' Second Floor 14,868 11' Third Floor 14,868 11' Total Square Foot Area 44,640
-13- DESCRIPTION OF THE IMPROVEMENTS (CONTINUED)
Physical Characteristics (Continued)
Age. 1998 / Renovated in 2016
Rooms. Each room is equipped with a color television set. Bathrooms include a vanity with sink, stool, and tub with tile shower in a separate enclosed room. Rooms have wall to wall carpeting, painted drywall partitioning walls between the guest rooms, and textured drywall ceilings over structural pre-stressed concrete slabs. All rooms are served with interior hallway access. None of the upper levels have balconies. Lobby and Registration Area. The lobby and registration area is on the first level.
Pool Area. The enclosed pool area is located on the first floor.
Office Area. There is a manager's office located directly behind the front registration desk.
Laundry Room. The laundry room is located on the first floor adjacent the lobby area and is equipped with commercial washers and dryers.
Other Amenities. There are two public restrooms, food preparation room, guest laundry, and business network room on the first floor.
Type of Construction. Three-story building with masonry load bearing wall support and exterior walls of vinyl siding.
Fire Protection. The building is sprinklered with a wet sprinkler system. There are fire alarm extinguishers and smoke detectors in each room. There is emergency lighting in the hallways of the structure.
Type of Occupancy. Mid-rate to budget hotel with limited meeting facilities.
Outside Paving. There is 35,000 square feet of on site parking area to the south of the building with ample parking availability of which 2 stalls are handicapped accessible.
-14- DESCRIPTION OF THE IMPROVEMENTS (CONTINUED)
Physical Characteristics (Continued)
Structure and Foundation. All exterior and interior footings are poured concrete with continuous steel reinforcing bars. The first level is a poured slab-on-grade and upper levels are pre-stressed concrete planking. Floor finish is carpeting and pad in all guest rooms and hallways with ceramic flooring in the restroom areas.
Roofing. The roof is a flat roof with rubber membrane and tar and gravel roof cover.
Insulation. There is continuous batt, blanket, and rigid insulation in all walls, floors, and ceilings.
Electrical. The lobby has fluorescent ballast fixtures. Individual guest rooms have wall mounted and desk mounted incandescent fixtures.
Heating. Individual rooms have an electric baseboard heating system; cooling for individual guest rooms is via wall mounted air conditioning units. The lobby area and registration area has an electric fired package system.
Security. There are handle locks and dead bolts with chains located on the interior doors and window latches.
Elevators. There is a 3,500 pound capacity elevator servicing the upper levels.
Stair Cases. There are two interior metal frame stair cases providing access to upper level floors.
Quality of Construction. The quality of construction is good. The building is constructed of a durable but good quality of materials and installed in a good workmanlike manner.
Plumbing. Public restrooms are located on the first floor adjacent to the lobby area. Individual room units are equipped with three fixture facilities including stool, lavatory, and combination tub and showers.
-15- DESCRIPTION OF THE IMPROVEMENTS (CONTINUED)
Physical Characteristics (Continued)
Personal Property. Personal property includes room furnishings for the individual guest rooms. Furnishings include beds, dressers, mirrors, chairs, nightstands, light fixtures, etc. Other items of personal property include linens, bedspreads, and draperies.
Other Equipment. Other equipment includes office equipment for the lobby office area, manager's office, registration and bookkeeping areas, laundry equipment, exercise room, pool, etc.. Other Site Improvements: There is approximately 35,000 square feet of paved parking and drive areas. There is exterior parking lot lighting and signage.
Mechanical, Electrical, Plumbing Equipment. All mechanical, electrical, and plumbing equipment appear to be in good working order.
Furnishings. Each of the existing 80 rooms have furnishings that have been replaced on an ongoing basis, since original construction.
Franchise. The property is affiliated with the Holiday Inn Express hotel franchise. This franchise inspects the property and offers a critical analysis of the property's appearance, upkeep, and guest accommodations. In order to maintain the franchise affiliation, minimum standards are required and it is presumed that the subject property exceeds all of these standards. As of the Summer of 2016, the hotel has been renovated at a cost of approximately $2,800,000 and upgraded to a Holiday Inn Express franchise. Holiday Inn Express offers a critical analysis of the property appearances, upkeep, and guest accommodations which are generally considered superior to Country Inn.
Public Accessible Area – First Floor: Lobby, breakfast area, meeting room, electrical/maintenance room storage, computer/office area, vestibule, sales office manager office, linen storage, laundry, storage, maintenance room, and two public restrooms are located on the first floor.
-16- DESCRIPTION OF THE IMPROVEMENTS (CONTINUED)
Physical Characteristics (Continued)
Capital Improvements. The current owners have spent $2,809,355 in repairs itemized as follows:
1) Interior/Exterior Renovation $ 1,195,530 2) Holiday Inn Express Franchise Fee 63,634 3) Concrete Work 12,727 4) FF&E Removal and Sale 6,363 5) Windows 92,652 6) Carpet/Wall Cover 163,412 7) Door Locks / Signage 67,408 8) Equipment / Ice Machine 15,660 9) FF&E 702,414 10) Sprinklers 7,000 11) HVAC 80,434 12) Electrical 6,809 13) Communications 69,998 14) Exterior Improvements 95,194 15) Project Staffing 77,000 16) Contingency 153,120 Total $ 2,809,355
As of the date of the appraisal (November 21, 2017) the renovation work is 100% complete. The only items remaining are cleanup and miscellaneous last minute repaint. The hotel is scheduled to open November 30, 2017.
Please refer to the Addendum of this report for interior / exterior photographs of the subject property.
-17- III. VALUATION HIGHEST AND BEST USE
The definition of Highest and Best Use was taken from The Dictionary of Real Estate Appraisal, Fourth Edition, published in 2002 by the Appraisal Institute, on Pages 135 and 136:
“Highest and Best Use. The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity.”
“Highest and Best Use of Land or Site as Though Vacant. Among all reasonable, alternative uses, the use that yields the highest present land value, after payments are made for labor, capital, and coordination. The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvements.”
“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.”
In order for a particular use of a piece of real property to be the highest and best use of that real property, several requirements must be met:
1. The use must be legally permissible or reasonably possible.
2. The use must be physically possible on the site.
3. The use must be economically and financially feasible under the projected market conditions then existing.
4. The use must be the most profitable among the alternatives that are legally permissible, physically possible, and economically feasible.
The highest and best use analysis involves two separate studies:
1. The site, as if vacant and ready to be put to its highest and best use;
and, if the property is improved, then
2. A study of the highest and best use of the property as improved.
-18- HIGHEST AND BEST USE (CONTINUED)
Highest and Best Use, as Though Vacant
Generally, land must be utilized to conform with the standards governing the area in which it is located. The primary reason for zoning regulations is to protect an area from infiltration of, or conversion to, inharmonious uses.
The subject property site is zoned GO, General Office District. This zoning allows for many types of commercial and office uses, of which hotel usage is a permitted use.
Use density is an important factor to be considered in almost every analysis underlying an opinion of highest and best use. The use of land must yield a profitable net return; and the quantity of land devoted to any specific use will be that quantity, which will yield a satisfactory return to each owner. When the quantity of land acceptable for a particular use is in balance with demand for such utilization, the quantity of that type of land has reached its highest density of use.
This site, due to its location in northwest Omaha, has visibility from all directions. Access is available off of Miami Street on the south.
Topography for the site slopes slightly, allowing for good drainage away from the building improvements.
The appraiser is not aware of any soil or subsoil conditions which might affect the value of this site and its developmental potential.
All public utilities, including water, gas, electricity, sewer and telephone service are readily available to the site.
After analyzing if the given usage is legally permissible and physically possible, the next step of the four criteria is economic and financial feasibility.
The legally permissible and physically possible restraints, together with location of the site in a commercial area certainly would preclude any type of single-family residential, recreational, or multiple-family use.
The zoning of the site is conducive to land surrounding which is developed for either commercial, restaurant, convenient store, or other commercial usage. Thus, it would appear that the most economical and financially feasible usage of this site would be for some form of commercial usage. When adequate market demand is demonstrated, some form of commercial use would most likely be the most economical and feasible use of the subject site.
-19- HIGHEST AND BEST USE (CONTINUED)
Highest and Best Use, as Though Vacant (Continued)
When the uses are legally permissible, physically possible, and economically and financially feasible, determination of that use among others, which provides the highest rate of return or value for the subject property is that use, which is maximally productive for the subject site.
Considering the location of the subject site along a major thoroughfare, as well as the location adjacent to several other commercial uses; and further considering its physical size, shape, zoning, topography, and other physical factors; the appraiser concludes that one of the highest and best uses of the subject site as if vacant would be for some form of intense commercial usage.
Highest and Best Use, as Improved
The concept of highest and best use of the subject property requires an objective investigation as to:
a. Its possible use or those uses which are physically possible for the site.
b. Its permissible use or those uses which are permitted by zoning regulations on the site.
c. Its feasible use or those possible and permissible uses which will produce the highest net return to the owner of the site.
d. Its highest and best use or that use which will produce the highest net return or the highest present worth to the site.
The subject site is an irregular in shape and covers a land area of 83,305 square feet or 1.91 acres. The site is improved with a three-story hotel with 80 guest rooms, enclosed pool area, continental breakfast area, front lobby registration area, and related site improvements including ample parking availability. Typically, a site this size could be used for several commercial uses.
In investigating the subject neighborhood, it is found that the immediate land uses are primarily related to commercial and office uses.
The subject site is zoned GO, General Office District, which allows for the existing commercial hotel usage.
The location of the site in a high traffic area appears to be effective and efficient. It is expected that the property will operate profitably as a Holiday Inn Express hotel property into the foreseeable future.
-20- HIGHEST AND BEST USE (CONTINUED)
Highest and Best Use, as Though Improved (Continued)
The subject property improvements are in conformity with the zoning and the legal use patterns in the immediate vicinity. There are no adverse influences affecting the value of the property.
Considering the existing neighborhood and location of the improvements, along with the size of the site, access, visibility, topography, zoning, and surrounding land uses, and further; given the site's improvements, one of the highest and best uses of the subject site is its existing usage as a hotel property.
