INCOME APPROACH. 2. An estimate is then made of Miscellaneous or Other Income. This item is added to the Potential Gross Income.

Transcription

1 INCOME APPROACH In the Income Approach, the appraiser formulates an estimate of value by analyzing and interpreting the subject property s As Built income producing abilities. This process is known as capitalization. The steps involved in the Income Approach are summarized as follows: 1. Based on a current survey market rentals of comparable developed properties, an estimate of Potential Gross Income (PGI) for the subject (as built) property is derived. This rental is typically referred to as economic or market rent. 2. An estimate is then made of Miscellaneous or Other Income. This item is added to the Potential Gross Income. 3. An estimate of probable Vacancy and Credit Loss is established by analysis of the market and historical trends similar to the proposed subject. This amount is deducted from the Potential Gross and Other Income. The resultant figure is termed Effective Gross Income (EGI). 4. Expenses for a similar or the subject property are based on actual property expenses that have been incurred and/or typical expenses found in the marketplace. This figure is deducted from Effective Gross Income to arrive at the Net Income or Net Operating Income (NOI) of the property. These expense items include only those charges attributable to the property and do not include mortgage payments, interest expense or depreciation charges. 5. The Net Operating Income attributable to the subject property is then processed into a present worth estimate by any of a number of applicable techniques. The quality and quantity of supporting market data determine the appropriate technique. As Potential Gross Rental Income, the quantity, quality and durability of the income stream must be considered in estimating the economic rent of any income-producing property. The quantity of the income stream is estimated by analyzing current market rents on similar properties. Quality refers to the difference between leases to tenants with strong financial responsibility and leases to tenants whose financial responsibility is uncertain or transitory. Durability refers to the probable period over which the property can be expected to produce the estimated income. Actual leases and rate quotes for comparable neighborhood shopping center lease facilities have been analyzed to arrive at an estimated market rent for the subject property. Pertinent data and features of those rent comparables considered most reliable and relevant in this analysis are presented in the Income Approach. The subject s leasable improvements are a 27,000 SF (net leaseable square footage per rent roll and leases) multi-tenant neighborhood shopping center. The subject is currently 51% leased and occupied with 13,293 SF of retail shell space available for lease.

2 Lease comp map 2

3 LEASE COMPARABLE NO. 1 MAPSCO 96 P Fort Worth Mapsco Location : 4701 South Cooper Street, Suite 105, Arlington, Texas Rental Rate : $29.00/SF/YR Lease Rate Basis : Gross Lease Area : 8,000 SF Building Area : 12,690 SF Construction : Masonry Stucco, YOC 1992 Condition/Quality : Avg./ Avg. Land Area : 34,936 SF (0.802 AC) Land to Building Ratio : 2.75:1 Comments : This multi-tenant retail building is in close proximity to a Super Wal-Mart store, located on the southeast corner of South Cooper Street and Bardin Road. The building is 100% occupied. The tenant in Suite 105 is Second Swing Golf, and has a lease rate starting in early 2005 of $25.00/SF/YR NNN with NNN charges of $4.00/SF/YR, which equates to $29.00/SF/YR on a gross lease basis. 3

4 LEASE COMPARABLE NO. 2 MAPSCO 110-B Fort Worth Mapsco Location : 5900 South Cooper Street, Suite 5B, Sublett Corners Shopping Center, Arlington, Texas Rental Rate : $25.77/SF/YR Lease Rate Basis : Gross Lease Area : 2,000 SF Building Area : 82,428 SF Construction : Masonry Stucco, YOC 1999 Condition/Quality : Avg./ Avg. Land Area : 464,780 SF ( AC) Land to Building Ratio : 5.64:1 Comments : This multi-tenant shopping center anchored by Albertson s and Steinmart, is located on the northwest corner of South Cooper Street and Sublett Road. The center is 95% occupied. The tenant in Suite 5B is Ton s House (a restaurant) with a lease rate starting in early 2005 of $20.00/SF/YR NNN with NNN charges of $5.77/SF/YR, which equates to $25.77/SF/YR on a gross lease basis. 4

