An Appraisal Report

AN APPRAISAL REPORT

County Government Center Development - Chanate Campus A 75.03 Gross Acre Site Proposed For Development With Two Mixed-Use Projects 3313 Chanate Road Santa Rosa, CA 95404

DATE OF VALUE

July 29, 2016

PREPARED FOR

Marc McDonald Real Estate Manager, Sonoma County General Services Dept. County of Sonoma 2300 County Center Drive, Ste. A-211 Santa Rosa, CA 95403 (707) 565-3468

PREPARED BY

Robert Horning Howard R. Levy, MAI, AI-GRS Ward Levy Appraisal Group, Inc. 533 Fifth Street, Suite 300 Santa Rosa, CA 95401 (707) 575-7778

533 Fifth Street, Suite 300 Santa Rosa, CA 95401 (707) 575-7778 [email protected]

August 23, 2016

Marc McDonald Real Estate Manager, Sonoma County General Services Dept. County of Sonoma 2300 County Center Drive, Ste. A-211 Santa Rosa, CA 95403

RE: County Government Center Development - Chanate Campus A 75.03 Gross Acre Site Proposed For Development With Two Mixed-Use Projects 3313 Chanate Road Santa Rosa, CA 95404

Dear Mr. McDonald:

As requested by you, we have conducted the required investigation, gathered the necessary data and made certain analyses that have enabled the formation of the following opinions of value:

Appraisal Interest Opinion of Date of Value Premise Appraised Value

As Is Fee Simple July 29, 2016 $7,150,000 Hypothetical Assuming Entitlements And Earthquake Fee Simple July 29, 2016 $30,640,000 Fault Trace Impacts Hypothetical As Proposed – 600 MFR/200 SFR/ Leased Fee July 29, 2016 $275,500,000 33,000 SF Commercial Hypothetical As Proposed – 300 MFR/100 SFR/ Leased Fee July 29, 2016 $149,000,000 33,000 SF Commercial

This letter and related exhibits must remain attached to the report in order for the value opinions set forth to be considered valid.

The appraisal that follows is a narrative appraisal report that sets forth the scope of the assignment, identification of the property, pertinent facts about the area and the subject property, comparable data, the results of the research and analyses and the reasoning leading to the conclusions set forth.

533 Fifth Street, Suite 300 Santa Rosa, CA 95401 (707) 575-7778 [email protected]

The value opinions are subject to the Statement of Assumptions and Limiting Conditions and Certifications set forth in this report, as well as the following Extraordinary Assumptions and Hypothetical Conditions, the use of which might have affected the assignment results:

Extraordinary Assumptions:

 No Preliminary Title Report was provided. The value opinions set forth in this appraisal report are subject to and conditioned upon the absence of any easements or encumbrances that would materially affect the subject's market value.

 The subject site is located within a special studies earthquake zone as shown on the Alquist Priolo map. The Alquist Priolo map, which was most recently updated in 1983, also shows that there are several fault traces affecting the subject site. The City of Santa Rosa prohibits any construction of new housing units within 50 feet of a fault trace. However, according to subsequent survey work conducted by Rutherford & Chekene, a San Francisco-based structural and geotechnical engineering firm, there are no fault traces affecting the subject site. At the request of the client, the appraisers assumed that the fault traces are accurately depicted on the Alquist Priolo map, thus reducing the site’s development capacity.

 For all of the “as improved” valuation scenarios, the unit mix, sizes and quality for the improved apartment and condominium units is assumed to be the same as those of The Overlook at Fountaingrove apartment complex at 200 Bicentennial Way, Santa Rosa, while the quality and tenant mix for the improved retail/office valuation scenario is assumed to be typical for the market.

 The appraisers were not provided with a comprehensive estimate for demolition costs, nor were we provided with detailed information regarding the scope of potential hazardous materials necessitating special abatement measures. The appraisers therefore had to project demolition costs without key information. The 'as is' value opinion set forth herein is subject to the accuracy of this cost estimate and is subject to review and possible revision upon the receipt of any conflicting information.

 The gross and developable site area figures for the subject property are taken from a site plan provided by the client in 2011 in conjunction with separate figures provided in 2014 for the subject's developable area assuming earthquake fault trace impacts. These figures appear reasonable but it is noted that they are estimates developed by County staff based on prior survey work by other consultants. The value opinions are subject to the accuracy of this information,

533 Fifth Street, Suite 300 Santa Rosa, CA 95401 (707) 575-7778 [email protected]

and are subject to review and possible revision upon the receipt of any materially conflicting information.

Hypothetical Conditions:

 The value opinion as vacant land with entitlements is based on the hypothetical condition that, as of the date of valuation, the existing improvements had been demolished and the subject had full entitlements for a mixed-use subdivision development to comprise 600 multi-family units, of which there will be 480 market rate units, 60 units that will be affordable to very low income households, and 60 units that will be rented with voucher subsidies, 200 for-sale residential condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery.

 The value opinions for the subject as improved are based on the hypothetical condition that, as of the date of valuation, the proposed improvements had been constructed in a workmanlike manner in accordance with the criteria provided by the client, and the subject improvements are at stabilized occupancy with the commercial space, market rate apartments and voucher subsidized apartments leased at market rents and the very low income units leased at their respective affordable rent limits.

Respectfully submitted,

Robert Horning State of California Certified General Real Property Appraiser OREA License Number AG028396 Expiration: October 18, 2017

Howard R. Levy, MAI, AI-GRS State of California Certified General Real Property Appraiser OREA License Number AG003852 Expiration: August 30, 2016

3313 Chanate Road, Santa Rosa

TABLE OF CONTENTS

OVERVIEW ...... 1 SUMMARY OF SALIENT FACTS AND CONCLUSIONS ...... 2 SUBJECT PROPERTY PHOTOGRAPHS ...... 9 SCOPE OF WORK ...... 13 STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS ...... 17 DEFINITIONS ...... 21 REGIONAL MAP ...... 24 COUNTY MAP ...... 25 CITY MAP...... 26 AREA ANALYSIS ...... 27 MARKET ANALYSIS ...... 42 NEIGHBORHOOD MAP ...... 59 NEIGHBORHOOD ANALYSIS...... 60 LAND ANALYSIS ...... 63 IMPROVEMENT DESCRIPTION ...... 73 HIGHEST AND BEST USE ...... 81 APPRAISAL PROCESS ...... 87 MARKET VALUE AS IS ...... 90 HYPOTHETICAL MARKET VALUE OF SUBJECT SITE AS ENTITLED ...... 103 HYPOTHETICAL MARKET VALUE AS IMPROVED - COST APPROACH ...... 115 HYPOTHETICAL MARKET VALUE AS IMPROVED - SALES COMPARISON APPROACH ...... 122 HYPOTHETICAL MARKET VALUE AS IMPROVED - INCOME APPROACH ...... 162 HYPOTHETICAL MARKET VALUE AS IMPROVED - RECONCILIATION AND FINAL VALUE CONCLUSIONS ...... 186 CERTIFICATION OF ROBERT A. HORNING ...... 188 CERTIFICATION OF HOWARD R. LEVY, MAI, AI-GRS ...... 189 QUALIFICATIONS OF ROBERT A. HORNING ...... 190 QUALIFICATIONS OF HOWARD R. LEVY, MAI, AI-GRS ...... 191

ADDENDA - Site Development Plan

3313 Chanate Road, Santa Rosa

OVERVIEW

The subject property comprises a 75.03 gross acre site which is improved with a number of buildings comprising a total of 265,520 square feet and utilized by the County of Sonoma for various public uses. The buildings were constructed between 1936 and 1994 and are considered to be in fair to average overall condition for their age, but the subject site is located within a special studies earthquake zone, and the buildings require extensive seismic retrofitting. The Alquist Priolo map, which was most recently updated in 1983, shows that there are several fault traces affecting the subject site; the City of Santa Rosa prohibits any construction of new housing units within 50 feet of a fault trace. According to subsequent survey work conducted by Rutherford & Chekene, a San Francisco-based structural and geotechnical engineering firm, there are no fault traces affecting the subject site, but at the request of the client, all of the value opinions are subject to the extraordinary assumption that the earthquake fault traces are accurately depicted on the Alquist Priolo map, thus reducing the site’s development capacity.

As of the date of valuation, the subject had no entitlements for subdivision. As per the scope of this assignment, the appraisers have analyzed the subject under several different proposed development scenarios and provided separate value opinions as follows:

 A market value of the fee simple interest “as is”;

 A hypothetical market value of the fee simple interest assuming the subject site is fully entitled for development with 600 multi-family units, of which 480 units are rented at market, 60 units are rented at levels affordable to very low income households, and the remaining 60 units are rented with voucher subsidies, 200 for-sale condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery;

 A hypothetical market value of the leased fee interest assuming the subject is improved and fully leased with 600 multi-family units, of which 480 units are rented at market, 60 units are rented at levels affordable to very low income households, and the remaining 60 units are rented with voucher subsidies, 200 for-sale condominiums, and a 33,000 square foot office/retail building that includes a 12,000 square foot grocery; and,

 A hypothetical market value of the leased fee interest assuming the subject is improved and fully leased with 300 multi-family units, of which 240 units are rented at market, 30 units are rented at levels affordable to very low income households, and the remaining 30 units are rented with voucher subsidies, 100 for-sale condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery.

For all of the “as proposed” valuation scenarios, the unit mix, sizes and quality for the improved apartment and condominium units is assumed to be the same as those of The Overlook at Fountaingrove apartment complex at 200 Bicentennial Way, Santa Rosa, while the quality and tenant mix for the improved retail/office valuation scenario is assumed to be typical for the market.

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SUMMARY OF SALIENT FACTS AND CONCLUSIONS

Property Name: County Government Center Development - Chanate Campus

Property Type: Mixed-Use (Multi- and Single-Family Residential and Retail/Office)

Address: 3313 Chanate Road Santa Rosa, CA 95404

Assessor’s Parcel Numbers: 173-130-038, 180-090-001 through -006, -008 through - 010 and -016, and 180-100-001 and -029

Census Tract: 1523.00 and 1524.00

Site Area: According to the Sonoma County Assessor, the subject comprises 81.26 gross acres. The site plan provided to the appraisers in 2014 lists a total gross area of 103.50 acres, but this area includes two parcels (APN’s 180-090- 007 and 180-100-002) which are not part of the subject property. The site plan notes the size of APN 180-090- 007 at 27.3 acres, while the Sonoma County Assessor lists the size of APN 180-100-002 at 1.17 acres, for a total of 28.47 acres. This area has been deducted from the figure of 103.50 acres, equating to a remaining gross area of 75.03 acres for the subject. The site plan is presumed to be more accurate than the assessor’s records, and the figure of 75.03 acres has therefore been utilized as the subject’s gross site area within this report.

In 2011, the appraisers were also provided with a breakdown of developable and non-developable acreage under the assumption that the subject is impacted by earthquake fault trace lines. These estimates were developed by County staff based on prior survey work by other consultants. This breakdown listed a developable site area of 48.00 acres, but this includes the area of APN 180-100-002 (1.17 acres), which is not part of the subject. The subject’s developable area is therefore concluded to be 46.83 acres.

Zoning: PI and R-1-6 (Public and Institutional and Single-Family Residential)

General Plan Land Use Designation: Public/Institutional and Very Low Density Residential (0.2 - 2.0 units per acre)

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Flood Hazard Area: The subject is located in an area mapped by the Federal Emergency Management Agency (FEMA). The subject is located in FEMA flood zone X (unshaded), which is not classified as a special flood hazard area.

FEMA Map Number: 06097C0727E and 0729E FEMA Map Date: December 2, 2008

Earthquake Area: The subject site is located in an Alquist Priolo Special Studies Zone. The Alquist Priolo map also shows that the subject may be impacted by fault traces, and at the request of the client, we have assumed that it is. The City of Santa Rosa prohibits the construction of new housing units within 50 feet of a fault trace, a factor discussed in more detail elsewhere in this report.

Soil Conditions: The appraisers are not qualified as soil experts and do not possess the skills to determine if the site is contaminated in any manner which might have a negative impact on the overall value of the subject property. The reader of this report is advised to determine the development potential of the site and ensure that no soil contamination exists prior to making any financial commitments on the subject property. This appraisal assumes that the site can be improved to its highest and best use, and that no contamination exists which would negatively impact the subject property.

Site Status: The subject comprises a 75.03 gross acre site which is improved with a number of buildings comprising a total of 265,520 square feet and utilized by the County of Sonoma for various public uses. As of the date of valuation, the subject had no entitlements for subdivision. The Overview section at the beginning of this report contains more discussion of the hypothetical entitlement scenarios analyzed per the scope of this assignment.

Improvements: The subject site is currently improved with numerous buildings comprising a total of 265,520 square feet and utilized by the County of Sonoma for various public uses. The buildings were constructed between 1936 and 1994 and are considered to be in fair to average overall condition for their age, but require extensive seismic retrofitting as described in more detail later in this report. The appraisers have also analyzed the subject under two different proposed development scenarios, including different mixes of multi- and single-family residences and retail/office space, as described in more detail later in this

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report.

Highest and Best Use: As Vacant: The highest and best use of the subject property as vacant is considered to be the development of single- and multi- family residential uses along with a small amount of retail commercial space.

As Improved (As Is): The highest and best use of the subject property as improved is the demolition of the existing buildings and redevelopment with a mixed-use project consisting predominantly of single- and multi-family residential uses along with a small amount of retail commercial uses.

As Improved (As Proposed): The highest and best use of the subject property as improved, under each hypothetical development scenario, is to lease the proposed improvements as a 100% rental project comprising multi-family residential and commercial uses.

Estimated Marketing Period (As A reasonable marketing period for the subject is Is): estimated to be one to two years based upon an analysis of sales of comparable properties and assumes no foreseeable changes in market conditions.

Estimated Exposure Time (As Is): A reasonable exposure time for the subject at the appraisers’ determination of market value would be one to two years as of the effective date of the report and based upon an analysis of sales of comparable properties.

Estimated Marketing Period (As A reasonable marketing period for the subject is Proposed): estimated to be six months to one year based upon an analysis of sales of comparable properties and assumes no foreseeable changes in market conditions.

Estimated Exposure Time (As A reasonable exposure time for the subject at the Proposed): appraisers’ determination of market value would be six months to one year as of the effective date of the report and based upon an analysis of sales of comparable properties.

Date of Inspection: July 29, 2016

Report Date: August 23, 2016

Extraordinary Assumptions: No Preliminary Title Report was provided. The value opinions set forth in this appraisal report are subject to

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and conditioned upon the absence of any easements or encumbrances that would materially affect the subject's market value.

The subject site is located within a special studies earthquake zone as shown on the Alquist Priolo map. The Alquist Priolo map, which was most recently updated in 1983, also shows that there are several fault traces affecting the subject site. The City of Santa Rosa prohibits any construction of new housing units within 50 feet of a fault trace. However, according to subsequent survey work conducted by Rutherford & Chekene, a San Francisco-based structural and geotechnical engineering firm, there are no fault traces affecting the subject site. At the request of the client, the appraisers assumed that the fault traces are accurately depicted on the Alquist Priolo map, thus reducing the site’s development capacity.

For all of the “as improved” valuation scenarios, the unit mix, sizes and quality for the improved apartment and condominium units is assumed to be the same as those of The Overlook at Fountaingrove apartment complex at 200 Bicentennial Way, Santa Rosa, while the quality and tenant mix for the improved retail/office valuation scenario is assumed to be typical for the market.

The appraisers were not provided with a comprehensive estimate for demolition costs, nor were we provided with detailed information regarding the scope of potential hazardous materials necessitating special abatement measures. The appraisers therefore had to project demolition costs without key information. The 'as is' value opinion set forth herein is subject to the accuracy of this cost estimate and is subject to review and possible revision upon the receipt of any conflicting information.

The gross and developable site area figures for the subject property are taken from a site plan provided by the client in 2011 in conjunction with separate figures provided in 2014 for the subject's developable area assuming earthquake fault trace impacts. These figures appear reasonable but it is noted that they are estimates developed by County staff based on prior survey work by other consultants. The value opinions are subject to the accuracy of this information, and are subject to review and possible revision upon the receipt of any materially conflicting information.

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Hypothetical Conditions: The value opinion as vacant land with entitlements is based on the hypothetical condition that, as of the date of valuation, the existing improvements had been demolished and the subject had full entitlements for a mixed-use subdivision development to comprise 600 multi-family units, of which there will be 480 market rate units, 60 units that will be affordable to very low income households, and 60 units that will be rented with voucher subsidies, 200 for-sale residential condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery.

The value opinions for the subject as improved are based on the hypothetical condition that, as of the date of valuation, the proposed improvements had been constructed in a workmanlike manner in accordance with the criteria provided by the client, and the subject improvements are at stabilized occupancy with the commercial space, market rate apartments and voucher subsidized apartments leased at market rents and the very low income units leased at their respective affordable rent limits. Value Indications

600 MFR/200 SFR/ 33,000 SF Commercial: Cost Approach: $274,360,000 Sales Comparison Approach: $275,120,000 Income Approach: $275,670,000

300 MFR/100 SFR/ 33,000 SF Commercial: Cost Approach: $150,870,000 Sales Comparison Approach: $148,710,000 Income Approach: $149,040,000 Reconciled Values

Hypothetical Assuming As Is Entitlements Value Conclusion $7,150,000 $30,640,000 Date of Value July 29, 2016 July 29, 2016 Property Rights Fee Simple Fee Simple

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Hypothetical As Proposed – Hypothetical As Proposed – 600 MFR/200 SFR/33,000 SF 300 MFR/100 SFR/33,000 SF Commercial Commercial Value Conclusion $275,500,000 $149,000,000 Date of Value July 29, 2016 July 29, 2016 Property Rights Leased Fee Leased Fee Identification of the Property

The subject property is located along both sides of Chanate Road and Cobblestone Drive, west of Hidden Valley Drive, north of Rolling Hill Drive and east of Sycamore Avenue and Nielsen Court, in the City of Santa Rosa, County of Sonoma, California. The subject is referred to as Sonoma County Assessor's Parcel Numbers 173-130-038, 180-090-001 through -006, -008 through -010 and -016, and 180-100-001 and -029 and features a number of different street addresses. The first sequential subject parcel, Assessor’s Parcel Number 173-130-038, is vacant land and does not have a street address, while the next sequential subject parcel, Assessor’s Parcel Number 180-090-001, is commonly known as 3313 Chanate Road, Santa Rosa, Sonoma County, CA 95404. For the sake of simplicity, throughout this report the subject has generally been referred to solely as 3313 Chanate Road.

Ownership and Recent History of Subject Property

The subject ownership is vested in County of Sonoma. Ward Levy Appraisal Group, Inc. is unaware of any transfers, offers, options or agreements to purchase pending on the subject property within the last three years.

Date of Inspection, Valuation & Report Date

The date of inspection and valuation is July 29, 2016. The report date is August 23, 2016.

Legal Description

As we were not provided with a Preliminary Title Report, we have utilized the Assessor's Parcel Numbers in conjunction with the site plan provided by the client to identify the subject property. Based on the aerial depiction and calculations made by the client, the subject comprises an approximately 75.03 gross acre site.

Real Property Tax and Assessment Data

As a result of the passage of Proposition 13, or the Jarvis Gann initiative in 1978, real property taxes in the State of California are limited to 1% of market value, based upon the Assessor's market value estimate for the 1975 base year, unless there is a transfer of ownership, new construction or the property is leased on a long-term basis. Whenever any of the foregoing occurs, the property is reassessed at full market value. If there is no reassessment, the assessed value is increased at 2% annually. Assessed values in California rarely have any relationship to market value due to the increase limit. Thus, comparison to other similar properties is irrelevant since the assessed values are not based upon current market value.

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Proposition 13 limits the annual real property taxes to 1% of the assessed value, plus an amortized amount for voter approved bonded indebtedness. The voter approved bonded indebtedness can take the form of a percentage of value or as a fixed per parcel charge. In addition, special tax assessments which have a finite life are collected with the regular tax roll and represent a supplemental debt to the owner that can be paid off in one lump sum or over time.

The subject property is identified by the Sonoma County Tax Collector as Assessor’s Parcel Numbers 173-130-038, 180-090-001 through -006, -008 through -010 and -016, and 180-100- 001 and -029 with a 2015/16 tax rate of 1.1495% of assessed value plus direct charges. Because the subject property is owned by the County of Sonoma, the property has not been assessed for ad valorem tax purposes.

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SUBJECT PROPERTY PHOTOGRAPHS

Hospital On North Portion Hospital On North Portion

View East From West Portion View South From North Portion

View Northwest On North Portion Along View Southwest From North Portion Cobblestone Drive (Cobblestone Drive)

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View Southeast Along Cobblestone Drive View North From Chanate Road

(Center Of Site)

View West Along Chanate Road View East Along Chanate Road

View South From Chanate Road View Southeast From Center Of Site (Center Of Site)

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Cemetery (Non-Developable Area) On West Offices On South Portion

Portion

View South From South (Developed) Improvements On South Portion Portion

Offices On Southwest Portion Public Health Facility Improvements (Southeast Portion)

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Public Health Facility Improvements Shelter Improvements

View Southwest From Southeast Portion View North From Southeast Portion

View East Along Interior Access Road From Existing Improvements On Northeast Chanate Road (Northeast Portion) Portion

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SCOPE OF WORK

According to the Uniform Standards of Professional Appraisal Practice, it is the appraiser’s responsibility to develop and report a scope of work that results in credible results that are appropriate for the appraisal problem and intended user(s). Therefore, the appraiser must identify and consider:

 the client and intended users;  the intended use of the report;  the type and definition of value;  the effective date of value;  assignment conditions;  typical client expectations; and  typical appraisal work by peers for similar assignments.

Scope of Work Client: County of Sonoma

Intended Use: Assist in developing a sale price

Intended User: County of Sonoma

Report Type: This is an Appraisal Report as defined by Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2(a). This format provides a summary of the appraisal process, subject and market data and valuation analyses.

Property Identification: The subject property is located along both sides of Chanate Road and Cobblestone Drive, west of Hidden Valley Drive, north of Rolling Hill Drive and east of Sycamore Avenue and Nielsen Court, in the City of Santa Rosa, County of Sonoma, California.

Inspection: An exterior inspection of the subject property has been made, and photographs taken.

Information Sources: Determining the gross and developable site size from the provided site plans which are presumed to be more accurate than Sonoma County Assessor’s records; determining the size of the existing building improvements from figures provided by the current owners; researching local area land use trends and construction activity from public agencies and local market participants; determining probable marketing and exposure time for the subject property based on recent sales and interviews with local real estate professionals; conducting telephone and

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personal interviews with persons considered knowledgeable regarding the subject property and general market conditions; verifying the comparable market data with at least one party to the transaction;

Market Area and Analysis of Market Conditions: A complete analysis of market conditions has been made. The appraisers maintain and have access to comprehensive databases for this market area and have reviewed the market for sales and listings relevant to this analysis.

Highest and Best Use Analysis: A complete as vacant and as improved highest and best use analysis for the subject has been made. Legally permissible, physically possible and financially feasible uses were considered, and the maximally productive use was concluded.

Type of Value: Market Value

Personal Property, Fixtures and Intangible Items: The valuation opinion included within this appraisal is for the real property only. No personal property, fixtures or intangible items of material value are included as part of the real property.

Valuation Analyses Cost Approach: A cost approach was applied as it is considered applicable for new developments such as the subject property.

Sales Comparison Approach: A sales approach was applied as market participants consider similar type properties when determining the subject's market value and thus the Sales Comparison Approach is utilized in the analysis.

Income Approach: An income approach was applied as market participants consider operating incomes of similar type properties when determining the subject's market value and thus the Income Approach is utilized in the analysis.

Extraordinary Assumptions: No Preliminary Title Report was provided. The value opinions set forth in this appraisal report are subject to and conditioned upon the absence of any easements or encumbrances that would materially affect the subject's market value.

The subject site is located within a special studies earthquake zone as shown on the Alquist Priolo map. The

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Alquist Priolo map, which was most recently updated in 1983, also shows that there are several fault traces affecting the subject site. The City of Santa Rosa prohibits any construction of new housing units within 50 feet of a fault trace. However, according to subsequent survey work conducted by Rutherford & Chekene, a San Francisco-based structural and geotechnical engineering firm, there are no fault traces affecting the subject site. At the request of the client, the appraisers assumed that the fault traces are accurately depicted on the Alquist Priolo map, thus reducing the site’s development capacity.

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that will be affordable to very low income households, and 60 units that will be rented with voucher subsidies, 200 for-sale residential condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery.

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STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS

This appraisal is for no purpose other than property valuation, and the appraisers are neither qualified to nor attempting to go beyond that narrow scope. The reader should be aware that there are inherent limitations to the accuracy of the information and analyses contained in this appraisal. Before making any decision based on the information and analyses contained in this report, it is critically important to read this entire section to understand these limitations. Please note that all of the following assumptions and limiting conditions are considered to be effective unless otherwise noted within this report.

Appraisal is not a Survey: It is assumed that the utilization of the land and improvements is within the boundaries of the property lines of the property described and that there is no encroachment or trespass unless noted within the report.

No survey of the property has been made by the appraisers and no responsibility is assumed in connection with such matters. Any maps, plats or drawings reproduced and included in this report are intended only for the purpose of showing spatial relationships. The reliability of the information contained on any such map or drawing is assumed by the appraisers and cannot be guaranteed to be correct. A surveyor should be consulted if there is any concern on boundaries, setbacks, encroachments or other survey matters.

Appraisal is not a Legal Opinion: No responsibility is assumed for legal matters that affect title to the property nor is an opinion of title rendered. The title is assumed to be good and marketable. The value estimate is given without regard to any questions of title, boundaries, encumbrances or encroachments. We are not usually provided a complete title report of the property being appraised and, in any event, we neither made a detailed examination of it nor do we give any legal opinion concerning it.

It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws, unless non-compliance is stated, defined and considered in the appraisal report. A comprehensive examination of laws and regulations affecting the subject property was not performed for this appraisal.

It is assumed that all applicable zoning and land use regulations and restrictions have been complied with, unless a non-conformity has been stated, defined and considered in the appraisal report. Information and analyses shown in this report concerning these items are based only on a preliminary investigation. Any significant question should be addressed to local zoning or land use officials and/or an attorney.

It is assumed that all required licenses, consents or other legislative or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. Appropriate government officials and/or an attorney should be consulted if an interested party has any questions or concerns on these items, inasmuch as we have not made a comprehensive examination of laws and regulations affecting the subject property.

Appraisal is not an Engineering or Property Inspection Report: This appraisal should not be considered a report on the physical items that are a part of this property. Although the appraisal

16-193-42 Page 17 of 191 3313 Chanate Road, Santa Rosa may contain information about the physical items being appraised (including their adequacy and/or condition), it should be clearly understood that this information is only to be used as a general guide for property valuation and not as a complete or detailed physical report. The appraisers are not construction, engineering, environmental or legal experts, and any statement given on these matters in this report should be considered preliminary in nature.

If the subject property is improved with structures, the observed condition of the foundation, roof, exterior walls, interior walls, floors, heating system, plumbing, insulation, electrical service and all mechanical and construction are based on casual inspection only and no detailed inspection was made. The structures were not checked for building code violations, and it is assumed that all buildings meet applicable building codes unless so stated in the report.

It is assumed that there are no hidden or unapparent conditions of the property, sub-soil or structures that would render it more or less valuable. No responsibility is assumed for such conditions, nor for the engineering that may be required to discover such factors. Since no engineering or percolation tests were made, no liability is assumed for soil conditions. Sub- surface rights (mineral and oil) were not considered in making this appraisal.

We are not environmental experts, and we do not have the expertise necessary to determine the existence of environmental hazards such as the presence of urea-formaldehyde foam insulation, toxic waste, asbestos or hazardous building materials, or any other environmental hazards on the subject or surrounding properties. If we know of any problems of this nature which we believe would create a significant problem, they are disclosed in the report. Nondisclosure should not be taken as an indication that such a problem does not exist, however. An expert in the field should be consulted if any interested party has questions on environmental factors.

No chemical or scientific tests were performed by the appraisers on the subject property, and it is assumed that the air, water, ground and general environment associated with the property present no physical or health hazard of any kind unless otherwise noted in the report. It is further assumed that the property does not contain any type of dump site and that there are no underground tanks (or any underground source) leaking toxic or hazardous chemicals into the groundwater or the environment unless otherwise noted in the report.

Because no detailed inspection was made, and because such knowledge goes beyond the scope of this appraisal, any condition or other comments given in this appraisal report should not be taken as a guarantee that a problem does not exist. Specifically, no guarantee is made as to the adequacy or condition of the foundation, roof, exterior walls, interior walls, flooring, heating system, air conditioning system, plumbing, electrical service, insulation or any other components of buildings or structures that are located on the land. If any interested party is concerned about the existence, condition or adequacy of any particular item, we would strongly suggest that a construction expert be hired for a detailed investigation.

Appraisal is Made Under Conditions of Uncertainty with Limited Data: As can be seen from the limitations presented above, this appraisal has been performed with a limited amount of data. Data limitations result from a lack of certain areas of expertise by the appraisers (that go beyond the scope of the ordinary knowledge of an appraiser), the inability of the appraisers to view certain portions of the property and the inherent limitations of relying upon information provided by others. We have spent our time and effort in the investigative stage of this appraisal in those

16-193-42 Page 18 of 191 3313 Chanate Road, Santa Rosa areas where we think it will do the most good, but inevitably there is a significant possibility that we do not possess all information relevant to the subject property.

Information provided by local sources, such as government agencies, financial institutions, accountants, attorneys and others is assumed to be true, correct and reliable. No responsibility for the accuracy of such information is assumed by the appraisers.

The comparable sales data relied upon in the appraisal is believed to be from reliable sources. Though all of the comparable sales were examined, it was not possible to inspect them all in detail. The value conclusions are subject to the accuracy of said data.

Engineering analyses of the subject property were neither provided for use nor made as a part of this appraisal contract. Any representation as to the suitability of the property for uses suggested in this analysis is therefore based only on a preliminary investigation by the appraisers and the value conclusions are subject to said limitations.

All values shown in the appraisal report are projections based on our analyses as of the date of the appraisal. These values may not be valid in other time periods or as conditions change. We take no responsibility for events, conditions or circumstances affecting the property's market value that take place subsequent to either the date of value contained in this report or the date of our field inspection, whichever occurs first.

Since projected mathematical models and other projections are based on estimates and assumptions which are inherently subject to uncertainty and variation depending upon evolving events, we do not represent them as results that will actually be achieved.

This appraisal is an estimate of value based on an analyses of information known to us at the time the appraisal was made. We do not assume any responsibility for incorrect analyses because of erroneous or incomplete information. If new information of significance comes to light, the value estimates are subject to change without notice.

Opinions and estimates expressed herein represent our best judgment, but should not be construed as advice or a recommendation to act. Any actions taken by you, the client, or any others should be based on your own judgment, and the decision process should consider many factors in addition to the value estimates and information given in this report.

Appraisal reports are technical documents addressed to the specific technical needs of clients. Casual readers should understand that this report does not contain all of the information we have concerning the subject property or the real estate market.

This appraisal was prepared at the request of and for the exclusive use of the client to whom the appraisal is addressed. No third party shall have any right to use or rely upon this appraisal for any purpose.

There are no requirements, by reason of this appraisal, to give testimony or appear in court or any pretrial conference or appearance required by subpoena with reference to the property in question, unless agreed to previously by the appraiser, sufficient notice is given to allow adequate preparation and additional fees are paid by the client at our regular rates for such appearances and the preparation necessitated thereby.

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This report is made for the information and/or guidance of the client, and possession of this report, or a copy thereof, does not carry with it a right of publication. Neither all nor any part of the contents of this report shall be conveyed to the public through advertising, public relations, news, sales or other media without the written consent and approval of the appraisers. Nor shall the appraisers, firm or professional organization of which the appraisers are members be identified without the written consent of Ward Levy Appraisal Group, Inc.

It is suggested that those who possess this appraisal report should not give copies to others. Legal advice should be obtained on potential liability issues before this is done. Anyone who gives out an incomplete or altered copy of the appraisal report (including all attachments), does so at his/her own risk and assumes complete liability for any harm caused by giving out an incomplete or altered copy. Neither the appraisers nor Ward Levy Appraisal Group, Inc. assumes any liability for harm caused by reliance upon an incomplete or altered copy of the appraisal report given out by others.

Values and conclusions for various components of the subject property as contained within this report are valid only when making a summation; they are not to be used independently for any purpose and must be considered invalid if so used.

The Americans with Disabilities Act became effective January 26, 1992. Ward Levy Appraisal Group, Inc. has not made a specific compliance survey and analysis of the subject property to determine whether or not any improvements which are located on the land conform with the detailed requirements of the Act. It is possible that a compliance survey of the property could reveal that some or all of the improvements are not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of the Act in estimating the value of the property.

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DEFINITIONS

The following definitions have been taken from the Uniform Standards of Professional Appraisal Practice (USPAP), The Appraisal of Real Estate, Twelfth Edition (2001), The Dictionary of Real Estate Appraisal, Third Edition (1993), OCC, 12 CFR, Part 34, Subpart C-Appraisals 34.42 Definitions (g) and other sources considered relevant:

As Is Value: Market value as is as of the appraisal date is defined as an estimate of the market value of the subject property in the condition observed upon inspection, and as it physically and legally exists without hypothetical conditions, assumptions or qualifications as of the date the appraisal is prepared.

Cash Equivalent: A price expressed in terms of cash, as distinguished from a price expressed totally or partly in terms of the face amounts of notes or other securities that cannot be sold at their face amounts.

Contract Rent: The actual rental income specified in a lease.

Exposure Time: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market.

Extraordinary Assumptions: An assumption, directly related to the specific assignment, which if found to be false, could alter the appraisers’ opinions or conclusions.

Fee Simple Interest: 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.

Floor Area Ratio (FAR): The relationship between the rentable area of a building and the usable site area (also called the building-to-land ratio).

Full Service Lease: The lessor pays for all operating expenses. Generally, the lessee pays for increases in base year operating expenses only.

Going Concern: The market value of the going concern is the value of a proven property operation. It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. The going concern includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment and marketing operation. This process creates an economically viable business that is expected to continue. The market value of the going concern refers to the total value of all the property assets, including real property, FF&E and intangible personal property attributed to business value.

Gross Lease: The lessor pays for real property taxes, insurance, common area maintenance and management. The lessee pays for utilities and janitorial. Generally, water, sewer and common area utilities are paid for by the lessor.

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Highest and Best Use: The reasonably probable and legal use of vacant land or an improved property that is physically possible, legally permissible, appropriately supported, financially feasible and results in the highest value.

Hypothetical Condition: That which is contrary to what exists, but is supposed for the purpose of analysis. Hypothetical conditions assume as fact otherwise uncertain information about physical, legal or economic characteristics of the subject property or about conditions external to the property, such as market conditions or trends, or the integrity of data used in the analysis.

Hypothetical Value As Proposed or Complete: The market value of a real property interest as proposed or completed assuming its physical completion as of the effective date of value.

Leased Fee Interest: The right of a landlord to convey the use and occupancy rights of a fee simple estate to others through the use of a lease agreement. The leased fee estate retains the right to receive rental income during the term of occupancy or use by the tenant, and the right of repossession at the termination of the lease agreement. The leased fee estate is a partial or fractional interest of the fee simple estate.

Leasehold Interest: The interest held by the lessee (the tenant or renter) through a lease transferring the rights of use and occupancy for a stated term under certain conditions.

Market Value: The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

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

1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and, 5. the price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Market Rent: The rental income that a property would probably command in the open market, indicated by the current rents that are either paid or asked for comparable space as of the date of the appraisal.

Marketing Time: The time it might take to sell an interest in real property at its estimated market value during the period immediately after the effective date of the appraisal. It is the anticipated time required to expose the property to a pool of prospective purchasers and to allow appropriate time for negotiations, the exercise of due diligence and the consummation of a sale at a price supportable by current market conditions.

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Prospective Value As Proposed or Complete: The market value of a real property interest as of the projected date of completion or stabilization.

Triple Net Lease: The lessor pays for management expenses only. The lessee pays for real property taxes, insurance, common area maintenance, utilities and janitorial. Some net leases require the lessee to pay for management expenses as well.

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REGIONAL MAP

Subject

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COUNTY MAP

Subject

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CITY MAP

Subject

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AREA ANALYSIS

Sonoma County

Geography: The subject property is located within the incorporated area of the City of Santa Rosa in Sonoma County, California. Sonoma County is the northernmost of the nine San Francisco Bay Area counties, comprised of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano and Sonoma, all of which form a physical, social and economic entity and a geographic area of approximately 4.4 million acres of land, of which approximately 5.5% is available for development.

Encompassing an area of 1,768 square miles (consisting of land at 1,576 square miles and water at 192 square miles), Sonoma County ranks twenty-eighth in size out of fifty-eight counties in the State of California and has the largest land area of any Bay Area county, with the second smallest ratio (trailing only Napa) of land already developed to total land area. Between 2000 and 2010, an annual average of 677 acres was developed in Sonoma County. There are nine incorporated cities in Sonoma County. Santa Rosa, the County Seat and located approximately fifty miles north of the Golden Gate, is the largest Bay Area city north of San Francisco with a 2016 population of 175,667, according to the California Department of Finance.

Linkages: Sonoma County is linked to the Bay Area by U.S. Highway 101 and State Highway 12. U.S. Highway 101 runs the length of California north to south and connects Sonoma County to Marin County on the south and to Mendocino County on the north. According to the California Department of Transportation, average daily traffic counts range from 15,900 vehicles on the northern end of the county to 162,000 vehicles at Baker Avenue in Santa Rosa. State Highway 12 runs west to east from Sebastopol to Napa County and beyond, and has average daily traffic counts as low as 6,100 vehicles near the junction of State Highway 121 and as high as 80,000 near the intersection with U.S. Highway 101. Driving time to San Francisco is about one hour, and to Sacramento is about two hours.

The area is served by a public transit system that consists of local (Santa Rosa CityBus), county (Sonoma County Transit) and regional (Golden Gate Transit) systems. The Greyhound Bus Line operates a state and national connection in Santa Rosa. There is no current rail transport, although Amtrak passenger service is available via the Throughway Service (bus) to Martinez, and the SMART commuter train (described later) is set to begin in late 2016. Bus transportation to and from both Oakland and San Francisco airport terminals operates at a minimum of once every two hours from Santa Rosa, Rohnert Park and Petaluma.

The Sonoma County Airport (STS) is located just to the north of Santa Rosa and is the largest commercial airport in the vicinity. The 2010 remodel of the terminal helped to increase air passenger traffic and the 227,998 passengers that flew in and out of STS in 2013 set a new record and was an increase of 6.6% over the 213,917 passengers in 2012, according to Alaska Airlines, the parent company of Horizon air which serves the Sonoma County Airport. In 2014, the passenger count increased 4.5% from 2013, and 20% from 2009 when the airline industry took a hit during the recession. Horizon Air of Seattle has been serving the airport since 2007 and has daily flights to and from Los Angeles, Seattle, Portland, San Diego and Orange County. Horizon Air considers the Sonoma County market to be so successful (141% growth since 2007) that the company took over its ground operations for its current eight daily roundtrip flights. In

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May 2016, Allegiant Air began service at the airport, traveling to Las Vegas and Phoenix with flights on Thursdays and Sundays.

Sonoma County approved an $84 million expansion project in January 2012 that would extend the main runway by 885 feet to 6,000 feet, and the second runway by 200 feet to 5,202 feet, allowing mid-size commercial jets to land. Work began in September 2013 and was completed in October 2014. In addition, the airport’s 20-year master plan includes $50 million in upgrades such as a new passenger terminal, cargo terminal and traffic control tower. The new passenger terminal is expected to be completed in 2021.

The following chart shows the growth in annual passengers at the Sonoma County Airport since 2007 when Horizon Air commenced service.

Sonoma County Airport Passenger Count 300,000

250,000

200,000 In Passengers

150,000 Out Passengers 100,000 Total Passengers 50,000

Sources: Sonoma County Airport, Alaska Airlines and Ward Levy Appraisal Group, Inc.; July 2016

On November 2, 2004, the voters of Sonoma County approved Measure M, a new 1/4 cent sales tax that would collect $470 million for transportation improvements over the next 20 years. This tax includes $188 million for expansion and widening of U.S. Highway 101, $47 million for buses, $23 million for rail, $19 million for bicycle and pedestrian improvements and $188 million for other road improvements. U.S. Highway 101 has been undergoing construction to widen the freeway since 2002. Construction is ongoing in Petaluma, and when completed, there will be a continuous HOV lane in each direction from the southern border of Sonoma County to Windsor.

Several highway projects begun in 2012 have been completed or are still in progress. This includes the Airport Boulevard overpass at U.S. Highway 101, completed in May 2014, improving access to the Sonoma County Airport and the Airport Business Center. A $123 million project to create a new interchange and frontage roads at Petaluma Boulevard South as well as replacing the bridge over the Petaluma River is still in progress.

Sonoma Marin Area Rail Transit (SMART) is in the process of building a commuter rail line in the North Bay. Originally designed to run from Cloverdale in Northern Sonoma County to Larkspur in Southern Marin County, the plan was modified to build an initial line of 38.5 miles

16-193-42 Page 28 of 191 3313 Chanate Road, Santa Rosa from Guerneville Road in Santa Rosa to the Marin Civic Center in San Rafael in Marin County, with extensions delayed to Cloverdale and Larkspur and points between because of the economy. However, in December 2013, SMART announced that the Metropolitan Transportation Commission had approved $16.7 million in funds to extend rail service and establish a passenger rail station at the Sonoma County Airport. Completion of the southern end of the rail line, connecting it to the Larkspur ferry terminal, is planned by 2018. Extending the line to Cloverdale is planned for a later date. On-track testing has begun and passenger service is expected to begin in late 2016.