-21- APPRAISAL PROCESS
There are three basic approaches utilized by appraisers in arriving at an estimated fair market value. Each approach draws data from different segments of the market. The three approaches are:
1. Cost Approach
2. Income Capitalization Approach
3. Sales Comparison Approach
Cost Approach
The underlying assumption of the Cost Approach is the theory that the informed buyer is not willing to pay more for an existing property than the cost of constructing another of similar utility, provided that time is not an over-riding factor. There are four steps in this approach. They are as follows:
1. An estimate of land value.
2. Estimated cost new of all improvements.
3. An estimate of depreciation, from all causes, subtracted from the cost new.
4. The estimated depreciated value of the improvements is added to the estimated land value, to arrive at an estimate of value by the Cost Approach.
Income Capitalization Approach
The Income Capitalization Approach is the process by which anticipated income from the subject property is converted into an estimate of value. The steps taken are as follows:
1. Establish an estimated gross economic rent for the subject property.
2. Estimate an allowance for vacancy and collection losses together with all expenses applicable to the property.
3. Capitalize the resulting net effective income, by an appropriate capitalization technique, into an estimate of value.
-22- APPRAISAL PROCESS (CONTINUED)
Sales Comparison Approach
The underlying assumption of the Sales Comparison Approach is the theory that an informed buyer would pay no more for a property than it would cost to acquire another existing property with the same utility.
In this approach, appraisers compare similar properties which have recently sold to the subject property. Adjustments are made for the differences between the subject and the comparable sales.
The differences are then either added to, or subtracted from, the sale price of the comparable properties to arrive at an adjusted value for the subject property from each sale. In this approach the appraiser always adjusts the comparable sale to the subject.
-23- COST APPROACH
The procedure of the Cost Approach arrives at an estimate of value by estimating the cost to reproduce the improvements as of the date of the appraisal, less an appropriate allowance for depreciation of the improvements, plus the estimated land value.
In the Cost Approach, the appraiser must use reproduction cost as opposed to replacement cost. The essence of replacement cost is that it represents the same utility, whereas reproduction cost requires reproducing the same physical structure and site improvements.
Conceptually, replacement costs would be preferable because a rational purchaser or investor would replace utility rather than physical improvements if he were to start anew. He would take advantage of changes in taste and technology to produce a structure that met modern standards.
Unfortunately for this argument, utility cannot be measured directly. It must be inferred from prices and market behavior on a comparative basis. Therefore, reproduction cost should be used in actual practice.
The Dictionary of Real Estate Appraisal, published by the American Institute of Real Estate Appraisers, offers the following definitions on pages 256 and 257:
Replacement Cost. The estimated cost to construct, at current prices, a building with utility equivalent to the building being appraised, using modern materials and current standards, design, and layout.
Reproduction Cost. The estimated cost to construct, at current prices, an exact duplicate, or replica, of the building being appraised using the same materials, construction standards, design, layout, and quality of workmanship, and embodying all the subject's deficiencies, superadequacies, and obsolescence.
Under the principle of substitution, a prudent buyer will not pay more for a property than it would cost to purchase a site of comparable utility and to build another property of equal utility, assuming no unreasonable delays.
Various cost indexes applicable are studied and adjusted to local construction costs. These building costs have been calculated on a square foot basis and include: basic field cost (material and labor), site grading, excavation, contractor's profit, architect fees, insurance, and interim financing.
Included in the estimated cost of reproduction of the improvements are the structural components, plus all mechanical and electrical systems which are an integral part of the structure. Where applicable, this includes heating, ventilating, cooling, and security equipment. The Marshall Valuation Service is the main cost service used for purposes of the Cost Approach in this appraisal.
-24- COST APPROACH (CONTINUED)
Depreciation is a loss from the reproduction cost new (less the land value). It is an effect caused by deterioration and/or obsolescence. There are five general methods of estimating accrued depreciation. They are:
1. The capitalized income method. 2. The market method. 3. The straight line method, also referred to as the age/life method. 4. The engineering method. 5. The break-down method.
The first two methods are indirect while the last three are direct methods. a) The capitalized income method borrows from the Income Capitalization Approach and the depreciation estimate of the Cost Approach is the byproduct. The method implies that the deterioration and obsolescence reduce the quality, quantity, and duration of the forecast net income and thus, reduce the indication of value by the Income Capitalization Approach (that indication becomes the basis for the estimate of depreciation in the Cost Approach). This is appropriately handled by a capitalization process within the Cost Approach or less directly, in the reconciliation of value indications. b) The market method is based on consideration of sales prices. Percentages of depreciation as established in the marketplace may be applied to reproduction cost. Again this borrowing from the Sales Comparison Approach may be appropriately handled in the Cost Approach or in the reconciliation. c) The straight line method estimates the effective age of the improvements, remaining economic life, and takes a ratio between the number of years of effective age to the total of the effective age and the remaining economic life. The subject shell building will be totally gutted and all mechanical plant, electrical plant, plumbing plant, windows, doors, elevator, and all interior finish will be new. The structure is considered new construction and therefore, no physical depreciation is applicable in the Cost Approach. d) The engineering method, in effect, applies age/life methods to the individual parts of the structure. e) The break-down method separates the various component parts of depreciation into physical deterioration, curable and incurable; functional obsolescence, both curable and incurable; and locational obsolescence, usually considered incurable. The land value of the subject property is estimated by a comparison of similar type vacant land sale transactions.
-25- COST APPROACH (CONTINUED)
Land Valuation
The estimate of value of the subject land is best indicated by the direct comparison with sales of comparable sites. The best comparison is made with similar sites having the same general characteristics, in comparable locations.
In order to estimate the value of the subject site, a number of sales of comparable residential land in the Omaha metropolitan area were researched and considered. In investigating this data a search was made of the public records and interviews were conducted with buyers, sellers, and real estate brokers, and others.
After studying the compiled data, the appraiser selected nine sales which were considered to provide the best indicated value of the subject site. These sales were analyzed and compared to the subject site for various valuation factors, and served as a basis in estimating land value. Valuation factors considered the most applicable in the comparison process were:
1. Time of Sale 2. Size and shape 3. Topography 4. Frontage and depth 5. Accessibility 6. Utility of the site 7. Corner influence 8. Zoning 9. Location, etc.
I have provided 15 commercial land sales I considered to be the most persuasive in estimating the value of the subject property site.
-26- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 1
Location: 17925 Burt Street, Omaha, Nebraska
Legal Description: Lot 7, West Dodge Place Replat, a subdivision as surveyed, platted, and recorded in Douglas County, Nebraska
Document: Warranty Deed; Book 2017, Page 040639
Date of Sale: May 26, 2017
Grantor: TKA Properties, L.L.C.
Grantee: Kum & Go, L.C.
Sale Price: $1,781,816
Financing: Cash to seller
Confirmed By: Official Douglas County records
Land Area: 94,090 square feet
Price/SF: $18.94
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: This is an irregular shaped site just north of the intersection of North 180th Street and West Dodge Road. The site has good visibility from North 180th Street to the west.
-27- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 2
Location: 12801 Pierce Street, Omaha, Nebraska
Legal Description: Lot 2, Sterling Ridge Replat 1, an Addition to the City of Omaha, as surveyed, platted, and recorded in Douglas County, Nebraska
Document: Warranty Deed; Book 2017, Page 036178
Date of Sale: May 12, 2017
Grantor: Sweetbriar IV, L.L.C.
Grantee: SR Office E, L.L.C.
Sale Price: $2,500,000
Financing: Cash to seller
Confirmed By: Lawrence R. James II, for the grantee
Land Area: 148,948 square feet
Price/SF: $16.78
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: This is an irregular shaped lot located just south of the intersection of Sterling Ridge Drive and Pacific Street in the Sterling Ridge commercial development.
-28- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 3
Location: 20241 Manderson Street, Omaha, Nebraska
Legal Description: Lot 6, Indian Creek Commercial Plaza, a subdivision in Douglas County, Nebraska
Document: Warranty Deed; Book 2017, Page 034023
Date of Sale: May 4, 2017
Grantor: Gottsch Land Company
Grantee: First Nebraska Credit Union
Sale Price: $781,684
Financing: Cash to seller
Confirmed By: Ann Loftis, for the grantee
Land Area: 42,408 square feet
Price/SF: $18.43
Streets and Utilities: Paved streets and all public utilities are available
Zoning: CC, Community Commercial District
Highest and Best Use: Commercial use
Comments: This is a rectangular shaped site in the Indian Creek Commercial Plaza commercial development just northeast of the intersection of North 204th Street and West Maple Road. The site has good visibility from West Maple Road.
-29- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 4
Location: 910 South 178th Street, Omaha, Nebraska
Legal Description: Lot 8, Pacific Springs Place, an Addition to the City of Omaha, Douglas County, Nebraska
Document: Warranty Deed; Book 2017, Page 028457
Date of Sale: April 14, 2017
Grantor: Hy-Vee, Inc.
Grantee: BCLINC, L.L.C.
Sale Price: $890,658
Financing: Cash to seller
Confirmed By: Official Douglas County records
Land Area: 98,881 square feet
Price/SF: $9.01
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: This is an irregular shaped lot located northeast of the intersection of South 180th Street and Pacific Street in west Omaha.
-30- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 5
Location: 17202 Evans Street, Omaha, Nebraska
Legal Description: Lot 2, Whispering Ridge Replat 16, a subdivision as surveyed, platted, and recorded in Douglas County, Nebraska
Document: Warranty Deed; Book 2017, Page 001093
Date of Sale: January 5, 2017
Grantor: M.A.L.T. Properties, L.L.C.
Grantee: Metro Health Services Federal Credit Union
Sale Price: $700,000
Financing: Cash to seller
Confirmed By: Michael McDermott, for the grantee
Land Area: 44,649 square feet
Price/SF: $15.68
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: This site is located northwest of North 171st and Evans Street in Northwest Omaha. The site backs to and has good visibility from West Maple Road.