5 LEASE COMPARABLE NO. 3 MAPSCO 110-B Fort Worth Mapsco Location : 5900 South Cooper Street, Suite 3L, Sublett Corners Shopping Center, Arlington, Texas Rental Rate : $24.77/SF/YR Lease Rate Basis : Gross Lease Area : 2,100 SF Building Area : 82,428 SF Construction : Masonry Stucco, YOC 1999 Condition/Quality : Avg./ Avg. Land Area : 464,780 SF ( AC) Land to Building Ratio : 5.64:1 Comments : This multi-tenant shopping center anchored by Albertson s and Steinmart, is located on the northwest corner of South Cooper Street and Sublett Road. The center is 95% occupied. The tenant in Suite 3L is Well s Fargo Financial Services with a lease rate starting in early 2005 of $19.00/SF/YR NNN with NNN charges of $5.77/SF/YR, which equates to $24.77/SF/YR on a gross lease basis. 5

6 LEASE COMPARABLE NO. 4 MAPSCO 94-L Fort Worth Mapsco Location : 4261 W. Green Oaks Boulevard, Arlington, Texas, Rental Rate : $19.80 /SF/YR Lease Rate Basis : Gross Building Area : 47,198 SF Lease Space Area : 1,504 SF Construction : Brick veneer multi-tenant office strip center. YOC 1984 Condition/Quality : Average/Average Land Area : 185,609 SF (4.261 AC) in total complex Land to Building Ratio : 3.9:1 Comments : This multi-tenant office center is located at the northeast corner of West Green Oaks Boulevard and West Pleasant Ridge Road. A current lease is to Smoothie King for 1,504 SF on a five-year lease that began November, 1999 was renewed in November 2004, at a rental rate of $16.00/SF/YR plus $3.80/SF/YR net charges. This equates to $19.80/SF/YR on a gross lease basis. 6

7 LEASE COMPARABLE NO. 5 MAPSCO 109-A Fort Worth Mapsco Location : 4720 West Sublett Road, Arlington, Texas Rental Rate : $19.76/SF/YR Lease Rate Basis : Gross Building Area : 10,626 SF Lease Area : Various sizes Construction/YOC : Concrete block, brick and glass multi-tenant retail strip center. YOC Condition/Quality : Excellent/Good Land Area : 61,920 SF (1.422 acres) Land to Building Ratio : 5.82:1 Comments : Actual lease rates reported at the time of the sale were $17.50/SF/YR plus NNN charges. 7

8 LEASE COMPARABLE NO. 6 MAPSCO 94-M Fort Worth Mapsco Location : 4004 Little Road, Arlington, Texas, Rental Rate : $19.56 /SF/YR Lease Rate Basis : Gross Building Area : 10,854 SF Lease Space Area : 1,200 SF Construction : Brick with wood frame. YOC Condition/Quality : Good/Good Land Area : 45,686 SF (1.049 AC) Land to Building Ratio : 4.2:1 Comments: This strip shopping center is located on Little Road, north of West Pleasant Ridge Road. One tenant, Nail Envy, leases 675 SF at a rental rate of $16.55/SF/YR, plus NNN charges of $3.01/SF/YR, which equates to $19.56/SF/YR on a gross lease basis. 8

9 LEASE COMPARABLE NO. 7 MAPSCO 94-M Fort Worth Mapsco Location : 4004 Little Road, Arlington, Texas, Rental Rate : $18.54 /SF/YR Lease Rate Basis : Gross Building Area : 10,854 SF Lease Space Area : 1,200 SF Construction : Brick with wood frame. YOC Condition/Quality : Good/Good Land Area : 45,686 SF (1.049 AC) Land to Building Ratio : 4.2:1 Comments: This strip shopping center is located on Little Road, north of West Pleasant Ridge Road. One tenant, Olin Mills, leases 1,200 SF at a rental rate of $13.00/SF/YR, plus NNN charges of $3.54/SF/YR, which equates to $18.54/SF/YR on a gross lease basis. 9

10 LEASE COMPARABLE NO. 8 Mapsco 96-R Fort Worth Mapsco Location : 4520 Matlock Rd., Arlington, Texas, Rental Rate : $18.00/SF/YR Lease Rate Basis : Gross Building Area : 10,500 SF Lease : 1,200 SF Construction : Stucco/Brick multi-tenant retail shopping center. YOC Condition/Quality : Avg/Avg Land Area : 35,544 SF (0.816 AC) Land to Building Ratio : 3.385:1 Comments : This retail strip shopping center is leased on a five (5) year lease with an effective date of June 1, The rental term equates to $18.00/SF/YR on a gross lease basis for comparison to the market. 10

