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HomeMy WebLinkAbout07-13-20 City Commission Packet Materials - A7. Ord 2050 Provisional Adoption Exchange Agreement w NWEPage 1 of 6 Commission Memorandum REPORT TO: Honorable Mayor and City Commission FROM: Greg Sullivan, City Attorney Shawn Kohtz, City Engineer Mitch Overton, Director of Parks & Recreation SUBJECT: Provisional Adoption of Ordinance 2050 – Authorizing the City Manager to Execute an Exchange Agreement with NorthWestern Energy for a City-Owned Parcel on North Rouse Avenue in Exchange for Right-of-Way and Construction of a City Street to the Glen Lake Rotary Park and Granting of an Easement Across City Land MEETING DATE: July 13, 2020 AGENDA ITEM TYPE: Action (Affirmative Vote of Four Commissioners Required) RECOMMENDATION: Conduct a public hearing and by an affirmative vote of four Commissioners provisionally Adopt Ordinance 2050. RECOMMENDED MOTION: Having considered public comment and the information presented by staff, I hereby move to provisionally adopt Ordinance 2050 authorizing the City Manager to execute documents on Exhibit A of said Ordinance including the Exchange Agreement and granting of easement to NorthWestern Energy subject to contingencies provided in the Exchange Agreement and authorizing the City Manager and City Attorney to take all steps necessary to close the exchange. STRATEGIC PLAN: Section 4 of the City’s Strategic Plan calls for a Well Planned City stating, “4.3 Strategic Infrastructure Choices: Prioritize long-term investment and maintenance for existing and new infrastructure.” 238 Page 2 of 6 BACKGROUND: Over the past few years, the City has been working with various partners, including the Bozeman Sunrise Rotary Club, to plan for the financing and construction of a second entrance into the Glen Lake Rotary Park (Park). At the same time, the City has been working with Northwestern Energy (Northwestern) to facilitate a land exchange where in Northwestern would grant the City additional right-of-way and construct a new city street off of Manley Road providing access to the rear of it’s Griffin Drive facility and to the Park, and in exchange would obtain fee ownership of a parcel of city owned land off North Rouse Avenue (north of Griffin Drive). See attached map to this memo showing the proposed road and land exchange parcels. On May 4, 2020, the Commission adopted Resolution 5168, authorizing the creation of a right-of- way across a city park fronting on Manley Road. That step was the first to create the necessary right-of-way to construct the City street from Manley Road to the southern boundary of the Park. For additional information on the benefit of the new street to the Park please refer to the May 4, 2020 packet material. Adoption of this Ordinance is necessary to obtain additional right-of-way necessary for the construction of the new street across the a property formerly owned by Mergenthaler Transfer & Storage (the “Mergenthaler Property”) and one currently owned by NorthWestern’s property (collectively the “NorthWestern Properties”). More information on the history of the proposed exchange with Northwestern can be found in the Commission packet from March 19, 2018 when the Commission determined the North Rouse Avenue property proposed to be granted to Northwestern was no longer necessary for the conduct of City business. Minutes from the 3/19/2018 meeting can be found here. GLEN LAKE ROTARY PARK MASTER PLAN & BENEFIT TO THE PARK OF LAND EXCHANGE On February 24, 2020, the City Commission adopted Resolution 5146 – adoption of the Glen Lake Rotary Park Master Plan Narrative (the “Plan”). Project #2 in the Plan calls for a second entrance to the Park. For a detailed discussion of the benefits of this new street and access to the Park see pg. 6, 17, Figure 5 (pg. 19), 27, 28, and 31 of the Plan. The creation of right-of-way across the Manley Road park was the first step to completing the new access to the Park. This exchange with NorthWestern is the next critical step. City staff agree with the Plan: A southern access improves bike, pedestrian, and motorized access to the Park, increases safety by providing for two ingress and egress locations, reduces congestion in the northern end of the Park, and improves visibility both for vehicular and pedestrian travel. 239 Page 3 of 6 BASIC STRUCTURE OF THE LAND EXCHANGE The exhibit immediately following this memorandum provides an overview of the several components of this proposal. The road to be constructed from the bend in Manley Road to the southern park of the Park is shown in green(ish). The portion of the access road to be constructed by the Rotary is shown in purple(ish) and is not part of this proposed exchange. The property purchased by NorthWestern from Mergenthaler necessary for the new street is labeled Parcel A. The parcel to be transferred to the City by NorthWestern for the new street is labeled Parcel B. The easement to be granted by the City to NorthWestern across City land is labeled Parcel C. The approximately 4 acres to be transferred by the City to NorthWestern is labeled Parcel D The proposed land exchange between the City and NorthWestern includes the following elements: • NorthWestern obtained a right-of-way from Mergenthaler Transfer & Storage and grants that parcel in fee to the City of Bozeman (Parcel A). NorthWestern also grants a parcel of land in the northwestern corner of its existing yard to the City (Parcel B). The result, in combination with the right-of-way established by the Commission this past May across the Manley Road Park, provides sufficient right-of-way to construct the new access road to the southern boundary of the Park. • NorthWestern constructs a city-standard street from Manley Road to the southern boundary of the Park including construction of a stormwater detention pond. The stormwater pond will be located on NorthWestern property and maintained by NorthWestern. The pond will provide stormwater detention and treatment for runoff from both the NorthWestern property and the new street. • City grants NorthWestern an easement for use only by NorthWestern (reserving City uses) across the southern boundary of the City “triangle” parcel to provide NorthWestern access from the northern area of its existing yard east to the Rouse Avenue parcel. Parcel C. • In consideration of the above, the City transfers ownership of the Rouse Avenue Parcel (Parcel D) to NorthWestern. • City reserves sewer and telecommunications easement across parcel D. To facilitate this transaction, as outlined in the agreement, new parcels will need to be created. These include: • Creating a new parcel through the subdivision exemption process for the Mergenthaler right-of-way parcel. • Creating a new parcel through the subdivision exemption process for the NorthWestern right-of-way parcel. • Recording a minor subdivision that creates a separate road tract for North Rouse Avenue. The result of this minor subdivision will be to create three distinct tracts of record: (i) the 240 Page 