Economy: Sonoma County ranks sixth among the nine-county Bay Area in terms of labor force supply, and accounts for 6.4% of the regional force, according to information provided by the California Employment Development Department. Although agriculture remains an important factor in the traditionally agrarian based economy, retail trade, service industries and manufacturing currently represent approximately 78% of the private sector jobs.

Sonoma County Major Employers Current Year-Ago Employer Location Industry Employees Employees Gain / Loss County of Sonoma Santa Rosa County Government 4,058 4,130 -72 Kaiser Permanente Santa Rosa, Petaluma Medical Services 2,640 2,555 85 Graton Resort & Casino Rohnert Park Casino 2,000 2,000 0 Santa Rosa Junior College Santa Rosa, Petaluma Education 1,981 1,721 260 Sutter Medical Center Santa Rosa Medical Services 1,797 1,797 0 St. Joseph Health System Santa Rosa Medical Services 1,578 1,740 -162 Santa Rosa School District Santa Rosa Education 1,502 1,441 61 Keysight Technologies/Agilent Santa Rosa Technology 1,300 1,200 100 City of Santa Rosa Santa Rosa City Government 1,250 1,220 30 Sonoma State University Rohnert Park Education 1,184 1,263 -79 Petaluma School District Petaluma Education 880 917 -37 Amy’s Kitchen Santa Rosa Food Mfg. 870 870 0 Medtronic, AVE Santa Rosa Medical Devices 840 840 0 Jackson Family Wines Santa Rosa Winery 800 640 160 Lagunitas Brewing Company Petaluma Brewery 684 270 414 Hansel Auto Group Petaluma Automobile Sales 605 570 35 AT&T Santa Rosa Telecommunications 600 600 0 Petaluma Poultry Processors Petaluma Poultry Processor 600 475 125 Cotati-Rohnert Park School District Rohnert Park, Cotati School 560 514 46 River Rock Entertainment Healdsburg Casino 500 500 0 Petaluma Valley Hospital Petaluma Hospital 481 490 -9 Ghilotti Construction Company Santa Rosa General Engineering 425 425 0 Exchange Bank Santa Rosa Bank 400 400 0 JDS Uniphase Santa Rosa Optical Innovations 400 400 0 Redwood Credit Union Santa Rosa Financial Services 382 322 60 Sonoma Media Investments Santa Rosa Newspaper 335 261 74 Sources: North Bay Business Journal, Comprehensive Annual Financial Reports (Sonoma County and Cities of Petaluma, Rohnert Park and Santa Rosa) and Ward Levy Appraisal Group, Inc.; July 2016

The technology-based industries were the most important driving industries in the county in the 1990's. Employment in information technology, including computer programming and data processing, as well as the manufacture of electronics, telecom equipment and optical goods, had

16-193-42 Page 29 of 191 3313 Chanate Road, Santa Rosa soared over the latter part of the decade, but has since waned as approximately 5,500 jobs have been lost in this sector. Equally important, however, is the balanced nature of the county’s growth. Wine & food, tourism and other professional services have generated healthy employment gains, and the income growth seen throughout Northern California has in turn boosted retail trade.

The third consecutive year of drought had an impact on the crops produced in Sonoma County in 2014. For example, field crops, including hay, silage and straw, rely almost exclusively on rainfall. According to the latest crop report published for 2014 by the County of Sonoma, the 2014 field crop value of $4,028,900 represented a decline of 44.7% over the 2013 value of $7,285,100. While some ranchers reduced their herd size to what they could afford to feed, the actual number of head increased in 2014, but the increase in prices at market for livestock and poultry production resulted in an overall increase of 39%, from $181,650,300 in 2013 to $253,153,200 in 2014.

Wine grapes lead in agricultural production in Sonoma County with over 62,000 acres devoted to vineyards. The total gross value of the wine grape crop in 2014 was $592,798,000, a decrease of 2% over the 2013 wine crop, which was the largest wine grape crop in Sonoma County history. Wine grapes represent 66% of the total agricultural production in Sonoma County. Milk production was a distant second, producing over $109,540,900 in gross revenue in 2014, an increase of 23% over 2013 figures and representing 12.2% of total agricultural production.

Gravenstein apples, brought by Russian settlers in 1812 and the first apple variety planted in Northern California, were a mainstay of agricultural production in Sonoma County for many decades. In the last 30 years, apple producing acreage has fallen precipitously in favor of housing developments and wine grape production. Whereas in 1958 there were 5,449 acres devoted to Gravensteins alone, there were only 467 acres in 2013. That number climbed to 732 acres in 2014. Total apple production encompassed 2,320 acres in Sonoma County in 2014, compared to a 2013 total of 2,155 acres. The 2014 total apple crop value of $3,411,900 represents a 42% decline from 2013, mainly as a result of a mild winter with inadequate chill hours to set flower buds.

Total agricultural production was $899,015,400 in 2014, an increase of 6% over the 2013 figure of $848,323,400.

Tourism plays an increasingly important role in Sonoma County's economic profile. Long famous for its spectacular Pacific coastline, scenic Russian River area and historic Valley of the Moon, the county is now attracting more than 7,500,000 visitors annually, primarily to its wineries which have gained national and international recognition for their premium wine production and bucolic settings, especially given that Sonoma County wines have a competitive advantage over Napa County wines in terms of affordability. Excluding the wine industry, the four major pull attractions in Sonoma County are scenery, culinary offerings, outdoor recreation and the craft beer, cider and spirits industry, with niche opportunities of cycling, ag-tourism and a gay-lesbian friendly market.

Tourism in Sonoma County declined less severely than the economy as a whole during the Great Recession. And in the current recovery period, Sonoma County has experienced relatively modest growth with definite improvement seen in the industry over the past year. According to

16-193-42 Page 30 of 191 3313 Chanate Road, Santa Rosa the 2015 Sonoma County Tourism Report for 2014, transient Occupancy Tax (TOT) receipts totaled $27.5 Million in 2014 after adjusting for inflation. This is the highest level of TOT receipts ever received in Sonoma County, and 36% higher than 2008’s figure of $20.29 Million. Total visitor spending in 2014 was $1.64 Billion, an increase of 2.5% over the previous year. 2014 was the fifth year that Sonoma County tourism has experienced growth since the economic downtown. According to the Sonoma County Annual Tourism Report, leisure/hospitality will be a major driver of Sonoma County’s continuing recovery and expansion of the tourism industry.

Included in the table below are the taxable retail sales per capita for Sonoma County and its incorporated areas for 2013, the last year in which annual data is available. As shown in the table, Healdsburg, Cotati and Sonoma capture a significantly higher proportion of sales per capita than the other areas in the county. This is probably due to high tourism dollars in Healdsburg and Sonoma, and Cotati’s location near Sonoma State University and its large student population.

Taxable Retail Sales Per Capita County/City Retail Sales (1,000’s) 2014 Population Sales Per Capita Sonoma County $5,618,188 490,486 $11,454 Cloverdale $56,234 8,641 $6,508 Cotati $145,143 7,288 $19,915 Healdsburg $242,033 11,541 $20,972 Petaluma $808,202 59,000 $13,698 Rohnert Park $538,307 40,722 $13,219 Santa Rosa $2,401,094 170,236 $14,105 Sebastopol $119,704 7,440 $16,089 Sonoma $209,143 10,801 $19,363 Windsor $233,452 27,104 $8,613 Note: Taxable retail sales figures are for Calendar Year 2013 and population is for 2014. Sources: California State Board of Equalization, U.S. Department of Commerce and Ward Levy Appraisal Group, Inc.; July 2016

Employment: Sonoma County’s unemployment rate is relatively low compared to the region and state, but the local labor market began to soften as companies laid off workers in the early 2000's from high tech businesses following rapid expansions in the late 1990's. Unemployment declined between 2004 and 2006, with a 2006 year-end average of 4.0%. However, as unemployment began to rise across the country in 2007 because of the recession, it rose in Sonoma County as well, due in part to the laying off of workers within real estate related business services such as mortgage companies. By the end of 2008 unemployment had reached 7.2%.

From 2009 through 2010, unemployment continued to rise, reaching double digits and a high of 11.4% by January 2010. It began dropping throughout 2011 and 2012 and was at 8.0% by December 2012. In January 2013, unemployment in Sonoma County rose slightly to 8.5%, but by December had dropped to 6.0%. In January 2014 the unemployment rate rose to 6.4%, but dropped to 4.9% by year’s end. It rose slightly to 5.3% in January 2015 before falling to 4.3% by April. By July, it had risen to 4.7% before dropping to 4.0% in September. By November, it had risen slightly to 4.3%, then fell to 4.1% in February 2016 before falling further to 3.5% in May, the lowest it's been since 2007, and a drop of 67% from the high of 11.5% in January 2010.

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A rate of 4.3% was reported in May 2015. Sonoma County ranked seventh among 58 California counties in unemployment, and added 1,200 jobs between April and May, while gaining about 3,300 positions since the same time last year.

The chart below shows the available labor force and the numbers employed in Sonoma County with county unemployment statistics in green. Information in the chart has been averaged for each year through December except 2016 which is through May. Information is provided by the California Employment Development Department.

Sonoma County Employment 270,000 30,000

260,000 25,000 250,000 Unemployment 20,000 240,000 15,000 Labor Force 230,000 10,000 220,000 Employment

210,000 5,000

200,000 -

All years through December except 2016 which is through May. Sources: California Employment Development Department and Ward Levy Appraisal Group, Inc.; July 2016

The following chart shows the comparison in unemployment rates in Sonoma County, the State of California and the U.S. over the past 17 years.

Sonoma County Unemployment Rates 14%

12%

10% U.S.

8% California 6%

4% Sonoma County 2%

All years through December except 2016 which is through May. Sources: California Employment Development Department and Ward Levy Appraisal Group, Inc.; July 2016

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Construction: Commercial production has roughly paralleled the economy, as expected, with the peak during the late 1990's. The economy recovered from the previous recession with increased development in 2003 with 2,339 residential permits, decreased in 2004 to 1,941 permits, and increased again in 2005 to 3,003 permits. In 2006 through 2008, development slowed as the economy again fell into a recession. In 2009, permit activity for single-family and multi-family construction was at 430, the lowest it's been in over 15 years due to the vast drop in housing prices. Permit activity for single-family homes slowed even more in 2010 while multi- family activity increased by more than double over 2009. As the economy began to recover from the Great Recession, construction and permit activity picked up in 2013 with 1,027 residential permits issued, a 72% increase over the previous year. However, in 2014, 506 residential permits were issued, a drop of 51% over 2013. The number of residential permits fell 13% lower in 2015 to 442. In 2016, 363 residential permits have been issued so far through May.

In 2006, non-residential construction valuation was at an all-time high at ~$228,091,000. It slipped 5% to ~$217,552,000 the following year, and continued to fall to a low of $68,580,000 in 2009 as a result of the recession. It began rising in 2010 and continued through 2015, reaching $152,168,105 by year’s end. In 2016, the total non-residential construction valuation thru May was $57,566,367.

Information through 2011 was provided by the Construction Industry Research Board (CIRB) which ceased operations in January 2012. California Homebuilding Foundation took over the compilation of permit data in early 2012; however, it appears that the methodology used to compile information is slightly different from that used by the CIRB.

Sonoma County Residential Permits and Non-Residential Construction Valuation 3,500 $300,000 Non-Residential 3,000 Construction $250,000 Valuation 2,500 ($1,000) $200,000 Single-Family 2,000 Permits $150,000 1,500 $100,000 Multi-Family 1,000 Permits

500 $50,000 Total Permits 0 $-

All years through December. Sources: Construction Industry Research Board (through 2011), California Homebuilding Foundation (2012 and forward) and Ward Levy Appraisal Group, Inc.; July 2016

Residential Market: The median single-family home price in Sonoma County did not change measurably during most of the 1990's as the economy fluctuated and supply kept even with demand. In 2005, the overall median home price had risen to $550,000, its highest year-ending point in history, but with the fall in real estate prices experienced nationwide, it was at $290,000 by February 2009, a drop of 47%. Prices fluctuated slightly from 2009 through the first half of

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2012, but by the Fall of 2012, prices began to stabilize and even rise, ending the year at $357,500. The 6,085 homes sold in 2012 was an increase of 13% over the 5,386 homes sold in 2011, leading analysts to believe that the fence-sitters were beginning to take advantage of the low prices and low mortgage rates. The annual median price for 2014 was $455,000 for 5,279 homes sold. 6% fewer homes sold in 2014 than in 2013, but the overall median price was 11% higher in 2014. In 2015, 5,481 homes sold for an overall median price of $500,000, 10% higher than the 2014 median price. Through June 2016, 2,380 homes have sold for a median price of $540,000, which is 10% higher than the median price of $493,000 through June 2015, although the number of homes sold is 5% lower than the 2,515 homes sold through the same period in 2015.

The median detached home price reached a high of $618,450 in August 2005, but by January 2009 had fallen 49% to $315,000. The detached price remained flat on average through to the first half of 2012 and only began to rise in October 2012, reaching $390,000 by December for 381 homes sold. In 2013, the annual detached median price was $430,000 for 4,921 homes. In 2014, 4,677 homes sold for a median price of $484,000, which was 13% higher than the median price in 2013, but represented 5% less homes sold from the previous year. 4,805 detached homes sold in 2015 for an overall median price of $529,000, 9% higher than the 2014 median price. In June 2016, 423 detached homes sold for a median price of $610,050. The June 2016 median detached price is 17% higher than the June 2015 price of $521,000, although the 423 detached homes sold is 16% lower than the 504 homes sold in June 2015.

In October 2005, the median attached home price had reached a high of $394,000, but by February 2009, it had fallen 65% to $139,500. During the next few years, the median price fluctuated, but remained at historic lows until late 2012 when they began climbing again. While the market is still experiencing small fluctuations in price, this is mainly due to the location, quality and size of the individual units and overall, prices are reaching new highs after the slump during the recession. In 2014, 602 attached homes sold for a median price of $265,000. 676 attached homes sold in 2015 for a median price of $295,000. The latest figures for 2016 show that the median attached home price of $320,000 for 316 homes sold through June has risen 10% from the median price of $290,000 through June 2015, although the 316 attached homes sold represent a slight decrease from the 326 attached homes sold through June 2015.

The following table provides a comparison of median Sonoma County home prices over the last 21 years.

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Sonoma County Median Home Prices $700,000

$600,000 All Single- $500,000 Family $400,000 Detached $300,000

$200,000 Attached $100,000

All years are annual except 2016 which is through June. Sources: Sonoma County Multiple Listing Service and Ward Levy Appraisal Group, Inc.; July 2016

Economic Forecast: An economic outlook was prepared by the UCLA Anderson Forecast for The Press Democrat, the county’s largest newspaper, in September 2008 that forecast below historical growth for California’s economy. Later that year, the National Bureau of Economic Research declared that the U.S. had been in a recession since late 2007, confirming what many had already suspected. Private forecasters were also predicting that the recession would be prolonged and that there were no signs that the national economy was nearing the bottom. California’s economy was projected to be weaker than the nation as a whole as its downward spiraling real estate market was more severe than the majority of other states.

In its fourth quarterly report of 2013, UCLA Anderson Senior Economist Jerry Nickelsburg asserted that California had just about recovered all jobs lost during the recent recession. Jobs had declined by 1.065 million, but rebounded by 1.044 million through October 2013. However, payroll jobs alone recovered only a portion of this, suggesting that Californians were creating their own jobs by starting new enterprises at faster rates than established businesses were hiring.

In January 2015, Mr. Nickelsburg stated that Sonoma County employment levels were fully recovered from the recession, and further stated that unemployment could fall below 4% in the Bay Area within the next two years. The U.S. economy is slowly moving toward full employment with California coastal communities like Sonoma County leading the way. Sonoma County’s local economy has benefitted greatly from strong growth in technology manufacturers and companies that produce wine, beer and specialty food products. According to the Sonoma County Economic Development Board’s economic indicators report for 2015, the county had the fourth-highest number of businesses among comparable counties, indicating strong economic activity. Tourism, a critical element of the economy in Sonoma County, is also showing strength. Hotel occupancy rates rose by 6.5% in 2014, while transit occupancy tax revenues increased by $1.14 million. In 2014, tourism brought in $100 million in tax revenues and now accounts for 10% of the county’s jobs.

Demography: According to information from the California Department of Finance, Sonoma County is the seventeenth most populous county in the state with a 2016 population of 501,959. From 1950 to 1980 the county's population tripled. Almost half of that growth occurred in the 1970's, during which time period the county experienced a 46.3% population increase as

16-193-42 Page 35 of 191 3313 Chanate Road, Santa Rosa compared with an increase of only 11.9% for the San Francisco Bay Area, 18.5% for the State of California and 11.4% for the nation as a whole.

The 2010 U.S. Census population data for the county indicated a 5.5% increase in population for Sonoma County over the last decade, a relatively low rate compared to both California at 10.0% and the U.S. as a whole at 9.7%, and much lower than the 18.1% increase from the previous decade or the 29.5% increase in the 1980's. The total increase in county population in the 1980's was approximately 88,000, and the 1990's increase in population was 70,000 while 2010 saw a much lower increase of 25,000. The county's population during the twenty year period from 2010 to 2030 is expected to increase by 17% while the number of households is projected to increase by 19%. Over the next ten years the population is predicted to slow in growth in contrast to the higher growth rates of the previous decades.

There is an average of 2.58 persons per household with a median household income of $63,799 and a median age of 40.5, according to the 2010-2014 American Community Survey five year estimates from the U.S. Census. Sonoma County has fewer people per household (relative to California’s average of 2.95 persons) with an older median age (compared to the state average of 35.6 years) and a higher household income than the state as a whole ($61,489).

The following chart details the population growth patterns since 1950 of Sonoma County and its four largest cities.

Sonoma County Population Growth 600,000 Sonoma 500,000 County

400,000 Santa Rosa

300,000 Petaluma

200,000 Rohnert Park 100,000 Windsor -

Rohnert Park incorporated in 1962. Windsor incorporated in 1992. Sources: U.S. Dept. of Commerce, California Dept. of Finance and Ward Levy Appraisal Group, Inc.; July 2016

The following table details the growth patterns since 1980 of Sonoma County and the cities within the county.

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Population of Sonoma County and Cities Percent Percent Percent Change Change Change 1990 - 2000 - 2015 - 1980 1990 2000 2010 2015 2016 2000 2010 2016 Sonoma County 299,681 388,222 458,614 483,878 499,352 501,959 18.1% 5.5% 0.5% Cloverdale 3,989 4,924 6,831 8,618 8,799 8,825 38.7% 26.2% 0.3% Cotati 3,346 5,714 6,471 7,265 7,144 7,153 13.2% 12.3% 0.1% Healdsburg 7,217 9,469 10,722 11,254 11,667 11,699 13.2% 5.0% 0.3% Petaluma 33,834 43,184 54,548 57,941 59,934 60,375 26.3% 6.2% 0.7% Rohnert Park 22,965 36,326 42,236 40,971 41,797 42,003 16.3% -3.0% 0.5% Santa Rosa 82,658 113,313 147,595 167,815 174,475 175,667 30.3% 13.7% 0.7% Sebastopol 5,595 7,004 7,774 7,379 7,502 7,527 11.0% -5.1% 0.3% Sonoma 6,054 8,121 9,128 10,648 10,826 10,865 12.4% 16.7% 0.4% Windsor N/A N/A 22,744 26,801 26,961 27,031 N/A 17.8% 0.3% Unincorporated* 134,023 160,167 150,565 145,186 150,247 150,814 -6.0% -3.6% 0.4% * Included Town of Windsor until incorporation July 1, 1992 Sources: U.S. Dept. of Commerce, California Dept. of Finance and Ward Levy Appraisal Group, Inc.; July 2016

As indicated by the preceding population chart, Sonoma County's major population growth has been concentrated in the three cities of Cloverdale, Windsor and Sonoma. Santa Rosa’s growth rate has slowed since the 1990’s, falling from a 30.3% growth rate to 13.7% in the past decade. Santa Rosa's and Sonoma County's overall populations are both slightly older than the general population, primarily due to the large number of persons 65 or older who are attracted to the area.

City of Santa Rosa

Geography: The City of Santa Rosa, with a current area of 41.50 square miles, is located in the approximate geographic center of the county on the Santa Rosa Plain. The city is served by two major highways: U.S. Highway 101 bisects the city in a north/south direction and State Highway 12 runs in an east/west direction. Local bus service is provided by Santa Rosa CityBus and regional service is provided by Sonoma County Transit and Golden Gate Transit systems. Air service is provided by Horizon Air of Seattle which commenced service in March 2007.

Linkages: Widening of U.S. Highway 101 to six lanes has been completed on the section located within Santa Rosa city limits. A pedestrian bridge over U.S. Highway 101, linking Santa Rosa Junior College with Coddingtown Mall and its recently opened Whole Foods Market, has been in discussion, but may be years away from realization. In the same neighborhood, construction of a SMART rail station planned near Guerneville Road is due to begin. This will be the second most northern station for the SMART train for the time being, the northernmost being located at the Sonoma County Airport.

The rebuilding of Sixth Street, which had been buried under U.S. Highway 101 for five decades, was scheduled for completion by 2011, but had been delayed because of budgetary constraints. Construction was restarted in May 2012 and completed in August 2012. The new section of street has signals at both ends, wide sidewalks, decorative lamp posts, landscaping and bike lanes in each direction. And more importantly, it reunites the east and west sides of downtown Santa Rosa.

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In May 2016, construction began on the reunification of Old Courthouse Square in the center of downtown Santa Rosa. Divided in half by Mendocino Avenue in the 1960’s after the old courthouse was torn down, plans are to tear out the roadway in the middle, and add streets on the west and east sides to create a unified plaza in the center. With the closing of a major thoroughfare through the city, it remains to be seen what the traffic impacts will be. The project is estimated to cost $9.2 million and is expected to be complete by the end of 2016.

Employment: Santa Rosa has consistently been at the upper-middle of the range of unemployment rates within Sonoma County, as would be expected by the largest city and County Seat. The lowest rate of 2.8% occurred during the high technology boom of 1999 - 2000. However, the unemployment rate had increased to an annual average of 5.4% by 2003. By 2006 it had dropped to a low of 3.7%. It began climbing again in 2007 as a result of the most recent recession, and reached a high of 12.7% in January 2010. However, it began dropping in April and was at 8.9% by December 2012. One year later, it dropped to 6.7%, and year-end 2014 saw a further drop to 5.4%. In January 2015, the unemployment rate rose to 5.9%, but fell to 4.8% by April. The unemployment rate began rising over the next three months and reached 5.3% by July before dropping 4.4% in September. By November, it had risen to 4.8% where it remained through December before falling to 4.6% in February 2016. In May, it fell further to 3.9%, the lowest it’s been since 2007, and a drop of 67% from the high of 11.8% in January 2010. A rate of 4.8% was reported in May 2015.

Information in the table below has been averaged for each year through December except 2016 which is through May.

Santa Rosa Unemployment Rates 14%

12% California 10%

8% Sonoma 6% County 4%

2% Santa Rosa

All years averaged through December except 2016 which is through May. Sources: California Employment Development Department and Ward Levy Appraisal Group, Inc.; July 2016

Construction: An Urban Growth Boundary (UGB) referendum was passed by the voters in November 1996. The UGB referendum will not allow the extension of the city services to areas outside the UGB line (with some limited exceptions) without an affirmative vote of the electorate for a period of 20 years. The UGB line is the same as the LAFCO adopted Sphere of Influence and allows for some expansion of city limits without voter approval.

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Residential construction activity in Sonoma County in general and Santa Rosa in particular, was strong during the mid to late 1980's with a significant downturn during the early to mid-1990's. Permit activity increased in the subsequent years, primarily reflecting the new construction within the southeast and southwest quadrants. There was also renewed demand in both the detached single-family and apartment markets from 1998 through 2001. Construction decreased significantly in 2008 due to the most recent recession and the downturn in housing prices, and in 2009 the lowest permit activity in over 15 years was recorded. It began to rise over the next four years, and 2013 saw the issuance of 484 residential permits. The number of permits fell by 48% in 2014 with 250 residential building permits, and dropped another 51% in 2015 with 122 permits. Through May 2016, 165 residential permits have been issued.

In 2005, non-residential construction valuation was at a high of $76,634,000, but fell 71% to $22,253,000 by 2009. It rose over the next few years to $42,199,892 in 2014, and then rose to $60,662,166 in 2015. In 2016, the total non-residential construction valuation through May is $15,846,542.

Santa Rosa Residential Permits and Non-Residential Construction Valuation 2,000 $100,000 Non-Residential $80,000 Construction 1,500 Valuation ($1,000)

$60,000 Single-Family Permits 1,000 $40,000 Multi-Family 500 Permits $20,000

0 $- Total Permits

All years through December. Sources: Construction Industry Research Board (through 2011), California Homebuilding Foundation (2012 and forward) and Ward Levy Appraisal Group, Inc.; July 2016

Residential Market: Santa Rosa’s median home prices have been consistently below the Sonoma County median due to its inclusion of more affordable and higher density housing in its new developments. With the fall in real estate prices experienced nationwide, the overall median price had dropped 56% from a high of $565,000 in November 2005 to $250,000 by February 2009. It fluctuated through the rest of 2009 through 2011, but began to rise in early 2012. It continued a steady uptick through 2012 and into 2013, and in 2014, the overall annual median price was $420,000 for 2,002 homes sold. 3% fewer homes sold in 2014 than in 2013, but the overall median price was 13% higher in 2014. Through December 2015, 2,101 homes have sold

16-193-42 Page 39 of 191 3313 Chanate Road, Santa Rosa for a median price of $460,000. 863 homes have sold through June 2016 for an overall median of $495,121, which is 9% higher than the overall median of $454,000 through June 2015.

The median detached price was at a high of $585,000 in September 2005, but by February 2009, it had fallen 54% to $270,000. After rising to a high of $340,500 in December 2009, it fell once again in December 2011 to $272,500. In 2012, the median detached price began climbing once again and 2,030 detached homes were sold during the year, showing an increase of 11% over the 1,819 homes sold in 2011, proving that buyers were sensing that a bottom might have been reached in the market. Prices continued to climb in 2012, by December 2014, the median price was $454,500 for 142 detached homes. 1,716 detached homes sold through December for an annual median price of $440,000, which is 4% less than the 1,786 homes that sold through December 2013, although is 12% higher than the 2013 median price of $391,750. In 2015, 1,839 detached homes sold for a median price of $483,000. 736 detached homes have sold through June 2016 for a median of $525,000. The current median price represents a 94% increase over the low of $270,000 in February 2009, and a 9% increase over the median of $480,000 through June 2015. Prior to this year, the last time the median price was over $500,000 was in August 2007.

The median attached home price had reached an all-time high of $398,900 in September 2005, but by February 2009 had fallen 69% to $123,500. It fluctuated wildly over the next few years, but by January 2012, it had fallen to a new low of $112,000. The median price slowly climbed through the rest of 2012 and into 2013. In 2013, 271 attached homes sold for a median price of $208,000. 286 attached homes sold in 2014 for a median price of $250,000. 262 attached homes sold in 2015 for a median price of $287,000. Through June 2016, 127 attached homes have sold for a median of $295,000.

The following table provides a comparison of median Santa Rosa home prices over the last 21 years.

Santa Rosa Median Home Prices $600,000

$500,000 All Single- $400,000 Family

$300,000 Detached

$200,000

$100,000 Attached

All years are annual except 2016 which is through June. Sources: Sonoma County Multiple Listing Service and Ward Levy Appraisal Group, Inc.; July 2016

Demography: Although Cloverdale has been Sonoma County's fastest growing city in the past two decades, Santa Rosa, the county's largest city, has had the greatest numerical increase in

16-193-42 Page 40 of 191 3313 Chanate Road, Santa Rosa population. The city experienced 66% growth between 1970 and 1980, 37% growth between 1980 and 1990 and 30% growth between 1990 and 2000, showing a decreasing growth rate in each successive decade. The 2016 city population estimate of 175,667 shows a dramatically lower growth rate of 19.0% over the 2000 population of 147,595.

There is an average of 2.65 persons per household with a median household income of $60,758 and a median age of 37.1, according to the 2010-2014 American Community Survey five year estimates from the U.S. Census. Santa Rosa has more people per household (relative to Sonoma County's average of 2.58 persons) with a lower median age (compared to the county average of 40.5 years) and a lower household income than the county as a whole ($63,799).

Conclusion

Sonoma County's ample supply of land available for development, the quality of its business parks and industrial areas, its large and well-educated growing work force, affordable housing in relation to other Bay Area counties, abundant recreational areas, moderate climate and aesthetic natural setting all contributed to the fact that it fared quite well in the recessionary economy of the 1990's.

The latest national recession reduced local employment, particularly in the manufacturing and construction sectors which was the impetus behind the growth in the residential, office and industrial sectors since 2000. Vacancies in the office and industrial sectors were relatively high, along with retail vacancy. Unemployment had reached an all-time high, but since 2011, figures have been dropping and there has been positive job growth. Tourism is strong and is expected to grow thanks to increased employment. Also contributing to tourism growth are the Sonoma County Airport’s recently extended runways which are expected to attract regional carriers with larger aircraft.

Homebuilding is on the rise again, although the number of permits issued in the past several years is still well below the numbers issued before 2006. Home prices have been increasing as well after dropping over 45% during the recession.

Sonoma County is projected to continue its growth with the wine industry and tourism as its strongest economic drivers. Manufacturing and construction, which were two of the hardest hit industries of the Great Recession, are once again experiencing growth and are expected to continue to expand along with improved regional and U.S. economic growth.

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MARKET ANALYSIS

The subject comprises land proposed for and analyzed with entitlements for development with a mixture of primarily multi- and single-family residences, along with ancillary retail and office space. Overviews of market conditions for all of these sectors have therefore been provided.

Multi-Family Residential Market Overview

Regional

The market for multi-family properties in the Bay Area has improved and vacancy levels have decreased substantially in the past few years. The subject is part of the larger Bay Area economy but while activity in the core markets in the East Bay, South Bay, San Francisco/Peninsula are, to a degree, indicators as to the direction of the subject market, North Bay market trends are somewhat different than those impacting the rest of the San Francisco Bay Area apartment market, mostly as a result of transportation issues.

Vacancy rates have overall decreased in the past several years in these core markets with increasing rental rates. However, apartment construction in San Francisco, and to a lesser extent in the East and South Bay, has significantly increased and the significant increasing rental rates have begun to level off as new projects come on-line.

The following table summarizes the data from the most recent Cushman & Wakefield (formerly Cassidy Turley and then briefly DTZ before merging with C&W) apartment survey, presenting Second Quarter 2016 results. The Bay Area category encompasses San Francisco, Alameda, Contra Costa, San Mateo and Santa Clara Counties as well as the North Bay Counties. Rents continued to grow to all-time peaks, while vacancy in every North Bay County declined from the previous quarter. However, vacancy in both Sonoma County and the Bay Area as a whole is still higher than it was approximately 12 to 18 months ago, with new construction being the biggest contributor.

San Francisco Bay Area and Sonoma County Apartment Market Data Sonoma County Marin County Napa County Solano County Bay Area Quarter Vacancy Change Avg. Rent % Change Vacancy Change Avg. Rent % Change Vacancy Change Avg. Rent % Change Vacancy Change Avg. Rent % Change Vacancy Change Avg. Rent % Change Q2-2016 3.7% -0.9% $1,782 2.1% 3.9% -0.3% $2,640 2.8% 3.8% -0.2% $1,888 3.6% 3.1% -0.8% $1,532 2.2% 4.2% 0.0% $2,552 2.8% Q1-2016 4.6% -1.5% $1,746 1.6% 4.2% -2.5% $2,569 0.5% 4.0% -0.1% $1,822 -0.7% 3.9% -0.7% $1,499 1.3% 4.2% -0.3% $2,482 1.2% Q4-2015 6.1% 1.6% $1,718 -0.1% 6.7% 2.6% $2,557 -1.0% 4.1% 0.4% $1,834 -2.4% 4.6% 1.5% $1,480 -0.5% 4.5% 0.3% $2,453 -1.2% Q3-2015 4.5% -0.6% $1,719 1.7% 4.1% -1.5% $2,583 2.5% 3.7% 0.1% $1,880 6.2% 3.1% 0.2% $1,488 4.4% 4.2% 0.1% $2,482 2.4% Q2-2015 5.1% 2.3% $1,690 4.8% 5.6% 0.1% $2,521 2.6% 3.6% 0.6% $1,771 4.8% 2.9% -0.3% $1,425 5.2% 4.1% 0.5% $2,423 4.6% Q1-2015 2.8% -0.1% $1,613 2.9% 5.5% 2.9% $2,456 3.2% 3.0% -0.1% $1,690 2.2% 3.2% -0.9% $1,355 3.4% 3.6% -0.4% $2,317 3.5% Q4-2014 2.9% 0.4% $1,567 -0.8% 2.6% 0.0% $2,380 2.2% 3.1% 0.0% $1,653 2.0% 4.1% -1.3% $1,310 1.7% 4.0% 0.1% $2,238 0.2% Q3-2014 2.5% -0.5% $1,579 3.8% 2.6% -0.2% $2,329 4.3% 3.1% 0.4% $1,620 3.8% 5.4% 1.5% $1,288 2.7% 3.9% 0.1% $2,234 3.5% Q2-2014 3.0% -0.4% $1,521 6.3% 2.8% 0.2% $2,232 2.5% 2.7% -5.0% $1,560 9.0% 3.9% 0.1% $1,254 4.2% 3.8% -1.1% $2,158 1.9% Q1-2014 3.4% 0.6% $1,431 -0.5% 2.6% -0.3% $2,177 2.7% 7.7% 3.6% $1,431 -0.5% 3.8% -0.5% $1,203 1.9% 4.9% -0.1% $2,118 1.6% Q4-2013 2.8% 0.3% $1,438 2.2% 2.9% 0.2% $2,120 0.0% 4.1% 0.6% $1,438 2.2% 4.3% -0.1% $1,181 -0.3% 5.0% 0.2% $2,084 0.2% Q3-2013 2.5% 0.2% $1,407 5.4% 2.7% -0.2% $2,120 4.1% 3.5% -0.6% $1,407 5.4% 4.4% 0.2% $1,185 3.1% 4.8% 1.2% $2,080 2.3% Q2-2013 2.3% -0.3% $1,335 2.1% 2.9% -0.4% $2,037 2.5% 4.1% 0.1% $1,335 2.1% 4.2% -0.1% $1,149 1.4% 3.6% -0.8% $2,033 5.5% Q1-2013 2.6% -0.8% $1,307 2.3% 3.3% -0.8% $1,987 0.1% 4.0% -0.6% $1,307 2.3% 4.3% -1.7% $1,133 0.4% 4.4% 0.2% $1,927 1.8% Q4-2012 3.4% 0.5% $1,278 0.2% 4.1% -0.8% $1,985 0.8% 4.6% 0.9% $1,278 0.2% 6.0% 0.9% $1,129 0.2% 4.2% 0.1% $1,893 -0.5% Q3-2012 2.9% -0.9% $1,275 2.1% 4.9% 1.6% $1,970 4.8% 3.7% -0.7% $1,275 2.1% 5.1% -0.8% $1,127 -0.6% 4.1% 0.4% $1,903 1.9% Q2-2012 3.8% -0.2% $1,249 0.6% 3.3% 0.0% $1,880 2.0% 4.4% 0.1% $1,249 0.6% 5.9% 0.5% $1,134 -0.2% 3.7% -0.1% $1,868 4.2% Q1-2012 4.0% N/A $1,242 N/A 3.3% N/A $1,844 N/A 4.3% N/A $1,242 N/A 5.4% N/A $1,136 N/A 3.8% N/A $1,792 N/A Sources: Cushman & Wakefield and Ward Levy Appraisal Group, Inc.; July 2016

Sonoma County is somewhat more removed from the Bay Area than other North Bay regions and follows different trending. According to Cushman & Wakefield, Sonoma County’s current average asking rent of $1,782 represents growth of 5% over $1,690 one year ago, which itself represented an historical high at the time. While rents in the Bay Area continued to grow, rising 5% over the past year and 42% since the beginning of the current real estate cycle in 2012, the

16-193-42 Page 42 of 191 3313 Chanate Road, Santa Rosa rate of increase is now decelerating from the recent double-digit annual increases. While not broken out in the data shown above, San Francisco County had an average monthly rent of $3,595 as of the most recent quarter, is the most expensive apartment market in the region, and rivals Manhattan as the priciest in the nation.

The market for multi-family properties has improved for the following reasons:

Lack of Development: Up until the last couple of years, the number of multi-family developments constructed in the recent past has generally been very low relative to historical standards, but this has begun to shift once again. During the peak of the real estate market, new construction was greater than 4,000 units per year, whereas in subsequent years it averaged less than one half of that. However, in 2013, 8,400 new apartments came online in the Bay Area market, followed by 9,300 new units which were built in 2014. Most of the new supply has been found in San Francisco or San Jose. Cushman & Wakefield reports that more than 10,500 new units were delivered in 2015, again surpassing the previous year’s total. Cushman & Wakefield is tracking approximately 23,400 multi-family units under construction in the Bay Area, the highest volume they have tracked in the pipeline in over 10 years. San Francisco accounts for nearly 8,300 units under construction followed by Santa Clara County with roughly 7,400.

Given the number of units under construction in the overall Bay Area, vacancy is forecast to inch closer to 5% in the near future, as rent levels are expected to continue rising but at a declining rate, eventually leveling off as supply comes online. Cushman & Wakefield is also tracking more than 300 projects in the Bay Area which are in various stages of the planning and entitlement process; these could add another 81,300 units to the market.

In the North Bay, only 138 new units came online in 2012, followed by a handful of new projects which added another 172 new units in 2013. In 2014, this figure jumped to 465 new units, with Cushman & Wakefield reporting tracking another roughly 900 units under construction in 2015, nearly 700 of which are located in Sonoma County. (Most likely due to their recent corporate reorganization, the first quarter 2016 survey did not include updated information for new units in solely Sonoma County.) Along with another 1,300 units in various stages of official planning channels, this is still not anticipated to be enough to keep up with demand. Major Sonoma County projects either recently completed or currently finishing construction include Fiori Estates, a 244-unit luxury apartment project in Rohnert Park, another 94 unit project still under construction across Dowdell Drive from Fiori Estates, and The Annadel, a 270 unit Wolf Company luxury project located just south of Coddingtown in central Santa Rosa. There are also several smaller projects that are in the planning stages and it appears these have most likely reached the point of financial feasibility as well. However, while these are expected to add a number of units to the overall market, it is insufficient to lead to an oversupply and it is anticipated that the market will favor the landlords for the foreseeable future. The difficulty in obtaining entitlements is likely to keep new construction at sustainable levels, or even below.

Improved Demand: The economy continues to slowly improve with unemployment decreasing and personal incomes rising slightly. This is particularly true in the San Francisco, Santa Clara and San Mateo county markets, where employment has improved more dramatically. This has also translated into rental rate growth in the North Bay market. Additionally, as the apartment market in San Francisco is incredibly tight and expensive, there has been some migration away to areas with more affordable housing, such as the East Bay and North Bay.

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Population Growth: The Bay Area population continues to increase, though at rates slower than in the previous decades. Nonetheless, population growth from 2000 to 2010 was approximately 35,000 to 40,000 additional people per year in the Bay Area. Therefore, just to maintain the growing population and to replace properties that have reached the end of their economic lives, new apartments must be constructed. Additionally, the recent recession created a situation where households routinely “doubled-up,” such as grown children moving in with their parents. This has somewhat retarded household formation and as these households continue “de-coupling”, demand is anticipated to improve.

Sonoma County and Major Submarkets

The information below is provided by Scott Gerber, formerly with Cushman & Wakefield and now with Bradley Real Estate. He publishes a secondary report every six months surveying fewer properties but with greater detail. The following reflects data from the most recently released Spring 2016 market survey which is discussed and utilized below.

Sonoma County Vacancy Rates Submarket Units # Vacant Vacancy % Santa Rosa 6,660 87 1.3% Rohnert Park/Cotati 2,402 29 1.2% Petaluma 1,774 35 2.0% Sonoma Valley 340 8 2.4% Total 11,176 159 1.4% Sources: Bradley Real Estate and Ward Levy Appraisal Group, Inc.; July 2016

The graph below summarizes the vacancy rate for each of the four major submarkets and the county as a whole since the beginning of 2005. As can be seen in the graph, the market has improved substantially since 2009.

Sonoma County and City Vacancy Rates 10.0%

9.0%

8.0%

7.0%

6.0% Santa Rosa

Rohnert Park/Cotati 5.0% Petaluma 4.0% Sonoma Valley 3.0% Sonoma County 2.0%

1.0%

0.0%

Sources: Bradley Real Estate and Ward Levy Appraisal Group, Inc.; July 2016

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Rental Rate Trends

As vacancies have decreased in the market, rental rates have risen, with the last year being particularly strong and rents rising for every floor plan type. The following table shows that in the Sonoma County market as a whole, rents have increased for every single unit type in the past year, with increases ranging roughly from 2% to as high as 14%, with most increases in the area of 7% to 10%. This is solid growth, albeit slightly down from the rate of growth from a year ago.

The Santa Rosa market also featured rent growth in every single product sector over the past year, with increases ranging from 4% to as high as 12%, although most sectors experienced growth of approximately 6% to 10%.

Rental Rate Trends Sonoma County Santa Rosa Change From Change From Change From Change From Rent SF Rent/SF Spring 2015 Fall 2015 Rent SF Rent/SF Spring 2015 Fall 2015 Studio $1,277 525 $2.43 1.7% 4.4% Studio $950 421 $2.26 4.2% 2.6% 1BR/1BA $1,560 684 $2.28 7.5% 5.6% 1BR/1BA $1,485 667 $2.23 9.4% 4.1% 2BR/1BA $1,748 854 $2.05 10.1% 5.9% 2BR/1BA $1,609 863 $1.86 7.4% 3.7% 2BR/2BA $2,145 1,073 $2.00 7.1% 3.6% 2BR/2BA $2,033 1,037 $1.96 9.5% 4.9% 2BR/1.5BA $1,736 985 $1.76 13.8% 4.8% 2BR/1.5BA $1,624 1,003 $1.62 5.7% 1.2% 3BR/2BA $2,390 1,229 $1.94 8.8% 4.0% 3BR/2BA $2,234 1,236 $1.81 12.3% 6.3% Sources: Bradley Real Estate and Ward Levy Appraisal Group, Inc.; July 2016

The anticipation is that rental rates should eventually plateau in Sonoma County and Santa Rosa amid more new construction projected to come online. While a couple of large projects are currently under construction, there are relatively few projects planned, and since population is increasing, the rental outlook is strong for the near future. However, it is anticipated that eventually heightened new construction in Sonoma County will begin to push the market back towards equilibrium. At this point, it is unclear how long it will be before this happens.