11 DISCUSSION OF ADJUSTMENTS TO LEASE SUMMARY COMPARISON GRID ADDRESS Subject: ( ) Arlington LEASE SIZE (SF) 4,280 SF 1,1933 SF 1,960 SF 1,634SF 2,250 SF 1,650 SF out of 27,000 SF leaseable space with 2,793 SF and 10,500 SF available 1) 4701 S. Cooper Street 8,000 SF (out of 12,690 SF) 2) 5900 South Cooper 2,000 SF (out of Street, Suite 5B, 82,428 SF) 3) 5900 South Cooper 2,100 SF (out of Street, Suite 3L 82,428 SF) 4) 4281 W. Green Oaks 1,504 SF (out of 47,198 SF) 5) 4720 West Sublett Road Various sizes (out Of 10,626 SF) 6) 4004 Little Road 1,200 SF (out of 10,854 SF) 7) 4004 Little Road 1,200 SF (out of 10,854 SF) 8) 4520 Matlock Road 1,200 SF (out of 10,500 SF) UNIT LEASE PRICE ($/SF/YR) $28.27 $21.17 $19.25 $16.10 $20.85 $16.52 YOC TERMS ADJUSTED LEASE PRICE ($/SF) 2001 with tenant finishout as leases signed Gross Average $20.36 $ Gross $20.88 $ Gross $20.61 $ Gross $19.82 $ Gross $15.84 $ Gross $19.50 $ Gross $20.93 $ Gross $19.84 $ Gross $19.26 Our lease comparables range in lease space size from 1,200 SF to 8,000 SF. All of the lease comparables were of brick, masonry or stucco exteriors with glass storefront designs. Dates of construction ranged from 1984 to Very few adjustments were necessary to the lease rates. Lease No. 1 was located in front of a Super Wal-Mart at the corner of South Cooper Street and Bardin Road and a downward adjustment was made for its superior corner location at a traffic signal controlled intersection versus our subject s mid street location. Leases No. 2 and No. 3 were located on South Cooper Street (State Highway 157) just north of our subject in the Sublett Corners Shopping Center with Albertson s and Steinmart as anchor tenants. Downward adjustments were made to Leases No. 2 and No. 3 for their superior anchored retail location. These two leases also received slight upward adjustments for their only slightly inferior 1999 construction ages. These two sales were, however, located off the direct street frontage (as approximately 70% of our subject s lease spaces) and was considered similar to our subject in visibility. Lease No. 4 was located at the northeast corner of West Green Oaks Boulevard and West Pleasant Ridge Road at a busy corner location. 11

12 Lease No. 5 was located on West Sublett Road, just east of State Highway 287-S and was a slightly newer (2003) constructed facility. Leases No. 6 and No. 7 were together in the same strip shopping center, which was constructed in 1985 and received an upward adjustment for its inferior age and its location on Little Road without our subject s direct highway street frontage. Lease No. 8 was located on Matlock Road, east of our subject and received an upward adjustment for its slightly inferior location on Matlock Road and its 2000 construction date. Therefore, an analysis of market rental rates indicates a gross lease annualized overall average of $19.59/SF/YR. After removing the highest and lowest comparable rates and re-averaging the new medianaverage was $19.99/SF. Due to the limited street frontage of the subject s lease spaces, only 23% of the improvements have good street front visibility. Therefore, the subject could be expected to command a lease rate of $28.00/SF/YR on the front lease space and $16.00/SF/YR to $18.00/SF/YR on the spaces further to the back with less visibility. This equates to approximately $ /SF/YR overall. The following pro forma income and expense statement is believed an accurate reflection as to the projected financial status of the subject on a stabilized basis. As stated in the Market section of this report, The Real Estate Center Online News, an internet broadcast real estate update published by the Real Estate Center at Texas A&M University that shopping center leasing in North Texas grew by more than 75 percent in 2004 with emphasis on shopping center space over mall space. Vacancy has dropped to an overall vacancy of 9.5 percent, only the second time in 15 years that retail vacancy has been under 10 percent. Most shopping center leasing was in community or neighborhood retail centers. Due to our subject s past performance, a vacancy rate of 20% will be utilized. Pro Forma Income and Expense Statement YR 2005 When Stabilized Potential Gross Income: 27,000 $ /SF per annum $ Less Vacancy and Credit Loss: 20% (multi-tenant nature) $ Effective Gross Income $ LESS: Estimated Operating Expenses for 2006: Real Estate Taxes $92,000 Insurance 7,910 Repairs, Maintenance 6,000 Reserve for Replacement 4,000 Utilities 13,975 Management 8,000 Commissions (4% of EGI) 16,500 Landscaping & CAM 3,600 Total Expenses $151,985 Net Operating Income $ The above analysis includes estimation of stabilized net operating incomes as indicated. The direct capitalization rate derived from the market compares favorably with the rate using the Band of Investment 12