4 of 6 North Rouse Avenue road parcel; (ii) the separate City owned triangle parcel (to be retained by the City); and (iii) the creation of the 4.14 acre parcel the City is proposing to transfer to NorthWestern. EXCHANGE AGREEMENT The proposed exchange agreement includes terms acceptable to the City Attorney, City Engineer, Director of Public Works, and the Director of Parks and Recreation. These include: • Recitals demonstrating the City’s legal authority to transfer the City property and enter into the exchange agreement as well as recitals that describe the benefits to the City of a new southern entrance to the Park. • Closing to occur after the construction of the new street. This means the transfer of the Mergenthaler parcel and the Northwestern parcel (collectively referred to in the agreement as the “Northwestern Exchange Parcels”) will occur after the City Engineer accepts the construction of the new city street. • The grant by the City of the easement to NorthWestern across the City’s triangle parcel will also occur at closing. • Standard contingencies regarding closing including property title review. • City to share in costs associated with closing the transaction (standard in real estate transactions). • Recording of certificates of survey for the creation of the NorthWestern Exchange Parcels (the right-of-way parcels) and creating and recording the plat for the City Exchange Parcel. • Contingencies that allow NorthWestern Energy to investigate floodplain and zoning issues on the parcel to be transferred to NorthWestern. • City parcel to be acquired by NorthWestern appears to be encroached upon by several homes from the neighborhood to the south. We recommend the parcel to be transferred to NorthWestern include these encroachments. The agreement transfers ownership of this area to NorthWestern. • The parcel to be transferred to NorthWestern was acquired by the City in the 1800s for purposes of eventually siting a landfill. It is unknown whether solid waste was placed onto this property during the landfill’s operations. As such, the City Attorney recommends the exchange include a disclosure provision regarding potential contamination of the City Exchange Parcel (see Sect. 13). COSTS OF CONSTRUCTION OF NEW CITY STREET/APPRAISED VALUE OF EASEMENT AND ROUSE AVENUE PARCEL The basic premise of the agreement is for the City to not contribute money or value other than the appraised value of the City’s exchange parcel and the value of the easement to be granted to 241 Page 5 of 6 NorthWestern by the City across the southern portion of the “triangle parcel” (Parcel C). NorthWestern will contribute the value of the right-of-way across the former Mergenthaler property, the value of the right-of-way across its property, the value of a stormwater pond to be constructed on NorthWestern’s property, and the value of the expenses related to construction of the new city street (engineering, construction, etc.). NorthWestern will also oversee construction of the new city street prior to its dedication to the City. In addition, the Commission created a special improvement district to reconstruct Manley Road. The City park parcel, Parcel 3 of Minor Subdivision 154 A, that fronts on Manley Road is part of that district. The City will continue to pay assessments for that park after street construction at a total cost over the life of the district of $235,000, and the portion of this assessment that would be applied to NorthWestern is $66,000. City Contribution: The City exchange parcel (Parcel D) has recently been appraised at $735,000.00. See attached appraisal. The easement across the southern portion of the triangle parcel (Parcel C) was recently valued as $12,700. See attached valuation report. When combined, the total value to be contributed by the City is $747,700. Adding the portion of the special improvement district assessments for the Manley Road park parcel that would be applied to NorthWestern brings the total City contribution to $813,700. NorthWestern Contribution: NorthWestern’s purchase of the former Mergenthaler property was for $237,771, and the value of the NorthWestern right-of-way parcel is $301,900. See attached ALTA Buyer’s Settlement Statement, dated 6/28/20 indicating the value of the portion of the Mergenthaler property. Also see attached Northwestern Energy Exchange Appraisal Valuation Tract 4 for the value of Northwestern property dedicated to road and stormwater improvements. Northwestern’s consultant engineer estimated the total costs and expenses of road and stormwater system construction will be $406,000. Engineering, design, and construction management is estimated at $60,000. As such, NorthWestern will contribute a total value of approximately $1,005,600. DESIGN OF THE NEW CITY STREET/ACCESS TO PARKING LOT AT GLEN LAKE The new street accessing the Park has been designed in compliance with the City’s local street standard defined in the City Design Standards and Specifications Policy. A shared use path will be constructed on the north side of the street closest to the Park. On the south side of the street adjacent to the existing Mergenthaler yard and the Northwestern yard, no sidewalk will be constructed. Parking will be provided along both sides of the street. The Sunrise Rotary Club is working to fund construction of the remainder of the access through the Park to connect to the existing parking lot. 242 Page 6 of 6 An intersection stub for the new street is being constructed with this summer’s Manley Road project that will allow connection of the proposed street to Manley Road. Manley Road improvements are currently under construction. NEXT STEPS: Several additional steps are necessary to complete this exchange. These include: • Publishing notice of adoption of this Ordinance (if approved) in a local newspaper prior to final adoption; • Final adoption of this Ordinance (consent agenda on July 27, 2020); • Execution by the City Manager of the Exchange Agreement (30 days after final adoption); • Construction of the new city street; • Approval of the construction by the City Engineer; and • Closing on the Exchange Agreement including deeds and easement documents. UNRESOLVED ISSUES: As noted in the memorandum for creation of the right-of-way across the Manley Park parcel (May 4, 2020), in the future, the City plans to seek consent from FWP to create a driveway heading east from the new street as it enters onto the Park property that will provide City-only access to the existing City yard. Construction of the access driveway will be budgeted for in future years. Currently, the estimated cost of constructing this driveway is approximately $300,000. FISCAL EFFECTS: The primary fiscal effects to the City are described above in the section labeled “Costs of Construction of New City Street/Appraised Value of Easement and Rouse Avenue Parcel.” Costs associated with the City’s share of closing costs will need to be paid. Costs related to connecting the new street to the existing parking lot in the Park are intended to be borne