It should be noted that in May 2016, Santa Rosa’s City Council narrowly voted to instruct city staff to begin drafting rent control rules that would cap annual rent increases for older apartments at 3% and protect tenants from unfair evictions. The new rent control ordinance would only apply to multi-family properties developed before February 1995 due to a state law that exempts apartments built thereafter from such measures. State law also exempts all single-family homes and condominiums, regardless of age, from local rent control laws, while Santa Rosa’s City Council is proposing two additional exemptions: duplexes and owner-occupied triplexes, reasoning that a higher percentage of these units are locally-owned. It is estimated that as many as 13,386 of the city’s nearly 70,000 housing units could be subject to rent control, while excluding duplexes and triplexes could exempt up 500 to 2,100 additional units. Under the proposal, landlords wanting to raise rents more than 3% annually would need city permission, but could potentially receive approval in cases such as where a landlord had made significant upgrades or had a history of already offering below market rents. If staff’s proposed ordinance is approved by council, it would go into effect around the end of summer. Rent control would sunset if the city’s rental vacancy rate rose above 5%, whereas when the ordinance was proposed, vacancy was between 1% and 2%. In June 2016, a 45-day moratorium on rent increases exceeding 3% also went into effect, in an effort to prevent landlords from hiking rents during the interim period in which the new rent control program is established. In July, the

16-193-42 Page 45 of 191 3313 Chanate Road, Santa Rosa moratorium was extended by another 90 days to give city staff more time to propose a permanent rent control law.

Market Participant Discussions

In the course of this and other similar recent assignments, the appraisers discussed market conditions with several brokers active in the market for multi-family properties. These brokers include Pat Ripple with the Robert Butler Company, Brad Pennington, John Garrett and Erich Reichenbach with Marcus & Millichap, Scott Bales with HFF, and Steven Level and Scott Gerber with Bradley Real Estate. According to these brokers, demand for investment properties has improved substantially over the past couple of years. But after a few years of very strong sales activity, the market for multi-family properties in the North Bay appears to finally be slowing. Local experts attribute this not so much to lack of interest among investors but rather to the lack of buying opportunities and pricing uncertainties, specifically regarding the impact of future rent controls as discussed below.

Mr. Gerber stated that it is a good time to sell, as the stage is set for price moderations that have not yet occurred due to a shortage of inventory and buyers that have been overpaying. He stated that buyers of four- to eight-unit properties are still aggressive and optimistic, and pricing seems as robust as ever, with continued low interest rates likely to fuel buying in this category. Buyers in the 10- to 100-unit category also appear to still be paying aggressive prices, including higher than asking prices. However, Mr. Gerber noted that buyers of institutional-level properties, typically with more than 200 units, seem to be getting less aggressive in chasing prices and more cautious about overpaying.

As of the Second Quarter of 2012, demand was actually reported to be at a 20-year high. Until 2012, this had not translated into more sales, though, as few owners, especially of newer Class A or B properties, had been willing to part with their investments now that apartment fundamentals were seen as being the strongest of any property type. Sales activity in Sonoma County increased from $30 million in Fourth Quarter 2011 to $63 million as of Second Quarter 2012, the highest level in many years. In the Third Quarter of 2015, sales rose to a new quarterly high at $96 million, encompassing 13 properties with 517 units and an average price per unit of $186,185, with an average capitalization rate of 6.1% and an average gross rent multiplier of 14.04. In the Second Quarter of 2016, Sonoma County had $107 million in sales activity, encompassing seven properties with 382 units and an average price per unit of $280,246, with an average overall rate of 4.9% and an average GRM of 13.15.

The average price per unit in the Sonoma County market is more dependent on the quality of the assets being sold. A large Class A sale in one quarter can skew the results upward on price per unit (and downward on overall rate). Mr. Gerber noted that owners of Class B and C (market position) properties comprise the bulk of the listings at the present time as they have made it through the recovery and are trading out of these properties. He also noted that buyers are just starting to seek higher capitalization rates on deals, needing rents to better justify pricing.

Investment Market Trends

Financing for multi-family properties is available at very competitive rates in the 3.50% to 4.00% range on a 25- to 30-year amortization with 25% to 30% down and a 1.20 to 1.25 debt-

16-193-42 Page 46 of 191 3313 Chanate Road, Santa Rosa coverage-ratio. While rates remain competitive, the lack of more product on the market has kept the sales volume from rising higher. The typical property will sell within just a few months on the market, with particularly well-priced or marketed properties selling even quicker in some cases.

The following table summarizes the results of the First Quarter 2016 PriceWaterhouseCoopers survey for the apartment market. The Second Quarter 2016 survey was released immediately prior to delivery of this report, but not in time for us to acquire it and incorporate its data.

Apartment Market Capitalization Rates Property Type Overall Rate Range Average Last Quarter Year Ago National Apartment 5.35% 5.36% 3.50% - 8.00% 5.35% Market 0 -1 Pacific Region 4.50% 4.77% 3.50% - 6.00% 4.50% Apartment Market 0 -27 Sources: PriceWaterhouseCoopers, LLP and Ward Levy Appraisal Group, Inc.; July 2016

As is shown in the table above capitalization rates have effectively stabilized over the past year after declining in previous years. It should be noted that the above survey is typically for institutional investors of Class A properties in core markets. In the strongest markets, 4% cap rates are not uncommon for higher end product, while older properties have commanded rates of 6% to 7% or lower and distressed projects have generally traded at 8% or higher rates. For the North Bay sector as a whole, Class A product is generally trading with cap rates of 4.0% to 5.0%, Class B projects are typically moving at 4.75% to 5.75% and Class C and value-add rates are generally starting at 6.0% and moving up from there.

Based on the preceding interviews, as well as the appraisers’ experience, most investors appear to be looking for a safe place to put their money and get a decent return, with key purchase criteria being condition, price and location. As banks are paying next to nothing for CD’s, this has helped drive cash to multi-family investments. Investors like the very low vacancy rates in the sector, with rents that have been escalating, helping to increase cash flows. Bay Area investors are also turning their eye to Sonoma County, as Marin and South Bay cap rates are much lower. San Francisco has rent controls, while Sonoma County is well-located strategically and is considered a popular area in which to invest. There does not appear to be any diminishing of the pool of potential buyers, with agents citing continued good activity and rising overall values over the last year. Demand is pent up and most properties continue to generate multiple offers. Market participants reported that the general expectation in the market for capitalization rates is for them to remain steady over the next 12 to 18 months, as the economy continues to recover and new construction becomes more common once again. The slight correction in cap rates suggested for institutional buyers is noted previously, but otherwise no growth in cap rates is expected unless interest rates continue to rise markedly and/or rents soften. While there is some uncertainty regarding future interest rate movements, demand should still be sufficient to carry through the coming year even if they do rise. This will contribute to multi-family property values in the subject’s local market area which should be relatively healthy given low vacancy and still relatively modest planned construction. Still, it is worth noting that Cushman & Wakefield is projecting interest rates later this year to finally rise somewhat from their historic lows, possibly leading to the beginning of a more widespread correction in capitalization rates.

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Rental rates are also expected to level off as the recent round of new construction hits the market and spurs greater competition, with vacancy projected to inch close to 5% as tenants flock to recently built communities with better on-site and local community amenities.

Multi-Family Residential - Conclusion

The market may have already absorbed such substantial growth over the last few years that housing affordability concerns will become even more of a factor placing a ceiling on growth. Nonetheless, market conditions have clearly improved in the past year and demand for multi- family properties from both renters and investors has continued to improve. An economy hopefully continuing to slowly improve and the increase in available financing should continue to support the market. The subject’s submarket appears to reflect a good balance between supply and demand. Therefore, the short and long term outlooks for the multi-family sector are positive.

Single-Family Residential Market Overview

National And Regional Markets

The following chart shows the movement in median home prices in the U.S. and the San Francisco Bay Area markets as reported in the S&P/Case-Shiller Home Price Index. This index tracks national and major regional market trends, and utilizes the “repeat sales method”, analyzing only those homes which have sold at least twice over a specific period. It is thus considered especially useful for tracking home prices since it eliminates deviations which can occur due to quality or home size differences in the survey sampling from one month to the next.

U.S. And San Francisco Markets Median Home Price Change 1990-2016 250.00

200.00

150.00

U.S. 100.00 San Francisco

50.00

0.00

Index figures reflect price changes over time with January 2000 representing a base index of 100.0. 2016 data is through May. Sources: S&P/Case-Shiller Home Price Indices and Ward Levy Appraisal Group, Inc.; July 2016

As shown in the preceding chart, prices in the San Francisco market rose faster than the national average during the boom years of 1998 to 2006, subsequently fell faster as the market bottomed out, and have then bounced back dramatically over the last couple of years. The U.S. index

16-193-42 Page 48 of 191 3313 Chanate Road, Santa Rosa reached its high of 189.93 in the second quarter of 2006, but after bottoming out in the first quarter of 2012 at its lowest level (124.01) since the housing crisis began, it had rebounded to 180.70 as of the most recently reported month of May 2016, reflecting growth of 46% since that time four years ago. However, the rate of growth has slowed substantially, with growth of only 5% over one year ago, which followed growth of just 4% from May 2014 to May 2015. (The national data is now compiled on a monthly basis.) The San Francisco index reached a high of 218.37 in May 2006, dipped to a low of 117.71 in March 2009, had risen to 147.24 as of the end of 2012 and had risen even more markedly to 227.54 as of May 2016, with growth of 7% over the past year following growth of 10% from May 2014 to May 2015.

Meanwhile, according to CoreLogic, nationwide home prices in May 2016 grew by 5.9% over one year ago. Prices in California rose by 6.3% from May 2015 to May 2016. CoreLogic projects that rising prices should attract more sellers, unlocking some pent-up supply and tempering future price growth in the coming year, with national home prices forecast to rise by 5.3% from May 2016 to May 2017 and California prices forecast to rise by 9.7% over the same period. Most recently, home price growth has slowed, but home price gains continue to be fueled by an ongoing tight supply and low mortgage rates. The expected surge in the number of homes for sale has not materialized to date as many homeowners appear to be staying put as they wait for better economic times and higher prices in the future. Economic forecasts generally project slightly higher mortgage rates and more single-family housing starts in 2016, which should combine to dampen demand and boost supply, leading to a moderation in home price growth. CoreLogic is currently forecasting that national single-family home prices will reach a new peak in September 2017, more than 11 years after their historical peak in April 2006.

Consumer confidence has risen, and developers are back to purchasing land and bringing new projects to market. National sales activity generally supported a theme of a slow and tentative recovery from 2009 to 2011, followed by even stronger sales activity and pricing growth in 2012 and 2013. However, after 28 straight months where sales rose above year-ago levels, they finally declined in November 2013, but have since continued to grow. According to the latest report by the National Association of Realtors, sales rose by 1.1% from May 2016 to June 2016, rising from 5.51 million to 5.57 million. This level of sales is 3.0% higher than one year ago. Experts note that a slight moderation in home prices in some markets and mortgage rates remaining below 4% were favorable for buyers. It should be noted that 2015, at 5.26 million, marked the best year for existing sales since the 6.48 million sales in 2006, but sales are now at their highest annual pace since the 5.79 million in February 2007.

The industry is continuing to adjust to the new Know Before You Owe rule. (Know Before You Owe is a new mortgage disclosure rule that replaces four previous disclosure forms with two that are easier to understand and use.) Lawrence Yun, NAR chief economist, suggests that sparse inventory and affordability issues continue to impede some buyers' ability to buy, but the main takeaway from the KBYO initiative so far has been the need for longer closing times, which impacts the timing of sales. Experts also hope additional help will come from the Housing Opportunity Through Modernization Act, which the U.S. Senate unanimously voted to pass in July 2016. The bill is anticipated to provide substantial help to prospective first-time and low- to moderate-income buyers interested in purchasing a condominium by helping them access financing and take advantage of this generally more affordable entry point into homeownership.

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Despite persistent inventory shortages, the housing market made great strides in 2015, backed by an increasing share of pent–up sellers realizing the increased equity they've gained from rising home prices and using it towards trading up or moving into a smaller home. Unfortunately, first– time buyers still failed to generate meaningful traction in 2015. Affordability and the low availability of starter homes continue to be major barriers for them in most markets, but it is worth noting that the most recent month featured a greater share of sales to first-time buyers than the market has experienced in nearly four years,

The national median home price was at $247,700 in June 2016, growth of 4.8% over one year ago. This marks the 52nd consecutive month of year-over-year price gains. The NAR also reported that total housing inventory at the end of June 2016 dipped by 0.9% to 2.12 million homes, representing a 4.6 month supply at the current sales pace. Inventory is now 5.8% lower than one year ago when there were 2.25 million existing homes available for sale. Meanwhile, the median time on the market for all homes sold in June 2016 was 34 days, unchanged from one year ago.

Foreclosures and short sales accounted for 6% of June 2016 sales, down from 8% one year ago. First-time buyers represented 33% of all buyers, which is up from 30% both one month and one year ago. This is a positive sign but the ratio is still relatively low in historical terms and well below the 40% mark which tends to signal a healthy market. Experts attributed this jump in first-time buyers to mortgage rates near all-time lows and perhaps an indication that more affordable, lower priced homes are beginning to make their way onto the market. Still, many analysts say that increased employment and better access to credit still are needed before the housing market can achieve a more sustained recovery. An overwhelming majority of current renters who are 34 years of age or younger want to own a home in the future, but the top reason cited by renters for not currently owning was the inability to afford to buy. With additional hikes in short-term rates expected over the next year most likely leading to at least marginal subsequent increases in mortgage rates, wages and new home construction will need to increase substantially in order to preserve some measure of affordability.

National sales of new homes were at 592,000 in June 2016, 3.5% higher than one month ago but 25.4% above year-ago results. While impressive growth to be sure, this mark is still well short of the roughly 700,000 that economists say must be sold to sustain a healthy housing market, and economists and analysts note that this data may overstate the degree of recovery and paint an overly optimistic picture, especially given the impact of potential future growth in interest rates and a market that has already absorbed substantial price gains in recent years. Nonetheless, the overall growth over the last year is clear, as market confidence continues to return. While new homes represent less than one fifth of the housing market, they have an outsized impact on the economy; according to the National Association of Home Builders, each home built creates an average of three jobs for a year and generates around $90,000 in taxes.

Sonoma County/Northeast Santa Rosa - Local Resale Market

The Area Analysis section appearing previously in this report includes a significant amount of information regarding the local Sonoma County and Santa Rosa housing markets, including sales activity, median home pricing and employment trends over the past decade and more. The for- sale housing market has experienced significant recovery and growth since the start of 2012. While most sales activity in prior years was focused on the very high number of distressed

16-193-42 Page 50 of 191 3313 Chanate Road, Santa Rosa properties, the last few years have seen much more activity in higher-priced homes, as sellers once again have equity in their homes, can find buyers, and can identify move-up properties.

Sonoma County’s median pricing growth has been described previously. This pattern is also evident in the subject’s Northeast Santa Rosa market area, as the median price had fallen from $653,000 as of August 2005 to $329,000 by the end of 2011 before climbing again to $575,300 as of the most recently reported July 2016. This is on just 69 sales, though, and the data can be affected by the relative sample size. A more meaningful comparison is to note that over the most recently reported quarter ending July 31, 2016, the median home price in Northeast Santa Rosa was $603,250, or 2% higher than the median price of $593,000 for the same period one year ago. This is lower growth than that of Sonoma County as a whole, although prices have still continued to climb somewhat over the past year. Northeast Santa Rosa features the highest home prices of any quadrant in the city, and generally experienced a slightly lesser decline than other parts of the city, with prices bouncing back somewhat faster in 2013 and 2014 before the growth rate slowed over the last year. In contrast, county-wide pricing growth has picked up in the last few months.

In another indication, cumulative days on the market have dropped substantially over the past year in the subject’s Northeast Santa Rosa market, although not as much as in Sonoma County as a whole. Over the most recently reported quarter ending July 31, 2016, the average days on market for homes sold in Northeast Santa Rosa was 53 days, down 16% from 63 days for the same period one year ago. By comparison, Sonoma County as a whole had an average days on market for sold homes of 39 days for the quarter ending July 31, 2016, or 37% faster than the 62 days for the same period one year ago.

Northeast Santa Rosa - The New Home Market

As per the scope of this assignment, the subject property has been analyzed under different scenarios assuming entitlements for, among other components, either 100 or 200 for-sale family residential condominiums, with the unit mix, sizes and quality for the improved condominiums assumed to be the same as those of The Overlook at Fountaingrove apartment complex at 200 Bicentennial Way, Santa Rosa. This is a good quality project whose construction features have been described in more detail later in the Improvement Analysis section of this report.

As the market has improved and continued to grow over the last few years, and particularly given the dramatic reduction in the supply of homes on the market, more and more people have come to consider buying new homes. As of the date of valuation, there were no significant projects currently marketing similarly sized finished lots in Santa Rosa or the rest of Sonoma County. There is one project currently or even recently marketing similar new attached homes for sale in Santa Rosa.

 Kylie Lane is a Ryder Homes project to consist of 12 new attached duet units on a 1.15 acre site at 4343 Sonoma Highway in Northeast Santa Rosa. There will be three floor plans of homes ranging from 1,554 to 1,815 square feet. Lot sizes are generally under 3,000 square feet. Units were first released for sale in April 2016, but there is no on-site sales office, units are not listed on the local multiple listing service, and construction is still somewhat early in the process. This is an infill location backing up to a mobile home park, and the units are all to comprise three-story construction which will eliminate some

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potential buyers from even considering these homes. There have been no sales as of the date of valuation, which is very unusual in the recent climate, and the marketing agent noted that all of the aforementioned issues appeared to be a problem, along with the proximity to Sonoma Highway. The homes are currently priced between $509,900 and $559,900, and the appraisers’ own analysis indicates that the asking prices are most likely somewhat high.

In Northeast Santa Rosa, there are two significant projects which are currently under construction but not yet marketing, and which would likely be directly competitive with subject condominium units.

 Calistoga Village is a 17 unit project to be situated on a 2.23 acre site at 5184 Sonoma Highway. It will include 14 new attached townhomes as well as one new detached home, with two existing homes on the site also being preserved. The townhomes will comprise approximately 1,300 square feet and will all feature three bedrooms and 2.5 bathrooms. Site development work is underway, and units are projected to be released for sale in November 2016. The developer, Urban Green Investors, did not return messages seeking pricing information.

 Another project to be marketing attached homes in Santa Rosa in the near future is Rincon Place, recently rebranded from Prospect Oaks. This project is located just up the street from Kylie Lane at 4607 Sonoma Highway and will comprise 32 attached homes ranging from 1,699 to 2,119 square feet, and situated on a 3.00 acre site. Usable lot sizes average approximately 2,000 square feet. Construction is well underway, but the developer noted that site development was badly delayed due to construction timing and the rainy season, and they anticipate releasing homes for sale in the late Summer of 2016. Pricing is anticipated to range roughly from the low to mid $500,000’s.

Pending And Proposed Projects

Supply within the near future could reduce the subject’s overall absorption rate if all projects in planning were to come on-line. There are a number of significant directly competitive projects in the subject’s Northeast Santa Rosa market area which have approvals for single-family homes but which are not yet under construction. The appraisers have described the most significant of these below.

 At 620 Seventh Street, on a 0.2 acre site, Hugh Futrell has approvals to build 21 single- family attached homes and 2,005 square feet of retail space in a project currently known as Art House.

 At 3700 Fir Ridge Drive, on a 6.03 acre site, Workforce Housing has approvals to build 36 single-family attached homes. However, these affordable units are to be available to people employed as teachers in the City of Santa Rosa; this project is therefore not considered potential direct competition for the subject.

 At 3586 Mendocino Avenue, on a 2.92 acre site, the owners of the Fountaingrove Inn have approvals to build 22 condominiums.

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 Developers have approvals to build 12 detached single-family homes on a 1.81 acre site at 807 Acacia Lane. This project is known as Phase 2 of Prospect Village.

 Kevin Hall has approvals to build 10 detached single-family homes on a 7.10 acre site at 5490 Sonoma Highway. This project is known as Annadel Estates.

 Chamberlain Lake Park has approvals for Bicentennial Estates 2. This project is to comprise 12 detached single-family homes and two duplexes, for a total of 16 dwelling units, and is to be developed on an 8.04 acre site at 3450 Lake Park Drive. The site actually comprises two parcels and is situated on either side of Lake Park Drive. The project was originally approved in 2006 and the developers have filed for extensions of the entitlements as needed.

 Chamberlain Lake Park also has approvals for the Arbors. This project is to comprise 37 attached single-family homes ranging from 1,560 to 2,539 square feet, and is to be developed on a 5.69 gross acre site at 3500 Lake Park Drive. This project is located in the Nielsen Ranch area of Fountaingrove and developers have had to address significant slope and tree removal issues. After an extended foreclosure battle, the original developer has reacquired control of the property, which is now being marketed for sale for $4,250,000, or $114,865 per lot. The appraisers are very familiar with this property; it has an outstanding special assessment of over $200,000, and the current listing price is considered well above market value.

 At 225 Indian Creek Drive, Kevin Carinalli has approvals to develop a 1.63 acre site with 12 detached single-family homes in a project known as Los Indios.

According to a review of the Pending Developments report for the City of Santa Rosa, there are no other significant projects offering single-family detached or attached homes which are approved for Northeast Santa Rosa. There are other projects which are in official planning channels but which do not have approvals, but they have not been included in the analysis given what is considered their minimal potential to substantially affect the marketing process of a hypothetical subject project.

Land Development

Land sales activity virtually disappeared during the early years of the market crash in 2008 and 2009, but a renewal of sales activity in the next couple of years (mainly centered on development sites lost in foreclosure) clearly showed that the decline in the housing market affected land values to an even greater degree than home prices. Paired sales of land which sold both near the peak of the market and either at or near its trough included land both with and without entitlements, and indicated declines in value generally ranging from 80% to 90%, or substantially greater than the decline in home prices over the same time.

Over the last few years, though, while residential development land sales activity is still somewhat modest, many more developers are in the market and while land value growth lagged that of home prices for a time, demand for land has markedly improved and values have been rising for some time once again. While there are still a substantial number of available land listings, the majority of these features sites with below average locational appeal or projects

16-193-42 Page 53 of 191 3313 Chanate Road, Santa Rosa either lacking entitlements or requiring some sort of biotics mitigation such as for California Tiger Salamander; all of these scenarios understandably translate to weaker demand. Also contributing to rising land values, at least on a residual basis, is how some cities have slashed their development impact fees to incentivize new construction in what had been a badly stagnant environment for new homes. As examples, the City of Petaluma cut its fees by more than $30,000 per unit in late 2012, while in 2015 the City of Santa Rosa substantially lowered water and sewer connection fees for new residential construction.

Sales activity for bulk finished lot projects was healthier up until the last couple of years, which is understandable given finished lot prices which were lower than raw land prices were at the peak of the market, and the much lesser risk associated with acquiring ready-to-build finished lots. And despite the fact that sales of bulk lots have essentially disappeared from the subject’s local marketplace, this is considered to be a simple result of the lack of any such available sites rather than any sort of weakening demand.

Market Participant Interviews

The appraisers spoke to a number of local developers, owners and marketing agents in the course of this and other similar recent assignments. Key among these were on-site subdivision marketing agents, as well as Ken Bizzell and Ron Reinking, local agents with significant experience marketing and selling subdivision land, and Rick Rosenbaum and Aaron Roden, homebuilders currently developing competitive projects in Santa Rosa. Opinions were unanimous that the market continues to grow impressively over the last several years, and that prices are expected to continue to grow, albeit possibly at slower rates than in 2013 and 2014. As construction of new projects is once again feasible, demand for developable sites should also continue to grow.

Single-Family Residential - Conclusion

The Sonoma County housing market has been on a solid upswing since the start of 2012, as evidenced by resurgent sales activity and steadily rising home price growth. Both of these factors apply to higher-priced homes as well, a category which stagnated badly during the market crash from 2008 to 2011. Development is once again generally feasible, even for smaller local developers, not just for national builders who were able to afford to take short-term losses in order to build market share and keep construction crews employed and offset fixed costs. The profitability potential in taking sites through the entitlement process has also returned, as developers desire to have projects ready to build now that they can be feasibly developed.

A number of factors continue to contribute to the overall market strength, including interest rates which remain historically low and have even dropped further lately, mainly on uncertainty over the implications of the Brexit vote. Indications from the Federal Reserve are that the central bank will continue to move cautiously as it weighs interest rate hikes in light of a weak global economy and stubbornly low inflation. Most experts are predicting that mortgage rates will continue to remain very low for the foreseeable future. The very low inventory of homes on the market is another reason keeping a floor under home prices. While uncertainty is still an issue, particularly given the potential impact of swings in foreign economies and how that could affect American economic conditions, market participants are cautiously optimistic regarding industry prospects through 2016, and are also looking closely at the rental housing market which has been

16-193-42 Page 54 of 191 3313 Chanate Road, Santa Rosa extremely hot over the last several years. Financing for land has also become increasingly available as loan originators realized the need to help facilitate the industry’s continuing recovery and growth.

Retail Market Overview

The retail market in Sonoma County weakened considerably beginning in 2008 as a number of local, regional and national retailers shuttered stores. Mervyn’s, Linens 'N Things, Circuit City, Borders Books and Gottschalk’s all closed stores in Sonoma County. Consumer spending patterns also changed dramatically due to the recession, job losses and poor consumer confidence. Many economists have noted that the economic gains of the period from 2000 to 2007 was largely due to consumers spending beyond their means. As credit has tightened, jobs have been lost and home values have decreased, consumers have returned to more traditional consumption and savings rates that were seen in previous decades. This shift is unlikely to change anytime soon and this shift in consumer spending patterns is likely to be felt in the retail market for years to come and recent lacklustre consumer spending reports confirm that consumers have become more careful and guarded with their income.

The following table shows taxable retail sales for Santa Rosa from fiscal year 2006-07 through the budget projections for fiscal year 2015-16. As can be seen, taxable sales began to decrease in 2006-2007 and have fallen precipitously since this time. The voters approved a quarter-cent tax increase which contributed $1.5 million in revenue in the 2010-11 fiscal year and contributed an estimated $6.5 million in the 2011-12 fiscal year, its first full year. No change to the tax rate have occurred in the past several years and the growth from 2012-13 to the projected 2015-16 year are based on the improved economy and greater consumer confidence. Such growth in sales tax revenue is a positive sign and hopes are for continued stable growth in the coming years.

Sales Tax Revenue Fiscal Year Tax Revenue % Change 2006-07 $33,022 N/A 2007-08 $32,662 -1.1% 2008-09 $28,161 -13.8% 2009-10 $24,810 -11.9% 2010-11 $27,823 12.1% 2011-12 $36,017 29.5% 2012-13 $38,565 7.1% 2013-14 $41,331 7.2% 2014-15 $42,938 3.9% 2015-16 $44,647 4.0% Tax Revenue is in thousands Sources: City of Santa Rosa and Ward Levy Appraisal Group, Inc.; July 2016

Vacancy & Rental Rate Trends

As discussed above, the market weakened significantly in the period from late 2008 to early 2010, but conditions have stabilized and the retail market has returned to a very healthy vacancy rate overall. The vacancy rate in Sonoma County increased from 3.5% to 9.2% from 2007 to 2009, before decreasing to 3.8% as of the first quarter 2016. In Santa Rosa, similar vacancy rate shifts were seen, with an increase from 2.5% to 9.3%, before settling back to 3.3%. The overall

16-193-42 Page 55 of 191 3313 Chanate Road, Santa Rosa trends are positive signs for the market and proposed construction of 485,745 square feet is planned in Sonoma County, with 285,000 square feet found within Santa Rosa. However, despite the projected new supply, vacancy rates are expected to remain healthy.

Sonoma County Retail Vacancy and Absorption Trends Sonoma County Santa Rosa Year Base SF Vacant SF Vacancy Absorption Base SF Vacant SF Vacancy Absorption 2000 14,618,783 649,256 4.4% 243,091 7,576,780 338,990 4.5% 290,379 2001 15,319,739 583,650 3.8% 766,562 7,614,290 265,683 3.5% 110,817 2002 15,725,392 616,770 3.9% 372,533 7,755,880 288,698 3.7% 118,575 2003 16,610,029 584,982 3.5% 916,425 7,804,000 250,727 3.2% 86,091 2004 17,204,372 547,908 3.2% 631,417 7,956,954 286,662 3.6% 117,019 2005 16,576,065 649,486 3.9% (729,885) 7,757,706 345,781 4.5% (258,367) 2006 16,729,021 573,872 3.4% 228,570 7,783,353 225,060 2.9% 146,368 2007 16,872,466 587,208 3.5% 130,109 7,833,806 192,130 2.5% 83,383 2008 17,046,519 1,103,082 6.5% (341,821) 7,915,337 523,178 6.6% (249,517) 2009 17,371,143 1,598,443 9.2% (170,737) 7,894,729 735,124 9.3% (232,554) 2010 17,442,114 1,486,858 8.5% 182,556 7,927,874 591,174 7.5% 177,095 2011 17,468,844 1,148,191 6.6% 365,397 7,905,217 592,204 7.5% (23,687) 2012 17,452,996 960,950 5.5% 171,393 7,889,377 383,566 4.9% 192,798 2013 18,308,827 860,759 4.7% 956,022 7,903,377 304,520 3.9% 93,046 2014 18,643,511 739,746 4.0% 455,697 7,950,009 272,885 3.4% 78,267 2015 18,535,876 751,535 4.1% (119,424) 7,997,090 262,286 3.3% 57,680 2016 18,495,087 681,162 3.7% 29,584 8,005,690 233,077 2.9% 37,809 2016 data is through Second Quarter. Sources: Keegan and Coppin and Ward Levy Appraisal Group, Inc.; July 2016

Market Participant Interviews

The appraisers discussed market conditions with numerous real estate brokers in the course of this assignment. This included Lindsey Snider with Colliers International, Carlos Rivas of W Real Estate, Nick Abbott of Northbay Commercial Property Advisors, Berk Jones with Newmark Cornish and Carey, Jeff Negri with Cushman & Wakefield and Annette Cooper and Tom Laugero with Keegan and Coppin as well as various others in the course of completing other appraisal assignments. The consensus between these agents was that the market for retail properties is very strong with the best locations commanding near peak-level rents. Properties with good locations that appeal to national tenants never suffered the same fate as properties in secondary locations and demand for these properties is exceptionally strong, while conditions for secondary properties is beginning to improve as well.

Investment Market

According to numerous brokers, investor demand remains strong for Class A locations that are leased to credit-worthy tenants. This scenario has played out over the past several years and the increased competition for prime properties has spilled over and increased demand for secondary locations and tenants. According to the Price Waterhouse Coopers Investor Survey for First Quarter 2016, the average marketing time for the National Net Lease market is 4.4 months, with a range of one to 12 months. In the National Strip Shopping Center market, the range is two to 12 months and the average marketing period is 5.6 months. Overall rates in the National Net Lease market have decreased from 6.93% to 6.75% in the past year, an 18 basis point decline. In

16-193-42 Page 56 of 191 3313 Chanate Road, Santa Rosa the National Strip Shopping Center market, the average overall rate has decreased to 6.41%, a 59 basis point decline over the past year. Finally, while the Federal Reserve has raised key lending rates in the past year, financing rates continue to remain low and investors remain ample.

Retail - Conclusion

Overall, the retail market conditions in Sonoma County and Santa Rosa have improved substantially in recent years and rental rates and property values are approaching peak levels seen in 2007 and early 2008. Investors are numerous and sales activity is stronger than in recent years, although prime locations are garnering the bulk of investor activity. The increase in consumer sales and the decreased overall vacancy in Sonoma County and Santa Rosa are all signs of continued improvement and the outlook for the subject property is positive.

Office Market Overview

The market for office buildings in Sonoma County has been steadily improving over the past several years after several years of substantially high vacancy rates exceeding 20%. The graph below charts the vacancy rate for the subject’s four submarkets and the overall market vacancy, since 2006. The highest vacancy rate in the overall market was reached at the end of 2009, when total vacancy was 24.8%. Vacancy for office space is strongly influenced by the unemployment rate and the unemployment rate in Sonoma County had spiked in 2009. At that time, the vacancy rate in Santa Rosa was 16.1%. Conditions began improving and vacancy decreased, particularly in Petaluma where vacancy has reached 15.6% as of the first quarter 2016, down from the 41.5% vacancy at the end of 2009. In Santa Rosa and the North Corridor submarkets vacancy has been relatively steady, with the North Corridor market seeing the lowest vacancy rate of the four submarkets, at only 8.2%. Santa Rosa’s vacancy rate is currently estimated at 14.6%.

Sources: Keegan & Coppin Inc. and Ward Levy Appraisal Group, Inc.; July 2016

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While the decline in vacancy is a good sign, many tenants in the market are still utilizing the relatively weak demand to negotiate deals for higher quality space at similar or lower rents than their current expiring leases. Landlords are competing for relatively few tenants and most are willing to include tenant improvement allowances, free rent or other concessions for good tenants willing to commit to five year or longer leases. Businesses have become more efficient in space utilization as well, which has resulted in relatively slow growth despite the improving employment situation. Nonetheless, several brokers indicated that demand has picked up lately and they are more confident that the vacancy rate market wide will continue to decrease and that rents will ultimately increase. As mentioned previously, a substantial amount of space has been absorbed in the Petaluma submarket. Much of the absorption in Petaluma has been in the business parks and from large users migrating northward from pricier office space in Marin County. This bodes well for the office market county-wide and there are expectations of increasing rents in the future. Unfortunately, there is still over two million square feet of vacant space that is keeping rents from rising at any significant pace.

Market Participant Interviews

During the course of this and similar recent assignments, the appraisers have spoken to several brokers active in leasing space in the market. These include Dave Peterson, Joel Jaman and Kevin Doran with Keegan and Coppin, Jeff Negri and Niels Von Doepp with Cushman and Wakefield, Nick Abbott with Northbay Property Advisors and Barry Palma and Dennis Brisken with Newmark Cornish and Carey. Dave Peterson has seen greater interest in office space than in past years and expects rental rates to begin to increase, albeit slightly. There remains enough space that will keep rent increases somewhat muted, but still trending upward. Joel Jaman notes that several recent investment sales will allow these new buyers to offer space at competitive prices due to their low cost basis. Other agents characterized the local market as catering to small tenants more than large, and noted that large vacancies would be harder to lease.

Office - Conclusion

The office market in Sonoma County and Santa Rosa as a whole has improved over the last few years, though the growth has been relatively weak but may finally be at the beginning stages of a more pronounced recovery. While these underlying fundamentals are good, rents are not at the level that would justify new speculative construction.

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NEIGHBORHOOD MAP

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NEIGHBORHOOD ANALYSIS

The subject property is located in a predominantly residential neighborhood in Northeast Santa Rosa, in the neighborhood area bounded by:

 North: Fountaingrove Ranch Planned Community  South: Hexem Avenue  East: Montecito Avenue  West: Franklin Avenue

While the surrounding properties are virtually entirely residential in nature, the subject property itself clearly dominates the neighborhood. The subject consists of a 75± acre "island" of property utilized by the County of Sonoma which is surrounded primarily by low to medium density single-family residential projects, with some higher density multi-family residences. The subject property is also buttressed by another 27± acre parcel owned by the Sonoma County Water Agency. The neighborhood is located in the foothills of northern Santa Rosa and is accessed via Chanate Road, a secondary east/west arterial which bisects the County property. The most recent traffic volumes indicate approximately 12,400 vehicles per day in the vicinity of the subject. The subject neighborhood is approximately one mile east of the Sonoma County administrative offices, courthouse and jail and approximately two miles north of Santa Rosa's city center.

The Sonoma County properties are dominated by Sutter Medical Center of Santa Rosa, the County's former 135 bed hospital with adjacent support structures, and the Norton Mental Health Center (formerly known as Oakcrest), the County's acute psychiatric clinic. The new Sutter Santa Rosa Regional Hospital at 30 Mark West Springs Road opened in October 2014, and the former hospital building on the subject site is now vacant. Additional County uses within the area include the Coroner's Office, Chanate Hall Youth & Family Mental Health Outpatient Services, Public Health Clinic, the Family Practice Center, a women’s emergency shelter, Chanate Historic Cemetery and considerable vacant land.

Other uses in the immediate neighborhood include Brookdale Place of Chanate, a 120 room senior citizens' apartment complex offering independent and assisted living services, and Cobblestone, a 50 lot single-family subdivision on the upper hills adjacent to the County land. Cobblestone features high-end semi-custom homes, many of which feature extensive views from elevation. Immediately west of the former hospital are twelve duplex units built in the 1990’s. Uses surrounding the immediate neighborhood mainly comprise older single-family residences.

Trends

The subject’s immediate neighborhood has not experienced significant recent change, and the vacant parts of the County campus comprise by far the largest remaining developable sites in the general vicinity. However, Sutter’s move to its new hospital is the start of what is ultimately expected to be a marked redevelopment process that will undoubtedly have a significant effect on the character of the neighborhood.

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As in other parts of Santa Rosa and Sonoma County, property values have risen dramatically since the start of 2012. The neighborhood is considered a more desirable residential location than most others in Santa Rosa, and features higher home prices than these areas as a result.

Neighboring Properties

The subject’s immediate vicinity is as follows:

 North: Vacant land and single-family residences  South: Single-family residences and SCWA property  East: Single-family residences  West: Vacant land, single- and multi-family residences

Public Utilities

All municipal services are available throughout the neighborhood, including water, sewer, natural gas, electricity, cable television and telephone, in sufficient quantities to support current and anticipated future developments. Pacific Gas and Electric supplies natural gas and electricity to the neighborhood, AT&T provides telephone service and North Bay Corporation provides trash removal. The City of Santa Rosa provides water, sewer, police and fire services.

Support Services

Shopping is available west of the subject in centers along Mendocino Avenue as well as at Coddingtown Mall slightly farther to the southwest and at the smaller Fountaingrove Village center northeast of the subject on Stagecoach Road. The downtown commercial district of Santa Rosa is located approximately two miles south of the subject. Restaurants in the area are primarily tenants in larger retail centers, as well as fast food establishments.

Schools are considered of above average quality by area residents. Students are part of the Santa Rosa School District and typically attend Hidden Valley Elementary School at 3435 Bonita Vista Lane, Santa Rosa Junior High School at 500 E Street, and Santa Rosa High School at 1235 Mendocino Avenue.

There are also several municipal parks located in close proximity to the subject neighborhood.

Access/Transportation

Access to the subject neighborhood is via Chanate Road which connects Mendocino Avenue on the west to Montecito Boulevard on the east. Access can be somewhat hampered by traffic that is congested at times due to the combination of the number of vehicles and varied road topography. Freeway access is considered average, with a full interchange located approximately 1.25 miles southwest of the subject at Steele Lane.

Conclusion

In conclusion, the subject neighborhood is dominated by the subject property itself, but otherwise comprises almost entirely residential uses of primarily low density with some medium density as well. The neighborhood is considered to be a very desirable residential location in

16-193-42 Page 61 of 191 3313 Chanate Road, Santa Rosa good to excellent proximity to employment and shopping centers, public transportation, schools and recreational facilities. The neighborhood also benefits from its proximity to the generally highly regarded Fountaingrove Ranch planned development.

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LAND ANALYSIS

Address: 3313 Chanate Road Santa Rosa, CA 95404

Location: The subject property is located along both sides of Chanate Road and Cobblestone Drive, west of Hidden Valley Drive, north of Rolling Hill Drive and east of Sycamore Avenue and Nielsen Court, in the City of Santa Rosa, County of Sonoma, California.

Assessor's Parcel Numbers: 173-130-038, 180-090-001 through -006, -008 through - 010 and -016, and 180-100-001 and -029

Census Tract: 1523.00 and 1524.00

Shape: The site is irregularly shaped.

Frontage: The subject has extensive frontage along both Chanate Road and Cobblestone Drive.

Access: Average

Site Visibility: Average

Size: 75.03 gross acres / 3,268,307 gross square feet 46.83 usable acres / 2,039,915 usable square feet

Topography: The subject features level to steeply sloping topography, although the most steeply sloping areas have been excluded from the site’s net developable area.

General Plan Land Use Designation: Public/Institutional and Very Low Density Residential (0.2 - 2.0 units per acre)

Zoning: PI and R-1-6 (Public and Institutional and Single-Family Residential)

Zoning Description: The PI zoning district is applied to areas appropriate for public facilities, utilities, hospitals, and public assembly facilities including: public schools, libraries, government offices, etc. The PI zoning district is consistent with and implements the Public/Institutional land use designation of the General Plan.

The R-1 zoning district is applied to areas of the city intended to be maintained as residential neighborhoods

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comprised of detached and attached single-family houses, clustered residential hillside projects, and small multi-family projects, together with compatible accessory uses. The maximum allowable density ranges from two to 13 dwellings per acre, with the specific allowable density for each parcel shown on the zoning map by a numerical suffix to the R-1 map symbol. The R-1 zoning district implements and is consistent with the Very Low Density Residential (where residential clustered on hillsides is desirable), Low Density/Open Space, Low Density, and Medium Low Density land use classifications of the General Plan.