13 technique. In conversations with local brokers and mortgage investors, and with consideration given to competing investments (AAA, Baa Bonds, certificates of deposits and government securities), the equity yield requirements were estimated. The equity yield rate is the rate that discounts the future cash flow and future proceeds of sale or refinance back to present worth of the initial equity investment. Income producing properties typically compete with other financial investment vehicles for the equity capital market. Present national and regional trends show a stabilization of income levels in the industrial and office/warehouse building sector of the real estate market. The following page is a Mortgage-Equity technique that provides an overall rate of 10.0%. The OAR from Market-Derived Inputs using the Mortgage Equity Techniques below will exhibit 10.0%. Market-Derived Inputs Mortgage Loan to Value Ratio 75% Mortgage Interest Rate 8.0% Mortgage Term 7 Years Mortgage Amortization Mortgage Constant.0881 Equity Yield Rate.14 Equity to Value Ratio 25% 30 Years, with level monthly payments Projected Ownership Period 7 Years Appreciation Over Ownership Period 2% Loan Percent Paid Off Over Ownership Period 7.52% or.0752 Sinking Fund Factor at Yield Rate.0733 Mortgage Equity Technique Mortgage.75 x.0881 = Equity.25 x = Weighted Average Less Credit for Equity Build-Up.75 x.0733 x.0752 = Basic Rate Adjusted for Appreciation x.0733 = Overall Capitalization Rate or 9.8% SAY 10% Capitalization rates as reported by Henry S. Miller Companies in Real Estate Trends, Year-End 2004 were: CAPITALIZATION RATES Property Going-In Stabilized Reversion Type Average Range Average Range Average Range Apartments 9.2% % 9.3% % 9.7% % Office 9.4% /5% 10.0% % 10.2% % Retail 9.7% % 10.0% % 10.2% % Industrial 9.5% % 10.2% % 10.0% % Hotel 10.3% % 11.0% % 11.3% % Actual capitalization rates of sales in the Sales Approach to Value section of this report (8.52%, 9.36%, 9.10%, 9.36%, 10.25% and 9.63%), were considered, along with capitalization rate exhibited in the Market Area Analysis section of this report for the newer retail buildings being 8.5% and 10.2%, average 9.3% OAR. We will utilize, due to the subject s existing 51% occupancy since construction, a 9.5% 13

14 overall capitalization rate will be used, which indicates a value estimate for the subject property In Its Present Condition as of of : VALUE = $- = $ = $ (rounded) 9.5% 14

