DETAILED ANALYSIS EASTGATE RANCH, LLC SALE PROPOSAL IN NATRONA COUNTY, WYOMING. W.S through ; Sale of State Lands

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1 DETAILED ANALYSIS EASTGATE RANCH, LLC SALE PROPOSAL IN NATRONA COUNTY, WYOMING PROPOSAL: AUTHORITY: Eastgate Ranch, LLC has submitted an application for the sale of Wyoming State Trust Land. The application, together with accompanying cover letter and survey is attached as Exhibit A. The Office received the proposal on November 30, 2005, and recorded the application on the Category I Disposal List. After preliminary review, the Director determined that the parcel may be suitable for disposal, and moved the parcel to the Category II Disposal List in accordance with the Board s rules. W.S through ; Sale of State Lands Rules: Chapter 26; Section 4 Trust Land Management Objectives adopted by the Board OF Land Commissioners (the Board), August 11, 2005 Documents relating to the Board s authorization to sell land are attached as Exhibit B LEGAL DESRIPTION: T 33 N, R 78 W, Natrona County, Wyoming Section 16: All (the Hat Six Section) excepting a 50 acre parcel in the N½N½ (the Rocky Outcrop) SUBJECT PROPERTY DESCRIPTION: Fund: Common School Acquisition: Granted Under the Act of Admission in 1890; Federal Patent issued 12/21/1972; Recorded in Book 247, Page 180 of the Natrona County Clerk s Records; Land Office Record is MR #78 Rights Acquired By the State of Wyoming: All Surface and Mineral Rights

2 Grazing Lease: Lease No Eastgate Ranch, LLC 10 year term; expires January 1, 2013 Carrying Capacity & Annual Income: The entire Hat Six Section is rated at 150 AUMs. The 50 acres excepted from the sale proposal (the Rocky Outcrop) is rated at 10 AUMs. Therefore, on the acres which would be sold under the proposal, there are 140 AUMs. Based on the acres, 2006 rental income = $4.78/AUM x 140 AUMs = $ County/Location: The Hat Six Section is located in Natrona County, approximately ½ mile south of I-25 and just southeast of Casper, Wyoming. It is about ¼ mile south of the intersection of East 2nd Street and Hat Six Road and is adjacent to the McMurry Business Park. Maps and Photographs: Topographical maps and photos of the Hat Six Section are attached as Exhibit C. Size and Shape: The Hat Six Section encompasses approximately acres including acres of Hat Six Road right-of-way. The property is nearly square in shape and one mile in length on the west, south and east boundaries. The 50 acre rocky outcrop excepted from sale under the proposal is in the north central part of the section and east of Hat Six Road. The original survey shows acres in Section 16, Township 33 North, Range 78 West. A survey prepared for Eastgate Ranch, LLC by CEPI in February 2005, indicates the Hat Six Section comprises acres. By excluding the acre rocky outcrop, there are acres identified in the sale proposal. The survey provided by Eastgate Ranch, LLC further indicates the Hat Six Road right-of-way contains acres. For the purposes of this detailed analysis, the Office will use the acreage from the original survey, acres, for the Hat Six Section. The appraisal was based on the entire section and will not be affected by the discrepancy in acreage. Topography: Elevation ranges from 5,149 feet at the northeast corner to 5,409 feet at the southwest corner. In general, the northern three-fourths of the tract is gently rolling while the southern one-fourth is steeper hills. As noted above, there is an area of rocky outcrop encompassing about 50 acres located in the north central part of the section just east of Hat Six Road. Soils and Productivity: Soils in this area consist of clay loams typical for this area. Vegetative Cover: The major vegetative cover consists of native short grasses, shrubs and forbs. There are ponderosa pine trees on the rocky outcrop. Access: The Hat Six Section is bisected by the Hat Six Road, a paved public highway (Wyoming Highway 253). East 2 nd Street and the I-25 interchange lie about ½ mile north of the section s north boundary. Utilities: No utilities are extended to the property. According to the appraiser s report, water, sewer and natural gas lines are located in the recent extension of East 2 nd Street. Electrical service is nearby in the McMurry Business Park Fences: There are fences on both sides of Hat Six Road and on the east boundary. There is also some interior fencing, but the other boundaries do not appear to be fenced.