FEMA Map Number: 06097C0727E and 0729E FEMA Map Date: December 2, 2008

Earthquake Hazard Area: The subject site is located in an Alquist Priolo Special Studies Zone. The Alquist Priolo map also shows that the subject may be impacted by fault traces, and at the request of the client, we have assumed that it is. The City of Santa Rosa prohibits the construction of new housing units within 50 feet of a fault trace, a factor discussed in more detail elsewhere in this report.

Public Utilities: Electricity: PG&E Natural Gas: PG&E Water: City water Sewer: City sewer

Improvements: The subject site is currently improved with numerous buildings comprising a total of 265,520 square feet and utilized by the County of Sonoma for various public

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uses. The buildings were constructed between 1936 and 1994 and are considered to be in fair to average overall condition for their age, but require extensive seismic retrofitting as described in more detail later in this report. The appraisers have also analyzed the subject under two different proposed development scenarios, including different mixes of multi- and single-family residences and retail/office space, as described in more detail later in this report.

Off-Site Improvements: Curbs & Gutters: Yes Sidewalks: Yes Streetlights: Yes

Biotic Resources: Pine Creek extends across the property. The appraisers have not been provided with any information related to how much subject site area is affected by this creek, but while development would not be permitted within this creek or its setbacks, its area could still be utilized in the determination of potential density for a prospective development. Additionally, the creek could provide a benefit to potential homeowners in terms of adding an attractive natural landscaping feature, and given the sheer size of the site, which would readily allow for units to be developed on either side of the creek, no significant impact upon value is assumed. The appraisers are unaware of any other identified biotic resources or wetlands on the subject site, but are not qualified biologists and do not possess the skills necessary to determine if the site is impacted in any manner which might have a negative effect on the overall value of the subject property. The reader of this report should satisfy himself/herself as to the accuracy of these assumptions before any loan commitments are made.

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Scenic Resources: None

Aviation Constraints: None

Riparian Corridors: Pine Creek extends across the subject. No significant impact upon value is indicated.

Environmental Issues: There are no known adverse environmental conditions on the subject site. Please reference Limiting Conditions and Assumptions.

Easements Issues: No Preliminary Title Report was provided and the value opinions contained in this report are subject to and conditioned upon the absence of any easements or encumbrances materially impacting value which would have been revealed in such a title report.

Encroachments: Physical inspection of the site indicated no observable encroachments.

Covenants, Conditions and Restrictions: Unknown Conclusion

The subject comprises a level to steeply sloping site with all utilities available. The steeply sloping areas have been excluded from the site’s net developable area, and the rest of the site is well-suited for development with residential and commercial uses. The site is not located in a special flood hazard area, although it is located in an earthquake zone and is assumed herein to be impacted by fault traces which have a significant adverse effect upon the site’s development capacity and value as described elsewhere in this report. There are no other known adverse conditions likely to negatively impact value and prevent the subject from being developed to its highest and best use. Copies of the Assessor’s Parcel Maps, Flood Map, Aerial View and Earthquake Map are contained on the following pages, while a copy of a Site Plan provided to the appraisers in 2011 and showing the breakdown of the developable site area assuming earthquake fault trace impacts is contained in the Addenda.

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Assessor’s Parcel Map

Subject

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Assessor’s Parcel Map

Subject

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Assessor’s Parcel Map

Subject

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Flood Map

Subject

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Aerial View

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Earthquake Map

Subject

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IMPROVEMENT DESCRIPTION

The subject property was inspected on July 29, 2016, but as per the scope of this assignment, neither interior inspections nor on-site measurements were undertaken for the existing buildings. Based on estimated seismic retrofitting costs, the existing buildings are not considered to reflect the highest and best use, and have effectively been ignored in this report other than for the impact of their projected demolition costs upon the “as is” value.

Instead, as per the scope, we have analyzed the subject in accordance with two different valuation scenarios wherein proposed multi-family units and for-sale single-family condominiums are similar in terms of unit mix, sizes and quality to those of The Overlook at Fountaingrove apartment complex. In contrast, the scope dictates any proposed subject retail and office space is assumed to feature a quality level and tenant mix that is considered “typical for the market”.

The Overlook at Fountaingrove is a 78 unit multi-family residential complex situated on a 6.33 gross acre site at 200 Bicentennial Way in the Fountaingrove planned community in Northeast Santa Rosa, just over one half of a mile to the northwest of the subject. The Mediterranean-style buildings feature tile roofs and the complex was originally constructed in 2003. Renovations have included remodeling of the clubhouse and its terrace, replacement of the pool/spa coping stone, and landscaping upgrades. The project is in overall good condition.

The Overlook features three-story apartment buildings, with 22, 1BR/1BA units ranging from 713 to 733 square feet, 30, 2BR/2BA units ranging from 1,087 to 1,235 square feet, 12, 2BR/2.5BA units each comprising 1,258 square feet, and 14, 3BR/3BA units ranging from 1,363 to 1,457 square feet. The average unit size is 1,080 square feet. Units have such features as nine foot ceiling heights, granite countertops, in-unit washer/dryers, and air conditioning. Many units have very good views from elevation. Project amenities include a fireside clubhouse, resort-style lap swimming pool and spa, 24-hour fitness room, barbecue area, and conference room/business center. There are 78 garage parking spaces, or one space for every unit, including approximately 25% of which can be directly accessed from its associated apartment, and another 85 uncovered surface spaces, equating to a total ratio of 2.1 parking spaces per unit.

A summary of the unit mix for The Overlook is shown below:

The Overlook at Fountaingrove - Unit Mix Unit Description 1BR/1BA 1BR/1BA 2BR/2BA 2BR/2BA 2BR/2.5BA 3BR/3BA 3BR/3BA Totals Number of Units 16 6 24 6 12 6 8 78 Living Area (SF) 713 733 1,087 1,235 1,258 1,363 1,457 84,234 Number of Stories 1 1 1 2 3 3 3

Given the first hypothetical development scenario wherein it is assumed that the subject is improved with 600 multi-family units and 200 single-family condominiums, and applying the same proportionate unit mix as The Overlook’s shown above, the projected unit mix for this scenario is as follows:

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Subject Property Unit Mix - 600 MFR/200 SFR Scenario 2BR/2.5B Unit Description 1BR/1BA 1BR/1BA 2BR/2BA 2BR/2BA A 3BR/3BA 3BR/3BA Totals Number of MF Units 123 46 185 46 92 46 62 600 Number of SF Units 41 15 62 15 31 15 21 200 Total Number of Combined Units 164 61 247 61 123 61 83 800 Living Area (SF) 713 733 1,087 1,235 1,258 1,363 1,457 864,277 Number of Stories 1 1 1 2 3 3 3

For the second hypothetical development scenario wherein it is assumed that the subject is improved with 300 multi-family units and 100 single-family condominiums, and applying the same proportionate unit mix as The Overlook’s shown above, the projected unit mix is as follows:

Subject Property Unit Mix - 300 MFR/100 SFR Scenario 2BR/2.5B Unit Description 1BR/1BA 1BR/1BA 2BR/2BA 2BR/2BA A 3BR/3BA 3BR/3BA Totals Number of MF Units 62 23 92 23 46 23 31 300 Number of SF Units 20 8 31 8 15 8 10 100 Total Number of Combined Units 82 31 123 31 61 31 41 400 Living Area (SF) 713 733 1,087 1,235 1,258 1,363 1,457 431,903 Number of Stories 1 1 1 2 3 3 3

As a visual aid, we have also included a number of exterior and interior photographs of The Overlook on the following pages, as well as floor plan exhibits for each unit type.

As per the scope of this assignment, in each hypothetical as proposed scenario we have assumed that 15% of the multi-family units will be affordable units. Of these affordable units, 50% will be affordable to very low income households, with the maximum monthly rent restricted to no more than 30% of the 50% of median household income guidelines as established by HUD. The other 50% will be voucher subsidized housing, wherein low income tenants pay what they can afford and government subsidies pay the remainder so that the total combined payment is equal to market rent.

The remaining component of the subject proposed improvements is a 33,000 square foot retail/office property, including a 12,000 square foot grocery. As per the scope of this assignment, the client has requested that the appraisers assume “typical” quality and tenant mix. Given the desirable location and the projected quality of the residential units assumed in this analysis, we have assumed good quality construction commensurate with that of the rest of the project. Given the subject’s size and inclusion of a 12,000 square foot grocery, the subject commercial portion is projected to most likely comprise a mix of retail inline tenants with potentially some ancillary office tenants, but no large credit anchor tenants. Single-story construction is also projected as second-story commercial space typically features lower demand and leases for markedly lower rental rates.

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Photographs Of The Overlook At Fountaingrove

Exterior From Below Elevation Exterior Showing Garage Access

Exterior Swimming Pool

Clubhouse Terraces Aerial View

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Clubhouse Fitness Room

Living Area Kitchen

Bathroom

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Floor Plans – 1BR/1BA Units

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Floor Plans – 2BR/2BA Units

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Floor Plan – 2BR/2.5BA Unit

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Floor Plans – 3BR/3BA Units

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HIGHEST AND BEST USE

Highest and best use of a property as improved pertains to the use that should be made of an improved property in light of its improvements. The existing improvement is compared with the ideal improvement. The use that maximizes an investment property’s value, consistent with the rate of return and associated risk, is its highest and best use as improved. It is to be recognized that in cases where a site has an existing improvement, the highest and best use may very well be determined to be different from the existing use. The existing use will continue, however, unless and until land value in its highest and best use exceeds the total value of the property in its existing use. Thus, the highest and best use requires the estimate of the highest and best use of the land as if vacant.

Analysis of the highest and best use of land or a site as though vacant assumes that a parcel of land is vacant or can be made vacant by demolishing any improvements. The questions to be answered during the analysis of the highest and best use of the land as if vacant are 1) if the land is, or were, vacant, what use should be made of it, and 2) what type of building or other improvement, if any, should be constructed on the land and when?

Highest and best use is an analysis of those uses which are legally, physically and financially feasible. Once the potential uses are identified within these parameters, the most probable highest and best use can be identified.

Highest and Best Use As Vacant

Legally Permissible: Legal uses of a site are governed by land use policies and regulations of local governmental entities. The subject site is zoned PI and R-1-6; Public and Institutional and Single-Family Residential by the City of Santa Rosa and has a General Plan land use designation of Public/Institutional and Very Low Density Residential (0.2 - 2.0 units per acre). The zonings conform to the respective General Plan land use designations.

The vast majority of the subject parcels feature the Public and Institutional zoning, which conforms to the Public/Institutional General Plan land use designation. Assessor’s Parcel Numbers 180-100-001 and -029 are zoned Single-Family Residential, which conforms to the Very Low Density Residential General Plan designation. The Public/Institutional designation is one typically applied to governmental or quasi-governmental uses. However, the most probable buyer of the subject property would be utilizing the site for residential development, not public uses, and would request a zoning and land use change. The subject property is surrounded by single-family residential uses of generally low to medium density, and according to discussions with Lisa Kranz, Supervising Planner with Advance Planning and Public Policy at the City of Santa Rosa, a re-zoning and General Plan amendment for the subject to predominantly single- family residential uses would be most compatible. Some variety in density across the site would also be permissible, with portions of higher density multi-family development possible, especially if this included affordable units used to satisfy city affordable housing requirements. Ms. Kranz also stated that a limited amount of retail commercial use would be a potential use likely to be approved, as long as traffic impacts were not overly intense and the retail uses were intended to predominantly serve the needs of neighborhood residents. Therefore, if not improved with the current county buildings, the site would likely be permitted for residential development at relatively similar low to medium density as the surrounding properties, as well as

16-193-42 Page 81 of 191 3313 Chanate Road, Santa Rosa some higher density multi-family residential uses and a more limited amount of retail commercial space.

In 2011, the appraisers were provided with a site plan showing a breakdown of a proposed Chanate Campus development and assuming earthquake fault trace impacts such as we have assumed in accordance with the scope of this assignment. Based on different density ranges as applied to respective portions of the subject property, the site plan indicated a net developable site area of 46.83 acres and an overall density of approximately 7.0 units per acre, with the density effectively incorporating the relatively small portion of the site designated for commercial development.

In 2014, Ms. Kranz stated that this density range appears reasonable given the surrounding uses, and would feature a good possibility of being approved in conjunction with a re-zoning and General Plan amendment. However, for the current assignment, Ms. Kranz noted that the housing affordability crisis has intensified since 2014, and city officials would now also be likely to consider a somewhat higher proportion of multi-family units than previously, with clustering of units seen as a positive factor to help limit impacts on current neighborhood residents as well as deal with the subject’s physical constraints (namely earthquake zone and hillside development restraints).

Physically Possible: Physically, there are no known site characteristics which would prevent the development of the subject property as outlined in the Site Analysis, predicated upon the assumption that the site is free of contamination from toxic wastes. The site is not located within a special flood hazard area, and while it is located within a special studies zone, this does not preclude development of the site. The client has requested that the appraisal assume there are fault trace impacts, and the City of Santa Rosa prohibits the construction of new housing units within 50 feet of a fault trace, but there are no other significant city restrictions or requirements for properties within an earthquake zone. The topography of the site is level to steeply sloping, but the most steeply sloping areas have already been excluded from the site’s net developable area. The site’s developable area is level to moderately sloping, and predominantly rolling and gently sloping, and lends itself well to the development of legally permissible uses. Therefore, the subject site is capable of physically supporting the development of single- and multi-family residences as well as a smaller amount of retail commercial uses.

Financially Feasible: The highest present value to the owners of the subject would be for development of a single- and multi-family residential project with a small amount of retail commercial space. Current land prices, costs and improved values are such that there appear to be sufficient profits available to render immediate development of the uses feasible.

Without a specific development project budget, it is impossible for us to determine feasibility for certain. However, site development costs would in all likelihood be somewhat high as a result of such factors as the undulating topography, and while the sheer size of the subject would contribute to economies of scale, it would also add a significant element of risk should market conditions begin to stagnate. Nonetheless, we have appraised a number of single-family residential subdivisions since the start of the year, including sites with site development issues adding to costs, and development will allow for ample entrepreneurial profit. This is not surprising given the marked growth in home prices over the last several years. The subject features a desirable location that would appeal to virtually all potential homebuyers in the local

16-193-42 Page 82 of 191 3313 Chanate Road, Santa Rosa market, and demand for units, particularly those with lower than median prices, would most likely be very strong.

Multi-family development also once again appears feasible in Sonoma County. There have been several large developments constructed in the last few years in both Santa Rosa and Rohnert Park, and the appraisers have also appraised other new multi-family projects in 2016 and determined that at budgeted costs, development is feasible, with ample entrepreneurial incentive available to the developer. This even includes one project which included affordable units for very low and low income households, which some market rate developers have historically written off as having no value. While funding for affordable projects in Sonoma and neighboring counties is much more limited since state redevelopment financing was eliminated in 2012, there are still sales of land purchased for 100% affordable housing which have taken place in the last couple of years, and the appraisers’ analysis indicates that affordable developers are paying just as much for land to be developed with affordable units as market rate developers are paying for land to be developed with unrestricted units. Low income housing tax credits are the primary source of available funding, and while competition for available credits is intense, and developers must aggregate funding from multiple government sources in order to be competitive for tax credits, affordable housing developers are still able to fund purchases of sites for development. Given the strong demand for affordable housing as well as the political pressure placed on local governments to fund such construction, and given the competition among builders to acquire and develop sites, development of multi-family residences including a typical proportion of affordable units is considered financially feasible.

Retail development also appears feasible in the current market, and new retail buildings have been constructed in the county recent years. The subject’s location within a high income area would most probably indicate good demand for local services. The improved values justify new construction and thus, development is considered feasible.

Maximally Productive: The test of maximum productivity is applied to the uses that have passed the first three tests. Of the financially feasible uses, the highest and best use is the use that produces the highest residual land value consistent with the market’s acceptance of risk and reward. In the subject’s case, the maximally productive use is for development of single- and multi-family residences, as well as a small amount of retail commercial space.

As Vacant - Conclusion: The highest and best use of the subject property as vacant is considered to be the development of single- and multi-family residential uses along with a small amount of retail commercial space.

Highest and Best Use As Improved (As Is)

Legally Permissible: The existing subject buildings are permitted within the zoning and are therefore considered legally permissible. The subject improvements also appear to conform to current setback requirements. However, while the appraisers have not counted the number of on- site parking spaces within the entire subject complex, the appraisers were provided with a parking study overview from a survey done in 1991 which shows that based on ordinance requirements at that time, the subject property needed another 85 spaces in order to be in conformance. While additional spaces may have been created since the date of the 1991 survey,

16-193-42 Page 83 of 191 3313 Chanate Road, Santa Rosa and while city parking requirements may have been changed somewhat since that time, the appraisers cannot confirm either.

Under state law, the subject improvements also require a prohibitive amount of seismic retrofitting work to be completed in order for any hospital operations to resume. California’s hospital seismic safety law, Senate Bill 1953, was passed in 1994 and requires every hospital building to comply with two deadlines. By no later than January 1, 2013, every hospital building was to meet specific construction standards established to keep these structures standing after a major earthquake. The subject owners reportedly received one extension which expired at the end of 2014. In addition, by January 1, 2030, the law requires all hospital buildings to comply with standards intended to keep these buildings operational following a severe quake.

Therefore, for the purposes of this analysis, the subject improvements are considered to be legally non-conforming due to the underparking and lack of seismic retrofitting.

Physically Possible: The subject improvements were constructed between 1936 and 1994 and are considered to be in generally fair to average condition. The impact of the seismic retrofitting requirement and the projected costs of upgrading the buildings is discussed in more detail below, but given these costs, demolition and eventual redevelopment is clearly the most viable alternative.

Financially Feasible: The highest present value to the subject owners would be to demolish the existing improvements and redevelop with a predominantly single-family residential project with a small amount of retail commercial uses. Given the age, size, layout and special purpose nature of the improvements, there does not appear to be a likely buyer for the subject property who would either be intending to occupy the buildings or lease them out. Another medical service provider looking to occupy the buildings and continue the current use would have to bear the cost of undertaking the seismic upgrades to the facilities.

In 2011, Mark Hummel, at that time the acting associate architect with the County of Sonoma, provided the appraisers with several partial cost estimates for seismic retrofitting work. In 2004, the cost of retrofitting two hospital wings comprising a total of 104,752 square feet was estimated at $8,200,000, or $78 per square foot. A subsequent study done in 2006 for the 10,712 square foot public health clinic facility estimated $1.8 million in retrofitting costs, or $168 per square foot. A similar study done in 2006 for the 24,261 square foot Norton Center building estimated costs of $2.5 million, or $103 per square foot. These estimates reportedly exclude soft costs which can add substantially to overall expenditures. Given the differences in costs per square foot and facilities' size, there clearly appear to be economies of scale at work. Nonetheless, given the overall cost estimate of $12,500,000, and conservatively adding 15% for soft costs, this equates to costs of $14,375,000 just to upgrade 139,725 square feet of buildings, or $103 per square foot. This cost is merely to bring the buildings into conformance with state requirements, and does not reflect any other upgrades, or potential costs associated with other buildings.

Given these exorbitant costs, as well as the lack of any likely buyer for the current subject improvements, the cost of undertaking the required seismic upgrades is considered to outweigh any benefits. This is supported by the fact that rather than paying the cost of the necessary seismic retrofitting, Sutter instead constructed an entirely new hospital in another part of

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Northeast Santa Rosa, commencing site improvement work in September 2010 and opening the new facility in October 2014.

In 2011, Mr. Hummel also provided details of a 2007 estimate for demolition costs, including hazardous materials abatement, for the three hospital wings comprising a total of 150,402 square feet. The estimate was for $3,230,000 including contingency, or $21 per square foot. (Of this amount, hazardous materials abatement actually was estimated to cost more than demolition, at $1.35 million versus $1 million.) The appraisers were not provided with projected demolition costs for the other buildings, and have no information about potential hazardous materials in these buildings, but Mr. Hummel indicated that buildings may contain lead paint as well as asbestos in flooring materials and under-floor crawl spaces. Of the remaining building area, and based on more recent information provided by the client for the current assignment in 2014, 90,070 square feet of buildings were reportedly constructed either prior to or in 1972. Asbestos and lead paint were largely banned in 1978, and the other buildings were all reportedly constructed after 1983. In the absence of any other information, the appraisers have conservatively estimated that all of the buildings built before 1978 will require hazardous materials abatement, while the others will not. The appraisers have utilized a figure of $20 per square foot for the estimated demolition costs of the 90,070 square feet of buildings projected to require hazardous materials removal. This equates to $1,801,400. Demolition costs for the remaining 25,048 square feet of building area are estimated at $5 per square foot, or $125,240. The extensive asphalt paving throughout the developed portions of the site would also require demolition; this cost is estimated at $400,000 based on the appraisers’ inspection, a review of aerial photos and Marshall & Swift Valuation Service cost factors. Thus, total demolition costs are projected to be $5,556,640. To this amount has been added a 10% risk/profit allowance, as a developer would be incurring holding costs and the risk of potential cost overruns and would most likely require this additional incentive to take on the required demolition work. The total cost of demolition cost, including profit, is therefore estimated at $6,112,304, rounded to $6,110,000. While this is still clearly a significant amount, demolition would subsequently enable redevelopment of the subject site.

Based on the market value opinions concluded later in this report, and even given the projected demolition costs, the highest return to the owners is considered to be generated by demolishing the existing improvements and redeveloping with a predominantly single- and multi-family residential project along with a small amount of retail commercial uses.

As Improved - Conclusion: The highest and best use of the subject property as improved is the demolition of the existing buildings and redevelopment with a mixed-use project consisting predominantly of single- and multi-family residential uses along with a small amount of retail commercial uses.

Highest and Best Use As Improved (As Proposed)

Legally Permissible: The subject improvements are proposed and are assumed to be legally conforming in accordance with the entitlement criteria provided by the client.

Physically Possible: The subject improvements are proposed construction and are analyzed as being in good condition. Overall, the subject improvements are well suited for their proposed use as multi- and single-family residences as well as retail/office space, and the subject is

16-193-42 Page 85 of 191 3313 Chanate Road, Santa Rosa projected to compete well in the market. There is nothing inherent in the design of the subject that would preclude the continued mixed-use residential and commercial uses nor prevent it from being utilized by similar tenants in the future. Demolition or expansion is not indicated.

Financially Feasible: From a financial feasibility standpoint, the proposed improvements contribute to the value of the underlying land. Continued use of the subject as a mixed-use development would be indicated. The highest return to the owners appears to result from leasing all of the residential units as a multi-family project. The proposed subject units are relatively large for apartments, but relatively small for for-sale residences. The apartment market has performed especially well in recent years, even more so than the single-family residential market. It also continues to be bolstered by the continuing rise in for-sale prices, making even high-end apartments a relatively affordable option for many tenants who would otherwise prefer to be homebuyers.

The higher density development scenario analyzed herein assumes development with 600 multi- family units and 200 for-sale condominiums. While the average retail value of the 200 proposed for-sale condominiums is concluded later in this report to be $446,100 per unit, the discounted cash flow analysis which analyzes their bulk sale value indicates a value of $336,300 per unit, thus concluding a discount of 25% based on the prolonged sell-out period and holding costs involved with such a large project. This is slightly lower than the value concluded for the multi- family residences under this development scenario of $350,000 per unit, and thus the highest return to the owners would be to lease out all of the residential units.

The lower density development scenario analyzed herein assumes development with 300 multi- family units and 100 for-sale condominiums. As in the case of the higher density scenario, the average retail value of the for-sale condominiums is concluded to be $446,100 per unit. In this case, the discounted cash flow analysis which analyzes their bulk sale value indicates a value of $351,300, a somewhat lower discount of 21% based on the shorter sell-out period and holding costs involved with a smaller project. However, this is still lower than the value concluded for the multi-family residences under this development scenario of $365,000 per unit, and thus the highest return to the owners would still be to lease out all of the residential units.

As Improved - Conclusion: The highest and best use of the subject property as improved, under each hypothetical development scenario, is to lease the proposed improvements as a 100% rental project comprising multi-family residential and commercial uses.

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APPRAISAL PROCESS

There are three basic approaches that may be utilized by appraisers in the estimating of market value for the subject improvements. These three approaches provide data from the market from three different sources when all are available. These three approaches include the Cost Approach, the Sales Comparison Approach and the Income Approach.

The Cost Approach is based upon an assumption that an informed purchaser would pay no more for a property than the cost of producing a substitute property with the same utility as the subject. In the Cost Approach, value is estimated by comparing the current cost of replacing the subject improvements, and then subtracting depreciation for physical deterioration and functional or economic obsolescence. The cost of replacing a property is generally estimated on a per square foot basis using a construction cost manual published by a recognized cost reporting service, and through continued cost updating by the appraiser to account for local conditions. The value of land is added to the depreciated cost of the improvements for the final value indication by this approach.

The Sales Comparison Approach is based upon the assumption that an informed purchaser will pay no more for a property than the cost of acquiring an existing property of the same utility. This approach estimates market value by comparing the sales prices of recent similar transactions with the various attributes of the property under appraisement. Any dissimilarities are resolved by making appropriate adjustments. These differences may pertain to time, age, location, construction, condition, size or external economic factors.

Also analyzed within the Sales Comparison Approach is the relationship between the gross income and sales price. This ratio, called the Gross Income Multiplier (G.I.M.), when properly extracted from the market, may be used to indicate the value of the subject property. The Sales Comparison Approach often provides a highly supportable estimate of value for homogeneous properties. For larger and more complex properties, the required adjustments often become numerous and more difficult to estimate.

The Income Approach converts the anticipated future benefits of property ownership (dollar income) into an estimate of present value. The Income Approach is generally selected as the preferred technique for income-producing properties because it most closely reflects the investment rationale and strategies of typical buyers. To utilize the Income Approach, the appraiser must project net income, select an appropriate capitalization rate and then capitalize the net income into value, applying the proper discounting procedure.

Normally, these three approaches will each indicate a different value. After all of the factors in each of the approaches have been carefully weighed, the indications of value derived from each of the approaches are correlated to arrive at a final opinion of value.

Analyses Applied

A Cost Approach was considered and was developed because it is considered applicable for new developments such as the subject property.

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A Sales Comparison Approach was considered and was developed because market participants consider similar type properties when determining the subject's market value and thus the Sales Comparison Approach is utilized in the analysis.

An Income Approach was considered and was developed because market participants consider operating incomes of similar type properties when determining the subject's market value and thus the Income Approach is utilized in the analysis.

In this report, the appraisers have analyzed the subject under several different proposed development scenarios and provided separate value opinions as follows:

 The market value of the fee simple interest of the subject property “as is”. This value is derived via a Sales Comparison Approach.

 The hypothetical market value of the fee simple interest assuming the subject site is fully entitled for development with 600 multi-family units, of which there will be 480 market rate units, 60 units that will be affordable to very low income households, and 60 units that will be rented with voucher subsidies, 200 for-sale condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery. This value is derived via a Sales Comparison Approach.

 The hypothetical market value of the leased fee interest assuming the subject is improved and fully leased with 600 multi-family units, of which there are 480 market rate units, 60 units that are affordable to very low income households, and 60 units that are rented with voucher subsidies, 200 for-sale condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery. This value is derived via all three approaches to value. Separate Income Approaches have been undertaken for the multi- family residential and commercial components of the project, but a buyer would not undertake an Income Approach for the 200 for-sale condominiums and the contributory value applied for this component in the Income Approach section is taken from the Sales Comparison Approach. Although these units have been included in the Cost Approach analyses of the entire subject property, a separate Cost Approach was not undertaken for these units, and in any case, for this component the typical buyer would place most weight upon the Sales Comparison Approach which also features the more reliable data.

 The hypothetical market value of the leased fee interest assuming the subject is improved and fully leased with 300 multi-family units, of which there are 240 market rate units, 30 units that are affordable to very low income households, and 30 units that are rented with voucher subsidies, 100 for-sale condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery. This value is derived via all three approaches to value. As in the case of the hypothetical market value as improved under the higher density development scenario, the contributory value applied for the for-sale condominiums in the Income Approach section is taken from the Sales Comparison Approach.

It should be noted that our analyses of each hypothetical development scenario indicate that the highest and best use of the subject as proposed includes the conversion of the single-family residential portion to a 100% multi-family rental project, but as per the scope of this assignment,

16-193-42 Page 88 of 191 3313 Chanate Road, Santa Rosa we have nonetheless analyzed this portion of the proposed project as for-sale single-family residential condominiums rather than as rental units.

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MARKET VALUE AS IS

When appraising commercial and/or residential property, it is customary to value the land as though vacant and able to be developed to its highest and best use. The preferable method of determining the market value of the fee simple interest of the subject site is by comparison to properties that have recently sold, are listed for sale or are under contract. Comparable properties are analyzed and compared with the subject property.

As per the assignment scope, it is assumed that the subject site is affected by earthquake fault traces as shown on the most recently updated Alquist Priolo map. In 2014, the appraisers were provided with a site plan showing the areas which would be affected under such a scenario. This scenario features a developable area of 46.83 acres. A previous site plan proposed development with an overall density of approximately 7.0 units per acre, which effectively incorporated the relatively small portion of the site which would be designated for commercial development. However, based on discussions with Lisa Kranz as detailed previously in the Highest and Best Use Analysis section, wherein she noted that city officials would now also be likely to consider a somewhat higher proportion of multi-family units as a result of the growing housing affordability crisis, a somewhat higher density is considered most likely possible.

The comparative analysis performed in this approach focuses on similarities and differences among properties, and transactions that impact market value. These may include differences in the property rights appraised, the motivation of buyers and sellers, financing terms, market conditions at the time of sale, size, location, utility of the site, zoning and site conditions. The various attributes of comparison are tested against market evidence to determine their relative importance, if any.

The appraisers confirmed the sales with at least one party to the transaction and verified all characteristics discussed in the analysis with either public sources, such as site size from County Assessor’s records, or from parties to the transaction, including buyers, sellers or agents.

Included below are the comparable land sales followed by a locational map, summary table and analysis and conclusion of land value.

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Land Comparable 1

Transaction Land Type Mixed-Use Date June 28, 2016 APN 010-311-028, 125-031-022 Transaction Type Closed and 125-071-014 Address 1755 Sebastopol Road Price $7,038,000 City Santa Rosa Adjustments to Price ($65,000) County Sonoma Adjusted Price $6,973,000 Grantor Canary Asset Price Per Land SF $11.37 Grantee OSL Properties Days on Market 750 Doc# 55991 Verification Source Will Gallaher Financing Cash To Seller Affiliation Buyer Site Gross Land Area (AC) 14.28 Site Status Raw Gross Land Area (SF) 622,037 Entitlements Tentative Map Usable Land Area (AC) 14.08 Topography Level To Gently Sloping Usable Land Area (SF) 613,325 Utilities All Public Utilities Zoning R-3-15 Shape Irregular General Plan Designation Medium Density Residential Improvements of Value No (8.0 - 18.0 units per acre) Comments This is the site of a former golf driving range which had been demolished. The site sold with entitlements for The Villas, consisting of 197 townhomes ranging from 1,417 to 1,600 sf as well as 5,000 sf of commercial space. Buyer is a senior housing/assisted living facility developer and will slightly modify the entitlements to develop the same number of market rate multi-family units instead in a project to be known as Sebastopol Road Townhomes. The commercial portion of the site comprises 0.72 gross and 0.52 usable acres and will now be developed with the apartment leasing office and common amenities facilities rather than rental space. Price adjusted down by $65,000 for estimated fee credits due to previous construction. Site costs will be high given undulating topography and need for sound wall along extensive Highway 12 frontage. The seller was First Community Bank, of which the buyer is the Chairman of the Board, but the site was marketed conventionally for a significant time and there was strong competition and reportedly multiple offers from other buyers around a similar price, so the price is considered to be at market with no adjustment indicated for the REO sale conditions or a possibly less than 100% arms' length transfer. Irregular shape affects site utility. Long time on the market was partly due to site having fallen out of a previous escrow at a similar price.

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Land Comparable 2

Transaction Land Type Mixed-Use Date June 3, 2015 APN 164-020-045, 164-030-024 and Transaction Type Closed -025 Address 8225 Conde Lane Price $3,725,000 City Windsor Adjustments to Price ($350,000) County Sonoma Adjusted Price $3,375,000 Grantor Windsor of Emery Land Price Per Land SF $6.46 Company Grantee Windsor RV, LLC Days on Market 1500 Doc# 48196 Verification Source Michael Crain Financing Cash To Seller Affiliation Listing Agent Site Gross Land Area (AC) 18.20 Site Status Raw Gross Land Area (SF) 792,792 Entitlements Unentitled Usable Land Area (AC) 12.00 Topography Level Usable Land Area (SF) 522,720 Utilities All Public Utilities Zoning GC Shape Irregular General Plan Designation Gateway Commercial Improvements of Value Yes Comments Site currently utilized as a 93 unit RV park and is site of former Windsor Waterworks, a water-based theme park. Site is identified in Windsor's Downtown Plan as Creekside Commons, allowing for commercial, mixed-use, medium- and high- density residential development at densities generally between 8.0 and 12.0 units per acre. Site survey showed larger site area than assessor, and parties agreed that due to wetlands, trees and Windsor Creek setbacks, there were ~12.00 developable acres. Originally listed for $12,500,000 in 2011; listing price had been reduced to $4,500,000 by 2015. Buyer is a MHP operator and purchased based on existing MHP use. Agent stated multiple other buyers looking to redevelop were willing to pay ~$3.25-$3.5 million; price has been adjusted down by $350,000 to reflect estimated contributory value of improvements, resulting in effective vacant land price at midpoint of indicated range. Agent said town officials told multiple developers that they would not allow anything to be built, and indicated this clearly lowered the prices they would pay.

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Land Comparable 3

Transaction Land Type Single-Family Residential Date N/A APN 136-010-027 (a portion) Transaction Type In Contract Address 500 Hopper Street Price $18,894,000 City Petaluma Adjustments to Price ($1,870,000) County Sonoma Adjusted Price $17,024,000 Grantor Petaluma Riverfront LLC Price Per Land SF $22.99 Grantee Comstock Housing Days on Market N/A Doc# N/A Verification Source Contract Financing Cash To Seller Affiliation N/A Site Gross Land Area (AC) 22.95 Site Status Raw Gross Land Area (SF) 999,702 Entitlements Tentative Map Usable Land Area (AC) 17.00 Topography Level Usable Land Area (SF) 740,520 Utilities All Public Utilities Zoning T-4, T-5, T-6 & CS Shape Irregular General Plan Designation Mixed Use and Proposed Improvements of Value No City Park Comments This is the single-family residential portion of the larger mixed-use Riverfront project. Site is selling with tentative map for this component in place, comprising 134 lots with an average size of 3,600 sf. Buyer will build detached homes ranging from 1,666 to 2,684 sf. Closing is contingent upon the sellers recording the final map for the larger project, as well as completion of surrounding off-sites and on-site rough grading. Based on developer's budget, value of the off-site work and on-site rough grading to be completed by seller is projected at $1,870,000. This is deducted from price, which thus reflects raw land with tentative map. Buyer's share of off-site costs was projected at ~$88,500 per lot, higher than normal due to soils issues and park improvements to be constructed, resulting in lower impact fees projected at $50,200 per unit. Average home price projected at $705,000. Closing in two phases starting in 2016.

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Land Comparable 4

Transaction Land Type Mixed-Use Date December 24, 2013 APN 143-051-072 Transaction Type Closed Address 6400 State Farm Drive Price $7,500,000 City Rohnert Park Adjustments to Price $1,430,000 County Sonoma Adjusted Price $8,930,000 Grantor State Farm Insurance Co. Price Per Land SF $9.76 Grantee North Bay Community Days on Market 670 Financing Cash To Seller Verification Source Sheldon Bane Doc# 122065 Affiliation Seller Site Gross Land Area (AC) 29.88 Site Status Finished Gross Land Area (SF) 1,301,573 Entitlements Unentitled Usable Land Area (AC) 21.00 Topography Level Usable Land Area (SF) 914,760 Utilities All Public Utilities Zoning C-O Shape Irregular General Plan Designation Office Improvements of Value None Comments Former State Farm Auto Insurance office headquarters. Site was improved with a 286,160 sf office campus, but buyers (a dba of Suncal) purchased for redevelopment with residential and retail uses to link with a proposed adjacent SMART rail station. Current plan includes 330 apartment units, 35K SF of commerical and parkland. Estimated time for General Plan amendment and full EIR would take ~two years. Demolition costs were estimated at $5 psf or ~$1,430,000. Seller reported other offers made in 2012 as high as ~$12,000,000, but this was before it was known that city officials would require ~9 acres to be dedicated as open space/parks.

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Land Comparable 5

Transaction Land Type Mixed-Use Date October 29, 2013 APN 157-020-009, et al. Transaction Type Closed Address 1615 Fulton Road, et al. Price $9,500,000 City Santa Rosa Adjustments to Price $0 County Sonoma Adjusted Price $9,500,000 Grantor North Valley Bank Price Per Land SF $8.75 Grantee City Ventures Communities Days on Market NA Doc# 105402 Verification Source Ron Reinking Financing Cash To Seller Affiliation Selling Agent Site Gross Land Area (AC) 78.75 Site Status Raw Gross Land Area (SF) 3,430,350 Entitlements Tentative Map Usable Land Area (AC) 24.93 Topography Level Usable Land Area (SF) 1,085,951 Utilities All Public Utilities Zoning Various Shape Irregular General Plan Designation Various Improvements of Value No Comments Bulk purchase from bank seller. Includes eight sites in Santa Rosa, Cotati and Windsor, but several of these were considered to have no value once mitigation is factored in. Buyer had to acquire them along with the other sites, and may never develop. The components having value were considered to be a NWSR site with entitlements for 185 units, 25 Windsor finished condominium lots and a 1.25 acre commercial site in Cotati. Based on eight units per acre density, commercial site is analyzed as having potential for 10 units, and thus sale is analyzed based on 24.93 usable acres to be effectively developed with ~220 units with full entitlements. A 15.23 acre parcel adjacent the NWSR site was unusable due to on-site wetlands but is included in gross site area. Includes 25 condominium lots in Windsor's Town Green Village which had been improved with foundations and some concrete and steel walls, but improvements had no contributory value. Despite bank seller, agent stated buyers paid their top price in order to get the sites they wanted most, and no sale conditions adjustment is indicated.

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Land Comparable Map

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Land Comparable Summary and Adjustments Land Analysis Grid Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Address 3313 Chanate Road 1755 Sebastopol Road 8225 Conde Lane 500 Hopper Street 6400 State Farm Drive 1615 Fulton Road, et al. City Santa Rosa Santa Rosa Windsor Petaluma Rohnert Park Santa Rosa State CA CA CA CA CA CA Date 7/29/2016 6/28/2016 6/3/2015 In Contract 12/24/2013 10/29/2013 Price $7,038,000 $3,725,000 $18,894,000 $7,500,000 $9,500,000 Adjustments to Price -$65,000 -$350,000 -$1,870,000 $1,430,000 $0 Adjusted Price $6,973,000 $3,375,000 $17,024,000 $8,930,000 $9,500,000 Usable Land Area (SF) 2,039,915 613,325 522,720 740,520 914,760 1,085,951 Price per SF $11.37 $6.46 $22.99 $9.76 $8.75 Transaction Adjustments Property Rights Fee Simple Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Financing Cash to Seller Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale None REO 0% None 0% None 0% None 0% REO 0% Price per SF $11.37 $6.46 $22.99 $9.76 $8.75 Market Trends Through 7/29/2016 15% 1% 18% 0% 44% 47% Price per SF $11.50 $7.59 $22.99 $14.03 $12.85 Location NE Santa Rosa Inferior Inferior Superior Inferior Inferior % Adjustment 25% 20% -15% 15% 15% $ Adjustment $2.88 $1.52 -$3.45 $2.11 $1.93

Size (Acres) 46.83 14.08 12.00 17.00 21.00 24.93 % Adjustment -5% -10% 0% -5% -5% $ Adjustment -$0.58 -$0.76 $0.00 -$0.70 -$0.64

Topography Level To Steeply Level To Gently Level Level Level Level Sloping Sloping % Adjustment -10% -15% -15% -15% -15% $ Adjustment -$1.15 -$1.14 -$3.45 -$2.11 -$1.93

Zoning PI and R-1-6 R-3-15 GC T-4, T-5, T-6 & CS C-O Various % Adjustment -5% -5% -5% 0% -5% $ Adjustment -$0.58 -$0.38 -$1.15 $0.00 -$0.64

Density (DU/AC) See Narrative 14.0 8.0 - 12.0 7.9 15.7 8.8 % Adjustment 0% 0% 0% 0% 0% $ Adjustment $0.00 $0.00 $0.00 $0.00 $0.00

Site Status Raw Raw Raw Raw Finished Raw % Adjustment 0% 0% 0% -2% 0% $ Adjustment $0.00 $0.00 $0.00 -$0.28 $0.00

Entitlements Unentitled Tentative Map Unentitled Tentative Map Unentitled Tentative Map % Adjustment -30% 0% -30% -5% -30% $ Adjustment -$3.45 $0.00 -$6.90 -$0.70 -$3.85

Site Utility Fair - Shape/Quake Shape Creekside Soils N/A - Typical Multiple Sites % Adjustment -5% -5% -5% -10% -5% $ Adjustment -$0.58 -$0.38 -$1.15 -$1.40 -$0.64

Price per SF $8.05 $6.45 $6.90 $10.95 $7.07 Net Adjustments -30% -15% -70% -22% -45% Gross Adjustments 80% 55% 70% 52% 75% Analysis and Conclusion

Economic adjustments are made as follows:

Adjustments To Price: Land Comparable 1 is adjusted downward for impact fee credits due to previous construction. Land Comparable 2 was marketed as a land sale but was purchased by an investor intending to continue operating the existing mobile home park. It is adjusted downward based on discussions with the listing agent regarding offer prices from buyers that had intended to demolish the improvements and redevelop the site. Land Comparable 3 is adjusted downward

16-193-42 Page 97 of 191 3313 Chanate Road, Santa Rosa for the value of rough grading which the sellers were to undertake as a condition of the sale. Land Comparable 4 is adjusted upward for estimated demolition costs.