-31- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 6
Location: 17504 Wright Street, Omaha, Nebraska
Legal Description: Lot 2, Legacy Replat 4, being an Administrative Subdivision of Lot 100, Legacy, an Addition to the City of Omaha, as surveyed, platted, and recorded in Douglas County, Nebraska.
Document: Warranty Deed; Book 2016, Page 084265
Date of Sale: October 11, 2016
Grantor: Royce Legacy, L.L.C.
Grantee: Legacy Enchanted Travel, L.L.C.
Sale Price: $445,000
Financing: Cash to seller
Confirmed By: Lori Matthews, for the grantee
Land Area: 28,488 square feet
Price/SF: $15.62
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: This site is located just south of 175th and West Center Road.
-32- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 7
Location: 19261 and 19333 Gold Street, Omaha, Nebraska
Legal Description: Lot 5, Center Ridge and Lot 2, Center Ridge Replat 1, both subdivisions as surveyed, platted, and recorded in Douglas County, Nebraska.
Document: Warranty Deed; Book 2016, Page 031592
Date of Sale: April 29, 2016
Grantor: James H. Mabrey, John A. Mabrey, NAT No.2, L.L.C., and CCCP & M No.2, L.L.C.
Grantee: Orthopaedic Properties, L.L.C.
Sale Price: $2,316,085
Financing: Cash to seller
Confirmed By: Ryan Arnold, for the grantee
Land Area: 178,369 square feet
Price/SF: $12.98
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: This is the sale of two adjoining lots located in the subject addition at the northwest corner of South 192nd Street and West Center Road. This is a larger site (as combined) than the subject lot, but offers superior access and visibility compared to the subject.
-33- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 8
Location: 3811 North 167th Court, Omaha, Nebraska
Legal Description: Lot 9, Elk Creek Pines, a subdivision in Douglas County, Nebraska
Document: Warranty Deed; Book 2016, Page 025136
Date of Sale: April 7, 2016
Grantor: First National Bank of Omaha
Grantee: Whispering Ridge Family Dentistry, P.C.
Sale Price: $210,000
Financing: Cash to seller
Confirmed By: Laura C. Ferguson, for the grantee
Land Area: 22,216 square feet
Price/SF: $9.45
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: The site has good visibility from West Maple Road with only fair access from North 168th Street.
-34- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 9
Location: 20915 Cumberland Drive, Omaha, Nebraska
Legal Description: Lot 1, Crestline Replat 1, an addition to the City of Omaha, Douglas County, Nebraska
Document: Warranty Deed; Book 2016, Page 022443
Date of Sale: March 29, 2016
Grantor: Crestline, L.L.C. .
Grantee: Ring Holding, L.L.C.
Sale Price: $385,000
Financing: Cash to seller
Confirmed By: Edward Ring, for the grantee
Land Area: 52,410 square feet
Price/SF: $7.35
Streets and Utilities: Paved streets and all public utilities are available
Zoning: CC, Community Commercial District
Highest and Best Use: Commercial use
Comments: This is a rectangular shaped site in the Crestline Replat commercial development in Elkhorn. The site has visibility and access from Cumberland Drive on the north.
-35- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 10
Location: 2720 Oak Drive, Omaha, Nebraska
Legal Description: Lots 2 and 3, Legacy Replat 11, as surveyed, platted, and recorded in Douglas County, Nebraska.
Document: Warranty Deed; Book 2015, Page 001416
Date of Sale: January 6, 2015
Grantor: Shacari Inc., a Nebraska Corporation
Grantee: Leisure Real Estate Advisors, L.L.C.
Sale Price: $1,100,000
Financing: Cash to seller
Confirmed By: Mr. Mike Works, Leisure Real Estate
Land Area: 105,110 square feet
Price/SF: $10.47
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: This site is located just south of 171st and West Center Road, and has been improved with a Staybridge Suites hotel.
-36- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 11
Location: 20211 Manderson Street, Omaha, Nebraska
Legal Description: Lot 3, Indian Creek Commercial Plaza, a subdivision as surveyed, platted, and recorded in Douglas County, Nebraska
Document: Warranty Deed; Book 2014, Page 100629
Date of Sale: December 29, 2014
Grantor: Gottsch Land Company
Grantee: BJR Elkhorn, L.L.C.
Sale Price: $504,147
Financing: Cash to seller
Confirmed By: Brett Gottsch, for the grantor
Land Area: 34,784 square feet
Price/SF: $14.49
Streets and Utilities: Paved streets and all public utilities are available
Zoning: CC, Community Commercial District
Highest and Best Use: Commercial use
Comments: This is a rectangular shaped site in the Indian Creek Commercial Plaza commercial development at the northwest corner of North 202nd and West Maple Road. The site has good visibility from West Maple Road. A dental office was constructed on this site in 2015.
-37- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 12
Location: 17808 Burke Street, Omaha, Nebraska
Legal Description: Lot 2, West Point Village Replat 8, as surveyed, platted, and recorded in Douglas County, Nebraska.
Document: Warranty Deed; Book 2014, Page 080168
Date of Sale: October 6, 2014
Grantor: Village West, L.L.C..
Grantee: Pitch Village Point, L.L.C.
Sale Price: $822,496
Financing: Cash to seller
Confirmed By: Mr. Mike Kinyoun, Vice President, Access Bank
Land Area: 51,252 square feet
Price/SF: $16.05
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: This site is located approximately four blocks southeast of 180th and West Dodge Road, just west of the Village Pointe shopping center. This site has been improved with a Pitch restaurant.
-38- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 13
Location: 811 North 205th Street, Omaha, Nebraska
Legal Description: Lot 3, Menard’s Subdivision, an addition to the City of Omaha, Douglas County, Nebraska
Document: Warranty Deed; Book 2014, Page 072436
Date of Sale: September 12, 2014
Grantor: Menard Inc.
Grantee: 4 G Properties II, L.L.C.
Sale Price: $536,070
Financing: Cash to seller
Confirmed By: Kim Braddock, for the grantee
Land Area: 35,719 square feet
Price/SF: $15.01
Streets and Utilities: Paved streets and all public utilities are available
Zoning: CC, Community Commercial District
Highest and Best Use: Commercial use
Comments: This is a rectangular shaped site in the Menards commercial subdivision. This is a corner site with very good access and visibility from 204th Street/Highway 6 to the east.
-39- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 14
Location: 17520 Arbor Plaza, Omaha, Nebraska
Legal Description: Lot 7, Tivoli, a subdivision as surveyed, platted, and recorded in Douglas County, Nebraska
Document: Special Warranty Deed; Book 2014, Page 035009
Date of Sale: May 12, 2014
Grantor: TIV 7 20112, L.L.C.
Grantee: 17520 Arbor Plaza, L.L.C.
Sale Price: $385,000
Financing: Cash to seller
Confirmed By: Official Douglas County Records
Land Area: 46,130 square feet
Price/SF: $8.35
Streets and Utilities: Paved streets and all public utilities are available
Zoning: MU, Mixed Use District
Highest and Best Use: Commercial use
Comments: This site is located at 175th and Arbor Plaza in the Tivoli subdivision. This sale appears to be below market. It sold previously (10/12) for $516,640 or $11.20 per square foot.
-40- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 15
Location: 15808 West Dodge Road, Omaha, Nebraska
Legal Description: Lot 1, West Dodge Health Campus, Replat 5, a subdivision as surveyed, platted, and recorded in Douglas County, Nebraska
Document: Warranty Deed; Book 2014, Page 023765
Date of Sale: March 31, 2014
Grantor: MFH, L.L.C.
Grantee: 15808 West Dodge Road, L.L.C.
Sale Price: $831,000
Financing: Cash to seller
Confirmed By: Official Douglas County Records
Land Area: 69,004 square feet
Price/SF: $12.04
Streets and Utilities: Paved streets and all public utilities are available
Zoning: LC, Limited Commercial District
Highest and Best Use: Commercial use
Comments: This site is located on a frontage road on the north side of West Dodge Road at 158th Street.
-41- COST APPROACH (CONTINUED)
Land Value Estimate (Continued) Summary of Commercial Land Sales Date SF Area Sale Price Sale Location of Sale Zoning Total Per SF 1 17925 Burt Street 5/17 94,090 $ 1,781,816 $18.94 MU 2 12801 Pierce Street 5/17 148,948 2,500,000 $16.78 MU 3 20241 Manderson Street 5/17 42,408 781,684 $18.43 CC 4 910 South 178th Street 4/17 98,881 890,658 $9.01 MU 5 17202 Evans Street 1/17 44,649 700,000 $15.68 MU 6 17504 Wright Street 10/16 28,488 445,000 $15.62 MU 7 19261-19333 Gold Street 4/16 178,369 2,316,085 $12.98 MU 8 3811 North 167th Court 4/16 22,216 210,000 $9.45 MU 9 20915 Cumberland Drive 3/16 52,410 385,000 $7.35 CC 10 2720 Oak Drive 1/15 105,110 1,100,000 $10.47 MU 11 20211 Manderson Street 12/14 34,784 504,147 $14.49 CC 12 17808 Burke Street 10/14 51,252 822,496 $16.05 MU 13 811 North 205th Street 9/14 35,719 536,070 $15.01 CC 14 17520 Arbor Plaza 5/14 46,130 385,000 $8.35 MU 15 15808 West Dodge Road 3/14 69,004 831,000 $12.04 LC Totals 1,052,458 $14,188,956 The following statistical observations apply to the above sales: Arithmetic Mean $13.38 Weighted Mean $13.48 Midpoint $14.49 Range Low $7.35 Range High $18.94
The 15 land sales are the best compilation of recent commercial land sales activity in West Omaha. The parameters of the sales were commercially zoned land, containing less than 180,000 square feet, and occurring in 2014 through 2017. The size of the sales bracketed the size of the subject and ranged from a low of 28,488 square feet for Sale 6 to a high of 178,369 square feet for Sale 7. The arithmetic mean, weighted mean, and midpoint of the 15 sales was $13.38 per square foot, $13.48 per square foot, and $14.49 per square foot.