by the Sunrise Rotary through its own efforts. As noted above, costs related to constructing an access to the City’s triangular parcel, used for storage of public works materials, may be proposed in a future capital improvement plan. ALTERNATIVES: As suggested by the City Commission. Attachments: • Exhibit showing aspects of the Land Exchange Proposal • Ordinance 2050 • Attachment A to Ordinance 2050 (Exchange Agreement and exhibits to the Exchange Agreement) • Appraisal for North Rouse Avenue Property • Waiver Valuation for Easement Across City Triangle Parcel • NorthWestern Energy – NWE Exchange Appraisal Valuation, Tract 4 • ALTA Buyer’s Settlement Statement (Mergenthaler Parcel) • Construction Cost Estimate for New City Street 243 Parcel A Parcel B Parcel C Parcel D 244 Ordinance 2050 Page 1 of 5 ORDINANCE NO. 2050 AN ORDINANCE OF THE CITY COMMISSION OF THE CITY OF BOZEMAN, MONTANA, AUTHORIZING THE CITY MANAGER TO SIGN AN EXCHANGE AGREEMENT BETWEEN NORTHWESTERN ENERGY AND THE CITY OF BOZEMAN FOR THE CONVEYANCE OF PROPERTY OWNED BY THE CITY GENERALLY DESCRIBED AS APPROXIMATELY FOUR ACRES LOCATED ALONG NORTH ROUSE AVENUE AND AN ACCESS EASEMENT TO NORTHWESTERN ENERGY IN EXCHANGE FOR NEW RIGHT-OF-WAY AND CONSTRUCTION OF A CITY STREET ACCESSING THE GLEN LAKE ROTARY PARK NOW THEREFORE, BE IT ORDAINED BY THE CITY COMMISSION OF THE CITY OF BOZEMAN, MONTANA: Section 1 Legislative Findings. The City Commission hereby makes the following findings in support of adoption of this Ordinance: 1. The City of Bozeman owns real property along the west side of North Rouse Avenue north of Griffin Drive known described as Tract 33 of Northeast Annexation Tracts 33, 34, and 35 to the City of Bozeman, located in the Southwest Quarter, of Section 31, Township 1 South, Range 6 East, Gallatin County, Montana (the “City Property”). 2. NorthWestern Energy seeks to acquire a portion of the City Property for purposes of expanding its operations at its Griffin Drive location; the portion of the City property it seeks to acquire is shown on Exhibit A to the attached Exchange Agreement (the “City Exchange Parcel”). 3. In consideration of acquiring the City Exchange Parcel, Northwestern Energy (hereinafter referred to as “NorthWestern”) agrees to provide the City with two right- of-way parcels (“NorthWestern Exchange Parcels” (Exhibit B)) and pay the costs of design, engineering, and construction for a new city street accessing the southern portion of Glen Lake Rotary Park. 245 Ordinance 2050, Exchange Agreement with NorthWestern Energy Ordinance 2050 Page 2 of 5 4. Section 2.11 of the Bozeman City Charter requires adoption of an ordinance when the City “convey[s]… or authorize[s] the conveyance… of any lands of the city.” 5. Section 2.06.870 of the Bozeman Municipal Code (BMC) grants the City Commission the jurisdiction and power to sell and exchange city property, however acquired, belonging to the City that is not necessary to the conduct of city business or the preservation of property. 6. Section 2.06.890.B, BMC, subject to section 2.06.870.D, authorizes the sale of City property for not less than 90 percent of the appraised value. 7. Section 2.06.900, BMC provides that “[N]o sale of real property shall be made of any property unless it has been appraised within one year prior to the date of the sale. The appraisal report for the City Exchange Parcel is dated March 25, 2020. The date of valuation of the easement to be granted by the City is April 28, 2020. 8. On March 19, 2018, the City Commission conducted a public hearing and determined the City Exchange Parcel was no longer necessary for the conduct of City business or the preservation of City property and the public interest would be furthered by conveyance of the same. The City Commission hereby confirms this finding. 9. Should the Bozeman City Commission provisionally adopt this ordinance by no less than a two-thirds vote of its total membership, notice of provisional adoption of this ordinance shall be published in compliance with Sect. 7-1-4127, MCA, prior to final adoption. Section 2 The Bozeman City Commission hereby adopts this Ordinance and in doing so authorizes the City Manager to sign the attached Exchange Agreement (Exhibit A to this Ordinance). In doing so, the Commission authorizes, subject to fulfillment of the contingencies as stated in the attached Exchange Agreement and those contingencies listed below: 1. The conveyance of the fee title of the City Exchange Parcel to NorthWestern; 2. The conveyance of an easement to NorthWestern for NorthWestern’s access from NorthWestern’s existing yard across a portion of City-owned property (the “triangle property”) to the City Exchange Parcel; 3. The acceptance of fee title to two right-of-way parcels to be granted by NorthWestern to the City; and 4. The construction of a new city street in a design to be approved by the City Engineer from Manley Road to the Glen Lake Rotary Park. 246 Ordinance 2050, Exchange Agreement with NorthWestern Energy Ordinance 2050 Page 3 of 5 The Commission’s authorization for the City Manager to sign the Exchange Agreement is not be effective until 30 days after final adoption of this Ordinance; as such, the Exchange Agreement shall not be binding on the City of Bozeman until that time. Section 4 The Commission hereby authorizes the City Manager and City Attorney to take all steps necessary to finalize and close the Exchange Agreement and easement, including preparation and execution of all necessary documents. Section 5 Repealer. All provisions of the ordinances of the City of Bozeman in conflict with the provisions of this ordinance are, and the same are hereby, repealed and all other provisions of the ordinances of the City of Bozeman not in conflict with the provisions of this ordinance shall remain in full force and effect. Section 6 Savings Provision. This ordinance does not affect the rights and duties that matured, penalties that were incurred or proceedings that were begun before the effective date of this ordinance. All other provisions of the Bozeman Municipal Code not amended by this Ordinance shall remain in full force and effect. Section 7 Severability. That should any sentence, paragraph, subdivision, clause, phrase or section of this ordinance be adjudged or held to be unconstitutional, illegal, or invalid, the same shall not affect the validity of this ordinance as a whole, or any part or provision thereof, other than the part so decided to be invalid, illegal or unconstitutional, and shall not affect the validity of the Bozeman Municipal Code as a whole. 247 Ordinance 2050, Exchange Agreement with NorthWestern Energy Ordinance 2050 Page 4 of 5 Section 8 Codification Instruction. The provisions of this Ordinance shall not be codified in the Bozeman Municipal Code; rather, this Ordinance shall be maintained by the City Clerk in an indexed file of all Ordinances not to be codified. Section 9 Effective Date. This ordinance shall be in full force and effect 30 days after final adoption. 