15 COST APPROACH The Cost Approach to value involves the following steps: 1. Estimate the value of the site as if vacant and available to be put to its highest and best use as of the appraisal date. 2. Estimate the reproduction cost new of the improvements. Reproduction Cost is defined as the cost of construction at current prices of an exact duplicate or replica using the same materials, construction standards, design, layout, and quality of workmanship, embodying all the deficiencies, superadequacies and obsolescence of the subject building. 3. Estimate all elements of accrued depreciation including physical, functional, and economic obsolescence. (No depreciation will be charged as this will be a new building.) 4. Subtract total accrued depreciation from reproduction cost new of the improvements to determine the present worth of all site improvements. 5. Add the estimated depreciated present worth of all site improvements. (Cost New without depreciation for all improvements, since this is a proposed development.) 6. Add the total present worth of all improvements to the estimated site value to arrive at the value of the property as indicated by the Cost Approach. (5) Each of these steps will be further explained in detail as they are utilized. Site Value Estimate In order to estimate the value of the subject site, the Sales Comparison method is used. In this method, normal market sales of similar sites are compared to the subject site with respect to such factors as property rights conveyed, financing terms, condition of sale (motivation), market conditions (time), location, size, physical features, zoning, and utilities. These various differences in the comparable site sales are then adjusted, if necessary, to arrive at an indicated value for the subject site. Those land sales that are considered most similar to the subject are included on the following pages. The typical unit of comparison used in the market area is the Sale Price Per Square Foot (SP/SF). This unit of comparison will be utilized in this analysis. SUMMARY OF COMPARABLE LAND SALES Sale No. Land Area (AC) Zoning Sale Date Sale Price/SF Subject CS LI 11/29/2005 $ LI 9/2/2005 $ CS 10/17/2005 $ LI 10/20/2004 $ BP-B 2/29/2004 $ PD 4/1/2003 $5.22 CS = Community Service LI = Light Industrial BP-B = Business Park-Business Overlay PD = Planned Development (5) Boyce, Byrl N., Real Estate Appraisal Terminology, AIREA and SREA (Cambridge: Ballinger Publishing Company, 1984) Page

16 Land sale map 16

17 COMPARABLE LAND SALE NO. 1 MAPSCO 96-Z Fort Worth Mapsco Location : 5425 Matlock Road, Arlington, Texas Grantor : Austin-Ryan of Texas, Inc. Grantee : Stephen J. Apaliski Recorded : Not available Date : November 29, 2005 Area : 26,790 SF (0.615 acres) Legal Description : Lot 27, W D Lacy Addition, Arlington, Tarrant County, Texas Consideration : $140,647 Unit Sales Price : $5.25/SF Terms of Sale : Cash to Seller Zoning : LI, Light Industrial Utilities : All to site Reason for Purchase : For construction of a retail office/warehouse Improvements : Vacant at time of sale Comments : This site is located at the northeast corner of Matlock Road and the future expansion of Nathan Lowe Road. 17

18 COMPARABLE LAND SALE NO. 2 MAPSCO 96-Z Fort Worth Mapsco Location : 5429 Matlock Road, Arlington, Texas Grantor : Austin-Ryan of Texas, Inc. Grantee : Cosby-Franklin Investments, LLC Recorded : Doc. #D , Tarrant County Deed Records Date : September 2, 2005 Area : 24,865 SF ( acres) Legal Description : Lot8, W D Lacy Addition, Arlington, Tarrant County, Texas Consideration : $124,325 Unit Sales Price : $5.00/SF Terms of Sale : Cash to Seller Zoning : LI, Light Industrial Utilities : All to site Reason for Purchase : Not stated Improvements : Vacant at time of sale Comments : This site is located at the southeast corner of Matlock Road and the future expansion of Nathan Lowe Road. 18

19 COMPARABLE LAND SALE NO. 3 MAPSCO 96-F Fort Worth Mapsco Location : 3610 South Cooper Street, Arlington, Texas Grantor : Cooper Street Market LP Grantee : TAK Enterprises, Inc. Recorded : Not available Date : October 17, 2005 Area : 127,503 SF (2.927 acres) Legal Description : Lot 10R-1-A2, Schooler Tract Addition, in the City of Arlington, Tarrant County, Texas Consideration : $490,000 Unit Sales Price : $3.84/SF Terms of Sale : Cash to Seller Zoning : CS Community Services Utilities : All to site Reason for Purchase : Not stated. Improvements : Vacant at time of purchase. Comments : This site is 500 west of South Cooper Street, located behind The Shops on Cooper and has no direct street frontage. 19

20 COMPARABLE LAND SALE NO. 4 MAPSCO 96-K Fort Worth Mapsco Location : 1307 Knight Street, Arlington, Texas Grantor : Timothy D. and Lynn L. Allen Grantee : Jason B. Adams Recorded : Doc. D Date : October 20, 2004 Area : 17,000 SF ( acre) Legal Description : Block 1, Lot 4, Knight Addition, Arlington, Tarrant County, Texas Consideration : $61,000 Unit Sales Price : $3.59/SF Terms of Sale : Cash to Seller Zoning : LI Light Industrial Utilities : All to site Reason for Purchase : Not stated. Improvements : Vacant at time of sale. Comments : This site is approximately 350 feet west of South Cooper Street on the north side of Knight Street. 20