-42- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Pertinent data, together with appropriate adjustments as described has been included in the discussion. Upward adjustment means the comparable is inferior to the subject while downward adjustment reflects the opposite. In analyzing the sales data, the price per square foot of site area has been selected as the most persuasive unit of comparison.
Potential adjustments include:
Property Rights Conveyed: This adjustment category is generally used to reflect different property rights, such as leased fee or fee simple. All of the comparables involve the transfer of fee simple rights, so no adjustment is necessary for this factor.
Financing Terms: This adjustment category is generally used to reflect property which transfers with atypical financing such as assuming an existing mortgage at a favorable interest rate. Conversely, a property may be encumbered with a mortgage above market terms which has no prepayment clause or very costly prepayment clause. All of the comparables transferred at market or equivalent terms and no adjustment was necessary.
Conditions of Sale: This adjustment category is generally used to reflect extraordinary motivations of the buyer and the seller. An example includes purchase for assemblage where there may be anticipated incremental value, such as quick sale for cash - could be distress related, corporation recording at non-market price and many other circumstances. All three comparables were arm’s-length, open market transfers and no adjustment was considered necessary for sale conditions.
Market Conditions: This adjustment factor is generally used to reflect market differences occurring between the sales date of the comparable and the effective date of the appraisal where values have been affected. There has been little appreciation of commercial land sales in the West Omaha market. Consequently, none of the sales required a date of sale adjustment.
The appraiser has selected three sales (1, 4, and 7) as most comparable to the subject and has adjusted these three sales on the Land Sales Adjustment Grid. These sales are individually compared to the subject as follows:
Land Sale 1: Land Sale 1 is located at 17925 Burt Street and sold in May of 2017 for $18.94 per square foot. Physical adjustments were -20% for superior access and visibility (corner influence), and -10% for having superior market appeal. The aggregate adjustment was -30% and the indicated adjusted price for the subject was $13.26 per square foot.
Land Sale 4: Land Sale 4 is located at 910 South 178th Street and sold in April of 2017 for $9.01 per square foot. Physical adjustments were +10% for inferior location, +20% for inferior access and visibility, and +10% for inferior market appeal. The aggregate adjustment was +40% and the indicated adjusted price for the subject was $12.61 per square foot.
-43- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sale 7: Land Sale 7 is located at 19261 -19333 Gold Street and sold in April of 2016 for $12.98 per square foot. Physical adjustments were -10% for superior access and visibility and +5% for larger size. The aggregate adjustment was -5% and the indicated adjusted price for the subject was $12.33 per square foot.
Please refer to the following page for a Land Sales Adjustment Grid of these sales in comparison to the subject.
-44- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
Land Sales Adjustment Grid Subject - 83,305 square feet Sale 1 Sale 4 Sale 7 Land Size (Square Feet) 94,090 98,881 178,369 Sale Price/SF $18.94 $9.01 $12.98 Adjustment Factors: Property Rights Conveyed: Fee Simple Fee Simple Fee Simple Adjusted Price/SF $18.94 $9.01 $12.98 Financing Market Market Market Conditions of Sale Market Market Market Adjusted Price/SF $18.94 $9.01 $12.98 Date of Sale 5/17 4/17 4/16 N/A -0- -0- -0- Adjusted Price/SF $18.94 $9.01 $12.98 Physical Characteristics: Location Equal Inferior Equal -0- +10% -0- Access and Visibility Superior Inferior Superior -20% +20% -10% Size and Shape Equal Equal Larger -0- -0- +5% Topography Equal Equal Equal -0- -0- -0- Floodplain Equal Equal Equal -0- -0- -0- Utilities Equal Equal Equal -0- -0- -0- Zoning Equal Equal Equal -0- -0- -0- Market Appeal Superior Inferior Equal -10% +10% -0- Total Physical -30% +40% -5% Characteristics Adjustment Indicated Adjusted Price Per $13.26 $12.61 $12.33 Square Foot for Subject
-45- COST APPROACH (CONTINUED)
Land Value Estimate (Continued)
The following statistical information is derived from the preceding three sales:
Per Square Foot
Arithmetic Mean $12.73 Midpoint $12.61 Range Low and High $12.35 to $13.26
After analyzing and adjusting the sales in comparison to the subject, I have concluded the land value for the subject property site at $13.00 per square foot.
Relating this indication to the overall size of the subject site results in the following site valuation:
Land Value Estimate
83,305 square feet @ $13.00/SF = $1,082,965, called $1,080,000
-46- COST APPROACH (CONTINUED)
In order to complete an analysis of the Cost Approach, the appraiser takes several steps in the computation of the value indication. The appraisal method requires first the estimate of the reproduction cost new of all improvements found on the property.
In order to find the reproduction cost new, the appraiser consulted the Marshall Valuation Service, a nationally recognized cost reporting service. The Marshall Valuation Service's manual provides cost data on nearly every type of building and has several adjustment factors which are pertinent to any specific property. Marshall Valuation Service has the following classifications:
Class of Property (Class of Construction) Class C/Excellent Type of Property (Usage) Hotel Condition of Property Good Height of Property 14' First Floor; 11' Upper 2 Floors Floor Area 44,640 Square Feet Perimeter 630 Lineal Feet
The building improvements consist of a three-story hotel building with related site improvements. There is a manager's office, enclosed pool area, lobby area, laundry room, office, breakfast area, fitness room, public restrooms, and 80 rooms on three levels.
Included with the subject property are various improvements considered to be personal property. These items would include furniture, fixtures, and equipment for the hotel rooms, lobby area, laundry room, offices, etc.
The most typical way of estimating furniture, fixtures, and equipment of hotel improvements is on a per room basis. The appraiser was not furnished with a complete inventory of all furniture, fixtures, equipment, linens, bedspreads, drapes, etc. Thus, these items are estimated by the appraiser.
After estimating replacement cost new of all the improvements on the subject property, it is necessary to apply the applicable accrued depreciation as it affects the property at the time of the appraisal.
The forms of depreciation considered include physical deterioration, curable and incurable, which consists of any deferred maintenance together with ordinary wear and tear on the building improvements.
The second form of accrued depreciation is functional obsolescence. This would occur when the structure is not particularly suited to the site or its intended use, poor floor plan, room arrangement, or accessibility.
-47- COST APPROACH (CONTINUED)
The third form of accrued depreciation is locational obsolescence, which reflects changing use patterns in the neighborhood and competition from surrounding hotel properties, which have a deleterious effect on room rates and occupancy.
In the case of the subject property, the improvements were constructed 1998. All of the FF&E has been replaced. Therefore, using $10,000/room and 0% depreciation resulted in the following:
80 rooms @ $10,000/room = $800,000
After adding the estimated replacement value of the building improvements to the value of the furniture, fixtures, and equipment, and other personal property, as well as the value of the site improvements, I arrive at the total estimated replacement cost of the building improvements and personal property.
The next step is to add the estimated land value of the site. The result is the indicated value of the subject property by the Cost Approach. The Cost Approach is thus calculated as follows:
-48- COST APPROACH (CONTINUED)
Marshall Valuation Service: Section 11, Pages 22-38 Section 97, Pages 1 through 4 Section 99, Pages 3 through 8
Occupancy: Hotel Construction: Class C, Good-Excellent Number of Stories: Three Height/Story: 14' First Floor; 11' Upper 2 Floors Perimeter: 630 Lineal Feet (First Floor)
Building Improvements Total Building Improvements 44,640 SF
Other Improvements (Net of Depreciation): Paved Drive and Parking Areas: 35,000 square feet @ $3.00/SF $105,000 Curbing, Concrete Walkways, and Landscaping and Miscellaneous 45,000 Total Site Improvements $150,000
-49- COST APPROACH (CONTINUED)
Motel Facility (Three Story)
“As Stabilized” Value:
Base Cost Per Square Foot $137.50 Plus Sprinkler Adjustment 3.67 Plus HVAC Adjustment 5.58 Adjusted Base Cost Per Square Foot $146.75
Cost Modifiers: Current Cost Multiplier 1.000 Local Cost Multiplier .920 Height Multiplier 1.000 Floor Area/Perimeter Multiplier 1.099 Final Square Foot Cost Multiplier 1.011
Hotel Replacement Cost Per Square Foot $148.36
Three-Story Motel – 44,640 square feet @ $148.36/SF = $6,622,790
Less Physical Deterioration @ 10% $ 662,279 Less Physical Depreciation Curable N/A Less Functional Obsolescence N/A Less Locational Obsolescence N/A
Total Depreciated Value of All Building Improvements $ 5,960,511 Called $ 5,960,000
Site Improvements (Net of Depreciation) Paved Parking and Drive Areas – 35,000 square feet @ $3.00/SF $105,000 Outside Lighting (Site Lighting Poles and Building Lighting), Curbing, Landscaping, Signage, Sidewalks, and Miscellaneous 45,000 Total Replacement Cost Site Improvements 150,000
Total of Building and Site Improvements $ 6,110,000
Plus Personal Property – Furniture, Fixtures, Equipment, and Furnishings for Hotel Improvements 800,000 Plus Land Value Estimate 1,080,000 Total $ 7,990,000
Total Value by the Cost Approach “As Stabilized” $ 8,000,000
-50- SALES COMPARISON APPROACH
Introduction
The Sales Comparison Approach is a method of estimating market value based on recent sales of improved properties similar to the subject. This approach to value assumes that the market will determine a price for the property being appraised in the same manner that it determines the price for comparable, competitive properties. In applying the Sales Comparison Approach, I employ a number of appraisal principles. Primary is the principle of substitution which holds that the value of a property that is replaceable in the marketplace tends to be set by the cost of acquiring an equally desirable substitute property.
Profile of Comparable Improved Sales
Please refer to the following page for detailed descriptions of 12 hotel/motel sales. These sales are located in the Omaha Metropolitan Area (9) and Lincoln (3).
-51- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 1
Property: Hampton Inn 1401 South 72nd Street, Omaha, Nebraska
Legal Description: Lot 3, Aksarben Center, as surveyed, platted and recorded in Sarpy County, Nebraska
Document: Pending Purchase Agreement
Date of Sale: November 2017
Grantor: IOU, L.L.C.