3 Water & Water Rights: A natural drainage channel flows from southwest to northeast across the Hat Six Section. There are no wells or springs on the land. There is a pond located near the center of the section. Water rights were not investigated because water rights do not affect the valuation. Livestock Water: Livestock water is provided by the above referenced pond and from off site sources. Mineral Rights: The State of Wyoming owns the mineral rights but there are no current mineral leases. The State would retain all minerals. Building Improvements: There are no structural improvements on the property. Land Improvements: Land improvements consist of fencing. From a valuation perspective, the land improvements are included as part of the land value. Easements, Hazards, Detriments: The following easements and rights-of-way are recorded in the Office: R/W 690N, U.S. Highway 253, a 200 foot wide right-of-way encompassing acres; R/W 1448, Mountain States Telephone & Telegraph, a 12 foot wide easement encompassing 1.88 acres; R/W 4006, Mountain States Telephone & Telegraph, a 16 foot wide easement encompassing 2.49 acres. The two telephone company easements parallel the west side of U.S. Highway 253 which traverses the subject tract from northwest to southeast. No obvious hazardous materials or environmental concerns were noted during inspections of the property by the Office or the appraiser. The land has not been developed for any use that would subject the land to hazardous materials, or which would create environmental concerns. Annual Tax Load: Since the land is owned by the State, it is not assessed or taxed by Natrona County. If the sale of the property to a private entity takes place, Natrona County would assess property taxes on the land. According to the Natrona County Assessor's Office, real estate is valued using a market value system and the taxes are calculated based on the assigned value of the property times 9.5% times Therefore, if the property is valued at $1,000,000 the taxes would be $6, Agricultural land may be valued by the County Assessor on a productivity basis rather than actual market price. In that case, the taxes would be significantly less but that decision is left to the County Assessor. Amenities: One of the primary value drivers in the western United States is amenities. This tract has a good location near Casper, good access and a good view of Casper Mountain to the south. The rocky outcropping with partial tree cover located on the north side of the parcel is also an important amenity. Forest Products: There is no commercially valuable timber on this tract.

4 COMMENTS FROM AGENCIES: Wildlife and Wildlife Habitat: The Wyoming Game and Fish Department (the Department) was asked to evaluate the Hat Six Section in terms of wildlife and wildlife habitat. The Department notes that both pronghorn and mule deer winter-yearlong range lies within the parcel being proposed for sale but no crucial big game habitats would be affected by the sale. There are no known sage grouse leks on the parcel and it provides only marginal sage grouse habitat. The tract contains a 1 acre wetland (stock pond) and about 1,200 feet of intermittent stream, thus aquatic values are not significant. The entire report from the Department is attached as Exhibit D. Public Recreation and Cultural Resources: The Department of State Parks and Cultural Resources (State Parks) was asked to evaluate the Hat Six Section in terms of public recreation, cultural resources, and historical significance. State Parks commented that the Hat Six Section is located near Casper and that it has good public access. State Parks also mentioned an abandoned motorcycle track is located near the center of the section. Office records indicated the motor-cross track was never sanctioned by the Office under a special use lease or permit. The use of the land for motor-cross or off-road vehicle use was in violation of the Rules of the Board and long standing policy of the Office. The motor-cross track is no longer being used by the public. The rocky outcrop is reportedly used annually by a local archery club for a sanctioned competition. Office records do not indicate that temporary use permits have been issued for that type of organized recreational activity. Other casual recreational uses have been reported on the Hat Six Section. The State Cultural Resource Officer reports that a cultural resource survey has been not been conducted and recommends that the Office carry out appropriate efforts necessary for identification of historic properties. The entire report from State Parks is attached as Exhibit E. APPRAISED VALUE: The Office contracted for an appraisal of this state section with DRM Real Estate Advisors, LLC (Derek R, Maunsell, MAI) of Ft. Collins, Colorado. The effective date of the appraisal was October 6, The highest and best use of the state section was determined by the appraiser to be development into a residential subdivision consistent with the surrounding uses. Based on research of the competitive market area, the appraiser found that the most probable uses of the subject are as follows: 1. Develop the overall acre parcel into a higher-density residential subdivision with an average density of two dwelling units per acre. The sloping topography of the south portion of the site would, most probably, accommodate only larger, 10+ acre parcels. 2. Subdivide the overall property into a total of fifteen, 40 acre ranchette parcels for sale to the

5 owner-user for large lot residential development. 3. Subdivide and plat the property into partially developed parcels for sale to investors or developers for future residential development assuming two average parcel sizes: one with seven, acre parcels to be sold over a seven year period; and another with five, acre parcels. 4. Sell the property as a acre close-in ranch property. The appraiser considered the gamut of potential uses and sales scenarios, from a single ranch to an estimated 1,200 units at urban densities and developed value estimates for each scenario by estimating potential cash flows versus development costs and holding/absorption periods. The appraiser concluded that the subject parcel is some years from being economically feasible as a development tract due to its large size and location, coupled with the large number of lots already approved or in the pipeline in the Casper area. Each of their development scenarios considered a start date two to five years in the future and was discounted back to present time. Using these different scenarios, the appraiser estimated the Market Value of the subject property at $1,000,000. Office staff has reviewed the appraisal and concurs with the methods used and estimated value established. The appraisal, including the various subdivision development scenarios, comparable sales information, maps, photographs and related information as well as the Appraisal Review done by the Office are available in the Office for review. ANTICIPATED INVESTMENT RETURN: The total return of any investment is comprised of two parts; (1) income generating potential; and (2) appreciation of the underlying asset. 1. INCOME GENERATING POTENTIAL: Board of Land Commissioners Rules and Regulations Chapter 26 requires the detailed analysis to include an estimate of the income generating potential of the parcel. At the present time, this tract is under Grazing Lease No The entire section under the lease is rated at 150 AUMs. The acre tract is rated at 140 AUMs. The income from the acres based on the 2006 AUM fee would be calculated as follows: 140 AUMs x $4.78 per AUM = $ annual rent. As a stand alone property, the 50 acre rocky outcrop is not suitable for a grazing or agricultural lease because of shallow, rocky soils and fragile vegetation. If retained by the State, the 50 acres would be a small isolated parcel which could be managed primarily for pubic recreational purposes and would generate little, if any, revenue. If the acres were sold for the appraised value of $1,000,000 and the proceeds invested by the State Treasurer with a realized three year projected yield of 3.29% per annum¹, the proceeds would generate $32,900 per year. If the proceeds were invested at the current projected long term (10+ years) average total rate of return of 7% per annum², the investment would generate $70,000 per year.