Real Property Rights Conveyed: A transaction price is always predicated on the real property interest conveyed. In the case of the comparable sales, all the sales sold as fee simple interests, the appraised subject site interest, and thus, no real property rights adjustments are required.

Financing Terms: All of the sales utilized were sold all cash to the seller, and thus no cash equivalency adjustments were required.

Market Conditions: Comparable sales that occurred under different market conditions than those applicable to the subject on the date of value require adjustment for any differences that affect their values. This set of comparables consists of one current escrow as well as sales which closed between October 2013 and June 2016. Both the for-sale and for-rent housing markets have continued to improve over this time period, and discussions with local agents with significant recent experience marketing residential development land in the subject’s local market area indicate that values for this type of land have also grown over this period. It is much more difficult to extract a precise growth rate given the greater scarcity of land sales relative to improved sales, but based on the growth in both multi-family and for-sale housing prices and upon discussions with market participants, the appraisers have applied upward adjustments to those comparables that are closed sales at an annualized rate of 15%.

No adjustments were considered necessary for differences in the availability of utilities. Further adjustments for material differences between the subject and comparable sales are described as follows:

Location: The subject’s location has been discussed previously. Land Comparable 1 is located in Southwest Santa Rosa, immediately south of State Highway 12 and just east of Stony Point Road. This property features good access to services, but Southwest Santa Rosa features markedly lower property values and the adjacent highway also detracts from the site’s appeal as a residential location. An upward adjustment of 25% has been made for the inferior location. Land Comparable 2 is located in Windsor, backing up to a creek on one side but also bordered by a mobile home park and in close proximity to the freeway. An upward adjustment of 20% has been made. Land Comparable 3 features a Petaluma riverfront location, and while it is virtually surrounded by industrial improvements, it is of sufficient size that it will effectively help to create its own neighborhood. Given Petaluma’s generally higher property values as well as the appeal of the riverfront location, a 15% downward adjustment is made. Land Comparable

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4 is located in Rohnert Park, which features lower property values, but the location is very good by Rohnert Park standards given its centralization and excellent proximity to services. Nonetheless, a 15% upward adjustment is made for the overall inferior location. Land Comparable 5 comprises a bulk REO portfolio sale of eight separate properties. The properties are almost entirely designated for residential development and are located in Northwest and Southwest Santa Rosa, as well as Cotati and Windsor. However, according to the buyer’s agent, the buyer had to acquire the less desirable sites in order to acquire the ones they wanted the most, and the less desirable sites had virtually no value once biotic mitigation costs were taken into account. These sites may not even be developed, and the sale has therefore been analyzed here based on the components which reportedly had value. These sites all featured entitlements, and feature a good Northwest Santa Rosa location surrounded by open space and a park, as well as a downtown Windsor location and a prominent Cotati commercial location. The location is considered relatively good, albeit still inferior to the subject’s, and an upward 15% adjustment has been made.

Size: Land Comparables 1, 2, 4 and 5 have been adjusted downward for their smaller sizes, reflecting the fact that developers will typically pay more on a per square foot basis for smaller projects than for larger ones, all other attributes being equal. Note that the adjustments are more reflective of the overall investment magnitude of the sales rather than merely their acreage. Land Comparable 3 is considered relatively similar to the subject in terms of investment size that no adjustment is warranted.

Topography: The subject features level to steeply sloping topography, and while the most steeply sloping areas have simply been excluded from the site’s usable area, the usable portions still feature rolling topography which will make site and potentially improvement construction more expensive. All of the comparables have received downward adjustments for their level or gently sloping topography. While Land Comparable 1 has a generally level slope overall, it also features undulating topography as a result of the previous golf driving range use, and the additional grading which will be necessary will add to site development costs. It has therefore received a smaller downward adjustment than those made to the other comparables.

Zoning: The subject predominantly features a zoning of Public and Institutional, and development would require a re-zoning, adding some risk to the development process. Land Comparable 4 will also need to be re-zoned to allow for the buyers’ proposed development plan, and has not been adjusted. The other comparables have all received downward adjustments based on their superior zoning status.

Density: Given the present uncertainty regarding what density of development would be approved for the subject site, we have not made specific adjustments for differences in density. This issue is discussed in more detail in the reconciliation portion at the end of this section.

Site Status: The subject site and all of the comparables except for Land Comparable 4 comprise raw land which would require new street improvements as a condition of development. Land Comparable 4 has surrounding street improvements but is a large site and will require extensive new infrastructure as a condition of development, and only a small downward adjustment has been made for this comparable’s superior site status.

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Entitlements: The subject lacks any subdivision or development entitlements. Land Comparable 2 also sold without entitlements and has not been adjusted. Land Comparable 4 also lacked entitlements at the time of sale, but the buyers had engaged in substantial pre-entitlement discussions with city officials regarding potential development before they purchased the site, and a 5% downward adjustment has been made to this sale.

Land Comparables 1, 3 and 5 sold with approved tentative maps in place. Based on paired sales of land selling with and without entitlements, and upon discussions with market participants, we have made downward adjustments of 30% to these comparables.

Site Utility: The numerous fault traces affecting the subject site and the need to avoid development within their setbacks create some inutility resulting from an atypical shape and several long narrow areas included in the developable area. More survey work would be required so that all of the numerous setback areas were properly observed, and off-site costs would be expected to increase somewhat given the irregular nature of improvements which would arise from the setback areas.

Land Comparable 4 has typical site utility and has received a 10% downward adjustment. The site utility of Land Comparable 1 is affected by its irregular long and narrow shape which limits potential site developments, and a 5% downward adjustment is made. Land Comparable 2 features extensive frontage along a creek, and given the need for greater survey work to observe setback areas, only a 5% downward adjustment is made. Development of Land Comparable 3 will most likely require unusually high level of soils engineering given liquefaction issues resulting from the riverfront location, and only a 5% downward adjustment is made. Finally, the site utility of Land Comparable 5 is affected somewhat given the need to design and develop projects on separate sites, but this does allow for some greater flexibility on the part of the developers. Overall, a 5% downward adjustment has been made.

Market Value As Is - Conclusion

After the above adjustments, the comparable sales indicate a range of $6.45 to $10.95 per square foot, with an average of $7.88 per square foot.

Land Comparable 4 has the highest indication at $10.95 per square foot and appears to be something of an outlier. This sale also closed nearly three years ago, and somewhat less weight has been placed on it for these reasons, although it is considered a meaningful indicator as a sale of a large, unentitled site proposed for development with a variety of uses.

Land Comparable 5, $7.07 per square foot, also sold in 2013. While this sale has been analyzed based on discussions with the buyer’s agent, it is noted that assigning no contributory value to five of the eight sites acquired in this transaction raises the comparable’s price per square foot as analyzed herein, and thus it is possible that the value indication could be slightly high as a result should the other sites actually have some residual value even just based on future development potential when values offset mitigation costs to a greater degree. Given the preceding, this comparable’s adjusted value indication may actually be somewhat high, and less weight is placed on it for this reason as well as the age of the sale.

The other comparables range from $6.45 to $8.05 per square foot.

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As a final factor in our reconciliation, we have analyzed the relative density of the comparables. The city convention is to determine legally permissible density based on gross, rather than developable, site area. The subject features a large amount of unusable site area which could be counted toward its permissible density, and city officials indicated that clustering of units could be somewhat more acceptable in the current climate with a clear need for more housing units with below local median prices. However, such a project would still need to fit well with the surrounding neighborhood development, virtually all of which is low density single-family housing within zones designated for a maximum of eight units per acre, and market participants universally agreed that neighborhood opposition to high density residential development would be substantial.

As discussed previously, a previous site plan proposed development with an overall density of approximately 7.0 units per developable acre, but city officials would now also be likely to consider a somewhat higher density project containing a greater proportion of multi-family units than previously proposed. While we were not provided any additional indications beyond this statement of a most likely permissible density, we have roughly projected that based on the surrounding development, which is virtually entirely low density residential at a maximum of 8.0 units per acre, and given the previous site development plan proposing ~7.0 units per acre including a small amount of multi-family units, a very aggressive scenario (and one not necessarily likely to be approved given the lower density nature of the surrounding properties) would involve development with approximately 50% multi-family and 50% single-family residences. The maximum density assumed for the multi-family based on typical General Plan ranges is 18.0 units per acre while the maximum density assumed for the single-family component is 8.0 units per acre. This would equate to a midpoint of 13.0 units per acre, but development often is not approved at the very maximum. Additionally, given the site’s irregular shape, topography, and the need to develop around earthquake zone setbacks, development at slightly less than the maximum is considered most likely. For the purposes of this analysis, an aggressive projection of the maximum overall density is considered to be roughly 12.0 units per acre, with a most likely overall density range for the subject thus projected to be approximately 8.0 to 12.0 units per developable acre.

There is a direct correlation between the sites with higher densities and their value indications, which would be expected as developers will typically pay more on a per square foot basis for sites that can be developed to a greater intensity, all other attributes being equal. Land Comparables 1 and 4 have higher densities ranging from 14.0 to 15.7 units per acre and range from $8.05 to $10.95 per square foot. Land Comparables 3 and 5 have lower densities ranging from 7.9 to 8.8 units per acre and range from $6.90 to $7.07 per square foot. (As noted previously, Land Comparable 5 may be somewhat high at $7.07 as it included other sites which have been allocated no value here.)

Land Comparable 2, at $6.45 per square foot, features a mixed commercial and residential zoning which allows for residential development at between 8.0 and 12.0 units per acre, or roughly similar to the projected density range for the subject.

Based on the preceding analysis, and given the subject’s large size, relative site utility given the earthquake fault trace impacts, and uncertainty regarding precisely what permissible density would ultimately be approved, a reasonable value indication for the subject site is considered to be $6.50 per square foot.

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In order to make way for the proposed subdivision improvements, the existing improvements would also have to be demolished. These costs have been estimated at $6,110,000, as described previously.

The market value of the fee simple interest of the property, as is, as of July 29, 2016, can therefore be calculated as follows:

Market Value As Is Indicated Value per Square Foot: $6.50 Subject Size: 2,039,915 Indicated Value: $13,259,446 Less Demolition Costs: ($6,110,000) Indicated Value: $7,149,446 Rounded: $7,150,000

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HYPOTHETICAL MARKET VALUE OF SUBJECT SITE AS ENTITLED

In this analysis, it is assumed as of the date of valuation, the existing improvements had already been demolished and the subject had full entitlements for a mixed-use subdivision development to comprise 600 multi-family units, of which there are 480 market rate units, 60 units that are affordable to very low income households, and 60 units that are rented with voucher subsidies, 200 for-sale condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery.

This section primarily analyzes the value of the vast majority of the subject site which is to be developed with residential units. The land value of the site area to be developed with commercial uses is analyzed at the end of this section.

As in the preceding analysis, the subject site is analyzed as comprising 46.83 developable acres. In order to calculate overall density, we have first assumed a typical floor to area ratio for the commercial space of 25%. Given the building area of 33,000 square feet and assuming single- story construction as discussed later in this report, this equates to a land area of 3.03 acres which would be needed to support the commercial space. This leaves a remainder of 43.80 acres to be developed with the 800 total residential units, equating to a density of 18.3 units per acre, which is utilized as the basis for adjustment in the following analysis.

Included below are the comparable land sales followed by a locational map, summary table and analysis and conclusion of land value.

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Land Comparable 1

Transaction Land Type Multifamily Residential Date June 27, 2016 APN 044-051-032, et al. Transaction Type Closed Address 2630 Petaluma Hill Road Price $1,850,000 City Santa Rosa Adjustments to Price $470,625 County Sonoma Adjusted Price $2,320,625 Grantor Regency-Alliance SR Price Per Land Unit $24,173 Grantee Kawana Springs By Vintage Days on Market ~700 Doc# 55699 Verification Source Ron Reinking Financing Cash To Seller Affiliation Listing Agent Site Gross Land Area (AC) 4.77 Site Status Raw Gross Land Area (SF) 207,781 Entitlements Unentitled Usable Land Area (AC) 4.77 Topography Level Usable Land Area (SF) 207,781 Utilities All Public Utilities Zoning CSC Shape Rectangular General Plan Designation MDR (8-18 du/a) & Retail & Improvements of Value No Business Services Comments Site comprises nine contiguous parcels at the SEC of Kawana Springs and Petaluma Hill Roads. Had old expired entitlements for 98 townhomes and commercial. Zoning requires mixed-use and buyers originally wanted 115 units and no commercial but were rebuffed and plans are for 96 units and undetermined but minimal commercial space. Site will not require CTS mitigation but will need mitigation for 0.10 acres of on-site wetlands and plants with total cost estimated at $70,625. The original contract price was $2.25 million but soils contamination was found during escrow; seller agreed to fully discount price for projected soils remediation. The closing price of $1,850,000 has thus been adjusted upward by $470,625 to reflect $400,000 in projected soils remediation along with the wetlands mitigation. Adjusted price thus reflects a clean, fully developable site. Sale was not contingent on entitlements at close of escrow.

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Land Comparable 2

Transaction Land Type Multifamily Residential Date December 24, 2015 APN 041-161-030 Transaction Type Closed Address 1300 Range Avenue Price $4,100,000 City Santa Rosa Adjustments to Price $0 County Sonoma Adjusted Price $4,100,000 Grantor Finali Family Partnership I Price Per Land Unit $34,167 Grantee Annadel Phase II Days on Market NA Doc# 109397 Verification Source Jim Brown Financing Cash To Seller Affiliation Listing Agent Site Gross Land Area (AC) 4.98 Site Status Raw Gross Land Area (SF) 216,929 Entitlements Contingent Upon Final Design Review Usable Land Area (AC) 4.98 Topography Level Usable Land Area (SF) 216,929 Utilities All Public Utilities Zoning R-3-30 Shape Irregular General Plan Designation Medium-High Density Improvements of Value No Residential (18.0 - 30.0 units per acre) Comments Buyer was able to make closing contingent upon obtaining all final discretionary approvals for 120 market rate apartments in the second phase of Annadel Apartments. The project site included a General Plan park overlay, but all dedication was addressed in the first phase, and this site is to be fully developed with multi-family units. Location near Coddingtown and a future SMART station is a positive.

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Land Comparable 3

Transaction Land Type Multifamily Residential Date May 13, 2016 APN 116-180-005 Transaction Type Closed Address 701 South Cloverdale Boulevard Price $600,000 City Cloverdale Adjustments to Price $0 County Sonoma Adjusted Price $600,000 Grantor Gross, et al. Price Per Land Unit $26,087 Grantee Boccoli Street Investments Days on Market 76 Doc# 41718 Verification Source David Murray Financing Cash To Seller Affiliation Selling Agent Site Gross Land Area (AC) 1.49 Site Status Raw Gross Land Area (SF) 64,904 Entitlements Unentitled Usable Land Area (AC) 1.49 Topography Level Usable Land Area (SF) 64,904 Utilities All Public Utilities Zoning R-3 Shape Rectangular General Plan Designation High Density Residential Improvements of Value No Comments Site was purchased by Ledson Construction, who reportedly intended to develop 23 multi-family residential units, the maximum allowed under the zoning. Site was improved with an older SFR which buyer planned to demolish, with demolition costs estimated to be roughly offset by hookup fee credits. Seller had plans for four fourplexes; the buyer did not intend to use these, but while he closed without entitlements in place, the seller had done some pre-entitlement work from which he benefited. Will most likely be developed in some sort of conjunction with the adjacent Schellinger Brothers multi-family development site.

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Land Comparable 4

Transaction Land Type Mixed-Use Date June 28, 2016 APN 010-311-028, 125-031-022 Transaction Type Closed and 125-071-014 Address 1755 Sebastopol Road Price $7,038,000 City Santa Rosa Adjustments to Price ($65,000) County Sonoma Adjusted Price $6,973,000 Grantor Canary Asset Price Per Land Unit $35,396 Grantee OSL Properties Days on Market 750 Financing Cash To Seller Verification Source Will Gallaher Doc# 55991 Affiliation Buyer Site Gross Land Area (AC) 14.28 Site Status Raw Gross Land Area (SF) 622,037 Entitlements Tentative Map Usable Land Area (AC) 14.08 Topography Level To Gently Sloping Usable Land Area (SF) 613,325 Utilities All Public Utilities Zoning R-3-15 Shape Irregular General Plan Designation Medium Density Residential Improvements of Value No (8.0 - 18.0 units per acre) Comments This is the site of a former golf driving range which had been demolished. The site sold with entitlements for The Villas, consisting of 197 townhomes ranging from 1,417 to 1,600 sf as well as 5,000 sf of commercial space. Buyer is a senior housing/assisted living facility developer and will slightly modify the entitlements to develop the same number of market rate multi-family units instead in a project to be known as Sebastopol Road Townhomes. The commercial portion of the site comprises 0.72 gross and 0.52 usable acres and will now be developed with the apartment leasing office and common amenities facilities rather than rental space. Price adjusted down by $65,000 for estimated fee credits due to previous construction. Site costs will be high given undulating topography and need for sound wall along extensive Highway 12 frontage. The seller was First Community Bank, of which the buyer is the Chairman of the Board, but the site was marketed conventionally for a significant time and there was strong competition and reportedly multiple offers from other buyers around a similar price, so the price is considered to be at market with no adjustment indicated for the REO sale conditions or a possibly less than 100% arms' length transfer. Irregular shape affects site utility. Long time on the market was partly due to site having fallen out of a previous escrow at a similar price.

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Land Comparable 5

Transaction Land Type Multifamily Residential Date June 11, 2015 APN 056-201-100 and -101 Transaction Type Closed Address 17310 Sonoma Highway Price $2,100,000 City Sonoma Adjustments to Price ($40,000) County Sonoma Adjusted Price $2,060,000 Grantor Vailetti Price Per Land Unit $20,600 Grantee MP Springs Family Associates Days on Market N/A Doc# 50968 and 50972 Verification Source Scott Johnson Financing Cash To Seller Affiliation Buyer Site Gross Land Area (AC) 6.02 Site Status Semi-Finished Gross Land Area (SF) 262,231 Entitlements Contingent Upon Final Design Review Usable Land Area (AC) 4.27 Topography Level To Moderately Sloping Usable Land Area (SF) 186,001 Utilities All Public Utilities Zoning PC-SD-SR-VOH & R1-B6-3 Shape Irregular General Plan Designation Urban Residential Improvements of Value No Comments Buyer made closing contingent upon full entitlements for 100 affordable apartments, which were issued in 2014, as well as financing which was not available until mid-2015. Seller approached buyer directly and contract was signed in July 2013. Site areas taken from developer's site survey. Usable area excludes separate trail and garden areas which exist prescriptively and had to be included in development plan, as well as another 1.35 acres improved with a playground leased to an adjacent school and to be maintained. Buyer will receive impact fee credits of ~$190,000 for playground. Price has been adjusted down by $40,000 to reflect this credit net of off-site costs of ~$150,000 for extraordinary sewer trunk and drainage system work needed. County will complete Highway 12 street improvements, but given infrastructure needed for project, site analyzed as semi-finished lot.

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Land Comparable Map

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Land Comparable Summary and Adjustments Land Analysis Grid Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Address 3313 Chanate Road 2630 Petaluma Hill 1300 Range Avenue 701 South Cloverdale 1755 Sebastopol Road 17310 Sonoma Road Boulevard Highway City Santa Rosa Santa Rosa Santa Rosa Cloverdale Santa Rosa Sonoma State CA CA CA CA CA CA Date 7/29/2016 6/27/2016 12/24/2015 5/13/2016 6/28/2016 6/11/2015 Price $1,850,000 $4,100,000 $600,000 $7,038,000 $2,100,000 Adjustments to Price $470,625 $0 $0 -$65,000 -$40,000 Adjusted Price $2,320,625 $4,100,000 $600,000 $6,973,000 $2,060,000 Proposed/Allowed Units 800 96 120 23 197 100 Price/Unit $24,173 $34,167 $26,087 $35,396 $20,600 Transaction Adjustments Property Rights Fee Simple Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Financing Cash to Seller Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale None None 0% None 0% None 0% REO 0% None 0% Price/Unit $24,173 $34,167 $26,087 $35,396 $20,600 Market Trends Through 7/29/2016 15% 1% 9% 3% 1% 54% Price/Unit $24,471 $37,141 $26,868 $35,819 $31,724 Location NE Santa Rosa Inferior Inferior Inferior Inferior Inferior % Adjustment 20% 15% 40% 25% 50% $ Adjustment $4,894 $5,571 $10,747 $8,955 $15,862

Impact Fees/Unit NE Santa Rosa Higher Lower Lower Higher Lower % Adjustment 48% -1% -4% 22% -13% $ Adjustment $11,700 -$300 -$1,100 $7,900 -$4,200

Topography Level To Steeply Level Level Level Level To Gently Level To Moderately Sloping Sloping Sloping % Adjustment -15% -15% -15% -10% 0% $ Adjustment -$3,671 -$5,571 -$4,030 -$3,582 $0

Site Status Raw Raw Raw Raw Raw Semi-Finished % Adjustment 0% 0% 0% 0% -2% $ Adjustment $0 $0 $0 $0 -$634

Proposed/Allowed Units 800 96 120 23 197 100 % Adjustment -15% -15% -20% -15% -15% $ Adjustment -$3,671 -$5,571 -$5,374 -$5,373 -$4,759

Density (DU/AC) 18.3 20.1 24.1 15.4 14.0 23.4 % Adjustment 0% 5% -5% -5% 5% $ Adjustment $0 $1,857 -$1,343 -$1,791 $1,586

Entitlements Full Entitlements Unentitled Contingent Upon Unentitled Tentative Map Contingent Upon Final Design Review Final Design Review % Adjustment 40% 15% 40% 5% 15% $ Adjustment $9,788 $5,571 $10,747 $1,791 $4,759

Site Utility Fair - Shape/Quake N/A - Typical N/A - Typical N/A - Typical Shape N/A - Typical % Adjustment -10% -10% -10% -5% -10% $ Adjustment -$2,447 -$3,714 -$2,687 -$1,791 -$3,172

Price/Unit $41,065 $34,984 $33,828 $41,928 $41,165 Net Adjustments 68% -6% 26% 17% 30% Gross Adjustments 148% 76% 134% 87% 110% Analysis and Conclusion

Economic adjustments are made as follows:

Adjustments To Price: Land Comparable 1 is adjusted upward for projected soils remediation and wetlands mitigation costs. Land Comparable 4 is adjusted downward for impact fee credits due to previous construction. Land Comparable 5 is adjusted downward for impact fee credits net of extraordinary off-site costs.

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Financing Terms: All of the sales utilized were sold all cash to the seller, and thus no cash equivalency adjustments were required.

Market Conditions: Comparable sales that occurred under different market conditions than those applicable to the subject on the date of value require adjustment for any differences that affect their values. This set of comparables consists of sales which closed between June 2015 and June 2016. As in the case of the previous analysis, the appraisers have applied upward adjustments to the comparables at an annualized rate of 15%. The adjustment to Land Comparable 5 has been handled somewhat differently though. This sale went into contract in July 2013 but the buyer was not able to arrange for financing and close until June 2015. The other sales typically had much shorter periods between contract and closing, and given the much longer spread between contract and closing dates for this transaction, as well as the lower values in place at the time the purchase price was agreed upon, we have utilized the contract date in this case rather than the closing date as the basis for adjustment. We have therefore applied the annualized appreciation factor of 15% to the period since July 2013.

Location: The subject’s location has been discussed previously. Land Comparable 1 is located in Southeast Santa Rosa. While the quality, condition and variety of properties in the greater surrounding neighborhood are generally below average, this is an area which has experienced significant redevelopment over the past decade. A 20% upward adjustment has been made. Land Comparable 2 is located in an area of Northwest Santa Rosa which features some heavy commercial uses as well as other apartments and lower cost single-family housing. However, it is also located in close proximity to Coddingtown Mall and a new Sonoma Marin Area Rapid Transit station which will be built. In addition, the proposed project is actually the second phase of a project big enough that it will in effect be able to contribute significantly to the overall neighborhood appeal. Nonetheless, the locational appeal is inferior and an upward adjustment of 15% has been made. Land Comparable 3 is located in Cloverdale, and has received the second largest upward adjustment based on Cloverdale’s much lower property values. Land Comparable 4 has been described in the previous section, and a similar 25% upward adjustment has been made as was made in the previous analysis. Land Comparable 5 is located in the Agua Caliente community just north of Sonoma. This residential area features below average demand and appeal, and is influenced by an adjacent mobile home park and the generally poor quality of the residences prominently located immediately along the other side of Sonoma Highway to the

16-193-42 Page 111 of 191 3313 Chanate Road, Santa Rosa east. Sonoma Highway is also very heavily traveled in this site’s vicinity, adversely impacting those units backing directly up to the roadway. A 50% upward adjustment is made to this comparable.

Impact Fees/Unit: The subject is located within Northeast Santa Rosa. Given the proposed development scenario, the impact fees for the residential units are projected to be $26,909 per unit. Land Comparable 1 is located in the Southeast Area Plan boundaries. Impact fees in this area are higher than those in most other parts of Santa Rosa (and also other areas of the county), due to a special development impact fee required for new construction in this area. Given this comparable’s General Plan designation and associated density range, this comparable’s projected impact fees are projected to be approximately $11,700 per unit higher than the subject’s. An upward adjustment equating to this amount has therefore been made to reflect the comparable’s higher (inferior) impact fees. Land Comparable 2 is located in Northwest Santa Rosa, which features very similar overall fees, and has only received a downward adjustment of $300 per unit. Land Comparable 3 is located in Cloverdale which features impact fees which are lower by approximately $1,100 per unit, and has been adjusted downward by this amount. Land Comparable 4 is located in Southwest Santa Rosa. As in the case of Land Comparable 1, this comparable will also pay a special fee as a result of its location within the Southwest Area Plan boundary, and this project will pay impact fees projected at approximately $7,900 per unit more than the subject. It has therefore received an upward adjustment equating to that amount. Land Comparable 5 is located just north of the City of Sonoma; county projects generally have lower impact fees, and in this case, a downward adjustment of $4,200 per unit is indicated.

Topography: The subject’s topography has been discussed previously. Land Comparables 1 through 4 have received downward adjustments for their level or gently sloping topography which will contribute to lower development costs. Land Comparable 5 has generally somewhat moderately sloping topography and is considered overall similar to the subject.

Site Status: The subject and Land Comparables 1 through 4 all comprise raw land which would require new street improvements as a condition of development, and no adjustments are indicated for these comparables. Land Comparable 5 will also require new infrastructure, but the County of Sonoma was to complete the street improvements along Sonoma Highway at its own expense, and a small downward adjustment has been made for this comparable’s superior site status with these new street improvements in place.

Proposed/Allowed Units: All of the comparables have been adjusted downward for their smaller project sizes, reflecting the fact that developers will typically pay more on a per unit basis for smaller projects than for larger ones, all other attributes being equal, as well as the much smaller pool of potential buyers that would be able to take on a development project of the subject’s size.

Density: The subject has been analyzed based on its effective density for the residential portion of the site of 18.3 units per developable acre. Note that in this case, as the comparables are analyzed on a per unit rather than a per square foot basis, lower densities are superior as developers will typically pay more on a per unit basis for properties to be developed at a lesser intensity, all other attributes being equal. Land Comparable 1 is considered relatively similar to the subject in terms of density and has not been adjusted. Land Comparables 2 and 5 have been adjusted upward for their inferior higher densities, while Land Comparables 3 and 4 have been adjusted downward for their superior lower densities.

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Entitlements: In this scenario, the subject is assumed to have full subdivision development entitlements. Land Comparable 4 sold with tentative but not final map in place, and the buyers intended to slightly modify the entitlements to allow for multi-family development; a 5% upward adjustment is indicated for this sale. The buyers for Land Comparables 2 and 5 made closing contingent upon obtaining full entitlements including final design review for the improvement plans with all discretionary appeals exhausted. While they still bore all the costs of obtaining entitlements, they were able to remove the entitlement risk in this manner, and upward adjustments of 15% have been made, based on paired sales of land with and without entitlements, and upon discussions with market participants. Land Comparables 1 and 3 sold without entitlements and have received upward adjustments of 40%. Note that this initially appears to differ from the entitlement adjustments made in the previous section. However, this is a result of the different mathematics at work since here the adjustments are being made in an upward direction. As example, an unentitled site selling for $100 would require an upward adjustment of 40% to equate to an entitled site selling for $140, but the same entitled site selling for $140 would require approximately a 30% downward adjustment to equate to the unentitled site selling for $100.

Site Utility: The subject’s site utility has been discussed previously. Land Comparables 1, 2, 3 and 5 have typical site utility and have received 10% downward adjustments. The site utility of Land Comparable 4 is affected by its irregular long and narrow shape which limits potential site developments, and a 5% downward adjustment is made.

Site Value - Conclusion

After the above adjustments, the comparable sales indicate a range of $33,828 to $41,928 per unit, with an average of $38,594 per unit.

The comparables required generally high levels of absolute adjustment. Land Comparable 2, $35,284 per unit, required the lowest level of absolute adjustment and has been given significant weight.

The interviews conducted with market participants during the course of this assignment included discussions with two agents, Ken Bizzell with Keegan & Coppin and Ron Reinking with Newmark Cornish & Carey, who both indicated an opinion of a reasonable value for the subject site assuming entitlements under this development scenario of $35,000 per lot. Both of these agents have substantial experience in marketing development land, and both specifically cited Land Comparable 2 as a particularly good comparable for the subject.

Based on the preceding analysis, a reasonable value indication for the portion of the subject site to be developed with a total of 800 residential units is therefore considered to be $35,000 per unit, or $28,000,000. As this area has been estimated previously to comprise 43.80 acres, the value equates to $14.68 per square foot of developable land area. The commercial site area estimated previously at 3.03 acres would be projected to have a somewhat higher unit value based on its much smaller size and presumed location within the project with good exposure along Chanate Road. We have made a line item adjustment for the contributory value of the commercial portion at $20.00 per square foot, equating to $2,639,736, which has been rounded to $2,640,000.

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The hypothetical market value of the fee simple interest of the property as proposed, and assuming that as of the date of valuation, July 29, 2016, the subject site is fully entitled for development with 600 multi-family units, of which 480 units are rented at market, 60 units are rented at levels affordable to very low income households, and the remaining 60 units are rented with voucher subsidies, 200 for-sale condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery, can therefore be calculated as follows:

Hypothetical Market Value of the Subject Site As Entitled Indicated Value per Unit: $35,000 Subject Size (Units): 800 Contributory Value Of Residential Portion: $28,000,000 Contributory Value Of Commercial Portion: $2,640,000 Indicated Value: $30,640,000 Rounded: $30,640,000

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HYPOTHETICAL MARKET VALUE AS IMPROVED - COST APPROACH

This section determines the hypothetical market value of the leased fee interest assuming the subject is improved and fully leased with either:

 600 multi-family units, of which there are 480 market rate units, 60 units that are affordable to very low income households, and 60 units that are rented with voucher subsidies, 200 for-sale condominiums and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery or;  300 multi-family units, of which there are 240 market rate units, 30 units that are affordable to very low income households, and 30 units that are rented with voucher subsidies, 100 for-sale condominiums and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery.

Both are analyzed within this section via the Cost Approach as follows:

 estimating the direct and indirect costs of the improvements as of the date of value,  estimating the entrepreneurial incentive required by the typical developer,  estimating the amount of accrued depreciation in the structure, if any,  determining the land value as though vacant and available to be developed to its highest and best use, and  totaling the above items to arrive at the indicated value of the specified interest in the property.

Direct and Indirect Costs – 600 MFR/200 SFR Scenario

The next step in the Cost Approach is to estimate the replacement cost of the buildings and site improvements. The replacement cost of the subject site and building improvements are based on Marshall & Swift, a nationally recognized cost service. The cost calculations include plans, architectural and engineering fees, building and other required permits and normal site preparation work including excavation and backfill as well as contractors' overhead and profit. Note that while the subject units are proposed for a mix of multi- and single-family residences, the condominium-type construction assumed for both is analyzed based on the same cost factors.

For the purposes of this analysis, and based on the respective amount of common building area in the most similar projects, we have estimated that the subject will include approximately 5,000 square feet of common building areas. Garages will be of the built-in variety and are estimated to comprise 200 square feet per space. The costs of patios, decks and stairs have been built into the base cost factor for the dwelling units.

Site Improvements

These are estimated at $15.00 per land square foot, based on costs of other development projects in the market area.

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Impact Fees

Impact fees applicable to the subject residences will consist of city water and sewer connection fees, capital facilities fees, parks fees, and school fees for the Santa Rosa Elementary and High School districts. The owners will not have to pay affordable housing in lieu fees as a result of providing at least 15% of the units as affordable to low and very low income residents. Given the proportion of multi- and single-family units, total impact fees for the combined 800 residential units are estimated at $21,527,000, or $26,909 per unit.

Impact fees for the commercial space are estimated at $560,000 based upon the most recently updated city fee schedule. Total impact fees for the entire project are therefore estimated to be $22,087,000.

Lease-Up Costs

It is often appropriate to add marketing expenses and leasing costs necessary to bring an income producing property to stabilized occupancy to the cost schedule. Such a large project would be developed in phases, and based on the current very strong market conditions and the recent leasing experience of other newly constructed projects, it is projected that the multi-family units will be approximately 25% pre-leased upon completion of construction, with all of the affordable units assumed to be pre-leased and only market rate units remaining available. This means that there will be 450 multi-family units available after construction completion, and it is estimated that the project will reach stabilization within an 18 month period after construction completion.

Later in this report, we have calculated the rent loss attributable to the affordable units at $1,132,080. Adding this to the potential gross rental income calculated for the subject’s actual projected mix of market rate and affordable units of $15,835,920 equates to a figure of $16,968,000, which reflects the subject’s potential gross rental income assuming 100% market rate units. The average market rate rent given 600 multi-family units therefore equates to $2,357 per unit per month.

Assuming an even absorption over the projected 18 month lease-up period, the lease-up costs effectively equate to nine total months of lost rent for 450 market rate units, or a total lost rent of $9,545,850. This is rounded to $9,600,000 to account for marketing materials or advertisements that may be necessary, though such expenses are minimal at the present time due to the strength of the market.

The subject commercial space is estimated to have its grocery space pre-leased as of construction completion, with no other pre-leasing. The remaining 21,000 square feet of space is projected to be absorbed in one year. At the concluded market rent for this space of $2.00 per square foot, triple net, and assuming an even lease-up over this period, this equates to six months of lost rent for the 21,000 square feet, or $252,000. In addition, leasing commissions would be payable at approximately 25% of the initial year’s rent, or $126,000.

Total lease-up costs therefore equate to $9,978,000.

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Entrepreneurial Incentive – 600 MFR/200 SFR Scenario

This factor reflects the profit necessary for the developer to undertake the management, responsibility and risks of construction associated with the subject property. Current valuation theory states that the four components that create value are land, labor, capital and coordination. Developer's profit as used in the Cost Approach reflects the coordination component of value. Typically, developer's profit runs 10% to 15%: we have computed developer's profit at 10% of construction costs.

Depreciation Analysis – 600 MFR/200 SFR Scenario

Depreciation may be defined as any loss of value from any cause. There are three general areas of depreciation: physical deterioration, functional obsolescence and external obsolescence. Depreciation may be curable or incurable, the test being that money spent to cure the depreciation be gained in value. If the depreciation costs more to fix than will be gained in value, then the depreciation is considered incurable.

Physical Deterioration

This results from deterioration from aging and use. This type of depreciation may be curable or incurable. The subject is a new property and would suffer from no physical deterioration.

Functional Obsolescence

This results from a lack of utility or desirability due to design or market perception of the improvements. This type of depreciation may be curable or incurable. There are no design choices that require an estimate of depreciation for functional obsolescence.

External Obsolescence

This is due to circumstances outside the property itself, such as industry, demographic and economic conditions or an undesirable proximate use. This type of depreciation is rarely curable. In the subject’s case, there is external economic obsolescence resulting from the affordable rent restrictions applicable to the 10% of the units which are to be affordable to very low income households. (No such obsolescence is attributable to the other 10% of units which will comprise subsidized voucher housing, as these units will effectively be leased at market rents.) This obsolescence is estimated at $12,452,880, as described in more detail later in the Sales Comparison Approach section of this report.

Land Value - 600 MFR/200 SFR Scenario

The subject site value was determined in the previous section entitled “Hypothetical Market Value of the Subject Site As Entitled” to be $30,640,000.

Finally, the site value as concluded previously is added.

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Cost Approach Conclusion – 600 MFR/200 SFR Scenario

The calculations are shown on the following page. The Cost Approach concludes to a value under this development scenario of $274,360,000.

Cost Approach Calculations – 600 MFR/200 SFR Scenario Marshall & Swift Cost Source: Marshall & Swift # 12: Dwellings, Multiples, Motels No. of Stories Multiplier: 1.000 Local Multiplier: 1.240 Height/Story Multiplier: 1.090 Current Cost Multiplier: 0.990 Area Multiplier: 1.030 Combined Multipliers: 1.378 Building Improvements Item Unit Type Cost Quantity Multiplier Total Dwelling Units Sq. Ft. $129.30 864,277 1.378 $154,018,214 Common Building Areas Sq. Ft. $129.30 5,000 1.378 $891,023 Private Garages With Doors Sq. Ft. $31.75 160,000 1.228 $6,236,208 Appliances Lump Sum $5,000 800 1.228 $4,910,400 Neighborhood Shopping Center Sq. Ft. $101.82 33,000 1.240 $4,166,474 Total Building Improvement Costs $170,222,320 Price per SF Gross Building Area $195.82 Site Improvements Item Unit Type Cost Quantity Total Site Preparation & Improvements Sq. Ft. $15.00 2,039,915 $30,598,722 Total Site Improvement Costs $30,598,722 Subtotal: Building & Site Costs $200,821,042 Price per SF Gross Building Area $231.02 Soft Costs Item Percent Type Total Impact Fees ………………………………………………………………………………………………………..$22,087,000 Lease-Up Costs ………………………………………………………………………………………………$9,978,000 Total Soft Costs $32,065,000 Total Costs Subtotal: Building, Site & Soft Costs $232,886,042 Entrepreneurial Incentive 10% $23,288,604 Total Cost $256,174,646 Price per SF Gross Building Area $294.70 Depreciation Component Eff. Age Life Percent Amount Physical Depreciation: Building 0 50 0% $0 Physical Depreciation: Site 0 20 0% $0 Functional Obsolescence Building …………………………………………………………………0% $0 External Obsolescence (Affordable Restrictions) …………………………………………………………………$12,452,880 Total Depreciation $12,452,880 Depreciated Value of Improvements $243,721,766 Cost Per Square Foot Gross Building Area $280.37 Land Value Land Value ………………………………………………………………………………………$30,640,000 Cost Approach Value Indication - 600 MFR/200 SFR Scenario $274,361,766 Rounded $274,360,000 Price per SF Gross Building Area $315.62

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The Cost Approach conclusion is within less than 1% of the value indications of the other two approaches for the same development scenario, supporting both its reliability and the financial feasibility of development.

Direct and Indirect Costs – 300 MFR/100 SFR Scenario

With the following exceptions, the analysis is the same as described previously for the other development scenario.

The base cost factor is the same but is based on the smaller building area. The cost figures for garage costs and appliances are also adjusted accordingly, although their base cost factors are still the same.

Site improvement costs are projected at $12.50 per square foot, or slightly lower. Given the much lower density of development, it is assumed that somewhat more site area is left in a natural state to provide for privacy buffering.

Impact fees for the residential units are estimated at $10,763,500. Adding this to the estimated impact fees for the commercial space of $560,000 equates to total estimated impact fees for the entire project of $11,323,500.

In the previous section, it was estimated that the multi-family units would be approximately 25% pre-leased upon completion of construction, equating to pre-leasing of 150 units, with all of the affordable units assumed to be pre-leased and only market rate units remaining available. This projection is retained here, meaning that under this scenario, there will be only another 150 multi-family units available after construction completion. Assuming the same absorption rate as projected previously, it is estimated that the project will reach stabilization within a six month period after construction completion.

The same average market rate rent of $2,357 per unit per month is utilized. Assuming an even absorption over the projected six month lease-up period, the lease-up costs effectively equate to three total months of lost rent for 150 market rate units, or a total lost rent of $1,060,650. This is rounded to $1,075,000 to account for marketing materials or advertisements.

Lease-up costs for the subject commercial space are unchanged at lost rent of $252,000 and leasing commissions of $126,000. Total lease-up costs under this scenario therefore equate to $1,453,000.

External obsolescence resulting from the affordable rent restrictions is estimated at $6,226,440, as described in more detail later in this report.

The client has not requested a land value for the subject assuming entitlements for this development scenario. The site value concluded for the higher density scenario reflected $35,000 per unit for the multi- and single-family residential units, plus $20 per square foot for the commercial, or a rounded $2,640,000 for the site area to be developed with the commercial space. In this scenario, the subject site would be developed with only 400 total residential units, and a higher unit value would be projected given both the smaller total project size as well as the lower density. For the purposes of this analysis, we have utilized an estimate of $40,000 per unit for the land assuming development with 400 residential units, or $16,000,000. We have then

16-193-42 Page 119 of 191 3313 Chanate Road, Santa Rosa added the contributory value of the commercial site area at $2,640,000. This equates to an estimated land value for this development scenario of $18,640,000, which is utilized in the following calculations.

Cost Approach Conclusion – 300 MFR/100 SFR Scenario

The calculations are shown on the following page. The Cost Approach concludes to a value under this development scenario of $150,870,000.