Grantee: Mike Works
Confirmed Sale Price: $13,150,000
Confirmed By: Mike Works
Financing: Cash to Seller
-52- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 1 (Continued)
Size of Land: 95,527 square feet
Building Size: 62,679 square feet
Land/Building Ratio: 1.52:1
Comments: This is a newer Hampton Inn (2015), located in the Aksarben Village area of Omaha.
Units of Comparison:
Estimated Effective Gross Annual Income $2,877,355 Operating Expenses (does not include reserves) 1,940,194 Net Operating Income $ 937,161 Number of Rooms 103 Gross Building Area 62,679 SF Effective Gross Income Multiplier 4.57 Overall Capitalization Rate 7.1% Sale Price Per Unit $127,670 Sale Price Per Square Foot $210
-53- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 2
Property: Holiday Inn Express 16175 Stevens Pointe , Gretna, Nebraska
Legal Description: Lot 5, Wilks South Pointe, as surveyed, platted and recorded in Sarpy County, Nebraska
Document: Purchase Agreement
Date of Sale: April 2017
Grantor: SAI Lodging III, L.L.C.
Grantee: Hitesh Patel
Confirmed Sale Price: $8,500,000
Confirmed By: Deven Patel, Seller
Financing: Cash to Seller
-54- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 2 (Continued)
Size of Land: 112,863 square feet
Building Size: 42,147 square feet
Land/Building Ratio: 2.68:1
Comments: This is a Holiday Inn Express located in Gretna, Nebraska, which is a western suburb of Omaha. It was constructed in 2010 and was in good condition at the time of sale.
Units of Comparison:
Estimated Effective Gross Annual Income $1,860,000 Operating Expenses (does not include reserves) 1,100,000 Net Operating Income $ 760,000 Number of Rooms 75 Gross Building Area 42,147 SF Effective Gross Income Multiplier 4.57 Overall Capitalization Rate 8.9% Sale Price Per Unit $113,333 Sale Price Per Square Foot $202
-55- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 3
Property: Candlewood Suites 4100 Pioneer Woods Drive, Lincoln, Nebraska
Legal Description: Lot 2, Pioneer Woods Addtion, as surveyed, platted and recorded in Lancaster County, Nebraska
Document: Purchase Agreement
Date of Sale: January 2017
Grantor: Pioneer Hotels, L.L.C.
Grantee: Deven Patel
Confirmed Sale Price: $5,400,000
Confirmed By: Deven Patel, Buyer
Financing: Cash to Seller
-56- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 3 (Continued)
Size of Land: 82,360 square feet
Building Size: 49,436 square feet
Land/Building Ratio: 1.67:1
Comments: The buyer, Mr. Deven Patel, is planning on spending $1,000,000 in extensive remodeling costs.
Units of Comparison:
Estimated Effective Gross Annual Income $1,660,220 Operating Expenses (does not include reserves) 1,173,047 Net Operating Income $ 487,173 Number of Rooms 85 Gross Building Area 49,436 SF Effective Gross Income Multiplier 3.25 Overall Capitalization Rate 9.0% Sale Price Per Unit $63,529 Sale Price Per Square Foot $109
-57- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 4
Property: Holiday Inn Express 6939 North 102nd Circle, Omaha, Nebraska
Legal Description: Lot 9, Cherry Hills Village Replat, as surveyed, platted and recorded in Douglas County, Nebraska
Document: Warranty Deed Book 2016, Page 057938
Date of Sale: July 19, 2016
Grantor: Pair-A-Dice Properties IV, L.L.C.
Grantee: Clark Anderson, et al
Confirmed Sale Price: $7,600,000
Confirmed By: Mike Works, Grantor
Financing: Cash to Seller
-58- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 4 (Continued)
Size of Land: 94,961 square feet
Building Size: 45,579 square feet
Land/Building Ratio: 2.08:1
Comments: This is a Holiday Inn Express constructed in 2008 and remodeled in 2014. The hotel is visible from I-680 and is located 1/4 mile southwest of the Ida Road interchange. The agreed purchase price was $7,500,000 with an additional $100,000 payable for PIP (Product Improvement Plan).
Units of Comparison:
Estimated Effective Gross Annual Income $2,050,000 Operating Expenses (does not include reserves) 1,397,000 Net Operating Income $653,000 Number of Rooms 80 Gross Building Area 45,579 SF Effective Gross Income Multiplier 3.71 Overall Capitalization Rate 8.6% Sale Price Per Unit $90,476 Sale Price Per Square Foot $167
-59- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 5
Property: Fairfield Inn 17240 Wright Street, Omaha, Nebraska
Legal Description: Lot 1, Legacy Replat 6, as surveyed, platted and recorded in Douglas County, Nebraska
Document: Warranty Deed Book 2016, Page 037622
Date of Sale: May 18, 2016
Grantor: Legacy Hotel, L.L.C.
Grantee: OW Hospitality
Confirmed Sale Price: $10,190,000
Confirmed By: Mike Works, Broker
Financing: Cash to Seller
-60- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 5 (Continued)
Size of Land: 70,567 square feet
Building Size: 54,139 square feet
Land/Building Ratio: 1.30:1
Comments: This hotel officially opened for business in early August 2016. Consequently, there is no historical income data available.
Units of Comparison:
Estimated Effective Gross Annual Income N/A Operating Expenses (does not include reserves) N/A Net Operating Income N/A Number of Rooms 90 Gross Building Area 54,139 SF Effective Gross Income Multiplier N/A Overall Capitalization Rate N/A Sale Price Per Unit $113,222 Sale Price Per Square Foot $188
-61- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 6
Property: Hampton Inn Airport Lincoln 1055 West Bond, Lincoln, Nebraska
Legal Description: Lot 2, Union Pacific 6th Addition, as surveyed, platted and recorded in Lancaster County, Nebraska
Document: Warranty Deed Book 2015, Page 042396
Date of Sale: October 1, 2015
Grantor: Airport Lodging, L.L.C.
Grantee: Not Disclosed
Confirmed Sale Price: $9,116,000
Confirmed By: Mike Works, Broker
Financing: Cash to Seller
-62- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 6 (Continued)
Size of Land: 79,017 square feet
Building Size: 56,496 square feet
Land/Building Ratio: 1.40:1
Comments: This is a Hampton Inn constructed in 2014. The hotel is located 1/4 mile northeast of the Lincoln Airport on the I-80 exit.
Units of Comparison:
Estimated Effective Gross Annual Income $2,210,000 Operating Expenses (does not include reserves) 1,440,000 Net Operating Income $770,000 Number of Rooms 86 Gross Building Area 56,496 SF Effective Gross Income Multiplier 4.12 Overall Capitalization Rate 8.4% Sale Price Per Unit $106,000 Sale Price Per Square Foot $161
-63- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 7
Property: Holiday Inn Express 7306 “Q” Street, Ralston, Nebraska
Legal Description: Lots 7 and 8, Independence City Center, 1st Addition, as surveyed, platted and recorded in Douglas County, Nebraska
Document: Warranty Deed Book 2013, Page 094836
Date of Sale: May 12, 2014
Grantor: Ralston Lodging, L.L.C.
Grantee: Ralston Hospitality
Confirmed Sale Price: $8,350,000
Confirmed By: Aaron Johnson, VP, Ralston Hospitality
Financing: Cash to Seller
-64- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 7 (Continued)
Size of Land: 39,504 square feet
Building Size: 50,084 square feet
Land/Building Ratio: .79:1
Comments: This is a four-story limited service hotel containing 83 units in Ralston, adjacent to the Ralston Arena on the south. It was built in 2014.
Units of Comparison:
Estimated Effective Gross Annual Income “As Stabilized” $2,200,000 Operating Expenses (does not include reserves) 1,450,000 Net Operating Income $ 750,000 Number of Rooms 83 Gross Building Area 50,084 SF Effective Gross Income Multiplier 3.80 Overall Capitalization Rate 9.0% Sale Price Per Unit $100,602 Sale Price Per Square Foot $167
-65- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 8
Property: Staybridge Suites 7825 Davenport Street, Omaha, Nebraska
Legal Description: Lot 3, Tower Plaza Replat 10, as surveyed, platted and recorded in Douglas County, Nebraska
Document: Warranty Deed Book 2014, Page 005790
Date of Sale: January 23, 2014
Grantor: 80 Dodge Hotel Ventures, L.L.C.
Grantee: LD1 NE Omaha . SBS, L.L.C.
Confirmed Sale Price: $11,075,000
Confirmed By: Mike Works
Financing: Cash to Seller
-66- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 8 (Continued)
Size of Land: 74,554 square feet
Building Size: 74,196 square feet
Land/Building Ratio: 1.00:1
Comments: This is a four-story Staybridge Suites hotel containing 102 units in mid-town Omaha. It was built in 2009.
Units of Comparison:
Estimated Effective Gross Annual Income “As Stabilized” $2,700,000 Operating Expenses (does not include reserves) 1,600,000 Net Operating Income $1,100,000 Number of Rooms 102 Gross Building Area 74,196 SF Effective Gross Income Multiplier 4.10 Overall Capitalization Rate 9.9% Sale Price Per Unit $108,578 Sale Price Per Square Foot $149
-67- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 9
Property: Holiday Inn Express 17677 Wright Street, Omaha, Nebraska
Legal Description: Lot 2, Legacy Replat 8, an addition to the City of Omaha as surveyed, platted and recorded in Douglas County, Nebraska
Document: Warranty Deed; Book 2013, Page 126111
Date of Sale: December 23, 2013
Grantor: Midwest Motors of Omaha, L.L.C.
Grantee: Fox Den Properties, L.L.C.
Confirmed Sale Price: $8,500,000
Confirmed By: Terri Root, Colliers International
Financing: Cash to Seller
-68- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 9 (Continued)
Size of Land: 103,237 square feet
Building Size: 44,562 square feet
Land/Building Ratio: 2.32:1
Comments: This is a three-story limited service hotel containing 80 units in southwest Omaha. It was built in 2005.