248 Ordinance 2050, Exchange Agreement with NorthWestern Energy Ordinance 2050 Page 5 of 5 PROVISIONALLY ADOPTED by the City Commission of the City of Bozeman, Montana, on first reading at a regular session held on the 18th day of May, 2020. ____________________________________ CHRIS MEHL Mayor ATTEST: _______________________________ MIKE MAAS City Clerk FINALLY PASSED, ADOPTED AND APPROVED by the City Commission of the City of Bozeman, Montana on second reading at a regular session thereof held on the ____ day of _______________, 2020. The effective date of this ordinance is _________________, __ 2020. _________________________________ CHRIS MEHL Mayor ATTEST: _______________________________ MIKE MAAS City Clerk APPROVED AS TO FORM: _________________________________ GREG SULLIVAN City Attorney 249 Page 1 of 21 EXCHANGE AGREEMENT THIS EXCHANGE AGREEMENT (“Agreement”) is made and entered into this ____ day of ___________, 2020, by and between the City of Bozeman, a self-governing municipality operating pursuant to its Charter and the laws of the State of Montana, of 121 N. Rouse Avenue, Bozeman, Montana 59715 (the “City”) and NorthWestern Corporation, a Delaware Corporation, d/b/a NorthWestern Energy of 11 East Park, Butte, Montana 59701 (“NorthWestern”) provides as follows: Recitals 1. The City is the owner of a certain parcel of real property, located in Gallatin County, Montana, which is described as follows: Tract 33 of Northeast Annexation Tracts 33, 34, and 35 to the City of Bozeman, located in the Southwest Quarter, of Section 31, Township 1 South, Range 6 East, Gallatin County, Montana (the “City Property”) 2. NorthWestern is the owner of two certain parcels of real property, located in Gallatin County, Montana which are described as follows: Lot 2B of the Amended Plat of Lot 2, Minor Subdivision No. 154, located in the Southwest Quarter, of Section 31, Township 1 South, Range 6 East, Gallatin County, Montana (“Lot 2B”); and A tract of land located within the SE1/4 of Section 31, T1S, R6E, PMM, Gallatin County, Montana, and being a portion of Certificate of Survey No. 157 and described as follows: Beginning at a point on the south boundary line of Section 31, T1S, R6E from which the SW corner of said Section 31 bears S88°10’08”W 1463.36 feet, said point being the SE Corner of said Certificate of Survey No. 157 and the SE corner of the tract herein described and being witnessed by a 5/8” x 24” rebar with cap which bears N2°17’33”W 35.00 feet from said point; thence N2°17’33”W 1221.71 feet on the most easterly boundary of said Certificate of Survey No. 157; thence S88°10’08”W 240.00 feet; thence S2°17’33”E 1221.71 feet to the south boundary line of said Section 31, being coincident with south boundary line of said Certificate of Survey No. 157, said point being witnessed by a 5/8” x 24” rebar with cap which bears N2°17’33”W 158.40 feet from said point; thence N88°10’08”E 240.00 feet on the south boundary line of said Section 31 to the point of beginning, according to Certificate of Survey No. 157A. (“COS 157A”) (Collectively the “NorthWestern Properties”) 250 Page 2 of 21 3. NorthWestern intends to construct a city standard street from Manley Road, through a city park (the “Manley Road Park”), and over the NorthWestern Properties, and which street will provide access to the Manley Road Park, Glen Lake Rotary Park, and NorthWestern’s Real Property. NorthWestern is willing to construct such street to the Glen Lake Rotary Park, (the “Park”) and to exchange the costs of design, engineering, and constructing the street and the portions of the NorthWestern Properties over which the street will be located to the City in exchange for a certain portion of the City Property. 4. The City determined on March 19, 2018 that a portion of the City Property, was no longer necessary for the conduct of City business or the preservation of City property and also that the public interest will be furthered by an exchange of the portion of the City Property for the portion of the NorthWestern Properties on which the street is to be constructed, allowing a second public access to the Park. 5. The City and NorthWestern (individually “Party” and collectively the “Parties”) desire to exchange such properties on the terms and subject to the conditions, as established pursuant to this Agreement. Agreement Now therefore for good and valuable consideration, the Parties agree as follows: 1. Exchange Parcels. a. City Exchange Parcel. The portion of the City Property, as is generally depicted as Remainder Tract 2 on Exhibit “A” (the “City Exchange Parcel”), together with all interest of the City in any adjacent, vacated streets and alleys; all easements and other appurtenances thereto; and all improvements and all permanently installed or attached fixtures. Further provided, the City’s conveyance of the City Exchange Parcel shall be: i. Reserving an easement to the City for its existing sewer line and future telecommunications facilities 30 feet in width and located at the southerly end of the City Exchange Parcel, for the benefit of the City, its successors or assigns. This existing sewer line shall remain the sole property of the City. ii. Together with an easement for ingress and egress to and between the City Exchange Parcel and NorthWestern’s Service Center Property (Tract 37 Northeast Annexation) as generally depicted as Proposed New 50’ Wide Private Access Easement on Exhibit “A”. The easement shall be for the benefit of NorthWestern, its successors or assigns. The easement shall not be for use by the general public or any other person or entity; however, the City may continue to use the easement area for purposes related to its Storage Yard Property, provided such use does not unreasonably interfere with 251 Page 3 of 21 NorthWestern’s use of the easement. In the event NorthWestern transfers ownership of the City Exchange Parcel without transferring its ownership of its Service Center property to the same party this easement shall terminate. If the easement does not terminate as described above, the uses authorized by the easement shall be limited to those uses substantially similar to NorthWestern’s use or the easement shall terminate. Notwithstanding the above, in the event the easement does transfer to NorthWestern’s assigns or successors, the easement shall not be for ingress and egress for the public and may not be used for non-industrial commercial or residential purposes. b. NorthWestern Exchange Parcels. Lot 2B as is generally depicted on Exhibit “B”, page 1 and the portion of the COS 157A, as in generally depicted as TR 4 on Exhibit “B”, page 2 (the “NorthWestern Exchange Parcels”), together with all interest of NorthWestern in any adjacent, vacated streets and alleys; all easements and other appurtenances thereto; and all improvements and all permanently installed or attached fixtures. Further provided, NorthWestern’s conveyance of the NorthWestern Exchange Parcels shall be: i. Reserving an easement to NorthWestern for its existing natural gas and electric lines, for the benefit of NorthWestern, its successors or assigns. These existing natural gas and electric lines shall remain the sole property of Northwestern. c. Generally. The City Exchange Parcel and the NorthWestern Exchange Parcels (Collectively the “Parcels”) shall be conveyed along with all interests of the conveying party in any surface or ground waters, whether the same be statements of claim, certificate of water right, permits to appropriate water, exempt existing rights, interests in irrigation or ditch companies, ditch rights or easements or otherwise, which are appurtenant to the respective Parcels. 