6 ¹Common School Fund 3 year projected yield (realized gains and losses only) for FY06, FY07, and FY08 per the State Treasurer s Office ²Common School Fund projected long term (10+ years) average total rate of return (realized and unrealized gains and losses) as provided by the State Treasurer s Office. If the land is sold at public auction for more than the $1,000,000 appraised value the annual return from investment of the sale proceeds would be proportionately greater. 2. ANTICIPATED APPRECIATION OF PARCELS AS A REAL ESTATE ASSET: The Hat Six Section is typical of rural land with development potential with a high appreciation potential in Wyoming. The USDA, National Agricultural Statistics Service reports that pasture values in the Mountain Region of the United States, in which Wyoming belongs, experienced a 14.6% average increase in pasture value from 2004 to Individually, Wyoming s rate of increase in pasture value was slightly higher at 14.9%. Farm Credit Services analyzed the sale and re-sale of Wyoming ranches from 1990 through The data indicates that the average annual appreciation for the period was 10.62% per year. The Office staff estimated that the rate of appreciation of the Hat Six Section to range from 6% to 12% annually. The appreciation rate for transitional property in the path of future development is largely influenced by the type and quality of development occurring in the proximity of the subject. CONCLUSION: The Office has completed the Detailed Analysis as required by the Board s rules. The Detailed Analysis has determined that the proposed land sale meets the following Trust Land Management Objectives: 1. Better meet the beneficiaries short and/or long term objectives: a. Revenue The present grazing lease will generate $ in b. Investment i. Improved returns If the land is sold at $1,000,000 and the proceeds are invested at 3.29%, the annual income would be $32,900. If invested at 7%, the income would be $70,000 per year. If the land is sold for more than the appraised value at the public auction, the annual return from the investment of the sales proceeds will be proportionately greater. ii. Appreciation potential Precise figures are unknown, but the best available information indicates appreciation potential at an annual rate of 6% to 12%. The projected appreciation rate of the land (6% to 12%) is greater than the shortterm investment rate of the potential land sale proceeds (3.29%). The long-term investment rate (7%) falls within the projected appreciation rate for the land. 2. Improve the manageability of the land asset: a. Consolidate ownership patterns The Hat Six Section is isolated in that it corners on, but does not adjoin, other state land. It does not provide public access to other state or federal land. b. The 50 acre rocky outcrop, if retained by the State, would be a small isolated parcel

7 which could be managed primarily for recreational purposes. Alternatively, this 50 acre tract could be included in the sale i.e. sell the entire 640 acre section. Using the same value per acre as established in the appraisal ($1,694.92) this 50 acre tract would be valued at $84,746 and the entire 640 acre tract would be valued at $1,085,000 (rounded). c. Sale proceeds could be used to purchase land adjoining other state owned land thereby blocking up ownership and improving manageability in accordance with W.S (r). Office resources can be more efficiently utilized in managing larger, consolidated blocks of land with high amenities, legal access, and multiple compatible uses as compared to small isolated parcels with single or limited uses. d. Leverage management resources of other agencies Non applicable. 3. Meet a specific school and/or community need: a. Provide growth opportunity The sale of the property could open up the land for subdivision and commercial development associated with the McMurry Business Park development nearby. b. Improve access/recreational opportunity The proposed land sale would not improve public recreational use of the land unless access to the remaining 50 acre parcel was enhanced with fencing and signage and eventually managed as a park or natural area. This Detailed Analysis is being distributed to the public in accordance with the rules. The detailed analysis is available on the Office s website. It is also available for public viewing at several locations in Natrona County. As required in the rules, one public hearing will be conducted in Natrona County. The date, time and location of the public hearings will be advertised in the Casper Star Tribune. This Detailed Analysis includes the following documents and attachments as required by the rules: Detailed descriptions of the State land and the deeded land, including maps and photographs. A summary of the appraisal of state section. The appraisal is available for public review in the Office. The determination by the Wyoming Game & Fish Department of the existence and importance of any wildlife habitat and wildlife-oriented recreational opportunities located on the parcel being proposed for sale. The determination by the Department of State Parks & Cultural Resources of the existence and importance of any public recreation opportunities or cultural resources located on the parcel being proposed for sale. Anticipated Investment Returns from Income Generation and Appreciation.

8 LIST OF EXHIBITS "A." "B" "C" "D" "E" Land Sale Application and Cover Letter from Eastgate Ranch LLC Authorities of the Board to Sell Land Maps and Photographs Wyoming Game & Fish Department Evaluation State Parks and Cultural Resources Department Evaluation