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Cost Approach Calculations – 300 MFR/100 SFR Scenario Marshall & Swift Cost Source: Marshall & Swift # 12: Dwellings, Multiples, Motels No. of Stories Multiplier: 1.000 Local Multiplier: 1.240 Height/Story Multiplier: 1.090 Current Cost Multiplier: 0.990 Area Multiplier: 1.030 Combined Multipliers: 1.378 Building Improvements Item Unit Type Cost Quantity Multiplier Total Dwelling Units Sq. Ft. $129.30 431,903 1.378 $76,967,140 Common Building Areas Sq. Ft. $129.30 5,000 1.378 $891,023 Private Garages With Doors Sq. Ft. $31.75 80,000 1.228 $3,118,104 Appliances Lump Sum $5,000 400 1.228 $2,455,200 Neighborhood Shopping Center Sq. Ft. $101.82 33,000 1.240 $4,166,474 Total Building Improvement Costs $87,597,942 Price per SF Gross Building Area $200.50 Site Improvements Item Unit Type Cost Quantity Total Site Preparation & Improvements Sq. Ft. $12.50 2,039,915 $25,498,935 Total Site Improvement Costs $25,498,935 Subtotal: Building & Site Costs $113,096,877 Price per SF Gross Building Area $258.86 Soft Costs Item Percent Type Total Impact Fees ………………………………………………………………………………………………………..$11,323,500 Lease-Up Costs ………………………………………………………………………………………………$1,453,000 Total Soft Costs $12,776,500 Total Costs Subtotal: Building, Site & Soft Costs $125,873,377 Entrepreneurial Incentive 10% $12,587,338 Total Cost $138,460,714 Price per SF Gross Building Area $316.91 Depreciation Component Eff. Age Life Percent Amount Physical Depreciation: Building 0 50 0% $0 Physical Depreciation: Site 0 20 0% $0 Functional Obsolescence Building …………………………………………………………………0% $0 External Obsolescence (Affordable Restrictions) ………………………………………………………………… $6,226,440 Total Depreciation $6,226,440 Depreciated Value of Improvements $132,234,274 Cost Per Square Foot Gross Building Area $302.66 Land Value Land Value ………………………………………………………………………………………$18,640,000 Cost Approach Value Indication - 300 MFR/100 SFR Scenario $150,874,274 Rounded $150,870,000 Price per SF Gross Building Area $345.32 In this development scenario, the Cost Approach conclusion is within 2% of the value indications of the other two approaches for the same development scenario, supporting both its reliability and the financial feasibility of development.

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HYPOTHETICAL MARKET VALUE AS IMPROVED - SALES COMPARISON APPROACH

This section determines the hypothetical market value of the leased fee interest assuming the subject is improved and fully leased with either:

In the Sales Comparison Approach, the property under appraisement is compared to other properties which have recently sold in the local area. Prices paid per unit are analyzed, and adjustments to these prices are made for measurable differences. In addition, economic indicators, such as "overall capitalization rate", are extracted from sales information for application in the Income Approach.

To apply the Sales Comparison Approach, an appraiser adheres to the following:

1. Research the market for information on sales transactions, listings and offers to purchase or sell involving properties that are similar to the subject property in terms of characteristics such as property type, date of sale, size, physical condition, quality and location. 2. Verify the information by confirming that the data obtained are factually accurate with at least one party to the transaction. 3. Select relevant units of comparison (e.g., price per square foot) and develop a comparative analysis for each unit. 4. Compare comparable sale properties with the subject property using the relevant attributes and adjusting the price of each comparable to the subject property. 5. Reconcile the value indications produced from the analysis of comparables into a value indication. Multi-Family: 600 Unit Scenario

Included below are the comparable sales followed by a locational map, summary table and analysis and conclusion of value. It is noted that several of the comparables sold with condominium maps either in place or approved. However, for this set of comparables, the buyers all intended to continue to operate the properties as apartments, and the respective confirming parties stated that the condominium maps had no impact upon value.

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Improved Comparable 1

Transaction Property Major Type Multifamily Date March 31, 2016 Address 200 Bicentennial Way Transaction Type Closed City Santa Rosa Days on Market 163 County Sonoma Price $24,026,000 State CA Adjustments to Price $0 APN 173-060-019 Adjusted Price $24,026,000 Grantor STRS Ohio Price Per Unit $308,026 Grantee Woodmont Capital - Property Rights Leased Fee Doc# 28419Overlook Verification Source Mark Leary/Rob LeDoux Financing Cash To Seller Affiliation Listing Agents Property Information Construction D Year Built 2003 GBA 87,000 Condition Good Rentable Area 84,234 Average Unit Size 1,080 No. of Units 78 No. of Stories 3 FAR 32% # Parking Spaces 163 Quality Good Parking Per Unit 2.1 Financial Analysis PGI $2,139,656 NOI $1,282,950 Vacancy 5% Expense Ratio 37% EGI $2,032,673 Cap Rate 5.34% Expenses $749,723 GRM 11.23 Comments The Overlook at Fountaingrove is a 78 unit complex with 22 1BR/1BA units, 30 2BR/2BA units, 12 2BR/2.5BA units, and 14 3BR/3BA units, with an average unit size of 1,080 sf. It has extensive amenities such as in-unit washer/dryers, a resort-style pool/spa, clubhouse, playground and fitness center. Common building area is estimated. Property was 99% leased at time of sale for average monthly rent of ~$2,130 per unit. Agent's pro forma based on actuals and includes expense reimbursements and other income, but included a slight rent bump which is reasonable given time between its preparation and closing. It was modified for new taxes and used to calculate overall rate. Parking includes 78 garage spaces, one for each unit. Buyers purchased from same seller simultaneously with The Boulders at Fountaingrove, a neighboring 124 unit good quality project, but agent reported there was no bulk discount. This project sold for $33,000 per unit less than The Boulders despite very similar attributes and only marginally lower rents. Another agent who was very familiar with the sale stated that the properties should have sold for much more similar prices and a substantial past water intrusion problem at Overlook made it so these buyers, who had been the project's property management company, were the only buyers familiar enough to take on the property. A ~5% upward sale conditions adjustment is indicated.

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Improved Comparable 2

Transaction Property Major Type Multifamily Date March 31, 2016 Address 3680 Kelsey Knolls Transaction Type Closed City Santa Rosa Days on Market 163 County Sonoma Price $42,351,000 State CA Adjustments to Price $0 APN 173-020-047 Adjusted Price $42,351,000 Grantor STRS Ohio Price Per Unit $341,540 Grantee DHV Partners, et al. Property Rights Leased Fee Doc# 28414 Verification Source Mark Leary/Rob LeDoux Financing Cash To Seller Affiliation Listing Agents Property Information Construction D Year Built 2005 GBA 143,000 Condition Good Rentable Area 140,821 Average Unit Size 1,136 No. of Units 124 No. of Stories 3 FAR 32% # Parking Spaces 330 Quality Good Parking Per Unit 2.7 Financial Analysis PGI $3,557,259 NOI $2,139,017 Vacancy 5% Expense Ratio 37% EGI $3,379,396 Cap Rate 5.05% Expenses $1,240,379 GRM 11.91 Comments The Boulders at Fountaingrove is a 124 unit complex with 24 1BR units, 76 2BR/2BA units and 24 3BR/2BA units, with an average unit size of 1,136 sf. It has extensive amenities such as in-unit washer/dryers, a resort-style pool/spa, clubhouse, playground and fitness center. Common building area is estimated. Property was 98% leased at time of sale. Agent's pro forma is based on actuals and includes expense reimbursements and other income, but included a slight rent bump which is reasonable given time between its preparation and closing. It has been modified for new taxes and is used to calculate overall rate. Parking included 120 garage spaces. Same buyer purchased simultaneously from same seller as The Overlook at Fountaingrove, a neighboring 78 unit good quality complex; agent reported there was no bulk discount.

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Improved Comparable 3

Transaction Property Major Type Multifamily Date June 28, 2016 Address 1 Indigo Drive Transaction Type Closed City Petaluma Days on Market 75 County Sonoma Price $54,500,000 State CA Adjustments to Price $0 APN 005-330-001, et al. Adjusted Price $54,500,000 Grantor Azure at Lakeville Square Price Per Unit $370,748 Grantee Sequoia Equities Property Rights Leased Fee Doc# 56266 Verification Source Scott Bales Financing Cash To Seller Affiliation Listing Agent Property Information Construction D Year Built 2007 GBA 152,000 Condition Good Rentable Area 149,753 Average Unit Size 1,019 No. of Units 147 No. of Stories 2 & 3 FAR 62% # Parking Spaces 220 Quality Good Parking Per Unit 1.5 Financial Analysis PGI $4,266,925 NOI $2,442,037 Vacancy 5% Expense Ratio 40% EGI $4,053,579 Cap Rate 4.48% Expenses $1,611,542 GRM 12.77 Comments Azure at Lakeville Square Apartments, a 147 unit high-end project featuring 33 1BR/1BA units of 764 to 785 sf, 34 1BR/1BA units of 892 to 921 sf, 36 2BR/2BR units of 1,040 to 1,056 sf, 33 2BR/2BA units of 1,128 to 1,153 sf, 5 2BR/2.5BA TH units comprising 1,514 sf, 4 2BR/3.5 BA TH units comprising 1,743 sf, and 2 3BR/2.5BA TH units comprising 1,844 sf. Average unit size is 1,019 sf. Units have in-unit laundry machines and common amenities include a resort-style pool/spa, fitness and business center, clubhouse, fireplace lounge with billiards, and dog park. Minimal vacancy and average rent was $2,320/unit/month at time of sale. Agent's pro forma based on actuals, but modified to reflect new taxes, is utilized to calculate overall rate. The parking includes 104 garage spaces and 55 carports. Buyers owned an adjacent high-end project, Park Central Apartments and will consolidate property management and synchronize the marketing names; downward sale conditions adjustment is indicated as agent stated buyers likely paid a ~5% premium as a result. Condominium map did not add materially to value. Common building area is estimated.

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Improved Comparable 4

Transaction Property Major Type Multifamily Date February 18, 2016 Address 2301-2347 Summercreek Transaction Type Closed Drive City Santa Rosa Days on Market 21 County Sonoma Price $30,500,000 State CA Adjustments to Price $0 APN 044-480-001 through -104 Adjusted Price $30,500,000 Grantor Essex Harvest Park Price Per Unit $293,269 Grantee DCNF-IApartments 16 Harvest Park Property Rights Leased Fee Doc# 11408LLC Verification Source Paul Kerr Financing Cash To Seller Affiliation Buyer Property Information Construction D Year Built 2004 GBA 117,584 Condition Good Rentable Area 116,584 Average Unit Size 1,121 No. of Units 104 No. of Stories 2 FAR 46% # Parking Spaces 214 Quality Good Parking Per Unit 2.1 Financial Analysis PGI $2,400,000 NOI $1,470,100 Vacancy 5% Expense Ratio 36% EGI $2,280,000 Cap Rate 4.82% Expenses $809,900 GRM 12.71 Comments This 104 unit apartment complex sold with a condominium map in place, but buyers intended to continue operations as apartments and gave map no value. There are 48 1BR/1BA's ranging from 858 to 1,004 sf, and 56 2BR/2BA's ranging from 1,212 to 1,326 sf. There are in-unit laundry machines and amenities include a pool/spa, fitness center, and multiple outdoor recreation areas. Minimal vacancy at time of sale. Buyers confirmed the capitalization rate based on their pro forma which reflected actual rents and projected stabilized expenses including a 5% vacancy/collection loss and $300/unit in replacement reserves for the large units; rents are estimated based on that information. Buyer will gradually spend ~$7,500 per unit to update units and raise rents, but transaction is analyzed based on condition at time of sale.

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Improved Comparable 5

Transaction Property Major Type Multifamily Date N/A Address 2111 Kawana Springs Road Transaction Type In Contract City Santa Rosa Days on Market N/A County Sonoma Price $42,900,000 State CA Adjustments to Price $0 APN 004-370-006, -008 and -009 Adjusted Price $42,900,000 Grantor Renaissance Apartments LLC Price Per Unit $310,870 Grantee N/A Property Rights Leased Fee Doc# N/A Verification Source Scott Bales Financing Cash To Seller Affiliation Listing Agent Property Information Construction D Year Built 2002 GBA 130,000 Condition Good Rentable Area 127,286 Average Unit Size 922 No. of Units 138 No. of Stories 2 & 3 FAR 32% # Parking Spaces 289 Quality Good Parking Per Unit 2.1 Financial Analysis PGI $3,435,069 NOI $1,933,056 Vacancy 5% Expense Ratio 41% EGI $3,263,316 Cap Rate 4.51% Expenses $1,330,260 GRM 12.49 Comments Renaissance Apartments, a 138 unit project featuring 12 1BR/1BA units of 713 sf, 32 1BR/1BA units of 716 sf, 8 1BR/1BR units of 744 sf, 18 2BR/2BA units of 993 sf, 26 2BR/2BA units of 995 sf, 18 3BR/2 BA units of 1,021 sf, and 24 3BR/2BA units of 1,156 sf. Average unit size is 922 sf. Units have in-unit laundry machines and common amenities include a pool/spa, fitness and business center, and clubhouse with kitchen and billiards. There are fireplaces in 48 units, but appliances are of average quality. Minimal vacancy and average rent was $1,972/unit/month at time of sale. Other income includes garage parking fees and utility reimbursements. Agent's pro forma based on actuals, but modified to reflect new taxes, is utilized to calculate overall rate. The parking includes 73 garage spaces and 64 carports. Common building area is estimated. A condominium map reportedly had no impact on value. Closing 8/18/16.

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Improved Multi-Family Comparable Map

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Improved Multi-Family Comparable Summary and Adjustments Analysis Grid Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Address 3313 Chanate 200 Bicentennial Way 3680 Kelsey Knolls 1 Indigo Drive 2301-2347 2111 Kawana Springs Road Summercreek Drive Road City Santa Rosa Santa Rosa Santa Rosa Petaluma Santa Rosa Santa Rosa State CA CA CA CA CA CA Date 7/29/2016 3/31/2016 3/31/2016 6/28/2016 2/18/2016 In Contract Price $24,026,000 $42,351,000 $54,500,000 $30,500,000 $42,900,000 Adjustments to Price $0 $0 $0 $0 $0 Adjusted Price $24,026,000 $42,351,000 $54,500,000 $30,500,000 $42,900,000 No. of Units 600 78 124 147 104 138 Price per Unit $308,026 $341,540 $370,748 $293,269 $310,870 Transaction Adjustments Property Rights Leased Fee Leased Fee 0% Leased Fee 0% Leased Fee 0% Leased Fee 0% Leased Fee 0% Financing Cash To Seller Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale None See Comments 5% None 0% Adjacent Buyer -5% None 0% None 0% Adjusted Price per Unit $323,427 $341,540 $352,211 $293,269 $310,870 Market Conditions (%/Year) 10% 3% 3% 1% 4% 0% Adjusted Price per Unit $333,130 $351,787 $355,733 $305,000 $310,870 Location NE Santa Rosa Similar Similar Superior Inferior Inferior % Adjustment 0% 0% -5% 15% 10% $ Adjustment $0 $0 -$17,787 $45,750 $31,087

Year Built 2016 2003 2005 2007 2004 2002 Condition Good Good Good Good Good Good % Adjustment 5% 5% 5% 5% 5% $ Adjustment $16,656 $17,589 $17,787 $15,250 $15,543

Quality Good Good Good Good Good Good % Adjustment 0% 0% 0% 0% 0% $ Adjustment $0 $0 $0 $0 $0

Parking Per Unit 2.1 2.1 2.7 1.5 2.1 2.1 % Adjustment 0% 0% 0% 5% 0% $ Adjustment $0 $0 $0 $15,250 $0

Amenities Good Good Good Good Good Good % Adjustment 0% 0% 0% 0% 0% $ Adjustment $0 $0 $0 $0 $0

No. of Units 600 78 124 147 104 138 % Adjustment -5% -5% -5% -5% -5% $ Adjustment -$16,656 -$17,589 -$17,787 -$15,250 -$15,543

Average Unit Size 1,080 1,080 1,136 1,019 1,121 922 % Adjustment 0% -2% 3% -2% 9% $ Adjustment $0 -$7,036 $10,672 -$6,100 $27,978

Adjusted Price per Unit $333,130 $344,751 $348,618 $359,900 $369,935 Net Adjustments 0% -2% -2% 18% 19% Gross Adjustments 10% 12% 18% 32% 29%

Analysis and Conclusions

Economic adjustments are made as follows:

Adjustments To Price: No such adjustments were warranted.

Real Property Rights Conveyed: A transaction price is always predicated on the real property interest conveyed. In the case of this set of comparable sales, all of them reflect leased fee interests, or identical to the appraised subject interest, and no adjustments are warranted.

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Financing Terms: All of the comparables were sold all cash to the seller, and thus required no cash equivalency adjustments.

Conditions of Sale: Adjustments for conditions of sale usually reflect the motivations of the buyer and the seller. When non-market conditions of sale are detected in a transaction, an adjustment may be required. The market for the subject property is sufficiently active so that there were generally no unusual market conditions or atypical motivations during the period in which the sales occurred that would require an adjustment. However, Improved Comparable 1 apparently sold for a somewhat low price as there had been a previous and substantial water intrusion problem at the property as a result of a nearby leaking drainage pipe that went undetected for a long time. One agent reported that a number of buyers would not consider the property and the only buyer who was comfortable acquiring the complex was the existing property management company. It was purchased simultaneously with Improved Comparable 2, a proximate and very similar overall project with marginally larger units and higher rents, but was purchased for approximately $33,000 less per unit. Based on the respective financials and discussions with market participants, an upward adjustment of 5% has been made to reflect this factor’s estimated impact upon the purchase price. Improved Comparable 3 was purchased by the owner of an adjacent high-end complex who planned to reap substantial synergies by combining the management and operation of the two properties. Based on discussions with the listing agent, a downward adjustment of 5% has been made to reflect the estimated premium the buyer paid as a result.

Market Conditions: Comparable sales that occurred under different market conditions than those applicable to the subject on the date of value require adjustment for any differences that affect their values. It is clear that market conditions have improved substantially in the North Bay as rents have increased, vacancy has decreased and overall rates have trended downward. A 20 unit project at 515 South E Street in Santa Rosa has sold twice within the past several years and provides strong support and a clear indication of improving market conditions. This property sold in June 2016 for $4,500,000 after selling in May 2012, just after being completely renovated, for $2,600,000. This equates to appreciation of 18% per year. This is supported by another paired sale of a smaller property at 918 Sunset Avenue in Santa Rosa.

However, discussions with market participants indicate that this growth is most likely too optimistic, and that while values for this size range of multi-family property have grown by closer to 15% per year over the past couple of years, institutional class properties such as the subject and this set of comparables have not increased in value by the same percentage, due partially to the much larger absolute dollar figures, and partially to the fact that institutional investors are reported to have shown somewhat more restraint recently than smaller investors. The appraisers have applied upward adjustments to the comparables based on an annualized growth factor of 10%.

Further adjustments for material differences between the subject and comparable sales are described as follows:

Location: The subject’s location has been discussed previously. Improved Comparables 1 and 2 are located in the Fountaingrove area of Northeast Santa Rosa and are considered relatively similar to the subject in terms of location. Improved Comparable 3 is located in Petaluma, which generally features higher rents and property values than Santa Rosa, but this is not considered as

16-193-42 Page 130 of 191 3313 Chanate Road, Santa Rosa good a location by Petaluma standards as the subject’s is relative to Santa Rosa standards. A 5% downward adjustment has been applied. Improved Comparables 4 and 5 are located in Southeast Santa Rosa in an area generally characterized by lower property values. The area has experienced significant redevelopment over the last 20 years, though. Improved Comparable 5 features a more centralized location in good proximity to services while Improved Comparable 4 is more somewhat more remotely located but is in an area bordering other well-maintained and relatively recently constructed multi- and single-family residential developments. Upward adjustments have been made to each of these comparables for their inferior locations.

Age/Condition: The subject project is analyzed as new construction and is assumed to be in good condition. The comparables were built between 2002 and 2007 and are all analyzed as being in good condition, but have still received 5% upward adjustments based on their original ages of construction.

Quality: The subject units are analyzed as being of good quality and design appeal. All of the comparables are also considered to comprise good quality construction, and have not been adjusted.

Parking Per Unit: The subject project will feature a parking ratio of 2.1 spaces per unit, with a roughly even mix of garage spaces and open surface spaces. Improved Comparables 1, 2, 3 and 5 are considered to have relatively similar parking attributes and did not warrant adjustment. Improved Comparable 3 has a lower ratio, but also has a higher proportion of one bedroom units, and no adjustment is considered to be indicated. Improved Comparable 4 has a similar ratio to the subject’s but has no garage parking, and has received a 5% upward adjustment.

Amenities: The subject property is analyzed as having extensive common amenities including a pool/spa, fitness and business center, and clubhouse. Units also include air conditioning and in- unit washer/dryers. All of the comparables have a similar level of common and in-unit amenities, and no adjustments are warranted.

Number Of Units: The subject is analyzed here as comprising 600 units, while the comparables range from 78 to 147 units. For properties of this size, the impact of size upon price per unit is less marked than for smaller acquisitions. Nonetheless, buyers will still typically pay more on a per unit basis for smaller projects than for larger ones, all other attributes being equal. Given the smaller pool of potential buyers at this investment magnitude, and based on discussions with market participants, 5% downward adjustments have been made to all of the comparables.

Average Unit Size: The comparables are adjusted for differences in average unit size. In our experience, larger units sell at a higher price than smaller units. However, using the percent difference in average unit size is overly simplistic, since smaller units tend to rent at a greater price per square foot than larger properties. The marginal utility of an additional square foot of living area is less the larger a property becomes. The appraisers have utilized an adjustment equal to roughly one-half the difference in unit sizes. Thus, for example, the subject is 6% larger than Improved Comparable 3, but Improved Comparable 3 would not necessarily be rented for 6% less. Thus, a rounded 3% upward adjustment is indicated. A similar process is utilized to determine the adjustments for the other comparables.

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Sales Comparison Approach Conclusion – Multi-Family: 600 Unit Scenario

After the above adjustments, the comparable sales indicate a range of $333,130 to $369,935 per unit, with an average of $351,267 per unit.

Typically, given the assignment conditions, the appraisers would place most weight on Improved Comparable 1, upon which the subject units are modeled. This sale is the lowest indicator at $333,130 per unit. While we have attempted to adjust for its unusual sale conditions wherein many buyers were reportedly dissuaded by a previous significant water intrusion issue, the fact that this is still the low indicator suggests the possibility that the adjustment was too small.

The other comparables range from $344,751 to $369,935 per unit, with Improved Comparable 2, at $344,751 per unit, comprising a very recent closed sale of a very similar and proximate project. Improved Comparable 5 is the high indicator at $369,935 per unit, and as a current escrow it may be an indicator that values have continued to rise for institutional class investment property even over the past few months. Typically, less weight would be placed on it as it is not yet a closed sale, but it is scheduled to close very shortly after the date of valuation, and it may simply be a high indicator. The other comparables range from $348,618 to $359,900 per unit and are also considered reliable.

Based on the preceding analysis, placing significant weight on Improved Comparables 1 and 2, those comparables requiring the lowest levels of absolute adjustment, but noting the higher indications of the other comparables, a reasonable value indication for the subject property is considered to be $350,000 per unit.

An adjustment is warranted for the economic obsolescence resulting from the subject’s affordable rent restrictions, as this has not otherwise been reflected in the preceding analysis. The appraisers have therefore analyzed the subject’s affordable rent limits and applied a deduction for the rent loss based on a projected GRM.

Given the subject’s market rents as concluded later in this report and the affordable rent limits in place, the annual rent loss to the subject resulting from the affordable restrictions are shown in the following table.

Rent Loss Due To Affordable Restrictions - 600 Multi-Family Unit Scenario Unit Type # Of Units Market Rent Affordable Rent Limit Monthly Rent Loss Annual Rent Loss 1BR's (Affordable) 20 $1,950 $675 $1,275 $306,000 2BR's (Affordable) 20 $2,350 $738 $1,612 $386,880 3BR's (Affordable) 20 $2,625 $795 $1,830 $439,200 Total: $1,132,080 The comparable sales provide a range of GRM’s from 11.23 to 12.77 and all comprise 100% market rate projects. The subject will include 20% affordable units, and operating expenses (including vacancy) would be expected to be slightly higher than that of an entirely market rate project, with higher management expenses somewhat offset by a slightly lower vacancy allowance. A GRM of 11.00 is selected as reasonable for this analysis. This is applied to the annual rent loss figure calculated above, and equates to a figure of $12,452,880, which is the total deduction reflecting the estimated loss in value due to the affordable rent limits.

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The contributory value of the multi-family portion of the subject via the Sales Comparison Approach in this development scenario can therefore be calculated as follows:

Sales Comparison Approach Indicated Value – Multi-Family: 600 Unit Scenario Indicated Value per Unit: $350,000 Subject Size (Units): 600 Indicated Value: $210,000,000 Less Economic Obsolescence (Affordables): $12,452,880 Contributory Value Of 600 Multi-Family Units: $197,547,120 Rounded: $197,550,000

Based on the potential gross income projected for the multi-family residential portion of the subject of $16,525,920, the concluded value indication equates to a gross rent multiplier for the subject of 11.95, while the comparable sales provide a range of GRM’s from 11.23 to 12.77. The indicated GRM for the subject is within the range, thus supporting the concluded value.

Multi-Family: 300 Unit Scenario

In this scenario, the subject multi-family component only comprises 300 units, but with the identical proportionate unit mix and percentage of affordable units as in the previous scenario.

The same comparables are analyzed here. With the exception of project size, the adjustments to the comparables are identical to those described above. The project size adjustments to the comparables are modified slightly to reflect how smaller projects would be expected to sell for somewhat more on a per unit basis.

Based on the preceding analysis, a reasonable value indication for the subject property under this scenario is considered to be $365,000 per unit.

As in the previous scenario, an adjustment is warranted for the economic obsolescence resulting from the subject’s affordable rent restrictions. The annual rent loss to the subject resulting from the affordable restrictions in this development scenario are shown in the following table.

Rent Loss Due To Affordable Restrictions - 300 Multi-Family Unit Scenario Unit Type # Of Units Market Rent Affordable Rent Limit Monthly Rent Loss Annual Rent Loss 1BR's (Affordable) 10 $1,950 $675 $1,275 $153,000 2BR's (Affordable) 10 $2,350 $738 $1,612 $193,440 3BR's (Affordable) 10 $2,625 $795 $1,830 $219,600 Total: $566,040 Again, we have applied a GRM of 11.00 to the annual rent loss figure calculated above. This equates to a figure of $6,226,440, which is the total deduction reflecting the estimated loss in value due to the affordable rent limits.

The contributory value of the multi-family portion of the subject via the Sales Comparison Approach in this development scenario can therefore be calculated as follows:

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Sales Comparison Approach Indicated Value – Multi-Family: 300 Unit Scenario Indicated Value per Unit: $365,000 Subject Size (Units): 300 Indicated Value: $109,500,000 Less Economic Obsolescence (Affordables): $6,226,440 Contributory Value Of 300 Multi-Family Units: $103,273,560 Rounded: $103,270,000

Based on the potential gross income projected for the multi-family residential portion of the subject of $8,260,560, the concluded value indication equates to a gross rent multiplier for the subject of 12.50, while the comparable sales provide a range of GRM’s from 11.23 to 12.77. The indicated GRM for the subject is within the range, thus supporting the concluded value.

Single-Family: 200 Unit Scenario

This portion of the subject is to be improved with 200 for-sale units that are also identical to those in The Overlook in terms of quality, unit mix and size, ranging from 713 to 1,467 square feet.

There is only one project currently marketing new attached homes in all of Santa Rosa. This is Kylie Lane, which has been described previously in this report. There have been no sales at this project, but a current listing has been utilized as a comparable. Given the lack of other new competitive product, the appraisers have also utilized recent resales of other condominiums and attached duet homes in Santa Rosa.

Based on their similar attributes in comparison to other subject plans with an identical bedroom count, only one grid has been prepared for each of the subject’s one-, two- and three-bedroom plans. Retail values have been concluded for the other subject plans by adjusting the other concluded retail values, primarily reflecting differences in living area, number of baths, and number of stories.

Included below are a locational map and photographs of the comparable sales, followed by summary and adjustment tables and an analysis and conclusion of value.

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Improved Single-Family Comparable Map

Subject

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Photographs Of Improved Single-Family Comparables

Improved Comparable 1 Improved Comparable 2

Improved Comparable 3 Improved Comparable 4

Improved Comparable 5 Improved Comparable 6

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Improved Comparable 7 Improved Comparable 8 (Under

Construction – Model Image Shown)

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Improved Single-Family Comparable Summary and Adjustments – 1BR/1BA Plan Analysis Grid Subject Improved Comparable 1 Improved Comparable 2 Improved Comparable 3 Improved Comparable 4 Address 3313 Chanate Road 810 Seventh Street, #13 417 Mission Boulevard 53 O'Kelley Way 1632 Yardley Street City Santa Rosa Santa Rosa Santa Rosa Santa Rosa Santa Rosa APN 009-450-013 182-480-067 058-351-007 034-300-060 Proximity to Subject 2 miles southwest 2 miles southeast 3 miles northwest 3 miles southwest Doc # 46081 65008 42966 32752 Grantor Farash Meshcheriakov Aubert, et al. Garmy Grantee Weissgerber Beresford Walter Hooker Sales Price $425,000 $267,000 $355,000 $259,000 Living Area (SF) 733 1,118 758 1,080 600 Sales Price PSF $380 $352 $329 $432 Adjustments Date Of Sale Value: 7/29/16 5/31/16 $ 5,313 7/29/16 $ - 5/18/16 $ 4,438 4/14/16 $ 4,856 Financing Conventional Conventional $ - Conventional $ - Conventional $ - Conventional $ - Conditions Of Sale None None $ - None $ - None $ - None $ - Location Good Good $ - Average $ 50,000 Average $ 50,000 Average $ 50,000 Living Area (SF) 733 1,118 $ (48,125) 758 $ (3,125) 1,080 $ (43,375) 600 $ 16,625 Lot Size (SF)/Landscaping N/A N/A $ - N/A $ - N/A $ (5,000) N/A $ - Unit Type Condominium Condominium $ (5,000) Condominium $ (5,000) Condominium $ 5,000 Condominium $ (5,000) Quality/Design Appeal Good Good $ - Average-Good $ 15,000 Avg-Good $ 15,000 Average $ 30,000 Functional Utility Average Average $ - Average $ - Average $ - Average $ - Year Built/Condition New/Good 2006/Good $ 15,000 1989/Avg-Good $ 30,000 1993/Avg-Good $ 25,000 1982/Average $ 40,000 Stories 1 1 $ - 1 $ - 2 $ 8,875 1 $ - Bedrooms 1 2 $ (15,000) 1 $ - 2 $ (15,000) 1 $ - Bathrooms 1 2 $ (10,000) 1 $ - 1.5 $ (5,000) 1 $ - Fireplaces None One $ (5,000) One $ (5,000) None $ - None $ - Parking 1 car garage 1 car garage $ - 1 car garage $ - 1 car garage $ - 1 car garage $ - Common Amenities Good None $ 10,000 Average $ 5,000 None $ 10,000 Average $ 5,000 HOA Dues/Assessments Typical $400 per month $ 10,000 $390 per month $ 10,000 $200 per month $ - $227 per month $ - Total Adjustments -10%(42,813)$ 36% 96,875$ 14% 49,938$ 55% 141,481$ Indicated Value 382,188$ 363,875$ 404,938$ 400,481$ Rounded To 382,000$ 364,000$ 405,000$ 400,000$

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Improved Single-Family Comparable Summary and Adjustments – 2BR/2BA Plan Analysis Grid Subject Improved Comparable 1 Improved Comparable 3 Improved Comparable 5 Improved Comparable 6 Address 3313 Chanate Road 810 Seventh Street, #13 53 O'Kelley Way 2244 Chanate Road 3316 Parker Hill Road City Santa Rosa Santa Rosa Santa Rosa Santa Rosa Santa Rosa APN 009-450-013 058-351-007 180-830-007 173-240-023 Proximity to Subject 2 miles southwest 3 miles northwest 0.75 miles southwest 0.25 miles northeast Doc # 46081 42966 N/A 25766 Grantor Farash Aubert, et al. Mendenhall Hilburn Grantee Weissgerber Walter N/A Lipinski Sales Price $425,000 $355,000 $380,000 $460,000 Living Area (SF) 1,087 1,118 1,080 1,319 1,475 Sales Price PSF $380 $329 $288 $312 Adjustments Date Of Sale Value: 7/29/16 5/31/16 $ 5,313 5/18/16 $ 4,438 Agreement: 4/18/16 $ - 3/22/16 $ 11,500 Financing Conventional Conventional $ - Conventional $ - Conventional $ - Conventional $ - Conditions Of Sale None None $ - None $ - None $ - Closing Cost Credit $ (2,500) Location Good Good $ - Average $ 50,000 Average $ 50,000 Avg-Good $ 10,000 Living Area (SF) 1,087 1,118 $ (3,875) 1,080 $ 875 1,319 $ (29,000) 1,475 $ (48,500) Lot Size (SF)/Landscaping N/A N/A $ - 1,307 $ (5,000) 1,517 $ - 2,178 $ (5,000) Unit Type Condominium Condominium $ (5,000) Condominium $ 5,000 Attached - Duet $ (5,000) Attached Duet $ (5,000) Quality/Design Appeal Good Good $ - Avg-Good $ 15,000 Good $ - Average-Good $ 20,000 Functional Utility Average Average $ - Average $ - Average $ - Average $ - Year Built/Condition New/Good 2006/Good $ 15,000 1993/Avg-Good $ 25,000 2006/Good $ 20,000 1981/Avg-Good $ 25,000 Stories 1 1 $ - 2 $ 8,875 3 $ 19,000 1 $ - Bedrooms 2 2 $ - 2 $ - 2 $ - 2 $ - Bathrooms 2 2 $ - 1.5 $ 5,000 2.5 $ (5,000) 1.5 $ 5,000 Fireplaces None One $ (5,000) None $ - None $ - One $ (5,000) Parking 1 car garage 1 car garage $ - 1 car garage $ - 2 car garage $ (10,000) 2 car garage $ (10,000) Common Amenities Good None $ 10,000 None $ 10,000 None $ 10,000 Average $ 5,000 HOA Dues/Assessments Typical $400 per month $ 10,000 $200 per month $ - $198 per month $ - $360 per month $ 10,000 Total Adjustments 6% 26,438$ 34% 119,188$ 13% 50,000$ 2% 10,500$ Indicated Value 451,438$ 474,188$ 430,000$ 470,500$ Rounded To 451,000$ 474,000$ 430,000$ 471,000$

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Improved Single-Family Comparable Summary and Adjustments – 3BR/3BA Plan Analysis Grid Subject Improved Comparable 1 Improved Comparable 5 Improved Comparable 7 Improved Comparable 8 Address 3313 Chanate Road 810 Seventh Street, #13 2244 Chanate Road 2053 Stagecoach Road 401 Kylie Lane City Santa Rosa Santa Rosa Santa Rosa Santa Rosa Santa Rosa APN 009-450-013 180-830-007 173-570-061 N/A Proximity to Subject 2 miles southwest 0.75 miles southwest 1.25 miles north 2 miles southeast Doc # 46081 N/A 30274 N/A Grantor Farash Mendenhall Desai Kylie Lane Grantee Weissgerber N/A Chokshi N/A Sales Price $425,000 $380,000 $560,000 $509,900 Living Area (SF) 1,363 1,118 1,319 1,830 1,554 Sales Price PSF $380 $288 $306 $328 Adjustments Date Of Sale Value: 7/29/16 5/31/16 $ 5,313 Agreement: 4/18/16 $ - 4/6/16 $ 10,500 Active Listing $ - Financing Conventional Conventional $ - Conventional $ - Conventional $ - Conventional $ - Conditions Of Sale None None $ - None $ - None $ - None $ - Location Good Good $ - Average $ 50,000 Avg-Good $ 10,000 Average $ 25,000 Living Area (SF) 1,363 1,118 $ 30,625 1,319 $ 5,500 1,830 $ (58,375) 1,554 $ (23,875) Lot Size (SF)/Landscaping N/A N/A $ - 1,517 $ - 6,194 $ (20,000) 2,712 $ (5,000) Unit Type Condominium Condominium $ (5,000) Attached - Duet $ (5,000) Attached Duet $ (5,000) Attached Duet $ (5,000) Quality/Design Appeal Good Good $ - Good $ - Good $ - Average-Good $ 15,000 Functional Utility Average Average $ - Average $ - Average $ - Average $ - Year Built/Condition New/Good 2006/Good $ 15,000 2006/Good $ 20,000 2007/Good $ 15,000 New/Good $ - Stories 3 1 $ (21,250) 3 $ - 2 $ (14,000) 3 $ - Bedrooms 3 2 $ 15,000 2 $ 15,000 3 $ - 3 $ - Bathrooms 3 2 $ 10,000 2.5 $ 5,000 2 $ 10,000 3 $ - Fireplaces None One $ (5,000) None $ - Two $ (10,000) None $ - Parking 1 car garage 1 car garage $ - 2 car garage $ (10,000) 2 car garage $ (10,000) 2 car garage $ (10,000) Common Amenities Good None $ 10,000 None $ 10,000 None $ 10,000 None $ 10,000 HOA Dues/Assessments Typical $400 per month $ 10,000 $198 per month $ - None $ (10,000) $223 per month $ - Total Adjustments 15% 64,688$ 24% 90,500$ -13% (71,875)$ 1% 6,125$ Indicated Value 489,688$ 470,500$ 488,125$ 516,025$ Rounded To 490,000$ 471,000$ 488,000$ 516,000$

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Analysis and Conclusions

The comparable sales analyzed in the preceding Summary consist of similar new and recently built attached residences in the most similar Northeast Santa Rosa locations. Adjustments to the comparable sales are made for attributes which are dissimilar to the subject as follows:

Date Of Sale: The comparables consist of one current escrow, one active listing, and six sales which have closed between March 2016 and July 2016. Interviews with agents and developers indicate that generally, opinions are that prices grew by between 5% and 10% over the past year. Based on these interviews, as supported by the analysis of median home prices contained in the Market Analysis section of this report, and given this price category of home, upward adjustments have been made to the comparables which are closed sales based upon annualized pricing growth of 7.5% over this period.

Financing Terms: No adjustments were considered necessary.

Conditions Of Sale: Improved Comparable 6 has been adjusted downward for closing cost credits granted to the buyer.

Location: The subject’s location has been discussed previously. In addition to its general locational attributes, it is also noted that a project developed on the subject site would be large enough to effectively form its own neighborhood of new, good quality single- and multi-family residences. Improved Comparable 1 features a good downtown location, and while the surrounding properties feature older construction, their quality is generally average or above average, and the proximity to downtown is a strong selling point. Overall, while this property would be targeted toward a different buyer, the location is considered roughly similar. Improved Comparable 2 is located Northeast Santa Rosa, but in a somewhat older project in an area characterized by a variety of multi-family and older single-family residences. A $50,000 upward adjustment has been made. Improved Comparables 3 and 4 are also located in areas characterized by older improvements of somewhat inferior quality and condition, and have also received $50,000 upward adjustments. Improved Comparable 5 is located in relatively close proximity to the subject, but is in a small project situated on a section of Chanate Road featuring heavy traffic and located just one lot removed from Mendocino Avenue. In addition, the project is surrounded by older homes, and this unit specifically backs up to the large parking lot for a bank branch. A $50,000 upward adjustment is made for the inferior location that many buyers would not select. Improved Comparable 6 is located in close proximity to the subject and is set back slightly from Parker Hill Road itself, but has received a $10,000 upward adjustment due to its proximity to this busy road and the older age of the surrounding construction. Improved Comparable 7 is located in the Fountaingrove community of Northeast Santa Rosa. Given Fountaingrove’s cache, a slight discount for the subject’s location might typically be assigned, but this is offset by its location adjacent a retail center, and a small upward adjustment has been made. Improved Comparable 8 is located in an infill site fronting along Sonoma Highway in Northeast Santa Rosa. Given the heavy traffic along Sonoma Highway in this location, a $25,000 upward adjustment has been made.

Living Area: An upward or downward adjustment is required for floor plans with lesser or greater square footage, calculated per plan. In determining a reasonable market-based adjustment, the appraisers analyzed sales of different floor plans from within the same

16-193-42 Page 141 of 191 3313 Chanate Road, Santa Rosa subdivisions either currently or recently marketing similarly sized units in Sonoma County, and found a range of differences from approximately $0 to $150. Given the subject’s relatively small unit sizes and the prices per square foot paid for these comparables, the appraisers have utilized an adjustment of $125 per square foot for the comparable sales. This adjustment, when multiplied by the size difference between each comparable and the subject unit, reflects the added value of the extra size.

Lot Size/Landscaping: The subject units are analyzed as condominiums. Most of the comparables which are condominiums, as well as Improved Comparable 5, have not been adjusted. Improved Comparable 3 actually features a nice yard area and has received a small downward adjustment. The other comparables have yard areas and have been adjusted based on their lot sizes and the level of landscaping in place at the time of sale. The adjustments are based on the appraisers’ experience and judgment, as well as discussions with local agents.

Unit Type: The subject condominiums are presumed to comprise a mix of interior and end units. The market typically reflects a price difference for attached homes between end and interior units, generally in the area of $10,000 based on our research and discussions with market participants. Improved Comparable 3 is an interior unit and has received a $5,000 upward adjustment. All of the other comparables are condominium end units or attached duet units, with superior window lines and privacy. They have received $5,000 downward adjustments.

Quality/Design Appeal: The subject units are considered to be of good quality and design appeal, as are Improved Comparables 1, 5 and 7. The other comparables have been adjusted upward for their inferior quality and design appeal features.

Functional Utility: No adjustments for functional obsolescence were required.

Year Built/Condition: The subject improvements are appraised as new and in good condition. Improved Comparable 8 is also a new unit and has not been adjusted. The other comparables all represent resales of existing homes. A survey of local brokers and developers indicated that beyond the need to adjust for the difference in age/condition, the typical buyer does not require some further discount when considering whether to buy a previously-owned home or a new home. Therefore, these comparables have received upward adjustments ranging from $15,000 to $40,000 for their somewhat inferior age/condition.