2. Property Division. a. City Exchange Parcel. The Parties understand that to create a legally conveyable parcel that the City Exchange Parcel will need to be divided from the City Property. The Parties understand that such a division is intended to be accomplished by certificate of survey, creating the City Exchange Parcel, using the exemption for “rights of way or utility sites” pursuant to Montana Code Annotated §76-3-201(1)(h). In order to record such a survey all real property taxes and special assessments assessed and levied on the City Property, if any, may need to be paid. NorthWestern will pursue the survey and necessary governmental approvals, at its own cost and expense. The City agrees, subject to Section 10, below, to cooperate with the survey and governmental approvals, to permit NorthWestern, its surveyors, engineers and contractors access to both the City Exchange Parcel and the City Property for all necessary survey and planning work, to sign all applications, consents, surveys and other documents associated with the same, and, if applicable, to pay before the recording of the survey all real 252 Page 4 of 21 property taxes and special assessments assessed and levied on the City Property as required to record the survey dividing the City Exchange Parcel from the City Property. At closing, the Parties agree that NorthWestern shall reimburse the City for the portion of the real property taxes and special assessments paid by the City in order to record the survey, which are attributable to the City Exchange Parcel from the date of Closing. In determining the amount of real property taxes and special assessments attributable to the City Exchange Parcel, all improvements other than those located on the City Exchange Parcel shall be excluded and the real property taxes and special assessments pertaining to the bare land shall be in proportion which the area of the City Exchange Parcel bears to the area of the City Property. b. NorthWestern Exchange Parcels. The Parties also understand that to create a legally conveyable parcel that one of the NorthWestern Exchange Parcels will need to be divided from the second of the NorthWestern Properties identified in Section 2 of the Recitals. It is understood that such a division is intended to be accomplished by certificate of survey, creating the second of the NorthWestern Exchange Parcels, using the exemption for “rights of way or utility sites” pursuant to Montana Code Annotated §76-3-201(1)(h). In order to record such a survey all real property taxes and special assessments assessed and levied on the NorthWestern Properties, if any, may need to be paid. NorthWestern will pursue the survey and necessary governmental approvals, at its own cost and expense. NorthWestern agrees, if applicable, to pay before the recording of the survey all real property taxes and special assessments assessed and levied on the NorthWestern Properties as required to record the survey dividing the NorthWestern Exchange Parcels from the NorthWestern Properties. At closing, the Parties agree that the City shall reimburse NorthWestern for the portion of the real property taxes and special assessments paid by NorthWestern in order to record the survey, which are attributable to the NorthWestern Exchange Parcels from the date of Closing. In determining the amount of real property taxes and special assessments attributable to the NorthWestern Exchange Parcels, all improvements other than those located on the NorthWestern Exchange Parcels shall be excluded and the real property taxes and special assessments pertaining to the bare land shall be in proportion which the area of the NorthWestern Exchange Parcels bears to the area of the NorthWestern Properties. 3. Street Construction. The Parties desire a city standard street be constructed connecting Manley Road to the Park. The Parties acknowledge the street shall be located over the Manley Road Park and over the NorthWestern Exchange Parcels. Upon approval and recording of the survey anticipated by Section 2(b) creating the NorthWestern Parcels, NorthWestern shall, at its own cost and expense, cause a city standard street in a design approved by the City Engineer to be constructed connecting Manley Road to the Park, in conformance with all applicable design, engineering and construction standards as typically required by the City for its public streets, including seeding of disturbed areas and control of noxious weeds. NorthWestern, upon acceptance of the street by the City Engineer, shall assign to the 253 Page 5 of 21 City all the assignable warranties related to the construction of the street which it obtains from the contractor(s) retained by NorthWestern to construct the street. NorthWestern agrees to include in its contract for construction of the City Street a requirement its contractors provide the City a 2-year maintenance bond listing the City as an obligee. 4. Consideration. The Parties recognize the estimated costs of constructing the street connecting Manley Road to the Park, combined with the costs of survey and engineering to create the NorthWestern Exchange Parcels and the City Exchange Parcels, and the appraised value of the NorthWestern Exchange Parcels as used for road purposes is anticipated to be greater than the appraised value of the City Exchange Parcel. The Parties nonetheless determine the exchange to be in their respective interests. NorthWestern specifically recognizes the City will not provide any additional remuneration to NorthWestern above the appraised value of the City Exchange Parcel excepting closing costs as described herein. Similarly, the City specifically recognizes NorthWestern will not provide any additional remuneration to the City above the costs of constructing the street connecting Manley Road to the Park, combined with the costs of survey and engineering to create the NorthWestern Exchange Parcels and the City Exchange Parcels, and the appraised value of the NorthWestern Exchange Parcels as used for road purposes, excepting closing costs as described herein. 