Units of Comparison:
Estimated Effective Gross Annual Income $2,300,000 Operating Expenses (does not include reserves) 1,550,000 Net Operating Income $750,000 Number of Rooms 80 Gross Building Area 44,562 SF Effective Gross Income Multiplier 3.70 Overall Capitalization Rate 8.8% Sale Price Per Unit $106,250 Sale Price Per Square Foot $191
-69- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 10
Property: Homewood Suites 1314 Cuming Street, Omaha, Nebraska
Legal Description: Part of Lot 2, Union Pacific Replat 3, as surveyed, platted and recorded in Douglas County, Nebraska
Document: Warranty Deed Book 2013, Page 079809
Date of Sale: July 26, 2013
Grantor: Omaha Downtown Lodging Investors III, L.L.C.
Grantee: Apple Ten Nebraska L.L.C.
Confirmed Sale Price: $17,625,000
Confirmed By: Official Douglas County Records
Financing: Cash to Seller
-70- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 10 (Continued)
Size of Land: 73,442 square feet
Building Size: 106,417 square feet
Land/Building Ratio: .69:1
Comments: This is an eight-story hotel containing 123 units in the “NODO” area of Downtown Omaha. This is one sale included in a 6 hotel portfolio. Amenities include a fitness center, business center, pool, hot tub and breakfast area. The hotel was constructed in 2007 and remodeled in 2015.
Units of Comparison:
Estimated Effective Gross Annual Income “As Stabilized” $3,800,000 Operating Expenses (does not include reserves) 2,400,000 Net Operating Income $1,400,000 Number of Rooms 123 Gross Building Area 106,417 SF Effective Gross Income Multiplier 4.64 Overall Capitalization Rate 7.9% Sale Price Per Unit $143,293 Sale Price Per Square Foot $166
-71- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 11
Property: Holiday Inn Express 8736 West Dodge Road, Omaha, Nebraska
Legal Description: Lot 2, Pierson’s Subdivision Replat 4, an Administrative Subdivision to the City of Omaha, as surveyed platted and recorded in Douglas County, Nebraska (except that part for public purposes)
Document: Warranty Deed; Book 2012, Page 040279
Date of Sale: April 24, 2012
Grantor: MK Omaha, L.L.C.
Grantee: Royal Motels, Inc.
Confirmed Sale Price: $7,000,000
Confirmed By: Dan Marak, seller
Financing: Cash to Seller
-72- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 11 (Continued)
Size of Land: 59,640 square feet
Building Size: 52,186 square feet
Land/Building Ratio: 1.14
Comments: This sale has sold twice previously in May of 2006 for $4,150,000 and November of 2007 for $5,650,000. This hotel was constructed in 1996 and is in average condition. This franchise has recently been upgraded to a Holiday Inn Express. This price demonstrates an effective gross income multiplier of 3.61, an overall rate 8.6%, a per unit price of $68,627, and a per square foot price of $134.
Units of Comparison:
Estimated Effective Gross Annual Income $1,940,000 Operating Expenses (does not include reserves) 1,335,000 Net Operating Income $605,000 Number of Rooms 102 Gross Building Area 52,186 SF Effective Gross Income Multiplier 3.61 Overall Capitalization Rate 8.6% Sale Price Per Unit $68,627 Sale Price Per Square Foot $134
-73- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 12
Property: Hampton Inn 5922 Vandervoort Drive, Lincoln, Nebraska
Legal Description: Lot 3, Block 1, Vandervoot 3rd Addition, located in the Southwest ¼ of Section 9, Township 9 North, Range 7 East of the 6th P.M., Lincoln, Lancaster County, Nebraska (metes and bounds description)
Document: Special Warranty Deed; Book 2010, Page 041173
Date of Sale: September 14, 2010
Grantor: LHM Holdings, L.L.C.
Grantee: Harbinger Hotels, L.L.C.
Confirmed Sale Price: $6,775,000
Confirmed By: John Klimpel, LHM Holdings, L.L.C.
Financing: Cash to Seller
-74- SALES COMPARISON APPROACH (CONTINUED)
Market Transaction Number 12 (Continued)
Size of Land: 29,731 square feet
Building Size: 41,011 square feet
Land/Building Ratio: 0.73:1
Comments: This is a three story limited service Hampton Inn hotel containing 75 units in southeast Lincoln. It was built in 2000.
Units of Comparison:
Estimated Effective Gross Annual Income $2,100,000 Operating Expenses (does not include reserves) 1,430,000 Net Operating Income $670,000 Number of Rooms 75 Gross Building Area 41,011 SF Effective Gross Income Multiplier 3.23 Overall Capitalization Rate 9.9% Sale Price Per Unit $90,333 Sale Price Per Square Foot $165
-75- SALES COMPARISON APPROACH (CONTINUED) The preceding sales are recapped as follows: Date GBA No. of Sale Price Sale Location of Sale (SF) Rooms Total Per Room Per SF Gr Inc NOI EGIM OAR 1 1401 South 72nd Street 11/17 62,679 103 $ 13,150,000 $127,670 210 $ 2,877,355 $ 937,161 4.57 7.1% Omaha, Ne 2 16175 Stevens Pointe 4/17 42,147 75 $ 8,500,000 113,333 202 1,860,000 760,000 4.57 8.9% Gretna, Ne 3 4100 Pioneer Woods Dr 1/17 49,436 85 5,400,000 63,529 109 1,660,220 487,173 3.25 9.0% Lincoln, Ne 4 6939 North 102nd Circle 7/16 45,579 84 7,600,000 90,476 167 2,050,000 653,000 3.71 8.6% Omaha, Ne 5 17240 Wright Street 7/16 54,139 90 10,190,000 113,222 188 N/A N/A N/A N/A Omaha, Ne 6 1055 West Bond Street 10/15 56,496 86 9,116,000 106,000 161 2,210,000 770,000 4.12 8.4% Lincoln, Ne 7 7306 “Q” Street 5/14 50,084 83 8,350,000 100,602 167 2,200,000 750,000 3.80 9.0% Omaha, Ne 8 7825 Davenport Street 1/14 74,196 102 11,075,000 108,578 $149 2,700,000 1,100,000 4.10 9.9% Omaha, Ne 9 17677 Wright Street 12/13 44,562 80 8,500,000 106,250 $191 2,300,000 750,000 3.70 8.8% Omaha, Ne 10 1314 Cuming Street 7/13 106,417 123 17,625,000 143,293 166 3,800,000 1,400,000 4.64 7.9% Omaha, Ne 11 8736 West Dodge Road 4/12 52,186 102 7,000,000 68,627 $134 1,940,000 605,000 3.61 8.6% Omaha, Ne 12 5922 Vandervoort Drive 9/10 41,011 75 6,775,000 90,333 $165 2,100,000 670,000 3.23 9.9% Lincoln, Ne 678,932 1,088 $113,281,000 $ 25,697,575 $ 8,882,334 The following statistical observations can be made from the recapped sales: Arithmetic Mean $102,660 $167 3.61 8.0% Weighted Mean $104,119 $167 4.01 8.6% Range Low $63,529 $109 3.23 7.1% Range High $143,293 $210 4.64 9.9%
-76- SALES COMPARISON APPROACH (CONTINUED)
The preceding twelve sales of hotel properties occurred over the September 2010 to April 2017 time frame. Of the twelve sales, ten are located in the Omaha Metropolitan Area, and three are located in Lincoln.
In terms of market conditions as it relates to these sales, all the sales were arms length transactions and none of the properties were distressed at time of sale. All sales were for cash or cash equivalent financing. Adjustments for these factors are not deemed to be necessary.
There has been no evidence of any appreciation or depreciation of hotel properties in the state of Nebraska. Consequently, none of the sales have been adjusted for date of sale.
On a gross sales basis, the sales ranged from a low of $5,400,000 for Sale 3 to a high of $17,625,000 for Sale 10. The arithmetic mean and weighted mean of the sales on a price per room basis was $102,660 and $104,119, respectively. The same units of comparison per square foot were $167. The gross income multiplier had an arithmetic mean of 3.61 and a weighted mean of 4.01. The arithmetic mean of the overall rates was 8.0%, while the weighted mean was 8.6%.
The appraiser has selected three sales (2, 5, and 8) to compare to the subject property. These sales are individually compared to the subject as follows:
Sale 2: Sale 2 is a Holiday Inn Express located at 16175 Stevens Pointe in Gretna, Nebraska. This property sold for $113,333 per unit as of March 2017. The only physical adjustment was -10% for age and condition. The aggregate adjustment was -10% and the indicated adjusted price of the subject was $102,000 per unit.
Sale 5: Sale 5 is a Fairfield Inn located at 17240 Wright Street in Omaha, Nebraska. This property sold in May 2016 for $113,222 per unit. The only physical adjustment was -15% for age and condition. The aggregate adjustment was -15% and the indicated adjusted price of the subject was $96,239 per unit.
Sale 8: Sale 8 is a Staybridge Suites and is located at 7825 Davenport Street in Omaha, Nebraska. This property sold in January of 2014 for $108,578 per unit. The only physical adjustment was -10% for age and condition. The aggregate adjustment was -10% and the indicated adjusted price of the subject was $97,720 per unit.
Please refer to the following page for an improved sales Adjustment Grid on a per unit basis for these three sales in comparison to the subject property.