Stories: A single-story residence is more expensive to build than a two-story residence with the same living area; this is as a result of such factors as the smaller roof and foundation coverage required by a two-story home. In addition, single-story structures also feature greater ease of access and move-in, as well as superior privacy and noise attributes given the absence of any neighbors directly upstairs. Finally, single-story residences are also typically more desirable due to health and agility issues. The same is true of two-story homes compared to three-story homes. Additionally, a number of buyers, even those who would be open to purchasing a two-story home, will not even consider three-story residences. Given the preceding factors, and especially given the smaller pool of potential buyers for units with more stories, in cases where the comparable construction features a different number of stories than the subject unit with which it is being compared, adjustments of 2.5% per story of difference are applied to the respective unadjusted selling prices of the comparables.

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Bedrooms: An upward or downward adjustment is required for the lack or inclusion of a bedroom, calculated per floor plan. The overall adjustments shown reflect a $15,000 adjustment per bedroom of difference.

Bathrooms: An upward or downward adjustment is required for the lack or inclusion of a full or half bathroom, calculated per floor plan.

Fireplaces: The subject condominiums do not feature fireplaces. Where comparables have fireplaces, downward adjustments of $5,000 per fireplace were made.

Parking: The subject condominiums are each assumed to have a one car garage, as do Improved Comparables 1 through 4. Improved Comparables 5 through 8 have two car garages, and have received downward $10,000 adjustments.

Common Amenities: The subject units will be part of a larger project with extensive common amenities as described previously. All of the comparables have been adjusted upward for their lack of or inferior common amenities.

Homeowners' Association Dues/Special Assessments: Given the proposed development criteria, it is assumed that while the subject units would not be encumbered by special assessments, they would be encumbered by homeowners' association dues. Based on the experience of other similar projects, on the subject’s project size and the level of common amenities and landscaping to be maintained, we have projected HOA dues of approximately $200 per month for the subject units.

All of the comparables except for Improved Comparable 7 have HOA dues, with dues ranging from $198 to as much as $400 per month. Improved Comparables 3, 4, 5 and 8 have dues ranging from $198 to $227 per month, or similar enough to the subject’s that no adjustments are indicated. Improved Comparables 1, 2 and 6 have HOA dues ranging from $360 to $400 per month, or sufficiently high that adjustments are indicated.

The appraisers initially examined making an adjustment to these comparables based on calculating the present value of the additional monthly incremental payment assuming a 30-year mortgage with a fixed rate of 4%. For example, Improved Comparable 1 has dues which are $200 per month higher; utilizing this as the monthly incremental payment equates to approximately $42,000. However, based on discussions with agents with significant experience marketing homes in the subject’s local market area, it does not appear that buyers either require this significant a discount, especially in cases where the HOA dues contribute to items of value, or in fact go to this length to determine a discount. Based on discussions with these agents, approximately one half of the dues would be seen by buyers as attributable to benefits perceived as having value, such as common area maintenance, common public amenities (parks, trails, landscaping), and storm water maintenance. Another quarter would be essentially “ignored” by buyers and the remaining quarter would require discounting for the higher monthly payment. Therefore, upward adjustments of $10,000 have been made to these comparables.

Improved Comparable 7 does not feature any HOA dues, and a downward adjustment of $10,000 has been made to this comparable.

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Sales Comparison Approach Conclusion – Single-Family: 200 Unit Scenario

Improved Comparable 8 is a listing rather than a sale. The marketing agent stated that interest has been slow in the several months since units have been released for sale, and there have been no sales. This is very unusual in the recent climate, wherein a number of projects have featured strong sales before being able to deliver completed homes. This project does not have an on-site marketing agent, but the three-story construction could also be an issue for many potential buyers. Its indicated value is above the range provided by the other comparables, and little weight is placed upon it as an indicator.

Improved Comparable 1 has been given significant weight as a recent sale of a good quality condominium that is of more recent construction than most other comparables. Improved Comparable 5 is also relatively recent construction and is located in close proximity to the subject, but consistently features a low value indication. This may be due to the difficulty of precisely adjusting for its three-story construction, and less weight has been placed on it when it is used as a comparable for a non-three story subject unit. The other comparables for each individual subject plan provide relatively narrow indicated ranges, and are all considered relatively reliable, but also generally comprise older construction of inferior quality.

The Sales Comparison Approach, after adjustment of each of the comparables for dissimilarities with the subject plans, results in the following retail value indications for each of the subject's floor plans:

Plan Retail Value 1BR/1BA: 713 SF $385,000 1BR/1BA: 733 SF $390,000 2BR/2BA: 1,087 SF $460,000 2BR/2BA: 1,235 SF $470,000 2BR/2.5BA: 1,258 SF $465,000 3BR/3BA: 1,363 SF $480,000 3BR/3BA: 1,457 SF $495,000 Based on the proposed unit mix, the hypothetical aggregate of retail values for the single-family residential condominiums via the Sales Comparison Approach under each scenario can be calculated as follows.

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Hypothetical Aggregate Of SFR Retail Values – Sales Comparison Approach: 200 Unit Scenario Plan # of Units Retail Value Total 1BR/1BA: 713 SF 41 $385,000 $15,785,000 1BR/1BA: 733 SF 15 $390,000 $5,850,000 2BR/2BA: 1,087 SF 62 $460,000 $28,520,000 2BR/2BA: 1,235 SF 15 $470,000 $7,050,000 2BR/2.5BA: 1,258 SF 31 $465,000 $14,415,000 3BR/3BA: 1,363 SF 15 $480,000 $7,200,000 3BR/3BA: 1,457 SF 21 $495,000 $10,395,000 Total 200 $89,215,000 Hypothetical Aggregate Of SFR Retail Values Via The Sales Comparison Approach: 200 Unit Scenario $89,215,000 Rounded To $89,220,000 Average Retail Value Per Unit $446,100 Sales Comparison Approach Conclusion – Single-Family: 100 Unit Scenario

There is no change in the price per unit in this scenario:

Hypothetical Aggregate Of SFR Retail Values – Sales Comparison Approach: 100 Unit Scenario Plan # of Units Retail Value Total 1BR/1BA: 713 SF 20 $385,000 $7,700,000 1BR/1BA: 733 SF 8 $390,000 $3,120,000 2BR/2BA: 1,087 SF 31 $460,000 $14,260,000 2BR/2BA: 1,235 SF 8 $470,000 $3,760,000 2BR/2.5BA: 1,258 SF 15 $465,000 $6,975,000 3BR/3BA: 1,363 SF 8 $480,000 $3,840,000 3BR/3BA: 1,457 SF 10 $495,000 $4,950,000 Total 100 $44,605,000 Hypothetical Aggregate Of SFR Retail Values Via The Sales Comparison Approach: 100 Unit Scenario $44,605,000 Rounded To $44,610,000 Average Retail Value Per Unit $446,100 These value opinions are utilized in the following Discounted Cash Flow Analyses; they are not the hypothetical market values upon completion.

Discounted Cash Flow Analysis – Single-Family: 200 Unit Scenario

The following assumptions are made in the Discounted Cash Flow Analysis which follows:

Absorption: The subject units will feature good quality, will be brand new, and will enjoy a desirable Northeast Santa Rosa location in a project with extensive amenities. They will also be priced very affordably relative to local median prices as a result of their small size and attached nature. A potential adverse factor is the fact that these units will be a part of a much larger project containing predominantly rental apartment units, albeit of similar quality. Demand should still be very strong, and based on the discussion in the Market Analysis section, it has been estimated that the subject homes will have an absorption rate of 6.0 units per month, with a

16-193-42 Page 145 of 191 3313 Chanate Road, Santa Rosa total sell-out period of 34 months. Units are projected to be available immediately, as the scope of this assignment dictates that the units are assumed to have been constructed as of the date of valuation. For the sake of brevity, the absorption period has been broken down into semi-annual periods.

Average Price Per Unit: The subject’s initial average home price is projected to be $446,100; this figure is based on the final retail value opinion for each floor plan, weighted by the number of each plan to be developed.

Appreciation: Prices have experienced significant variation over the past several years. The market has already absorbed significant recent growth in home prices, and based on recent market data, experts’ projections and interviews with local developers and agents, the appraisers have forecast appreciation over the projected absorption period based on an annualized factor of 5% growth. This is slightly conservative due to the more marked growth experienced over the last few years and the possibility that the market may be reaching a point where it can no longer continue to consistently experience such rapid pricing growth.

Sales Commissions: A sales commission of 3% of gross sales is projected for the subject homes. This rate is consistent with current developer projections in the market, wherein a number of prospective buyers are expected to come in without an agent agreement in place, thus lowering commission costs.

Administration: An allowance of 1% of gross sales price for brochure, signage and administrative expenses is typical in the market. Additional marketing costs would be absorbed by the listing agent.

Real Property Taxes: Real property taxes are paid by the developer on the unsold units at the rate of 1.1495% per $100 of assessed value. The selling period taxes are based upon the average bulk sale value per dwelling unit.

Homeowners' Association Dues: The subject units are assumed to be encumbered by homeowners' association dues of $200 per unit per month, as discussed previously.

Other Expenses: Estimated closing and legal expenses are approximately $500 per dwelling unit.

Entrepreneurial Profit: Ten percent of gross sales is considered to be the minimum profit necessary for the developer, who is separate from the equity investor, to manage the completion of construction and sales of the individual dwelling units in the current market.

Discount Rate: Based upon interviews conducted during the course of this and other similar recent assignments with buyers, sellers and agents, including Rick Rosenbaum of Focus Realty, Aaron Roden of Ryder Homes, Ken Bizzell of Keegan and Coppin and David Nash with RCS Comstock, and upon an abstraction of rates from currently and recently developed subdivisions, a reasonable discount rate range for projects such as the subject appears to be from 10% to 15%. However, this reflects a return based on taking the entire subdivision project from raw land through the development and sale of the completed homes. As this analysis focuses solely on discounting the sell-out process of the completed homes, a slightly lower discount rate is thus

16-193-42 Page 146 of 191 3313 Chanate Road, Santa Rosa applied. For the subject project, given its relative size and price structure, a rate of 10.00% appears reasonable.

The appraisers also researched the RealtyRates.com Developer Survey which provides discount rate survey data. As of the date of valuation, First Quarter 2016 was the most recent version for which data was publicly available; it indicates an average discount rate for residential condominium subdivisions in the Garden/Suburban Townhome division of 18.28%, with a somewhat higher rate of 19.34% for mixed-use condominium projects, but these rates are inclusive of profit, which we have accounted for separately. While this is considered a good source of national and regional data, it is not considered as applicable for a project such as the subject in a secondary market such as Santa Rosa. Nonetheless, it supports our projections of a discount rate and profit.

The following table details the aforementioned costs, profit transfer and discounting.

The hypothetical bulk sale value for the subject 200 single-family residential condominiums, assuming construction completion as of July 29, 2016, is therefore concluded to be $67,260,000, which is the contributory value for the subject’s single-family component under this scenario.

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Discounted Cash Flow Analysis – Single-Family: 200 Unit Scenario Semi-Annual Period 1 2 3 4 5 6 Totals Sales Summary Number of Units Sold 36 36 36 36 36 20 Cumulative Units Sold 36 72 108 144 180 200 Unsold Remaining Units 164 128 92 56 20 0 Avg Retail $/Unit $ 446,100 $ 457,253 $ 468,684 $ 480,401 $ 492,411 $ 504,721 Total Retail Sales Per Period $ 16,059,600 $ 16,461,108 $ 16,872,624 $ 17,294,436 $ 17,726,796 $ 10,094,420 Aggregate Retail Sales $ 16,059,600 $ 32,520,708 $ 49,393,332 $ 66,687,768 $ 84,414,564 $ 94,508,984 Aggr Retail Sales Outstanding $ 73,160,400 $ 58,528,384 $ 43,118,928 $ 26,902,456 $ 9,848,220 $ - Cost of Sales: Sales Commissions $ 481,788 $ 493,833 $ 506,179 $ 518,833 $ 531,804 $ 302,833 $ 2,835,270 Administration $ 160,596 $ 164,611 $ 168,726 $ 172,944 $ 177,268 $ 100,944 $ 945,089 R.E. Taxes $ 386,577 $ 316,993 $ 252,357 $ 181,382 $ 112,614 $ 40,219 $ 1,290,143 Association Dues $ 240,000 $ 196,800 $ 153,600 $ 110,400 $ 67,200 $ 24,000 $ 792,000 Other Costs $ 18,000 $ 18,000 $ 18,000 $ 18,000 $ 18,000 $ 10,000 $ 100,000 Total Cost of Sales $ 1,286,961 $ 1,190,237 $ 1,098,862 $ 1,001,559 $ 906,886 $ 477,996 $ 5,962,502 Net Proceeds Before Profit $ 14,772,639 $ 15,270,871 $ 15,773,762 $ 16,292,877 $ 16,819,910 $ 9,616,424 $ 88,546,482 Profit $ 1,605,960 $ 1,646,111 $ 1,687,262 $ 1,729,444 $ 1,772,680 $ 1,009,442 $ 9,450,899 Net Sales Proceeds $ 13,166,679 $ 13,624,760 $ 14,086,500 $ 14,563,433 $ 15,047,230 $ 8,606,982 $ 79,095,583 P.V. Factor 0.952381 0.907029 0.863838 0.822702 0.783526 0.746215 P.V. of Net Proceeds $ 12,539,694 $ 12,358,059 $ 12,168,448 $ 11,981,372 $ 11,789,898 $ 6,422,662 $ 67,260,133 Bulk Value of Units $ 67,260,133 Rounded To $ 67,260,000 Average Per Unit $ 336,300

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Discounted Cash Flow Analysis – Single-Family: 100 Unit Scenario

The assumptions utilized herein are identical to those utilized in the preceding analysis.

The following table details the aforementioned costs, profit transfer and discounting.

The hypothetical bulk sale value for the subject 100 single-family residential condominiums, assuming construction completion as of July 29, 2016, is therefore concluded to be $35,130,000, which is the contributory value for the subject’s single-family component under this scenario.

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Discounted Cash Flow Analysis – Single-Family: 100 Unit Scenario Semi-Annual Period 1 2 3 Totals Sales Summary Number of Units Sold 36 36 28 Cumulative Units Sold 36 72 100 Unsold Remaining Units 64 28 0 Avg Retail $/Unit $ 446,100 $ 457,253 $ 468,684 Total Retail Sales Per Period $ 16,059,600 $ 16,461,108 $ 13,123,152 Aggregate Retail Sales $ 16,059,600 $ 32,520,708 $ 45,643,860 Aggr Retail Sales Outstanding $ 28,550,400 $ 12,803,084 $ - Cost of Sales: Sales Commissions $ 481,788 $ 493,833 $ 393,695 $ 1,369,316 Administration $ 160,596 $ 164,611 $ 131,232 $ 456,439 R.E. Taxes $ 201,910 $ 129,222 $ 57,665 $ 388,797 Association Dues $ 120,000 $ 76,800 $ 33,600 $ 230,400 Other Costs $ 18,000 $ 18,000 $ 14,000 $ 50,000 Total Cost of Sales $ 982,294 $ 882,466 $ 630,192 $ 2,494,952 Net Proceeds Before Profit $ 15,077,306 $ 15,578,642 $ 12,492,960 $ 43,148,908 Profit $ 1,605,960 $ 1,646,111 $ 1,312,315 $ 4,564,386 Net Sales Proceeds $ 13,471,346 $ 13,932,531 $ 11,180,645 $ 38,584,522 P.V. Factor 0.952381 0.907029 0.863838 P.V. of Net Proceeds $ 12,829,853 $ 12,637,216 $ 9,658,262 $ 35,125,331 Bulk Value of Units $ 35,125,331 Rounded To $ 35,130,000 Average Per Unit $ 351,300

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Sales Comparison Approach – Commercial

This portion of the subject is to be improved with a 33,000 square foot retail/office property, including a 12,000 square foot grocery. As per the scope of this assignment, the client has requested that the appraisers assume “typical” quality and tenant mix. Given the desirable location and the projected quality of the residential units assumed in this analysis, we have assumed good quality construction commensurate with that of the rest of the project. Given the subject’s size criteria, the market has been searched for sales of multi-tenant properties lacking large credit tenant anchor tenants, as this product type is considered the most directly comparable with the anticipated subject construction.

Included below are the comparable sales followed by a locational map, summary and adjustments table and analysis and conclusion of value.

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Improved Comparable 1

Transaction Property Major Type Retail Date September 17, 2015 Address 2620 Lakeville Highway Transaction Type Closed City Petaluma Days on Market 365 County Sonoma Price $4,550,000 State CA Adjustments to Price ($234,000) APN 005-040-062, -063 & -069 Adjusted Price $4,316,000 Grantor Eagle Lakeville Partners Price Per SF $353.08 Grantee Alvin Chan Property Rights Leased Fee Doc# 82125 Verification Source Ryan Morita Financing Cash To Seller Affiliation Listing Agent Property Information Construction D Year Built 2009 GBA 12,224 Condition Good Rentable Area 12,224 No. of Buildings 1 Usable Land Area (AC) 2.43 No. of Stories 1 FAR 12% # Parking Spaces 54 Quality Good Parking Ratio 226 Financial Analysis PGI $282,481 NOI $262,990 Vacancy 5% Expense Ratio 2% EGI $268,357 Cap Rate 6.09% Expenses $5,367 GRM 15.28 Comments This is the sale of a strip center with Anytime Fitness, Subway and MetroPCS as tenants. The sale included two pads that were valued by the buyer at $354,000 and which is deducted from the price. The listing agent indicated an overall rate of 5.78% on total price of $4,550,000, implying $262,990 net operating income. A confidentially agreement prohibited further disclosure and this is used as the basis for estimating PGI of $282,481. This implies a contract rent of $1.93 psf, which is similar to the most recent asking rent of $1.85 psf. The property was 100% leased at sale but buyer assumed half the cost of the new tenants signed near close of escrow. This is half of $200,000 in TI's, 3 months free rent ($19,500) and leasing commissions ($24,000). Thus, half of this is added ($120,000).

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Improved Comparable 2

Transaction Property Major Type Retail Date March 29, 2016 Address 551 - 569 Fifth Street West Transaction Type Closed City Sonoma Days on Market 399 County Sonoma Price $2,300,000 State CA Adjustments to Price $0 APN 018-530-038 Adjusted Price $2,300,000 Grantor Rice Price Per SF $244.76 Grantee Kasson Ranch Property Rights Leased Fee Doc# 27471 Verification Source Public records and leases Financing Cash To Seller Affiliation N/A Property Information Construction D Year Built 1977 GBA 9,397 Condition Average Rentable Area 9,397 No. of Buildings 2 Usable Land Area (AC) 0.70 No. of Stories 1 FAR 31% # Parking Spaces 36 Quality Average Parking Ratio 261 Financial Analysis PGI $203,256 NOI $132,552 Vacancy 5% Expense Ratio 31% EGI $193,093 Cap Rate 5.76% Expenses $60,541 GRM 11.32 Comments This is an investor purchase of a multi-tenant strip retail center located just across the street from a Safeway supermarket. The two-building center was fully leased to six tenants at the time of sale for an average rent of $1.80 psf, gross, which was considered market.

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Improved Comparable 3

Transaction Property Major Type Retail Date April 22, 2016 Address 5420 State Farm Drive Transaction Type Closed City Rohnert Park Days on Market 239 County Sonoma Price $2,100,000 State CA Adjustments to Price $0 APN 143-021-046 Adjusted Price $2,100,000 Grantor Fleming Price Per SF $241.94 Grantee 289 Woodland Property Rights Leased Fee Doc# 35308 Verification Source Craig Enyart Financing Cash To Seller Affiliation Listing Agent Property Information Construction C Year Built 2006 GBA 8,680 Condition Good Rentable Area 8,680 No. of Buildings 1 Usable Land Area (AC) 0.86 No. of Stories 1 FAR 23% # Parking Spaces 55 Quality Avg-Good Parking Ratio 158 Financial Analysis PGI $140,400 NOI $126,711 Vacancy 5% Expense Ratio 5% EGI $133,380 Cap Rate 6.03% Expenses $6,669 GRM 14.96 Comments This is an investor purchase of a multi-tenant retail/office building. The building had the capacity to be demised into five suites, but was fully leased to three tenants, including a veterinary hospital, at the time of sale. Rents varied widely from $0.82 to $1.74 psf, NNN, but the highest rent was based on a complete build-to-suit for the veterinarian's space. The average overall rent at the time of sale was $1.35 psf, NNN, which was considered market. Property is one lot removed from Commerce Boulevard, and the retail exposure along State Farm Drive and in an area of somewhat more heavy commercial development is only average.

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Improved Comparable 4

Transaction Property Major Type Mixed-Use Date September 30, 2015 Address 2770 & 2780 Stony Point Transaction Type Closed Road City Santa Rosa Days on Market 180 County Sonoma Price $4,845,000 State CA Adjustments to Price $30,000 APN 134-310-067 Adjusted Price $4,875,000 Grantor Parkway Properties 17 LLC Price Per SF $229.63 Grantee Gurprasaas Inc. Property Rights Leased Fee Doc# 89657 Verification Source Dave Peterson Financing Cash To Seller Affiliation Listing Agent Property Information Construction D Year Built 2003 GBA 21,230 Condition Avg-Good Rentable Area 21,230 No. of Buildings 2 Usable Land Area (AC) 1.50 No. of Stories 2 FAR 32% # Parking Spaces 74 Quality Avg-Good Parking Ratio 287 Financial Analysis PGI $502,979 NOI $300,074 Vacancy 5% Expense Ratio 37% EGI $477,830 Cap Rate 6.16% Expenses $177,756 GRM 9.69 Comments This is a two building mixed-use project with 13 commercial units and 4 1BR/1BA 900 SF apartment units. Notable tenants are Starbucks, Subway and State Farm. The property sold with a single vacancy of 1,814 SF but which was guaranteed by the seller for six months and thus is at stabilized occupancy and income. Income and expenses are based off of income in place at time of sale, estimated expenses including management and reserves. Price was discounted $30,000 for deck repairs and this is added as a line-item adjustment.

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Improved Comparable 5

Transaction Property Major Type Office Date January 2, 2015 Address 490 Mendocino Avenue Transaction Type Closed City Santa Rosa Days on Market 700+ County Sonoma Price $9,550,000 State CA Adjustments to Price $0 APN 009-026-008 Adjusted Price $9,550,000 Grantor Thompson Family Trust Price Per SF $238.80 Grantee 42006 Property Rights Leased Fee Doc# 219 Verification Source Linda Zacharin Financing Cash To Seller Affiliation Seller Property Information Construction C Year Built 1955/2005 GBA 39,991 Condition Good Rentable Area 39,991 No. of Buildings 1 Usable Land Area (AC) 0.49 No. of Stories 2 FAR 187% # Parking Spaces 70 Quality Good Parking Ratio 571 Financial Analysis PGI $988,761 NOI $627,512 Vacancy 5% Expense Ratio 33% EGI $939,323 Cap Rate 6.57% Expenses $311,811 GRM 9.66 Comments This is a mixed-use retail and office building in the downtown Santa Rosa area. The property has been on the market for several years through different brokerages at different prices from $8.5 to $9.5 million. The retail is approximately 6,168 SF in several storefronts on the Mendocino Avenue frontage and the remainder is office space. The property was once 100% leased but a major tenant vacated in 2012 and it has been leased to 93% occupancy as of sale date. Approximately 59% of the building is leased to the County of Sonoma with leases expiring from 2016 to 2018. There is no on-site parking, but several leases include off-site parking paid by the landlord and included as an expense. Income based on rent roll plus market for vacant space. Buyer reported cap rate of 6.50% based on actual rents at the time of sale, with no vacancy rate and no Pro Forma rent for the vacant space. There was a credit of $100,000 for TI's that the buyer will need to pay for the one vacant space but property is considered stabilized and no adjustment is made.

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Improved Commercial Comparable Map

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Improved Commercial Comparable Summary and Adjustments Analysis Grid Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Address 3313 Chanate 2620 Lakeville 551 - 569 Fifth Street 5420 State Farm Drive 2770 & 2780 Stony 490 Mendocino Road Highway West Point Road Avenue City Santa Rosa Petaluma Sonoma Rohnert Park Santa Rosa Santa Rosa State CA CA CA CA CA CA Date 7/29/2016 9/17/2015 3/29/2016 4/22/2016 9/30/2015 1/2/2015 Price $4,550,000 $2,300,000 $2,100,000 $4,845,000 $9,550,000 Adjustments to Price -$234,000 $0 $0 $30,000 $0 Adjusted Price $4,316,000 $2,300,000 $2,100,000 $4,875,000 $9,550,000 Rentable Area 33,000 12,224 9,397 8,680 21,230 39,991 Price per SF $353.08 $244.76 $241.94 $229.63 $238.80 Transaction Adjustments Property Rights Leased Fee Leased Fee 0% Leased Fee 0% Leased Fee 0% Leased Fee 0% Leased Fee 0% Financing Cash To Seller Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale None None 0% None 0% None 0% None 0% None 0% Adjusted Price per SF $353.08 $244.76 $241.94 $229.63 $238.80 Market Conditions (%/Year) 5% 4% 2% 1% 4% 8% Adjusted Price per SF $367.20 $249.65 $244.35 $238.81 $257.91 Location NE Santa Rosa Superior Similar Inferior Inferior Superior % Adjustment -10% 0% 20% 15% -5% $ Adjustment -$36.72 $0.00 $48.87 $35.82 -$12.90

Year Built 2016 2009 1977 2006 2003 1955/2005 Condition Good Good Average Good Avg-Good Good % Adjustment 5% 15% 5% 10% 5% $ Adjustment $18.36 $37.45 $12.22 $23.88 $12.90

Quality Good Good Average Avg-Good Avg-Good Good % Adjustment 0% 10% 5% 5% 10% $ Adjustment $0.00 $24.97 $12.22 $11.94 $25.79

Parking Ratio 250 226 261 158 287 571 % Adjustment 0% 0% 0% 0% 5% $ Adjustment $0.00 $0.00 $0.00 $0.00 $12.90

Size (SF) 33,000 12,224 9,397 8,680 21,230 39,991 % Adjustment -5% -5% -5% 0% 0% $ Adjustment -$18.36 -$12.48 -$12.22 $0.00 $0.00

Tenant Quality Typical Superior Inferior Inferior Similar Similar % Adjustment -5% 5% 5% 0% 0% $ Adjustment -$18.36 $12.48 $12.22 $0.00 $0.00

Adjusted Price per SF $312.12 $312.06 $317.66 $310.45 $296.60 Net Adjustments -15% 25% 30% 30% 15% Gross Adjustments 25% 35% 40% 30% 25% Analysis and Conclusions

Economic adjustments are made as follows:

Adjustments to Price: Improved Comparable 1 is adjusted downward for pad sites that contributed value to the property, net of stabilization costs. Improved Comparable 4 is adjusted upward for projected repair costs the buyer was going to spend.

Real Property Rights Conveyed: A transaction price is always predicated on the real property interest conveyed. In the case of the comparable sales, all represent the leased fee interest, the same as the appraised subject interest.

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Financing Terms: All of the sales utilized were sold all cash to the seller, and thus no cash equivalency adjustments were required.

Market Conditions: Comparable sales that occurred under different market conditions than those applicable to the subject on the date of value require adjustment for any differences that affect their values. This set of comparables closed between January 2015 and April 2016. The market has continued to strengthen over this period, with declining vacancy and capitalization rates, and rental rates that have been stable to slightly rising during this time. Upward adjustments are made based on an annualized growth factor of 5%.

Further adjustments for material differences between the subject and comparable sales are described as follows:

Location: The subject’s location has been discussed previously. Improved Comparable 1 has good retail exposure in Petaluma, which features generally higher values, and a 10% downward adjustment is made. Improved Comparable 2 is located in Sonoma and next to a Safeway supermarket, albeit outside of Sonoma’s downtown core. Overall, the location is considered similar. Improved Comparable 3 is located in more of a heavy commercial area in Rohnert Park and has received a large upward adjustment for its inferior location. Improved Comparable 4 has good retail exposure but is adjusted upward for its inferior Southwest Santa Rosa location. Improved Comparable 5 is located on the edge of Santa Rosa’s downtown core and has received a 5% downward adjustment.

Year Built/Condition: The subject is analyzed as new construction in good condition. All of the comparables have been adjusted upward for their at least somewhat older age of construction.

Quality: The subject features good quality. In the absence of other instruction, we have also assumed single-story construction, as second-story space would generate much lower demand and lower rents. Improved Comparable 1 features similar good quality construction and has not been adjusted, while Improved Comparables 2, 3 and 4 have been adjusted upward for their inferior quality. Improved Comparable 5 features similar good quality, but has received a 10% upward adjustment for its high proportion of second story office space.

Parking: The subject is assumed to have typical retail/office parking of one space per 250 square feet of building area. Improved Comparables 1, 2 and 4 have relatively similar parking ratios ranging from one space per 226 to 287 square feet, and have not been adjusted. Improved Comparable 3 has a superior ratio of one space per 158 square feet, but this is actually considered superadequate given the use, and no adjustment is made despite the superior ratio. Improved Comparable 5 has an inferior parking ratio of one space per 571 square feet, warranting a 5% upward adjustment.

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Size: Improved Comparables 1 through 3 are smaller than the subject and have been adjusted downward. The other comparables are considered close enough to the subject in terms of size and investment magnitude that no adjustments are indicated.

Tenant Quality: The subject is assumed to be leased to a typical mix of local and more nationally-based tenants. Improved Comparable 4 features a similar tenant mix and is not adjusted. Improved Comparable 5 sold 59% leased to the County of Sonoma, with a variety of smaller tenants, and is also considered relatively similar. Improved Comparable 1 sold fully leased to Anytime Fitness, Subway and MetroPCS, three good credit quality national tenants. Buyers of properties leased to high quality tenants will pay a premium to properties with local tenants, and this comparable is adjusted downward accordingly. The other comparables were leased to exclusively local tenants as of the respective dates of sale and have received 5% upward adjustments.

Sales Comparison Approach Conclusion – Commercial

After the above adjustments, the comparable sales indicate a range of $296.60 to $317.66 per square foot, with an average of $309.78 per square foot.

Improved Comparable 5 has the lowest indication at $296.60 per square foot and actually required the lowest level of absolute adjustment. However, it is also by far the oldest sale, and the other comparables, which range very narrowly from $310.45 to $317.66 per square foot, also required only relatively low levels of absolute adjustment.

Based on the preceding analysis, a reasonable value indication for the commercial portion of the subject property is considered to be $312.50 per square foot.

Sales Comparison Approach Indicated Value – Commercial Portion Indicated Value per Square Foot: $312.50 Subject Size (SF): 33,000 Indicated Value Of Commercial Portion: $10,312,500 Rounded: $10,310,000

Sales Comparison Approach Conclusion – Entire Property

Given the sheer size of the subject project, the most likely buyer would be a very large institutional investor who would most likely not require a bulk discount for acquiring the different components. Therefore, to determine the value indication for the entire property, we have simply added the contributory value indications for each component together.

The indicated value for the entire subject property via the Sales Comparison Approach under the higher density development scenario can be calculated as follows:

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Sales Comparison Approach - 600 MFR/200 SFR Scenario 600 Multi-Family Units $ 197,550,000 200 Single-Family Units $ 67,260,000 33,000 SF Commercial Space $ 10,310,000 Total Value Via Sales Comparison Approach $ 275,120,000

The indicated value for the entire subject property via the Sales Comparison Approach under the lower density development scenario can be calculated as follows:

Sales Comparison Approach - 300 MFR/100 SFR Scenario 300 Multi-Family Units $ 103,270,000 100 Single-Family Units $ 35,130,000 33,000 SF Commercial Space $ 10,310,000 Total Value Via Sales Comparison Approach $ 148,710,000

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HYPOTHETICAL MARKET VALUE AS IMPROVED - INCOME APPROACH

This section determines the hypothetical market value of the leased fee interest assuming the subject is improved and fully leased with either:

In the Income Approach to value, an estimate of the income which can be generated from the property under appraisement is converted into an indication of value through the capitalization process. Income-producing real estate is typically purchased as an investment, and from an investor’s point of view, earning power is the critical element affecting property value. The higher the earnings, the higher the value, provided that all other attributes are equal. The process of converting income to value is typically either obtained utilizing direct capitalization or yield capitalization. Direct capitalization converts a single year’s stabilized income estimate into a value indication by dividing the net operating income by the capitalization rate. Yield capitalization, or discounted cash flow, discounts future net operating income over the expected holding period to a present value indication. In the case of the subject market, the direct capitalization is most utilized by the buyers and sellers.

First, a market rent is determined for the subject property based upon recent rentals in the market area. Then, vacancy and expenses are deducted to arrive at a net operating income which is divided by the capitalization rate to arrive at the market value.

To apply the Income Approach, an appraiser adheres to the following:

1. Analyze any subject leases or pending leases that would impact the potential gross income. 2. Analyze historical income and expenses for the subject property. 3. Research the market for information on lease transactions, listings and offers to lease involving properties that are similar to the subject property in terms of characteristics such as property type, size, physical condition, quality and location. 4. Verify the information by confirming that the data obtained are factually accurate with at least one party to the transaction. 5. Select relevant units of comparison (e.g., rent per square foot) and develop a comparative analysis for market rent. 6. Compare the actual or contract rent to the market rent to determine the applicable basis on which to calculate potential gross income. 7. Deduct vacancy and collection loss as an allowance for reductions in potential income attributable to vacancies, tenant turnover and nonpayment of rent over the expected holding period to arrive at the effective gross income.

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8. Deduct projected stabilized operating expenses to arrive at the net operating income. 9. Estimate the market value of the identified interest by dividing the stabilized net operating income by the capitalization rate obtained from improved sales.

In this section, the appraisers have undertaken analyses of the subject’s multi-family residential and commercial components. A typical buyer would not undertake an Income Approach for the for-sale residential condominiums and the contributory value of this component is taken from the analyses contained in the Sales Comparison Approach.

Multi-Family: 600 Unit Scenario

Subject Lease Analysis

The subject is proposed construction and there are no leases to analyze.

Subject Historical Income Analysis

The subject is proposed and there are no historical operating results to analyze. However, as The Overlook at Fountaingrove was recently marketed for sale, the appraisers were able to obtain recent operating results from the listing agents for this property, and have summarized them here. The results include full-year 2013 and 2014 data, as well as trailing 12 month data as of September 2015, immediately before the property was sold.

Income Summary Trailing 12 Mths As Of 9/15 2014 2013 Unit/Space Type Amount $/SF $/Unit Amount $/SF $/Unit Amount $/SF $/Unit Gross Rental Income $1,790,046 $21.25 $22,949 $1,707,135 $20.27 $21,886 $1,608,692 $19.10 $20,624 Expense Reimbursements $67,433 $0.80 $865 $67,189 $0.80 $861 $61,223 $0.73 $785 Other Income $36,051 $0.43 $462 $35,650 $0.42 $457 $36,037 $0.43 $462 Totals $1,893,530 $22.48 $24,276 $1,809,974 $21.49 $23,205 $1,705,952 $20.25 $21,871 Notes: $/SF and/or $/Unit are based on totals for each space type.

Rental Survey

A survey of current market rents within the subject and competing neighborhoods was completed in order to determine an economic rent for the subject multi-family units. Included below are the comparable photographs, comparable map, summary table and analysis and conclusion of market rent for the subject’s multi-family component.

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Multi-Family Rent Comparable Photographs

Rent Comparable 1 Rent Comparable 2

Rent Comparable 3 Rent Comparable 4

Rent Comparable 5 Rent Comparable 6

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Rent Comparable 7

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Multi-Family Rent Comparable Map

Subject

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Multi-Family Rent Comparable Summary Total Units/ Vacant Units/ Quality/ Approximate Utility Adjusted Project Name/Address Vacancy% Year Built Condition Unit Type Size (SF) Rent Adjustment Rent Utilities Included Parking Type Amenities

1 The Overlook at Fountaingrove 78 2003 Good 1BR/1BA 713 $1,849 $0 $1,849 Water Gas Open Laundry Room Fitness 200 Bicentennial Way 1 Good 1BR/1BA 733 $1,879 $0 $1,879 Sewer Electricity Carport In-Unit W/D Hot Tub Santa Rosa 1% 2BR/2BA 1,087 $2,249 $0 $2,249 Trash Hot Water Garages Pool Playground 2BR/2BA TH 1,235 $2,299 $0 $2,299 2BR/2.5BA TH 1,258 $2,399 $0 $2,399 3BR/3BA TH 1,363 $2,489 $0 $2,489 3BR/3BA TH 1,457 $2,589 $0 $2,589

2 The Boulders at Fountaingrove 124 2005 Good 1BR/1BA 864 $1,934 $0 $1,934 Water Gas Open Laundry Room Fitness 3680 Kelsey Knolls 1 Good 2BR/2BA 1,129 $2,289 $0 $2,289 Sewer Electricity Carport In-Unit W/D Hot Tub Santa Rosa 1% 2BR/2BA 1,141 $2,374 $0 $2,374 Trash Hot Water Garages Pool Playground 3BR/2BA 1,421 $2,729 $0 $2,729

3 The Meadows at Fountaingrove 71 2009 Good 1BR/1BA 770 $1,799 $0 $1,799 Water Gas Open Laundry Room Fitness 3589 Round Barn Boulevard 0 Good 2BR/2BA 1,098 $2,199 $0 $2,199 Sewer Electricity Carport In-Unit W/D Hot Tub Santa Rosa 0% 2BR/2BA TH 1,433 $2,299 $0 $2,299 Trash Hot Water Garages Pool Playground 3BR/2BA 1,244 $1,999 $0 $1,999

4 The Villages 224 1990 Good 1BR/1BA 692 $1,679 $0 $1,679 Water Gas Open Laundry Room Fitness 2980 Bay Village Circle 3 Good 1BR/1BA 728 $1,735 $0 $1,735 Sewer Electricity Carport In-Unit W/D Hot Tub Santa Rosa 1% 2BR/2BA 921 $2,011 $0 $2,011 Trash Hot Water Garages Pool Playground 3BR/2BA 1,157 $2,311 $0 $2,311

5 The Annadel 270 2014 Good 1BR/1BA 806 $2,032 $0 $2,032 Water Gas Open Laundry Room Fitness 1020 Jennings Avenue 8 Good 2BR/2BA 1,036 $2,395 $0 $2,395 Sewer Electricity Carport In-Unit W/D Hot Tub Santa Rosa 3% 2BR/2BA 1,079 $2,610 $0 $2,610 Trash Hot Water Garages Pool Playground 3BR/2BA 1,191 $3,115 $0 $3,115

6 Acacia at Santa Rosa Creek 277 2003 Good 1BR/1BA 763 $1,970 $0 $1,970 Water Gas Open Laundry Room Fitness 4656 Quigg Drive 5 Good 2BR/2BA 1,036 $2,296 $0 $2,296 Sewer Electricity Carport In-Unit W/D Hot Tub Santa Rosa 2% 2BR/2BA 1,117 $2,351 $0 $2,351 Trash Hot Water Garages Pool Playground 3BR/2BA 1,271 $2,566 $0 $2,566

7 Chanate Cottages 16 2015 Avg-Good 2BR/2.5BA TH 1,200 $2,050 $15 $2,065 Water Gas Open Laundry Room Fitness 2327 Chanate Road 1 Good Sewer Electricity Carport In-Unit W/D Hot Tub Santa Rosa 6% Trash Hot Water Garages Pool Playground

S N/A 600 / 300 2016 Good 1BR/1BA 713 Water Gas Open Laundry Room Fitness 3313 Chanate Road N/A Good 1BR/1BA 733 Sewer Electricity Carport In-Unit W/D Hot Tub Santa Rosa N/A 2BR/2BA 1,087 Trash Hot Water Garages Pool Playground 2BR/2BA TH 1,235 2BR/2.5BA TH 1,258 3BR/3BA TH 1,363 3BR/3BA TH 1,457

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Analysis and Conclusion

The comparables would typically first be adjusted for differences in landlord expenses. Except for Rent Comparable 7, all of the comparables have similar expense bases wherein the tenants pay for all utilities, including their own PG&E as well as water, sewer and garbage. This is also the basis upon which units are leased at The Overlook, and it is the basis assumed for the subject based on the market convention for newer projects. Rent Comparable 7 is leased on a very similar basis that is only different in that the lessor includes trash disposal with the rent. Based on projected trash removal expenses, this two bedroom comparable is adjusted upward by $15 per month.

One Bedroom Units

The one bedroom comparables range from $1,679 to $2,032.

Rent Comparable 1, $1,849 to $1,879, reflects rents at The Overlook, and is considered similar to the subject in all respects except for its somewhat older construction. Rents at the subject would be expected to be slightly higher.

Rent Comparable 2, $1,934, is The Boulders at Fountaingrove, which is also considered similar to the subject in most respects. The construction is slightly older, but this one bedroom unit is substantially larger than the subject’s.

Rent Comparables 3 and 4 range from $1,679 to $1,799 and are both older construction. Rent Comparable 3 is located in Fountaingrove and is adjacent to vineyard, but other properties along this street generally comprise business park office uses. Rent Comparable 4 also lacks garage parking and features an inferior Northwest Santa Rosa location.

Rent Comparable 5 has the highest indication at $2,032 and is a virtually new project with larger one bedroom units. While the location is somewhat inferior, it is located in good proximity to shopping and the freeway, and the rents at this project also appear to be somewhat high, as discussed below.

Rent Comparable 6, $1,970, features a good Northeast Santa Rosa location and a somewhat larger unit size, but is also older construction.

Based on the preceding analysis, and placing significant weight on The Overlook, reasonable market rents for the subject one bedroom units are concluded to be $1,950 per month for the 713 square foot plan and $1,975 per month for the 733 square foot plan. These reflect approximately 5% premiums over the existing Overlook rents which are considered reasonable based on the subject’s new condition.

Two Bedroom Units

The two bedroom comparables range from $2,011 to $2,610.