5. Contingencies. The Parties agree that this transaction is subject to the contingencies as follows: a. Title Review. The Parties’ obligation to consummate the exchange is contingent upon their respective review and approval of a preliminary title commitment concerning the Parcels, which each would acquire under this Agreement (the “Title Review”). If the Title Review discloses any condition(s) that is unacceptable to either of the Parties, such Party shall give written notice of said unacceptable condition(s) to the other Party on or before thirty (30) days from the date the Party giving the notice received the preliminary title commitment. If a Party fails to provide such notice and copy by such date, then this contingency shall be deemed waived by that Party. Upon receipt of written notice of unacceptable condition(s) the receiving Party shall have thirty (30) days to advise the Party giving the notice in writing whether it will agree to remedy the unacceptable condition(s). If the receiving Party elects to remedy the unacceptable condition(s) the transaction shall proceed to closing, however it shall have an additional thirty (30) days from the specified closing date to affect the remedy, if necessary. If the receiving Party elects not to remedy the unacceptable condition(s) noted the obligation of the Party giving the notice to consummate the exchange shall be terminated. b. Appraisals. Pursuant to Bozeman Municipal Code Section 2.06.870, both the City Exchange Parcel and the NorthWestern Exchange Parcels must be appraised. The City will commission a disinterested certified general real estate appraiser to 254 Page 6 of 21 provide an appraisal of the City Exchange Parcel. Similarly NorthWestern will commission a disinterested certified general real estate appraiser to provide an appraisal of the NorthWestern Exchange Parcels, which appraisal shall account for the value of the street, and related improvements, to be constructed by NorthWestern and which must also recognize the NorthWestern Exchange Parcels are to be used for road purposes only and not for future development. Upon receipt of such appraisals, the Party receiving the appraisal shall promptly provide a copy to the other Party. If the appraisals result in the exchange anticipated by this Agreement to not qualify under Bozeman Municipal Code Section 2.06.870, than the Parties’ respective obligations to exchange shall be terminated and this Agreement will have no further force or effect. c. Subdivision. The Parties’ respective obligations to exchange under this Agreement are contingent upon their agreeing as to the final configuration of the City Exchange Parcel and NorthWestern Exchange Parcels, including easements (if any) and the filing of the requisite surveys. If the surveys creating the City Exchange Parcel and NorthWestern Exchange Parcels are not able to be filed of record on or before sixty (60) days from the date of this Agreement, the Parties’ obligations to exchange shall be terminated and this Agreement will have no further force or effect. d. Floodplain Permit. NorthWestern’s obligation to consummate the exchange is contingent upon receipt of a floodplain permit for or assurances, adequate in NorthWestern’s sole opinion, that NorthWestern’s anticipated use of the City Exchange Parcel will be permitted (the “Floodplain Permit or Assurance”). If NorthWestern does not receive the Floodplain Permit or Assurance, NorthWestern shall give written notice of the same to the City, on or before the date of Closing, and NorthWestern’s obligation to consummate the exchange shall be terminated. NorthWestern shall be responsible for all costs associated with pursuing the Floodplain Permit or Assurance. e. Zoning Change. NorthWestern’s obligation to consummate the exchange is contingent upon its review and approval of a change in the zoning district for the City Exchange Parcel from PLI to M-1 (the “Zoning Change”). If NorthWestern does not receive the Zoning Change NorthWestern shall give written notice of the same to the City, on or before the date of Closing, and NorthWestern’s obligation to consummate the exchange shall be terminated. NorthWestern shall be responsible for all costs associated with pursuing the Zoning Change. f. General Due Diligence. The Parties’ obligation to consummate the exchange is contingent upon their respective review and approval of such other professional, independent due diligence investigations concerning the Parcels, which each would acquire under this Agreement, which such Party desires to have investigated (the “Due Diligence”). If the Due Diligence discloses any condition(s) that are unacceptable to either of the Parties, such Party shall give written notice of said unacceptable condition(s) to the other Party, on or before 255 Page 7 of 21 sixty (60) days from the date of this Agreement. If a Party fails to provide such notice and copy by such date, then this contingency shall be deemed waived by that Party. Upon receipt of written notice of unacceptable condition(s) the receiving Party shall have sixty (60) days to advise the Party giving the notice in writing whether it will agree to remedy the unacceptable condition(s). If the receiving Party elects to remedy the unacceptable condition(s) the transaction shall proceed to closing, however it shall have an additional sixty (60) days from the specified closing date to affect the remedy, if necessary. If the receiving Party elects not to remedy the unacceptable condition(s) noted the obligation of the Party giving the notice to consummate the exchange shall be terminated. The Parties shall be responsible for all costs associated with their respective Due Diligence. Each Party shall, upon reasonable prior notice, permit reasonable access to its Parcel for the other Party and those involved in its Due Diligence. Provided, that Due Diligence shall cause no material damage to the Parcels, and if it should the Party or its representative causing such damage shall indemnify and hold the Party owning the damaged Parcel completely harmless from such damage. 6. Closing Date. The closing date shall be on or before forty-five (45) days from the date the street construction anticipated by Section 3 is substantially complete as determined by the City Engineer, unless the Parties otherwise agree in writing. The closing shall take place at Security Title Company 600 South 19th Avenue, Bozeman, Montana 59715 (the Closing Agent). The Parties shall deposit with the Closing Agent all monies and executed documents as necessary to complete the transaction as anticipated by this Agreement. 7. Closing Costs. a. NorthWestern’s Closing Costs. i. Acquisition of City Exchange Parcel. NorthWestern shall pay for one-half of the charges of the Closing Agent related to its acquisition of the City Exchange Parcel; for the recording charges for all deeds, water right transfers, or other documents, associated with its acquisition of the City Exchange Parcel, other than those to be paid by the City per this subsection (a); and any commissions or fees charged by any real estate broker or salesperson, attorney, accountant, appraiser or any other professional retained by NorthWestern in conjunction with the transaction anticipated herein. ii. Disposition of the NorthWestern Exchange Parcels. NorthWestern agrees to pay for one-half of the charges of the Closing Agent related to the disposition of the NorthWestern Exchange Parcels; all title insurance premiums and charges, including the cost of an ALTA Survey if required to issue the title policy for the NorthWestern Exchange Parcels; and the recording charges associated with the release of any encumbrances or liens on the NorthWestern Exchange Parcels to be satisfied by the City per the terms of this Agreement. 