-77- SALES COMPARISON APPROACH (CONTINUED) Improved Sales Adjustment Grid on a Per Unit Basis Subject has 80 Units Sale 2 Sale 5 Sale 8 Number of Rooms 75 90 80 Sale Price/Per Room $113,333 $113,222 $108,578 Adjustment Factors: Property Rights Conveyed: Fee Simple Fee Simple Fee Simple Adjusted Price/Unit $113,333 $113,222 $108,578 Financing Market Market Market Condition of Sale Market Market Market Adjusted Price/Unit $113,333 $113,222 $108,578 Date of Sale 3/17 5/16 1/14 Stable -0- -0- -0- Adjusted Price/Unit $113,333 $113,222 $108,578 Physical Characteristics: Location Equal Equal Equal -0- -0- -0- Access and Visibility Equal Equal Equal -0- -0- -0- Size and Shape 75 90 102 Subject: 80 Units -0- -0- -0- Amenities Equal Equal Equal -0- -0- -0- Flag Affiliation Hldy Inn Exp Fairfield Staybridge Sts Holiday Inn Express Equal Equal Equal -0- -0- -0- Age/Condition 2010-Good 2016-Avg 2009-Good Subject: 1998/2016 -10% -15% -10% Market Appeal Equal Equal Equal -0- -0- -0- Total Physical -10% -15% -10% Characteristics Adjustment Indicated Adjusted Price $102,000 $96,239 $97,720 Per Room for Subject
Per Unit Arithmetic Mean $98,653 Midpoint $97,720 Range Low and High $96,239 to $102,000 Concluded Value $100,000
-78- SALES COMPARISON APPROACH (CONTINUED)
Using a value of $100,000 per unit, $180 per square foot, and an EGIM of 4.00, results in following value indications:
44,640 square feet @ $180/SF = $8,035,200, called $8,040,000
80 units @ $100,000 per unit = $8,000,000
EGIM $1,995,600 x 4.00 = $7,982,400, called $7,985,000
Concluded Value by the Sales Comparison Approach $8,000,000
-79- INCOME CAPITALIZATION APPROACH
In the Income Capitalization Approach, the appraiser finds a value indication for the property being appraised through the capitalization of the net income. The net income stream which the property is expected to be capable of producing in the foreseeable future is estimated on the basis of potential gross income, less estimated applicable expenses.
The income analysis has its greatest influence in the valuation of income producing properties since such properties are usually purchased on the basis of their income producing potential coupled with future anticipated returns realized upon the sale at the end of a projected holding period. The anticipated cash flows are discounted at an appropriate rate consistent with an expected return on initial investment.
Income properties frequently exhibit varying patterns of income and we have taken this into account in valuing the subject property hotel.
In my estimation, in support of a projected average daily room rate, the appraiser has selected three hotels which directly compete with the subject property. The subject property is a mid-rate, budget type motel (with no restaurant, lounge, or extensive meeting room facilities).
Please refer to the following pages for details of three rent comparables.
-80- INCOME CAPITALIZATION APPROACH (CONTINUED)
Comparable Rental Number 1
Motel: Holiday Inn Express Location: 8736 West Dodge Road, Omaha, Nebraska Age: 1996 Number of Units: 102 Land Area: 59,640 square feet Building Area: 52,186 square feet Amenities: Other features include business center, fitness room, one meeting room, an indoor swimming pool, movies, and cable television. Daily Room Rack Rates: $95 1 Person/1 Bed $100 2 People/1 Bed $105 2 People/2 Beds $90 Commercial Note: These are quoted rack rates; commercial rates and other discounted rates are considerably cheaper. Estimated Average Daily Room Rate: $95.00 Per Night Telephone Number: 402-343-1000
-81- INCOME CAPITALIZATION APPROACH (CONTINUED)
Comparable Rental Number 2
Motel: Holiday Inn Express Location: 17677 Wright Street, Omaha, Nebraska Age: 2005 Number of Units: 80 Land Area: 103,237 square feet Building Area: 44,562 square feet Amenities: Other features include five suites, one meeting room, an indoor swimming pool, movies, and cable television. Daily Room Rack Rates: $105 1 Person/1 Bed $115 2 People/1 Bed $130 2 People/2 Beds $95 Commercial Note: These are quoted rack rates; commercial rates and other discounted rates are considerably cheaper. Estimated Average Daily Room Rate: $110.00 Per Night Telephone Number: 402-333-5566
-82- INCOME CAPITALIZATION APPROACH (CONTINUED)
Comparable Rental Number 3
Motel: Hilton Garden Inn
Location: 17879 Chicago Circle, Omaha, Nebraska
Age: 2006
Number of Units: 119
Land Area: 141317 square feet
Building Area: 76,464 square feet
Amenities: Other features include suites, cable television, movies, and an adjacent restaurant.
Daily Room Rack Rates: $100 1 Person/1 Bed $110 2 People/1 Bed $120 2 People/2 Beds $100 Commercial Rate Note: These are quoted rack rates; commercial rates and other discounted rates are considerably cheaper. Estimated Average Daily Room Rate: $110 Per Night
Telephone Number: 402-339-8111
Please refer to the following page for a Pro-Forma Operating Statement for the subject property as a renovated Holiday Inn Express.
-83- INCOME CAPITALIZATION APPROACH (CONTINUED)
The historical income expenses for the subject property as a Country Inn & Suites has little relevance to the projected income and expenses as a Holiday Inn Express.
It is worth noting that the Comfort Inn on Dodge Street had a trailing 12 month revenue of $1,413,250. After conversion to a Holiday Inn Express, the trailing 12 month revenue was $2,310,742, or an increase of 63.5%. If we apply the same ratio to the subject property, revenue would increase as follows:
Revenue 2014 $1,372,222 x 1.635 Projected 2018 Revenue $2,243,582
I have conservatively estimated revenue in the Pro Forma at $1,995,600. Please refer to the following page for the projected Pro Forma for the subject property.
-84- INCOME CAPITALIZATION APPROACH (CONTINUED)
I have conservatively projected the subject can rent at an Average Daily Room Rate of $100 per night with a 68% occupancy.
Pro Forma Operating Statement – Holiday Inn Express
Revenue 80 Rooms @ $100/night @ 68% occupancy $ 1,985,600 Other Income 10,000 Total Income $ 1,995,600 Less Expenses – Department Costs Amount % Income Per Room Rooms $ 415,000 20.80% $ 5,188 Food/Beverage 85,000 4.26% 1,063 Other 12,000 0.60% 150 Total Department Costs 25.66% $ 6,400 512,000 Gross Operating Income 74.34% $ 18,545 $ 1,483,600
Less General and Administrative Expenses Administrative $ 165,000 8.27% $ 2,063 Marketing 35,000 1.75% 438 Utilities 78,000 3.91% 975 Repairs and Maintenance 60,000 3.01% 750 Franchise Fees 199,560 10.00% 2,495 Total General and Administrative 26.94% $ 6,720 537,560 Gross Operating Profit 47.41% $ 11,826 $ 946,040
Less Fixed Expenses Insurance $ 30,000 1.50% $ 375 Taxes 75,000 3.76% 938 Management Fee 59,868 3.00% 748 Reserves for Replacements 59,868 3.00% 748 Total Fixed Expenses 11.26% $ 2,809 224,736
Net Operating Income $ 721,304 Called $ 720,000
-85- INCOME CAPITALIZATION APPROACH (CONTINUED)
Explanation of Revenue and Expenses
From the preceding, I have conservatively estimated the subject can rent at an Average Daily Room Rate of $100 per night with a 68% occupancy, for a total room revenue of $1,985,600.
Other Income. Other income is estimated at $10,000 for a total revenue estimate of $1,995,600.
Less Expenses:
Department Costs.
Rooms expense has been estimated at $415,000 or $5,188 per room or 20.80% of total revenue. The owner projected rooms cost at $414,523.
Food and beverage expenses is $85,000 or $1,063 per room or 4.26% of total revenue. The owner projected this expense at $85,410.
Other expenses are estimated at $12,000, equal to 0.60% of revenue or $150 per room. The owner also projected this expense at $12,000.
Total department costs are estimated at $512,000 or 0.32% of total revenue or $6,400 per room.
Gross Operating Income:
The gross operating income is the difference between the total income of $1,995,600 less the total department cost of $512,000, for a gross operating income of $1,483,600. This amount is 74.34% of revenue and $18,545 per room.
Less General and Administrative Expenses.
Administration expense is estimated at $166,000 or 8.27% of total revenue or $2,063 per room. The owner projected this expense at $164,665.
Marketing expense is estimated at $35,000 or 1.75% of total revenue or $438 per room. The owner projected this expense at $36,750.
Utilities expense is estimated at $78,000 or 3.91% of total revenue or $975 per room. The owner projected this expense at $77,250.
-86- INCOME CAPITALIZATION APPROACH (CONTINUED)
Explanation of Revenue and Expenses (Continued)
Repairs and maintenance expense is estimated at $60,000 or 3.01% of total revenue or $750 per room. The owner projected this expense at $60,500.
Franchise fees are estimated at $199,560 or 10% of total revenue and $2,495 per room. A 10% is a standard franchise fee charged by Holiday Inn Express.
Total general and administrative expense is estimated at $537,560, which is 26.94% of total revenue or $6,720 per room.
The gross operating profit is the difference between the gross operating income of $1,483,600 less the total general and administrative expenses of $537,560, for a gross operating profit of $946,040. This item amount is 47.41% of revenue and $11,826 per room
Less Fixed Expenses.
Insurance expense is estimated at $30,000 or 1.50% of total revenue or $375 per room. The owner estimated this expense at $30,600.
Real estate taxes are estimated at $75,000 or 3.76% of total revenue or $938 per room. The owner also projected this item at $75,000.
Management fee is projected at $59,868 or 3.00% of total revenue or $748 per room. A 3% management fee is standard for a Holiday Inn Express nationwide.
Reserves for Replacement are estimated at $59,868 or 3.00% of total revenue and $748 per room. This item must be considered conjunctively with maintenance expense and allows for the periodic replacement of long-lived items such as roof, parking lot, HVAC etc.
Total fixed expenses are $224,736 or 11.26% of revenue or $2,809 per room.
The net operating income is the difference between the gross operating profit of $946,040 less the total fixed expenses of $224,736, for a net operating income of $721,304, called $720,000.
-87- INCOME CAPITALIZATION APPROACH (CONTINUED)
Band of Investment Method
The Band of Investment is a method of deriving an overall rate of return from the annual mortgage constant and equity dividend rate.
The mortgage constant is a ratio of the annual debt service (principal plus interest) to the amount borrowed for a given interest rate and amortization term. It is the rate which provides a return on and of the borrowed funds or the lender's position.
The equity dividend rate is the annual cash throw-off to the equity position divided by the amount of equity cash invested. It is also referred to as the cash on cash rate of return or "current" yield expected by the equity position.