21 COMPARABLE LAND SALE NO. 5 MAPSCO 96-M Fort Worth Mapsco Location : West of the northwest corner of High Point Road and Highlander Boulevard, Arlington, Texas Grantor : WindStar Land Partners III, Ltd. (et al) Grantee : Matlock Lodging, LP Recorded : Doc. No. D , Tarrant County Deed Records Date : February 29, 2004 Area : AC (108,578 SF) Legal Description : Por. Lot 27AR2 in the J. W. Lane Addition, City of Arlington, Tarrant County, Texas Consideration : $1,075,700 Unit Sales Price : $9.91/SF Terms of Sale : Cash to Seller Zoning : BP-B, Business Park-Business, by the City of Arlington Utilities : All to site Reason for Purchase : To construct a motel Improvements : Vacant at time of sale. Comments : The site has an estimated 445 feet of street frontage on the north side of Highlander Boulevard. 21

22 COMPARABLE LAND SALE NO. 6 MAPSCO 98-X Fort Worth Mapsco Location: 2450 SE Green Oaks Boulevard, Arlington, Texas, Grantor: A & H Petroleum, Inc. Grantee: Green Oaks Restaurant Group, Inc. Recorded: Doc. #D , Tarrant County Deed Records Date: April 1, 2003 Area: AC (67,082 SF) Legal Description: Lot 1R2 Block 1, Creekside Plaza Addition, City of Arlington, Tarrant County, Texas Consideration: $350,000 Unit Sales Price: $5.22/SF Confirmation: Co-Star confirmed with confidential source Terms of Sale: Cash to Seller Zoning: PD, Planned Development, by City of Arlington Utilities: All to site Reason for Purchase: To build a Grandy s restaurant Improvements: Vacant at time of sale Description: Irregular shaped lot with panhandle access on Greek Oaks Blvd. Only 38,000 SF of this land was usable at the time of the sale. Reportedly, 38,995 SF of the property is in a flood plain. 22

23 Land grid 23

24 Additional land development along the subject s section of South Cooper Street (State Highway 157) included: OTHER LAND ACTIVITY ALONG SOUTH COOPER STREET Size Date Price/SF (Acre) Location/Comment 8/10/2000 $ S. Cooper Street Purchased to construct two retail buildings. 242 feet of street frontage on the west side of South Cooper Street and 164 of street frontage on the north side of Nathan Lowe. 3/12/1999 $ S. Cooper Street Purchased to construct a 6,000 SF retail building. 110 of street frontage on east side of South Cooper Street between SW Green Oaks Blvd. and Sublett Road. 7/15/1998 $ S. Cooper Street Purchased to construct veterinary clinic. Located on the west side of S. Cooper Street between our subject s 3.00-acre site and the subject s separate acre site. 1/02/2000 $ S. Cooper Street Purchased to construct a Dollar Store retail building. Located on the east side of S. Cooper Street one lot north of Hardisty. 1/1/2002 $ S. Cooper Street Purchased to construct Jerry s Express Car Wash. Located on the west side of S. Cooper Street at the northwest corner of Cooper and Hardisty, just south of our subject sites. 5/2/2000 $ S. Cooper Street Purchased to construct dry cleaner facility. Located at the northeast corner of S. Cooper Street and Hardisty. $7.26/SF Average Analysis of Land Sales The land sales cited are all located within the subject s market area and are considered reliable indicators of value. Due to the continual improving land real estate market, all of the land transactions surveyed were found to be direct sales from investors or owners to users for immediate or short-term development starts (user purchasers). Upward adjustments were made to sales comparables, if necessary, for all comparables with inferior attributes or conditions as compared to our subject. Downward adjustments were made to sales comparables, if necessary, for all comparables with superior attributes or conditions as compared to our subject. Land Sale No. 1 and Land Sale No. 2 were at the northeast and southeast corners of Matlock Road and the proposed extension of Nathan Lowe Road. Therefore, these two sales were adjusted downward for their corner locations and upward for the Matlock Road traffic flow versus our subject s South Cooper Street (State Highway 157) traffic flow near The Parks at Arlington regional mall. This resulted in upward adjustments overall for the location/access on these two sales. These two sales were also adjusted downward for their smaller sizes commanding a higher per square foot as it allows lower development cost for some developments with no additional investor costs for holding expenses and re-sale fees of any 24