Rent Comparable1, $2,249 to $2,399, is The Overlook, and would be expected to have lower rents than those projected for the subject as a result of its slightly inferior condition.

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Rent Comparable 2, $2,289 to $2,374, is The Boulders. The unit sizes are generally somewhat smaller, although they comprise single levels of living area.

Rent Comparables 3 and 4 range from $2,011 to $2,299 and would be expected to be somewhat lower than the subject’s projected rents. Rent Comparable 4 includes a 1,433 square foot 2BR/2BA townhome unit that leases for $2,299, which is considered somewhat low for such a large unit.

Rent Comparable 5 has two bedroom rents ranging from $2,395 to $2,610 despite the fact that these units range in size only from 1,036 to 1,079 square feet. Again, these rents appear to be on the high side, particularly given the smaller unit sizes, but they also reflect a single level of living area.

Rent Comparable 6, $2,296 to $2,351, are smaller than the subject units but are single level units and would appear to indicate similar rents.

Finally, Rent Comparable 7, $2,065, is a 2BR/2.5BA townhome unit, and the quality is somewhat inferior. The location directly on a relatively busy street very close to a commercial neighborhood is considered inferior as well. Finally, some tenants would find the two-story design less desirable when compared to the subject’s one-story two bedroom unit.

Based on the preceding analysis, and again placing most weight on The Overlook, reasonable market rents for the subject two bedroom units are concluded to be $2,350 per month for the 1,087 square foot plan, $2,425 per month for the 1,235 square foot plan, and $2,525 per month for the 1,258 square foot plan (which includes an additional half bath).

Three Bedroom Units

The three bedroom comparables range from $1,999 to $3,115. The relative discussion of attributes is similar to those contained above, and most weight has been placed on the rents at The Overlook, with an approximate 5% premium assigned for the subject’s new condition.

Reasonable market rents for the subject three bedroom units are concluded to be $2,625 per month for the 1,363 square foot plan, and $2,725 per month for the 1,457 square foot plan.

600 Multi-Family Unit Scenario

Potential Gross Income

In this scenario, there are to be 480 market rate units. Of the remaining 120 units, 60 units are to be affordable to very low income households (defined as those households earning no more than 50% of the median household income as defined by the United States Department of Housing and Urban Development), and 60 units are to be rented with voucher subsidies (at 100% of market rent but with local government assistance).

The following table provides a summary of the rent limits and utility allowances applicable to the subject’s 60 very low income units as of the date of valuation.

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Subject Rent Limits - Effective July 2016 Unit Type Gross Rent Utility Allowance Rent Limit 1BR - Very Low $825 $150 $675 2BR - Very Low $928 $190 $738 3BR - Very Low $1,030 $235 $795

The affordable rent limits are well below market, and have therefore been utilized instead of market rents in the calculation of potential gross income for these units.

In the absence of any further instruction regarding which units are to be the affordables, we have simply designated 20 1BR’s, 20 2BR’s, and 20 3BR’s of the smallest floor plan for each unit type as the affordable units.

The preceding rents are exclusive of additional fees generated by garage parking. According to the on-site property manager at The Overlook, approximately 25% of the units pay a roughly $100 per month additional fee for the fact that their units have direct access from the living areas to their private garages. The appraisers have confirmed that other projects also charge direct access garage fees generally ranging from $50 to $100 per unit. We have assumed the same proportion of subject units, or 150 in this scenario, will have direct access garages, and have estimated additional income of $100 per unit per month for this feature. This income has been included in the potential gross rental income as it effectively is a rental surcharge added to the base rent for these units, rather than an option that tenants can randomly select or decline.

The potential gross rental income for the subject multi-family units in this scenario can therefore be calculated as follows.

Potential Gross Rental Income Summary - 600 Multi-Family Unit Scenario 1BR/1BR - 713 SF (Market Rate): 103 @ $1,950 per month x 12 months = $2,410,200 1BR/1BA - 733 SF (Market Rate): 46 @ $1,975 per month x 12 months = $1,090,200 2BR/2BA - 1,087 SF (Market Rate): 165 @ $2,350 per month x 12 months = $4,653,000 2BR/2BA - 1,235 SF (Market Rate): 46 @ $2,425 per month x 12 months = $1,338,600 2BR/2.5BA - 1,258 SF (Market Rate): 92 @ $2,525 per month x 12 months = $2,787,600 3BR/3BA - 1,363 SF (Market Rate): 26 @ $2,625 per month x 12 months = $819,000 3BR/3BA - 1,457 SF (Market Rate): 62 @ $2,725 per month x 12 months = $2,027,400 1BR/1BA - 713 SF (Affordable): 20 @ $675 per month x 12 months = $162,000 2BR/2BA - 1,087 SF (Affordable): 20 @ $738 per month x 12 months = $177,120 3BR/3BA - 1,363 SF (Affordable): 20 @ $795 per month x 12 months = $190,800 Direct Access Garages: 150 @ $100 per month x 12 months = $180,000 Market Potential Gross Rental Income $15,835,920 Market PGRI per unit/mth $2,199 At The Overlook, as is typical for newer good quality projects, the tenants pay their own PG&E directly, but reimburse the owners for water, sewer and trash removal. Utility reimbursements for these items have therefore been added here, and have also been deducted as part of the subject’s utilities expenses as described later in this section. The Overlook’s utility reimbursements have been very consistent over the past three years, slowly rising from $785 to

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$865 per unit over this period. We have projected utility reimbursements at $850 per unit, equating to total utility reimbursement income of $510,000.

There is no common laundry facility or storage units to generate additional income, but it is noted that The Overlook’s historical operating results indicate other income beyond garage fees at approximately $25 per unit per month, or $300 per unit per year. We could not confirm what this income reflected, but presumably it could reflect guest fees for use of the pool or facility rental fees for the clubhouse. Based on the historical experience of The Overlook, we have also added $300 per unit in other income, equating to $180,000.

Vacancy and Credit Loss

The process for straight capitalization within the framework of the Income Approach requires that a forecast for vacancy and credit loss be made. Usually the vacancy and credit loss estimate is merely an allowance recognizing that a building will not be able to sustain 100% occupancy for a long period of time unless leased by a single credit tenant on a long term lease. Unless unusual market conditions are in existence, the buyers and sellers will usually estimate that approximately 5% of gross income will be lost for vacancy and tenant default.

Typically, an allowance of 5% would be utilized for a market rate project with the subject’s characteristics, whereas an allowance of 1% would be utilized for a 100% affordable project. Given the subject’s mix of 20% affordable units (comprising both those units rented to households earning no more than 50% of local median income as well as the voucher subsidized units) and 80% market rate units, a blended vacancy factor of 4.2% is used to account for vacancy and credit loss over the economic life of the subject. For the comparable sales, all of which are 100% market rate projects, a 5% allowance has been utilized in order to derive their respective capitalization rates, and thus the vacancy allowance assumptions are internally consistent given the subject’s mix of market rate and affordable units. If the vacancy and credit loss factor was increased for the subject the same assumption should be made for the comparable sales which are all within the same Sonoma County market. The increase in the comparable sales’ vacancy and credit loss would decrease the indicated capitalization rates and result in the same opinion of market value.

Operating Expenses and Reserves

The table below presents a summary of expenses for The Overlook at Fountaingrove in 2013, 2014, and trailing 12 months as of September 2015. For the sake of brevity in the following analysis, we have referred to the results for the trailing 12 months as of September 2015 simply as the 2015 results.

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Expense Summary Trailing 12 Mths As Of 9/15 2014 2013 Expense Amount $/SF $/Unit Amount $/SF $/Unit Amount $/SF $/Unit Taxes $244,180 $2.90 $3,131 $244,297 $2.90 $3,132 $242,608 $2.88 $3,110 Insurance $46,276 $0.55 $593 $61,678 $0.73 $791 $71,549 $0.85 $917 Utilities $119,879 $1.42 $1,537 $117,592 $1.40 $1,508 $109,736 $1.30 $1,407 Repairs/Maintenance $98,313 $1.17 $1,260 $117,040 $1.39 $1,501 $97,548 $1.16 $1,251 Miscellaneous $19,977 $0.24 $256 $25,326 $0.30 $325 $28,206 $0.33 $362 On-Site Management $177,514 $2.11 $2,276 $179,776 $2.13 $2,305 $169,485 $2.01 $2,173 Off-Site Management $52,735 $0.63 $676 $48,335 $0.57 $620 $46,122 $0.55 $591 Reserves $19,500 $0.23 $250 $19,500 $0.23 $250 $19,500 $0.23 $250 Totals $778,374 $9.24 $9,979 $813,544 $9.66 $10,430 $784,754 $9.32 $10,061 Notes: $/SF and/or $/Unit are based on totals for the property.

The appraisers have also analyzed recent operating expenses from three other high-end multi- family properties in Sonoma County.

Multi-Family Expense Comparables Comp # 1 2 3 Year Built 2005 2002 2007 Rentable Area (SF) 140,821 127,286 149,753 Number of Units 124 138 147 Average Unit Size (SF) 1,136 922 1,019 Occupancy 99% 98% 97% Expense Year 2014 2015 2015 Expense $/SF $/Unit $/SF $/Unit $/SF $/Unit Taxes $2.62 $2,973 $1.82 $1,679 $2.67 $2,721 Insurance $0.60 $684 $0.90 $830 $0.63 $644 Utilities $1.34 $1,519 $1.67 $1,537 $1.17 $1,188 Repairs/Maintenance $1.14 $1,290 $1.09 $1,004 $1.16 $1,181 Miscellaneous $0.20 $222 $0.44 $404 $0.71 $725 On-Site Management $1.29 $1,469 $2.06 $1,897 $2.04 $2,075 Off-Site Management $0.59 $668 $1.12 $1,035 $0.88 $892 Reserves $0.22 $250 $0.27 $250 $0.00 $0 Totals Per SF/Unit $7.99 $9,075 $9.36 $8,635 $9.25 $9,425.41 Totals As % of EGI 38% 39% 36% Expense Analysis & Projections

In newer apartment projects such as the subject, the tenants generally pay for all of their own utilities including water, sewer and trash disposal, while the landlord is responsible for property taxes, insurance, common area utilities, repairs/maintenance, miscellaneous, on- and off-site management, and reserves for replacement. As previously noted, tenants are assumed to pay their own PG&E directly, but reimburse the owners for water, sewer and trash removal.

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In projecting expense for the subject, we have placed significant weight upon the recent historical experience of The Overlook at Fountaingrove, with support from the Sonoma County expense comparables shown above. The estimated expenses for the subject are discussed below.

Property Taxes: Taxes are based on the value of the subject via the Income Approach multiplied by the tax rate, to which are added the direct charges.

Insurance: The Overlook’s insurance expense ranged from $593 to $917 per unit over the last three years, with the expense declining each year. It is important to note that the historical expenses include earthquake insurance, but the pro formas for both The Overlook and The Boulders at Fountaingrove reflected a projected expense of $300 per unit wherein the buyers would let the earthquake insurance lapse, something they reportedly did in fact intend to do. Still, this figure is a projection and not an actual historical expense. The expense comparables range from $644 to $830 per unit, and while it was not clear that two of the comparables included earthquake insurance, the appraisers confirmed that Expense Comparable 1 did, with a total expense of $684 per unit. The subject site is situated directly in an earthquake zone, and we would anticipate a buyer obtaining earthquake insurance as part of their coverage. Given the very large size of the subject, which could result in a slight per unit savings, we have projected insurance expenses at $650 per unit.

Utilities: The landlords will be responsible for common area utilities. In addition, they will pay the water, sewer and trash bills for the tenants, and since utility reimbursements have been added as income, the corresponding expenses are also deducted here. The Overlook’s utilities expenses have been very consistent over the last three years, slowly rising from $1,407 per unit in 2013 to $1,537 per unit in 2015. The expense comparables range from $1,188 to $1,537 per unit. We have projected annual utilities expenses at $1,500 per unit.

Repairs/Maintenance: This includes all maintenance expenses, including landscaping, supplies, pest control, security, and building repairs, as well as turnover expenses for reconditioning units. The Overlook’s repairs and maintenance expenses have ranged from $1,251 to $1,501 over the last three years, with the most recent year having an expense of $1,260 per unit. The expense comparables range narrowly from $1,004 to $1,290 per unit. Given the subject’s larger size and new condition, we have projected annual repairs and maintenance expenses toward the low end of the comparable range, and slightly lower than the Overlook’s recent expenses, at $1,100 per unit. At 4% of EGI, this is toward the low end of a typical range which is considered reasonable given the new condition of the property.

Miscellaneous: This accounts for such items as administrative/office expenses, bank charges, business licenses, accounting and legal/professional fees related to owning such a property. The Overlook’s miscellaneous expenses have ranged from $256 to $362 per unit over the last three years, with the most recent year having an expense of $256 per unit. The expense comparables range more widely from $222 to $725 per unit. The highest expense is for a Petaluma project which is mapped as condominiums, and while we could not verify the impact this may have had upon its reported administrative expenses, they have been consistently high. It appears to be an outlier here, and the other two expense comparables range from $222 to $404 per unit, in line with The Overlook’s miscellaneous expenses. Miscellaneous expenses for the subject are projected at $250 per unit.

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On-Site Management: An on-site manager is required by law given the subject’s size, although there would also be expected to be off-site management fees. Given the need for full-time management, as well as an on-site leasing center, management fees are much more expensive than for smaller projects. The Overlook’s on-site management expenses have ranged from $2,173 to $2,305 per unit over the last three years, while the expense comparables have a somewhat wider range and a lower expense of from $1,469 to $2,075 per unit. One comparable appears somewhat low at $1,469 per unit, as the other two are much more in line (albeit still lower) than The Overlook at $1,897 and $2,075 per unit. From within the preceding range, on- site management expenses for the subject are projected at $2,200 per unit.

Off-Site Management: The Overlook’s off-site management expenses have ranged from $591 to $676 per unit over the last three years, with a rising trend over this period, while the expense comparables have a somewhat wider range and a lower expense of from $668 to $1,035 per unit. Interestingly, The Overlook’s on-site management expenses have been slightly higher than those of the expense comparables, while The Overlook’s off-site management expenses have been slightly lower. It is possible that this could be due simply to slightly different accounting conventions, but the same company that compiled and reported The Overlook’s results also did the same for Expense Comparable 1, so this seems unlikely at least in this case, and in fact Expense Comparable 1 had the lowest off-site management of the expense comparables at $668 per unit.

Note that both The Overlook and the expense comparables consist of 100% market rate properties. The subject property will include 20% affordable units, including 10% subsidized voucher housing. It is very common for expenses for subsidized projects to be greater than market expenses, due to the special requirements of HUD, including maintenance, reserves and audit requirements. Based on the preceding, off-site management expenses for the subject are projected at $1,000 per unit. The projection results in total on- and off-site management costs equating to 12% of EGI, which is considered reasonable given the somewhat more intensive management needs of affordable projects.

Reserves: Reserves represent a replacement allowance for items having a shorter economic life than the total structure; i.e., roof, paving, carpets and heating and cooling systems. Based on discussions with market participants, an allowance of $250 per unit has been projected for the subject.

The subject’s total projected expenses equate to 41% of effective gross income. The comparable sales had expense ratios ranging from 36% to 41%. The subject’s ratio is at the high end of the range, which is considered reasonable given the somewhat higher management expense associated with the affordable units.

Overall Capitalization Rate

The overall capitalization rates derived from the sales discussed in the Sales Comparison Approach range are indicated in the table below:

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Multi-Family Comparable Sale Cap Rates Rentable Adjusted Cap Comp Address City Date Area Price NOI Rate 1 200 Bicentennial Way Santa Rosa 3/31/2016 84,234 $24,026,000 $1,282,950 5.34% 2 3680 Kelsey Knolls Santa Rosa 3/31/2016 140,821 $42,351,000 $2,139,017 5.05% 3 1 Indigo Drive Petaluma 6/28/2016 149,753 $54,500,000 $2,442,037 4.48% 4 2301-2347 Summercreek Drive Santa Rosa 2/18/2016 116,584 $30,500,000 $1,470,100 4.82% 5 2111 Kawana Springs Road Santa Rosa In Contract 127,286 $42,900,000 $1,933,056 4.51%

The comparables range from 4.48% to 5.34%. All of the them are smaller than the subject, but market participants’ opinions were mixed when discussing the impact upon overall rates of differences in project size between 150 and 600 units, with some saying that there would be no impact in the local market and others suggesting a difference of 25 to 50 basis points would be appropriate. All of the comparables sold in good condition, but the subject units are analyzed as new construction, thus placing downward pressure on rates. Rates have also continued to decline slightly over the last year, but this set of comparables comprises one current escrow and four sales which closed between February and June of 2016.

Improved Comparable 1 is The Overlook at Fountaingrove and would typically be given heavy weight given the assumptions requested by the client, but it has the highest rate, apparently as a result of a low price resulting from most buyers’ risk aversion regarding a previous water intrusion problem. The other comparables range more narrowly from 4.48% to 5.05%.

From within this range, and given the subject’s large size offset by its new condition, a rate of 4.75% has been selected as appropriate for the subject.

Capitalization to Value

The table that follows presents the Income Capitalization Analysis for the subject multi-family units, assuming development with 600 units.

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Income Capitalization Analysis - Multi-Family: 600 Unit Scenario Unit/Space Type Income Method Units/SF Annual % of PGI Gross Rental Income: $15,835,920 100% Expense Reimbursements: $510,000 Other Income: $180,000 Potential Gross Income (PGI): $16,525,920 Vacancy & Collection Loss: $694,089 4.2% Effective Gross Income (EGI): $15,831,831 96%

Expense Amount Method Annual $/SF Taxes 1.1495% of Value plus Direct Charges $2,272,217 $3.51 Insurance $650 $/Unit $390,000 $0.60 Utilities $1,500 $/Unit $900,000 $1.39 Repairs/Maintenance $1,100 $/Unit $660,000 $1.02 Miscellaneous $250 $/Unit $150,000 $0.23 On-Site Management $2,200 $/Unit $1,320,000 $2.04 Off-Site Management $1,000 $/Unit $600,000 $0.93 Reserves $250 $/Unit $150,000 $0.23 Total Expenses: $6,442,217 $9.94 Net Operating Income (NOI): $9,389,615 $14.49 Capitalization Rate: 4.75% Total Value Via the Income Approach: $197,676,099 Rounded: $197,680,000 $305.02

300 Multi-Family Unit Scenario

Potential Gross Income

In this scenario, there are to be 240 market rate units. Of the remaining 60 units, 30 units are to be affordable to very low income households and 30 units are to be rented with voucher subsidies (at 100% of market rent but with local government assistance).

The potential gross rental income for the subject property under this development scenario can therefore be calculated as follows.

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Potential Gross Rental Income Summary - 300 Multi-Family Unit Scenario 1BR/1BR - 713 SF (Market Rate): 52 @ $1,950 per month x 12 months = $1,216,800 1BR/1BA - 733 SF (Market Rate): 23 @ $1,975 per month x 12 months = $545,100 2BR/2BA - 1,087 SF (Market Rate): 82 @ $2,350 per month x 12 months = $2,312,400 2BR/2BA - 1,235 SF (Market Rate): 23 @ $2,425 per month x 12 months = $669,300 2BR/2.5BA - 1,258 SF (Market Rate): 46 @ $2,525 per month x 12 months = $1,393,800 3BR/3BA - 1,363 SF (Market Rate): 13 @ $2,625 per month x 12 months = $409,500 3BR/3BA - 1,457 SF (Market Rate): 31 @ $2,725 per month x 12 months = $1,013,700 1BR/1BA - 713 SF (Affordable): 10 @ $675 per month x 12 months = $81,000 2BR/2BA - 1,087 SF (Affordable): 10 @ $738 per month x 12 months = $88,560 3BR/3BA - 1,363 SF (Affordable): 10 @ $795 per month x 12 months = $95,400 Direct Access Garages: 75 @ $100 per month x 12 months = $90,000 Market Potential Gross Rental Income $7,915,560 Market PGRI per unit/mth $2,199 Utility reimbursements are projected at the same rate of $850 per unit, equating to total utility reimbursement income in this scenario of $255,000. Other income is added at the same rate of $300 per unit, equating to $90,000.

Vacancy and Credit Loss

The same vacancy and collection loss allowance of 4.2% of gross income has been utilized as was used in the other development scenario.

Operating Expenses and Reserves

The treatment of expenses is the same as discussed previously for the other development scenario.

Overall Capitalization Rate

The comparables have overall rates ranging from 4.48% to 5.34%. In this development scenario, the subject multi-family component only comprises 300 units as opposed to 600. Based upon our experience and discussions with market participants, a reasonable rate for the subject is considered to be 4.50%, or 25 basis points lower than in the first development scenario.

Capitalization to Value

The table that follows presents the Income Capitalization Analysis for the subject under this development scenario.

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Income Capitalization Analysis - Multi-Family: 300 Unit Scenario Unit/Space Type Income Method Units/SF Annual % of PGI Gross Rental Income: $7,915,560 100% Expense Reimbursements: $255,000 Other Income: $90,000 Potential Gross Income (PGI): $8,260,560 Vacancy & Collection Loss: $346,944 4.2% Effective Gross Income (EGI): $7,913,616 96%

Expense Amount Method Annual $/SF Taxes 1.1495% of Value plus Direct Charges $1,185,939 $3.66 Insurance $650 $/Unit $195,000 $0.60 Utilities $1,500 $/Unit $450,000 $1.39 Repairs/Maintenance $1,100 $/Unit $330,000 $1.02 Miscellaneous $250 $/Unit $75,000 $0.23 On-Site Management $2,200 $/Unit $660,000 $2.04 Off-Site Management $1,000 $/Unit $300,000 $0.93 Reserves $250 $/Unit $75,000 $0.23 Total Expenses: $3,270,939 $10.10 Net Operating Income (NOI): $4,642,677 $14.34 Capitalization Rate: 4.50% Total Value Via the Income Approach: $103,170,607 Rounded: $103,170,000 $318.57 Commercial

Rental Survey

A survey of current market rents within the subject and competing neighborhoods was completed in order to determine an economic rent for the subject’s commercial space. Included below are the comparable photographs, comparable map, summary table and analysis and conclusion of market rent for the commercial portion of the subject property.

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Commercial Rent Comparable Photographs

Rent Comparable 1 Rent Comparable 2

Rent Comparable 3 Rent Comparable 4

Rent Comparable 5 Rent Comparable 6

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Commercial Rent Comparable Map

Rent Comparable 5 is located immediately adjacent Rent Comparable 1 and its marker is barely visible on the map.

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Commercial Rent Comparable Summary Rent/SF/Mo. Lessee Commence Exp. Adjustment Year Built Overall Term Tenant Expense Address/City Date (Mos.) SF Leased Adjusted Rent/SF Rent Steps Improvements Concessions Condition Quality Comparison Comp # Basis Comments Subject 3313 Chanate Road Value: 7/29/16 NNN 2016 Good Santa Rosa Good 1 Edward Jones May-16 60 NNN 1,120 $2.05 3% Annual As Is None 2007 Good Similar Extension of existing lease of in-line space 1 5761 Mountain Hawk Way, #101 1 Good with corner exposure in the western building 1 Santa Rosa, CA 1 of Skyhawk Village. Building consists of ground floor retail and upper floor 1 1 apartments. 2 Extreme Pizza Feb-15 60 NNN 1,444 $2.50 2% Annual As Is 6 Months Free 2005 Good Similar Middle space within three tenant center at 2 2500 Mendocino Avenue, #B 1 Rent Good Chanate Road and Mendocino Avenue. 2 Santa Rosa, CA 1 Former deli; landlord provided in as is condition because of existing build-out. 2 1 Peet's and First Tech CU are other tenants. Effective rent given concession is $2.16 psf. 3 Lash Company Sep-16 60 NNN 633 $1.12 3% Annual As Is See Comments 2007 Good Inferior An aesthetician leases this second story 3 2097 Stagecoach Drive, #220 1 Good retail space in Fountaingrove Village. 1 Santa Rosa, CA 1 Tenant received three months' early occupancy to do her own build-out, with rent 1 1 commencing 9/1/16. 4 Quality USA Nov-14 60 NNN 1,247 $1.75 3% Annual As Is 3 months 1989 Average Inferior New tenant in middle portion of the Campus 4 1880 Mendocino Avenue, #D 1 fixturization Average Center. Tenant invested a substantial 4 Santa Rosa, CA 1 amount into the space. NNN charges are 4 1 $0.69 PSF. 5 Earth's Bounty Jun-13 120 NNN 7,800 $1.20 3% Annual As Is 6 months @ 2007 Good Inferior Lease of a former market/restaurant. 5 5755 Mountain Hawk Way 1 $0.38 psf Good Tenant was to operate catering business and 5 Santa Rosa, CA 1 open a restaurant and small market. Landlord paid to install some demising walls 5 1 and included some equipment. Effective rent given concession is $1.14 psf. 6 AAA Mar-16 120 NNN 4,716 $2.95 Yr 6: 12%; Yrs $20.00 PSF over None 1978 Average Superior This is a former Leslie's Pool Supply with 6 2180 Mendocino Avenue 0 7-10: CPI existing Average good corner exposure at the corner of Santa Rosa, CA 0 Lewis Road and Mendocino Avenue. Effective rent given irregular increases and 0 TI allowance is $2.58 psf.

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Analysis and Conclusion

All of the comparables are leased on a triple net basis, the same expense basis assumed for the subject leases. All of the comparables feature standard 2% or 3% annual increases.

Rent Comparables 2 and 5 received substantial periods of free or discounted rent as a concession. We have determined the effective rent of these comparables by setting up two separate income streams and solving so that their present value is equal to one another. The first income stream mirrors the actual rent schedule including any free or discounted rent and the actual stipulated increases. The second income stream features no rent concessions and annual 3% increases. We have then solved for the initial rent of this second income stream so that its present value equals that of the actual rent schedule. For Rent Comparable 2, which has a base rent of $2.50 per square foot but included six months of free rent, the effective rent is $2.16 per square foot. For Rent Comparable 5, which has a base rent of $1.20 after six months of heavily discounted rent as part of a long 10-year term, the effective rent is $1.14 per square foot.

Except for Rent Comparable 6, all of the comparable tenants took their space in “as is” condition, with no significant tenant improvement allowances. The tenant for Rent Comparable 6 received a TI allowance of $20 per square foot over the existing build-out. This comparable also has irregular rent increases, and based on the same methodology as utilized above, its effective rent given the TI allowance and rent increases is determined to be $2.58 per square foot.

Rent Comparable 1, $2.05 per square foot, is a very recent renewal signed by an existing tenant in Skyhawk Village. This is a good quality retail center with a good Northeast Santa Rosa location in a predominantly residential area, and is considered a very good comparable for the subject. It is in good condition, albeit not new, and as an extension, it is possible that the tenant paid a slight premium over a new tenant that did not already occupy the space. Overall, it is considered relatively similar to the subject.

Rent Comparable 2, $2.16 per square foot, is a slightly older lease of space in a small center with superior exposure at the corner of Chanate Road and Mendocino Avenue. This location features very heavy traffic, and the adjacent Peet’s Coffee serves as a significant draw. The quality and condition are both good, and rents have risen slightly since this lease commenced. Overall, this comparable is considered to indicate a similar rent to that projected for the subject.

Rent Comparable 3, $1.12 per square foot, is the most recent lease in Fountaingrove Village. This is a newer center located in fairly close proximity to the subject. Its location, condition and quality are all good, but the lessor has reportedly been stubborn about rents and the center has historically featured relatively high vacancy. This comparable is actually of second floor retail space, thus explaining the much lower rent. An organic grocery is soon to occupy a large space in this center, but this is the owner’s business and so not a comparable. Asking rents for ground floor inline space are currently $2.75 per square foot, NNN, but have not generated significant interest or any leases in a significant time on the market.

Rent Comparable 4, $1.75 per square foot, is a somewhat older lease in Campus Center, a strip center of inferior condition and quality but with very good exposure along Mendocino Avenue just across from the Santa Rosa Junior College. Rents have risen since this lease commenced,

16-193-42 Page 182 of 191 3313 Chanate Road, Santa Rosa and this was also a relatively long lease term, possibly placing additional downward pressure on the rent. Overall, this comparable is considered to indicate a lower rent than that projected for the subject.

Rent Comparable 5, $1.14 per square foot, is another lease in Skyhawk Village. This lease has been used as an indication of market rent for the subject’s grocery tenant. The quality, condition and location are all good, but this lease commenced in June 2013, since which time market conditions have improved. It indicates that while rents are lower for this type of tenant space, they are not discounted nearly as much as rents for larger anchor supermarket spaces. Overall, given the slightly inferior condition as well as the growth in rents since this lease commenced, but offset by the fact that the subject grocery will be substantially larger than this comparable, it is considered to indicated a slightly lower rent than that projected for the subject grocery space.

Rent Comparable 6, $2.58 per square foot, is the lease to AAA of an entire free-standing building with excellent corner exposure in a very high traffic location at Mendocino Avenue and Lewis Road, just across the street from the Safeway-anchored Mendocino Marketplace and an older shopping center anchored by a Big Lots and CVS/Caremark. Its condition and quality are listed in the preceding table as average, but the tenant received a TI allowance of nearly $100,000 which will clearly help to upgrade both, although they are still projected to be inferior to the subject’s. Overall though, given the superior location with freestanding exposure as well as the tenant credit quality, this comparable is considered to indicate a higher rent than that projected for the subject.

Based on the preceding analysis, and upon discussions with market participants, most notably leasing agents specializing in retail space, a reasonable market rent for the subject’s 21,000 square feet of inline commercial space is concluded to be $2.15 per square foot, NNN, while a reasonable market rent for the subject’s 12,000 square foot grocery space is concluded to be $1.25 per square foot.

Potential Gross Income

The potential gross income for the subject’s commercial space can therefore be calculated as follows.

Potential Gross Income Summary - Commercial Commercial Space - Inline: 21,000 SF @ $2.15 PSF per month x 12 months = $541,800 Commercial Space - Grocery: 12,000 SF @ $1.25 PSF per month x 12 months = $180,000 Potential Gross Income - Commercial $721,800 Vacancy and Credit Loss

16-193-42 Page 183 of 191 3313 Chanate Road, Santa Rosa derive their respective capitalization rates, and thus the vacancy allowance assumptions are internally consistent. If the vacancy and credit loss factor was increased for the subject the same assumption should be made for the comparable sales which are all within the same Sonoma County market. The increase in the comparable sales’ vacancy and credit loss would decrease the indicated capitalization rates and result in the same opinion of market value.

Operating Expenses and Reserves

The subject commercial leases are assumed to be triple net, and thus the owner is responsible only for management and reserves for replacement as follows:

Management: For a multi-tenant property of the subject’s size and anticipated tenant mix, an allowance of 4% of effective gross income is considered reasonable and has been utilized.

Reserves: Reserves represent a replacement allowance for items having a shorter economic life than the total structure; i.e., roof, paving, flooring and heating and cooling systems. Based on discussions with market participants, an allowance of 2% of effective gross income has been projected for the subject.

Overall Capitalization Rate

The overall capitalization rates derived from the sales discussed in the Sales Comparison Approach range are indicated in the table below:

Commercial Comparable Sale Cap Rates Rentable Adjusted Cap Comp Address City Date Area Price NOI Rate 1 2620 Lakeville Highway Petaluma 9/17/2015 12,224 $4,316,000 $262,990 6.09% 2 551 - 569 Fifth Street West Sonoma 3/29/2016 9,397 $2,300,000 $132,552 5.76% 3 5420 State Farm Drive Rohnert Park 4/22/2016 8,680 $2,100,000 $126,711 6.03% 4 2770 & 2780 Stony Point Road Santa Rosa 9/30/2015 21,230 $4,875,000 $300,074 6.16% 5 490 Mendocino Avenue Santa Rosa 1/2/2015 39,991 $9,550,000 $627,512 6.57%

The comparables range from 5.76% to 6.57%. The subject is larger than most of the comparables, but is analyzed as new construction.

Improved Comparable 5, 6.57%, sold more than 18 months ago. According to the First Quarter PriceWaterhouseCoopers Investor Survey, national strip shopping center rates have declined by 59 basis points from one year ago, since which time rates have declined somewhat. It is also larger than the subject, and a lower rate would be projected for the subject.

Improved Comparables 1 and 4 have the next highest rates at 6.09% and 6.16%, respectively, and are somewhat smaller than the subject, but also sold nearly one year ago. Improved Comparables 2 and 3, at 5.76% and 6.03%, respectively, are very recent sales and are substantially smaller than the subject, but sold in only average condition.

Based on the subject’s relative size and condition, a rate of 6.00% is considered reasonable for the subject commercial space.

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Capitalization to Value

The table that follows presents the Income Capitalization Analysis for the subject commercial space.

Income Capitalization Analysis - Commercial Unit/Space Type Income Method Units/SF Annual % of PGI Potential Gross Income (PGI): $721,800 Vacancy & Collection Loss: $36,090 5.0% Effective Gross Income (EGI): $685,710 95%

Expense Amount Method Annual $/SF Management 4% % of EGI $27,428 $0.83 Reserves 2% % of EGI $13,714 $0.42 Total Expenses: $41,143 $1.25 Net Operating Income (NOI): $644,567 $19.53 Capitalization Rate: 6.00% Total Value Via the Income Approach: $10,742,790 Rounded: $10,740,000 $325.45 Income Comparison Approach Conclusion – Entire Property

As discussed previously in the Sales Comparison Approach, it is our opinion that the typical buyer would not require a bulk discount in exchange for acquiring the different subject project components. Therefore, to determine the value indication for the entire property, we have simply added the contributory value indications for each component together.

Income Approach - 600 MFR/200 SFR Scenario 600 Multi-Family Units $ 197,670,000 200 Single-Family Units $ 67,260,000 33,000 SF Commercial Space $ 10,740,000 Total Value Via Income Approach $ 275,670,000

Income Approach - 300 MFR/100 SFR Scenario 300 Multi-Family Units $ 103,170,000 100 Single-Family Units $ 35,130,000 33,000 SF Commercial Space $ 10,740,000 Total Value Via Income Approach $ 149,040,000

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HYPOTHETICAL MARKET VALUE AS IMPROVED - RECONCILIATION AND FINAL VALUE CONCLUSIONS

The subject property has been analyzed utilizing the relevant approaches to value with indications of market value as follows:

600 MFR/200 SFR 300 MFR/100 SFR Cost Approach $274,360,000 $150,870,000 Sales Comparison Approach $275,120,000 $148,710,000 Income Approach $275,670,000 $149,040,000 In the Cost Approach, value is estimated by comparing the current cost of replacing the subject improvements, and then subtracting depreciation and adding estimated land value. The cost factors are based on Marshall Valuation Service, a nationally recognized cost index. The Cost Approach supports the value indications derived in the other two approaches, but lacked their more conclusive market evidence.

Valuation by the Sales Comparison Approach relies on comparing the property under appraisement with other physically similar properties which have recently sold. The comparable buildings researched were analyzed based upon differences in physical, locational and income characteristics. The comparable sales comprise the most recent market information available, and especially good data was available for the multi-family component, but sales of even recently built single-family residential condominiums of similar size were scarce and required greater levels of adjustment. Still, this approach is considered generally reliable.

The Income Approach requires an analysis of current local rental data in order to estimate a reasonable market rent for the subject property, together with a forecast of expected vacancy and credit loss, operating expenses and reserves for replacement. A rental survey of similar properties within the subject’s market area provided well-supported estimates of market rent. Additionally, the overall capitalization rates for the multi-family residential and commercial components, used to convert net income into value, were derived from the most reliable sales described in the Sales Comparison Approach.

The three approaches form a very narrow range of values. The Income Approach is the typical approach the most likely buyer would place emphasis upon for leased investments such as the subject, and for a property of this size, price per unit would be a secondary indicator. The Cost Approach is also utilized for new projects such as the subject, and has also been given weight. Most weight has been placed on the Income Approach, though, with support from the other two approaches.

The hypothetical market value of the leased fee interest of the subject, assuming it is improved with 600 multi-family units, of which 480 units are rented at market, 60 units are rented at levels affordable to very low income households, and the remaining 60 units are rented with voucher subsidies, 200 for-sale condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery, as of July 29, 2016, is estimated to be $275,500,000.

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The hypothetical market value of the leased fee interest of the subject, assuming it is improved with 300 multi-family units, of which 240 units are rented at market, 30 units are rented at levels affordable to very low income households, and the remaining 30 units are rented with voucher subsidies, 100 for-sale condominiums, and a 33,000 square foot retail/office building that includes a 12,000 square foot grocery, as of July 29, 2016, is estimated to be $149,000,000.

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CERTIFICATION OF ROBERT A. HORNING

I certify, to the best of my knowledge and belief, that

1. The statements of fact contained in this report are true and correct.

2. The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, impartial unbiased professional analyses, opinions and conclusions.

3. I have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved.

4. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.

5. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, a requested minimum valuation, a specific valuation, the attainment of a stipulated result or the occurrence of a subsequent event directly related to the intended use of this appraisal.

6. My analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute.

7. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

8. My engagement in this appraisal assignment was not contingent upon developing or reporting predetermined results.

9. I have made a personal inspection of the property that is the subject of this report.

10. No one provided significant professional assistance to the person signing this report.

11. This appraisal report conforms to the current Uniform Standards of Professional Appraisal Practice (USPAP).

12. I meet all of the requirements of the Competency Provision of the current Uniform Standards of Professional Appraisal Practice (USPAP).

13. As of the date of this report, I have completed the Standards and Ethics Education Requirement of the Appraisal Institute for Associate Members.

14. I have appraised this property once in the three years prior to accepting this assignment.

______Robert A. Horning State of California Certified General Real Estate Appraiser OREA License Number AG028396 Expiration: October 18, 2017

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CERTIFICATION OF HOWARD R. LEVY, MAI, AI-GRS

I certify, to the best of my knowledge and belief, that

1. The statements of fact contained in this report are true and correct.

2. The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, impartial unbiased professional analyses, opinions and conclusions.

3. I have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved.

4. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.

7. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

8. My engagement in this appraisal assignment was not contingent upon developing or reporting predetermined results.

9. I have not made a personal inspection of the property that is the subject of this report.

10. No one provided significant professional assistance to the person signing this report.

11. This appraisal report conforms to the current Uniform Standards of Professional Appraisal Practice (USPAP).

12. I meet all of the requirements of the Competency Provision of the current Uniform Standards of Professional Appraisal Practice (USPAP).

13. As of the date of this report I have completed the requirements under the continuing education program of the Appraisal Institute.

14. I have appraised this property once in the three years prior to accepting this assignment.

______Howard R. Levy, MAI, AI-GRS State of California Certified General Real Estate Appraiser OREA License Number AG003852 Expiration: August 30, 2016

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QUALIFICATIONS OF ROBERT A. HORNING

Education Boston University, Boston, Massachusetts • Bachelor of Science, Business Administration – summa cum laude • Winner of Albert Grace Prize, Dubofsky Real Estate Prize Santa Rosa Junior College, Santa Rosa, California • Commercial Real Estate Appraisal • Principles of Real Estate Appraisal Institute • Basic and Advanced Income Capitalization • Small Hotel/Motel Valuation • Standards of Professional Practice • Business Practices and Ethics • Anatomy of Residential Housing • Highest & Best Use and Market Analysis • Appraisal Consulting • Going Concern Valuation • Analyzing Commercial Lease Clauses • Advanced Concepts & Case Studies

Appraisal Experience

Partner with the independent real property valuation services firm of Ward Levy Appraisal Group, Inc. (2014 – present)

Senior Appraisal Associate with the independent real property valuation and right of way acquisition services firm of Howard Levy Appraisal Group, Inc., formerly Hornsby Levy Appraisal Group, Inc. (2002 – 2014)

Appraiser with the independent real property valuation and right of way acquisition services firm of G.F. Hornsby and Associates in Santa Rosa, California (1995 – 2002)

Twenty-one years of experience that includes preparation of narrative appraisal reports on unimproved lands, easements, single and multi-family residential developments, PUD subdivisions, professional and medical office buildings, retail buildings, shopping centers, light industrial buildings, restaurants, churches, funeral homes, lodging, automobile dealerships, and related work involving full and partial acquisitions for government agencies.

Professional Affiliations

Associate Member of the Appraisal Institute – Candidate for Designation

Licensure

California Certified General Real Estate Appraiser, License AG 028396, Expires October 18, 2017

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QUALIFICATIONS OF HOWARD R. LEVY, MAI, AI-GRS

Education University of Wisconsin - Madison • Master of Science, Real Estate Appraisal and Investment Analysis • Bachelor of Business Administration, Finance

Appraisal Experience

President of Ward Levy Appraisal Group, Inc., an independent real property valuation services firm (2014 – Present)

President of Howard Levy Appraisal Group, Inc., formerly Hornsby Levy Appraisal Group, Inc., an independent real property valuation and right of way acquisition services firm (2002 – 2014)

Senior Appraisal Associate with the independent real property valuation and right of way acquisition services firm of G.F. Hornsby and Associates in Santa Rosa, California (1995 – 2002)

Associate Appraiser with the independent real property valuation firm of Crocker Hornsby in Santa Rosa, California (1988 – 1995)

Associate Appraiser with the independent real property valuation firm of William L. Hafner, MAI, in Santa Rosa, California (1987 – 1988)

Twenty-nine years of experience that includes preparation of appraisal reviews, narrative, form and oral appraisal reports on unimproved lands, conservation easements, single and multi-family residential developments, affordable housing, PUD subdivisions, professional and medical office buildings, retail buildings, shopping centers, light and heavy industrial buildings, restaurants, senior care facilities, funeral homes, resorts, lodging, movie theaters, feasibility and marketability analysis for lending, sale, estate, legal and eminent domain purposes.

Qualified as an expert witness before the Superior Court of California and the United States Bankruptcy Court.

Professional Membership

Designated Member of the Appraisal Institute (MAI) Appraisal Institute General Review Specialist (AI-GRS) Continuing Education Requirements Completed

Licensure

California Certified General Real Estate Appraiser, License AG003852, Expires August 30, 2016

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