Given market information the percentage that borrowed money contributes (the loan-value ratio) to the investment, the percentage that equity money contributes, the mortgage terms (interest rate and amortization period) and the equity investors' expected rate of return for investment in properties of the subject's type, the Band of Investment Method provides another means of selecting an overall capitalization rate.
The process involves weighing proportions for the mortgage and equity positions by their respective currently required cash rates of return. Financial lenders indicate the following mortgage terms and interest rates available for financing investment properties similar to the subject property:
4.25% interest rate, 20 year term with a 5 to 10 year balloon
These financing terms would be subject to a 1% origination fee and would have a 70% to 75% loan-to-value ratio. Using terms of 4.25% with a 20 year term and a 10 year balloon, and a rate adjustment due after 5 years, a 70% loan-to-value ratio, the following variables would apply:
M = Loan-to-Value Ratio - Mortgage Contribution to Purchase Capital = 70%
1-M = Equity Contribution to Purchase Capital = 30%
Ym = Mortgage Interest Rate Commitment = 4.25%
Rm = Annual Mortgage Constant (Monthly Amortization) = 7.43% N = Amortization Period = 20 Years
Re = Equity Dividend Rate = Equity Investor's Cash-on-Cash Expected Annual Rate of Return = 12.5%
-88- INCOME CAPITALIZATION APPROACH (CONTINUED)
Band of Investment Method (Continued)
The Band of Investment derivation of the overall capitalization rate based on the preceding financial market data is summarized below:
% Purchase Current Capital Yield Weighted Contributed Requirement Rate
Mortgage Position 70% (M) 7.43% 5.20% Plus Equity Position 30% (1-M) 12.5% 8.95%
Ro = Total Purchase Capital Weighted Rate = Overall Capitalization Rate = 9.00%
Called 9.0%
Market-Derived Method
Overall rates developed from sales of motel properties in the Sales Comparison Approach ranged from 7.1% to 9.9%.
Value Conclusion
Therefore, based on the preceding, the capitalization rates are summarized as follows:
Band of Investment Method 9.0% Market-Derived Method 7.1% to 9.9% Arithmetic Mean 8.0%
Therefore, given the foregoing, and giving consideration to the age, size, type, and location of the subject, the appraiser estimates that an appropriate capitalization rate for the subject property is 9.00%.
Applying this capitalization rate to the forecast net operating incomes yields the following value indication via the Income Capitalization Approach:
“As Stabilized” value is: Net Operating Income of $720,000 capitalized at 9.0% = $8,000,000
-89- RECONCILIATION AND FINAL ESTIMATE OF VALUE
The following indications of value have been developed throughout this appraisal report:
Indications of Value
“AS STABILIZED” Cost Approach Land Value $1,080,000 Improvement Value 6,920,000 Total Cost Approach $8,000,000
Sales Comparison Approach $8,000,000
Income Capitalization Approach $8,000,000
Reconciled Fee Simple Value $8,000,000
The three approaches to value persuasively support each other.
It is important to review each of the three approaches and recognize the strengths and weaknesses of the available data in each approach as it relates to the subject property.
Cost Approach
In the Cost Approach “As Stabilized”, the value indication of $8,000,000 was arrived at in the following manner:
1. The land value was estimated at $1,080,000 or $13.00 per square foot.
2. The reproduction cost new of the subject property was estimated through the use of the Marshall Valuation Service's cost index.
3. The $10,000 per room amount was utilized for the FF&E as follows:
80 rooms @ $10,000/room = $800,000
4. Site improvements, including paving for drives and parking, sidewalks, lighting, curbing, landscaping, etc., was estimated.
-90- RECONCILIATION AND FINAL ESTIMATE OF VALUE (CONTINUED)
Cost Approach (Continued)
5. The property was constructed in 1998. The entire building has been extensively remodeled on the interior and exterior in 2016. Consequently, the effective age is considerably less that the chronological age. I have estimated the physical age at 5 years with the economic life of 50 years, for a physical depreciation estimate of 10%.
6. The “As Stabilized” value is segregated as follows:
Land Value $1,080,000 Personal Property (FF&E) $ 800,000 Total Improvement Value $6,120,000 Total Realty Value $8,000,000
Sales Comparison Approach
In the Sales Comparison Approach “As Stabilized”, the value indication of $8,000,000 was arrived at in the following manner:
1. Summarized details of twelve budget motels were presented on Page 76. The sales are compared and adjusted towards the subject property.
2. The appraiser adjusted three sales on an improved sales adjustment grid per unit basis. Sale 2 was a Holiday Express located at 16175 Stevens Pointe in Gretna, Nebraska. Sale 5 was Fairfield Inn located at 17240 Wright Street in Omaha, Nebraska. Sale 8 is a Staybridge Suites and is located at 7825 Davenport Street in Omaha, Nebraska. The adjustments were limited to age and condition. The three adjusted sales ranged from a low of $96,239 per unit for adjusted Sale 5 to $102,000 per unit for adjusted Sale 2. I concluded my value by the Sales Comparison Approach at $100,000 per unit. Other units of comparison were $180 on per square foot and an EGIM multiplier of 4.00. The three indications ranged from a low of $7,985,000 on an EGIM basis, to a high of $8,040,000 on a per square foot basis. I concluded my value by the Sales Comparison Approach of $8,000,000.
-91- RECONCILIATION AND FINAL ESTIMATE OF VALUE (CONTINUED)
Income Capitalization Approach
I provided three lease comparables that compete directly with the subject Holiday Inn Express. In the Income Capitalization Approach, a value indication of $8,000,000 was arrived at in the following manner:
1. I provided details of three comparables which compete directly with the subject.
2. The ADRR was conservatively estimated at $100.00 per night, with a 68% occupancy rate.
3. Other income was estimated at $10,000.
4. Thus, total revenue was estimated at $1,995,600.
5. All expenses are a synthesis of the appraiser’s experience with similar hotels, as well as the projections by the owner.
6. All expenses were segregated into department costs, general and administrative expenses, and fixed expenses. The final deduction from the gross income was Reserves for Replacement of 3%.
7. A 3% allowance for Reserves for Replacement was deducted in keeping with good appraisal practice so as to estimate the periodic replacement of shorter lived building components and furniture, fixtures, and equipment.
8. A net operating income of $720,000 was estimated and considered reliable.
9. The overall rate of 9.0% was estimated using the Band of Investment method and the Market Derived method.
10. The concluded “As Stabilized” value by the Income Capitalization Approach was $8,000,000.
-92- RECONCILIATION AND FINAL ESTIMATE OF VALUE (CONTINUED)
Summary
As this report is for financing purposes, the fee simple value was calculated for the subject property. Therefore, after consideration of the three approaches to value, I estimate the value of the subject property, as of November 21, 2017, to be:
“AS STABILIZED” Land Value $1,080,000 Personal Property (FF&E) $ 800,000 Total Improvement Value $6,120,000 Total Realty Value $8,000,000
I project it will take 1 year to reach stabilized occupancy. Discounting the “As Stabilized” value at 10% for a 1 year period results in the following:
“As Stabilized” Value $8,000,000 Discount Factor @ 10% for 1 Year .9091 “As Is” Value $7,272,800 Called $7,300,000
-93- IV. CERTIFICATION & QUALIFICATIONS CERTIFICATION OF THE APPRAISER I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions. 3. This appraisal report conforms to the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal Foundation. 4. I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. 5. My compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or in use of, this report. 6. The appraiser has previously appraised the subject property as of May 23, 2016. This report was prepared for Mr. Matthew Gronstal, President of Council Bluffs Savings Bank. 7. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. 8. This report is intended for use only by Cornhusker Bank, and their designees and assignees. Use of this report by others is not intended by the appraiser. 9. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 10. The undersigned, Dennis J. Knudson, is currently certified under the voluntary continuing education program of the Appraisal Institute. 11. The undersigned holds Appraiser General Certifications in the State of Nebraska (CG920136). 12. This appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. 13. The undersigned made a personal inspection of the property that is the subject of this report on November 21, 2017. 14. No one provided professional assistance to the person signing this report. 15. I have appraised numerous properties of this type before, and have the necessary knowledge and experience to competently complete this appraisal assignment. 16. I has not been the object of any lawsuit or regulatory action by any agency or financial institution nor fraud or negligence involving an appraisal report.
Dennis J. Knudson, MAI Nebraska General Certified Appraiser CG920136
-94- PROFESSIONAL QUALIFICATIONS OF DENNIS J. KNUDSON, MAI KNUDSON APPRAISAL SERVICES 13425 “A” STREET OMAHA, NE 68144 (402) 932-4959 – Office (402) 320-2581 – Cell [email protected]
EXPERIENCE
Owner of Knudson Appraisal Services, 13425 “A” Street, Omaha, Nebraska, (402)932-4959, a full-service real estate appraising firm. Employed by the Douglas County Assessor's Office from 1971 through 1987. Appraisal experience is substantial and includes all classes of property types including residential, multi- family, commercial, industrial, and special purpose properties. Total valuation exceeds one billion dollars. Qualified and served as an expert witness in various courts in Nebraska and Iowa.
PROFESSIONAL ACTIVITIES
MAI, Member of Appraisal Institute
Actively involved in the Appraisal Institute, Past President of Nebraska Chapter 1996
Society of Real Estate Appraisers: SRPA designation, Senior Real Property Appraiser; served as Chapter President for the 1988-1989 fiscal year
International Association of Assessing Officers: CAE, Certified Assessment Evaluator.
STATE LICENSE
Nebraska Certified General Real Property Appraiser, License CG920136
EDUCATION
St. Edmond High School, Fort Dodge, Iowa; B.S.B.A. Creighton University, 1970. Successfully completed courses 1A, 1B, 2, 4, 6, 7, 8, 10, and 11 offered by the Appraisal Institute. Successfully completed courses 101, R-2, 201, 202, and 301 offered by the Society of Real Estate Appraisers.
CERTIFICATION
Currently certified by the Appraisal Institute’s voluntary program of continuing education for its designated members.
-95- V. ADDENDUM