25 excess land and downward for their superior, less restrictive zoning. Land Sale No. 3 was located directly behind our subject, with no direct street frontage. This is similar to the less visible portion of our subject itself, but required an upward adjustment for no direct access on any roadway (Land Sale No. 3 being dependent on cross access from adjoining properties). No other adjustment was necessary for this sale. Land Sale No. 4 was located off South Cooper Street without highway visibility and was adjusted upward for its inferior visibility. This land sale also received adjustments downward for its smaller size and downward for its superior, less restrictive zoning. Land Sale No. 5 was located on Highlander Boulevard, west of High Point Road, east of Matlock Road and just to the east of The Parks at Arlington regional mall development. This land sale was adjusted upward for its inferior location without highway street frontage, but downward slightly for its long street frontage. This resulted in an overall upward adjustment for location/access. Land Sale No. 5 was also adjusted upward for its inferior, more restrictive zoning. No other adjustments were necessary to this sale as the physical feature of more street frontage was already adjusted in the location/access category. Land Sale No. 6 was located on the south side of Green Oaks Boulevard, just west of State Highway 360. Green Oaks Boulevard forms a loop around the City of Arlington, similar to Loop 820 around the City of Fort Worth. This land sale also had a panhandle street frontage and similar visibility to our subject. Therefore, Land Sale No. 6 only required a location/access adjustment upward for our subject higher traffic count generated by The Parks at Arlington customer traffic and the Interstate 20 access and overpass just south of the subject. Land Sale No. 6 required a downward adjustment for its smaller size and an upward adjustment for its inferior, more restrictive zoning. Land Sales No. 3 and No. 5 were almost the same size as our subject and did not require adjustment for size. All land sales were considered similar in utility available and no further adjustments were necessary to any land sales. Land Value Consideration In analyzing the land sales, land under contract, available land and the other land development activity along this section of South Cooper Street the following value ranges and averages are: Adjusted Land Sales Average Adjusted Land Sales Median Best Comps (size) #3 and #5 Best Comps (lowest adjustments) #1, #2 and #4 Other Land Activity Along South Cooper Street $6.15/SF $5.36/SF $8.10/SF $4.98/SF $7.26/SF With consideration to the preceding sales, particularly within the context of prevailing local market conditions, it is our opinion that the adjusted indicators basically support an overall adjusted average of $ /SF overall (say $ /SF for the frontage and $ /SF for the interior portion). Therefore, the land value is estimated at: Reproduction Cost New and Depreciation 129,916 $ /SF = $ = $ Cost estimates from the Marshall and Swift Cost Manual and local general contractor estimates for Class C construction (masonry or concrete walls with wood or steel roof) and Class D construction (wood or steel studs in bearing wall, full or partial open wood or steel frame, primarily combustible construction) multi-tenant community shopping center buildings with general business or retail type use ranged from 25

26 $66.49/SF to $106.71/SF. An estimated cost rate of $ /SF will be used to estimate the cost of our existing shopping center s completed finish-out improvements and $ /SF for the shell retail spaces not yet finished out. These estimates include a standard-mix tenant finish out allowance. Physical Depreciation Depreciation is any loss in value that has occurred up to the effective date of the appraisal. The loss in value can be classified into three types: physical, functional, and economic. There are two basic forms of physical depreciation. Curable physical depreciation applies only to problems associated with deferred maintenance and neglect. The measure of the form of depreciation is the cost to cure the deficiency. Incurable physical depreciation is a reduction in utility resulting from an impairment of physical condition. The subject s improvements were constructed in 2001 and had no deferred maintenance at the time of the on-site inspection. Some spaces were unfinished shell space and one space was undergoing finish out construction. Therefore, a 4% standard depreciation for age of construction will be applied to the original construction. Functional Obsolescence Functional obsolescence reflects any loss in value due to the inability of a structure to perform adequately the function for which it is constructed. As existing, the improvements are considered typical for this type of facility and the subject suffers no functional deficiencies or superadequacies. Economic Obsolescence Economic obsolescence is considered to be the loss in value of a property resulting from the influence of negative forces not inherent with the property. It can be caused by the exertion of detrimental external forces upon the market area or the property itself. Other examples are noise from nearby expressways or airports, excessive taxes, special assessments or certain other governmental actions, or the infiltration of inharmonious groups or land uses. This form of obsolescence is rarely, if ever, curable. The measure of this form of obsolescence is the capitalized value of the income loss due to the condition. Care must be exercised to charge against the improvements only the pro-rata amount of the indicated loss represented by the improvements to total property value ratio. In other words, if the land value already reflects the condition, the income loss attributable only to the improvements should be capitalized. The current income market in the subject s area is good. Rental rates are stable to rising slightly. Therefore, the subject s improvements do not suffer from economic obsolescence, as the market of retail buildings and the rental income they produce is not deficient in relationship to the cost of producing the asset for income and the applicable Return on Investment is sufficient that an investor would require. The following Calculated Cost Analysis summarizes the construction cost values within the guidelines compiled by Marshall & Swift Valuations services and local contractors to estimate reproduction cost new of the site improvements In Its Present Condition. 26

27 Cost 27

28 SUMMARY OF COST APPROACH -- "AS IF COMPLETED PER PLANS AND SPECIFICATIONS Based upon comparative cost index ratios as suggested by Marshall & Swift's guide to value, as well as local contractor estimates obtained, the subject s improvements come well within the guidelines of value. The improvements are estimated to have a depreciated cost new of $ to the land value of $ , indicates the market value via Cost Approach, in rounded figures, as of at $ (rounded). 28

29 CORRELATION AND FINAL VALUE ESTIMATE Final correlation of analyzed data on the subject s land site with the 26,911 SF of shopping center improvements at in Arlington, Texas to estimate the market value as of has been an analysis of all three approaches to value: the Sales Comparable Approach, the Income Approach to Value, and the Cost Approach to Value As If Completed Per Plans and Specifications Submitted and Stabilized. The Sales Comparison Approach has used sales of similar shopping center improvements within the subject s Arlington/Mansfield and surrounding market area. After adjustments for factors indicated within this approach, it is our opinion that the 26,911 square feet of retail building improvements with its acre tract of land, in an In Its Present Condition basis, will command a per square foot price of $ /SF with the value via the Sales Comparison Approach of $ The Income Approach was calculated from the analysis of comparable leases in the Arlington market area for shopping center spaces. The lease comparables used are from facilities in the same general area and of the same design and lease purposes. The subject s pro-forma exhibited lease rates of $ /SF. Given the pro forma income statement illustrated within the Income Approach section of this report, the net operating income was estimated at $ and was considered well within the market. When a market capitalization rate of 9.5% is applied to this income, the indicated market value for the shopping center improvements and acre land site through the Income Approach to Value is $ , due to its past occupancy history since construction. The Cost Approach was used in depth along with information provided by local contractors estimated costs to determine a cost to produce a new 26,911 SF shopping center building on this property. A value via the Cost Approach as been calculated as $ for the subject s depreciated improvements and $ for the subject s land for a value of $ (rounded). Each approach to value, i.e. Sales Comparison, Income Approach, and Cost Approach were considered. Typically the Cost Approach is the highest as new construction is usually the highest alternative when purchasing or constructing a building. Giving equal weight to all three approaches to value, the subject In Its Present Condition as of is valued at: $ ( THOUSAND DOLLARS) 29

30 CERTIFICATION I certify that, to the best of my knowledge and belief:. the statements of fact contained in this report are true and correct.. the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial, unbiased professional analyses, opinions, and conclusions.. I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest with respect to the parties involved.. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.. my compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report; my engagement in this assignment was not contingent upon developing or reporting predetermined results.. 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 opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.. my analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Uniform Standards of Professional Appraisal Practice (USPAP) as adopted by the Appraisal Standards Board of the Appraisal Foundation and the Texas Real Estate License Act.. I have made a personal inspection of the property that is the subject of this report.. the appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan.. no one provided significant real property appraisal or appraisal consulting assistance to the person signing this certification, other than Larry W. Wallace, State Authorized Appraiser Trainee # Trainee. 30

31 SUPPLEMENTAL 31