256 Page 8 of 21 b. The City’s Closing Costs. i. Acquisition of the NorthWestern Exchange Parcel. The City shall pay for one-half of the charges of the Closing Agent related to its acquisition of the NorthWestern Exchange Parcels; for the recording charges for all deeds, water right transfers, or other documents, associated with its acquisition of the NorthWestern Exchange Parcels, other than those to be paid by NorthWestern per this subsection (b); and any commissions or fees charged by any real estate broker or salesperson, attorney, accountant, appraiser or any other professional retained by the City in conjunction with the transaction anticipated herein. ii. Disposition of the City Exchange Parcel. The City agrees to pay for one-half of the charges of the Closing Agent related to the disposition of the City Exchange Parcel; all title insurance premiums and charges, including the cost of an ALTA Survey if required to issue the title policy for the City Exchange Parcel; and the recording charges associated with the release of any encumbrances or liens on the City Exchange Parcel to be satisfied by the City per the terms of this Agreement. 8. Taxes, Assessments (SID/RSID) and Rents. The City and NorthWestern agree to prorate taxes, special improvement assessments for the current tax year, as well as pre-paid rents, permit fees, water and sewer charges, irrigation assessments, maintenance fees, and any other pre-paid charges concerning the Parcels, as are applicable, as of the date of closing. If the current year taxes are not known, NorthWestern and The City agree that the previous year's tax assessment or an estimated amount can be used to base the pro-ration. 9. Conveyance. a. City Exchange Parcel. The City agrees, upon Closing, to execute and deliver to NorthWestern a Warranty Deed ("Deed") to the City Exchange Parcel, substantially in the form attached hereto as Exhibit “C”. The City shall convey any interests in leases, permits, allotments, water rights or other property by appropriate transfer documents for the interest at issue. b. NorthWestern Exchange Parcels. NorthWestern agrees, upon Closing, to execute and deliver to the City a Warranty Deed ("Deed") to the NorthWestern Exchange Parcels, substantially in the form attached hereto as Exhibit “D”. NorthWestern shall convey any interests in leases, permits, allotments, water rights or other property by appropriate transfer documents for the interest at issue. 10. Title Insurance. a. City Exchange Parcel. The City shall purchase for the benefit of NorthWestern an American Land Title Association (ALTA) Coverage Owners Title Insurance 257 Page 9 of 21 Policy (as evidenced by a standard form ALTA title insurance commitment) in an amount equal to the Appraised Value of the City Exchange Parcel. NorthWestern may, as its option and expense, purchase additional coverages and/or a mineral guarantee. Upon entry into this Agreement by both Parties, the City will order a preliminary commitment for title insurance concerning the City Exchange Parcel and will provide same to NorthWestern, promptly after such commitment is issued. b. NorthWestern Exchange Parcels. NorthWestern shall purchase for the benefit of the City an American Land Title Association (ALTA) Coverage Owners Title Insurance Policy (as evidenced by a standard form ALTA title insurance commitment) in an amount equal to the Appraised Value of the NorthWestern Exchange Parcels. The City may, as its option and expense, purchase additional coverages and/or a mineral guarantee. Upon entry into this Agreement by both Parties, NorthWestern will order a preliminary commitment for title insurance concerning the NorthWestern Exchange Parcels and will provide the same to the City, promptly after such commitment is issued. 11. Possession and Risk of Loss. The Parties shall deliver possession and occupancy of their respective Parcels to the each other upon the closing date, after all monies are received and documents delivered. All loss or damage to any of the Parcels, by any cause, is assumed by the Party presently owning such Parcel through the time of closing unless otherwise specified. 12. City Not Bound In Its Regulatory Authority. NorthWestern recognizes the City enters this Agreement as a landowner to this Agreement and not in its regulatory role. As such, NorthWestern agrees that nothing herein binds the City to make certain approvals in its regulatory authority in review of \subdivision exemptions, floodplain permits, zoning changes, or site plan applications. 13. Disclosures. a. General Disclosure. Except as provided herein, each Party acknowledges that it has examined the Parcel it is to acquire in the exchange anticipated by this Agreement and acknowledges that it enters into this Agreement reliance upon such examination, upon inspections conducted by the inspectors of its choice and that it is acquiring such Parcel, "AS IS" without any warranty or representation as to its condition, unless expressly stated or referenced in this Agreement. Specifically, NorthWestern acknowledges it has conducted an environmental field investigation (Phase II), which consisted of the installation of soil borings and monitoring wells to test the soil and groundwater for contamination, of the City Exchange Property and agrees it will acquire the City Exchange parcel with full knowledge of the contents of the environmental field investigation (Phase II). b. Encroachments on City Exchange Parcel. NorthWestern acknowledges certain encroachments exist on the City Exchange Parcel including several trailer homes 258 Page 10 of 21 located in the southern portion of the City Exchange Parcel (the “Encroachments”). NorthWestern agrees to take possession of the City Exchange Parcel subject to the Encroachments. c. Environmental Disclosure of City Exchange Parcel. NorthWestern acknowledges the City Parcel may contain Hazardous Substances. NorthWestern enters into this agreement having conducted and reviewed the environmental condition of the City Exchange Property and agrees THE CITY DOES NOT WARRANT, EITHER EXPRESSLY OR IMPLIEDLY, THE CONDITION OR FITNESS OF THE CITY PARCEL, ANY SUCH WARRANTY BEING HEREBY EXPRESSLY NEGATED. NorthWestern, by acceptance hereof, acknowledges that it has made a complete inspection of the City Exchange Parcel and is in all respects satisfied as to the condition of the City Exchange Parcel regarding Hazardous Substances and accepts the City Exchange Property in respect to Hazardous Substances “AS IS.” The term “Hazardous Substances” as used in this Agreement means (1) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, polychlorinated biphenyls and radon gas and (2) any chemicals, materials or substances defined as or included in the definitions of “hazardous substances,” “hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “bio-hazard,” “biological waste,” “medical waste” or words of similar import, under any applicable federal, state or local environmental, safety or health laws, ordinances, rules of common law, regulations or directives (“collectively “Environmental Laws”). d. Hazardous Substances found during Road Construction. NorthWestern agrees that should any Hazardous Substances be found on the NorthWestern Exchange Parcels during construction of the street as provided for in Section 3, above, NorthWestern shall remediate such Hazardous Substances during construction of the city street in conformance with all applicable Environmental Laws and be solely responsible for liabilities and costs of such remediation. Similarly, the City agrees that should any Hazardous Substances be found on Manley Road Park during construction of the street as provided for in Section 3, above, the City shall remediate such Hazardous Substances during construction of the city street in conformance with all applicable Environmental Laws and be solely responsible for liabilities and costs of such remediation. e. Megan’s Law. In accordance with Title 46, Chapter 23, Part 5 of the Montana Code Annotated certain individuals are required to register their address with local law enforcement agencies as part of Montana’s Sexual and Violent Offender Registration Act. You may obtain information on these registrations by contacting the local county sheriff’s office, the Montana Department of Justice in Helena, Montana and probation officers assigned to your area. The real estate broker or salesperson, identified above does not have actual knowledge of sexual or violent offender registration information that pertains to the property that is the subject of this Agreement. 259 Page 11 of 21 f. Noxious Weeds. Each Party hereby notifies the other Party that noxious weeds exist or may exist on the Parcels that are the subject of this Agreement. Each Party hereby notifies the other Party that it is unlawful for any person to permit any noxious weed to propagate or go to seed on the person's land, except that any person who adheres to the noxious weed management program of the person's weed management district or who has entered into and is in compliance with a noxious weed management agreement is considered in compliance with the law. g. Water Right Ownership Update Disclosure. By Montana law, failure of the Parties at closing or transfer of real property to pay the required fee to the Montana Department of Natural Resources and Conservation for updating water right ownership may result in the transferee of property being subject to a penalty. Additionally, in the case of water rights being exempted, severed, or divided, the failure of the Parties to comply with section 85-2-424, MCA, could result in a penalty against the transferee and rejection of the deed for recording. 14. Entire Agreement and Modifications. This Agreement supersedes all prior agreements, contracts and understandings between the Parties. It may not be modified or terminated orally. No modification, termination or attempted waiver shall be valid unless in writing signed by the party against whom the same is sought to be enforced. 15. Time. Time is of the essence in this Agreement and all clauses herein. 16. Discrimination. The Parties agree not to discriminate in the fulfillment of this Agreement on the basis of race, color, religion, creed, sex, age, marital status, national origin or actual or perceived sexual orientation, gender identify or disability. 17. Assignment. The Parties acknowledge the unique nature of this Agreement; as such, a Party may not assign this Agreement without the express written authorization from the other Party. 18. Remedies. (a) If NorthWestern fails to close under the provisions of this Agreement because of NorthWestern’s default, then the City shall have as the City’s sole remedy the option of either of the following: (i) Terminating this Agreement by giving written notice to NorthWestern; or (ii) Enforcing specific performance by NorthWestern of NorthWestern’s obligations under this Agreement. 260 Page 12 of 21 (b) If the City fails to close under the provisions of this Agreement because of the City’s default, NorthWestern shall have as NorthWestern’s sole remedy the option of either of the following: (i) Terminating this Agreement by giving written notice to the City; or (ii) Enforcing specific performance by the City of the City’s obligations under this Agreement. a. (c) For all other breaches by a Party of the express representations, warranties, continuing obligations, made or given in this Agreement (including the attached exhibits), the other Party shall have any and all remedies available to it in law or in equity. 19. Controlling Law. This Agreement shall be interpreted under the laws of the State of Montana. 20. Interpretation. This Agreement has been reviewed by both Parties, each of whom has had the opportunity to consult with independent counsel regarding it and has done so to the extent that such party desired. No stricter construction or interpretation of the terms hereof shall be applied against either party as the drafter hereof. 21. Attorney’s Fees. In the event either party finds it necessary to employ counsel in order to enforce, rescind or interpret any term or provision of this Agreement, , the prevailing party shall be entitled to recover from the other party in addition to costs and disbursements allowed by law, the prevailing party's reasonable attorneys fees. Attorneys fees shall include any attorneys services rendered prior to the institution of litigation, including the Bozeman City Attorney’s Office and NorthWestern’s in-house attorneys, and include all matters pertaining to litigation as may be necessarily incurred in such proceedings. 22. Facsimile and Counterparts. The Parties agree that a facsimile copy, which contains the Parties’ respective signatures, shall be considered an original. Further, this Agreement may be executed in counterparts, each of which when taken together shall constitute a fully executed Agreement. 23. Notices. Any notice, demand, request or other communication which either Party hereto may be required or may desire to give under this Agreement shall be in writing and shall be deemed to have been properly given if (a) hand delivered (effective upon delivery), (b) mailed (effective three (3) days after mailing) by United States registered or certified mail, postage prepaid, return receipt requested, (c) sent by a nationally recognized overnight delivery service (effective one (1) day after delivery to such courier) or (d) sent by facsimile or email (effective upon confirmation of transmission), in each case, addressed as follows: 261 Page 13 of 21 IF TO NORTHWESTERN: IF TO THE CITY: NorthWestern Energy Attn. Pat Patterson Division Manager 121 E Griffin Drive Bozeman, Montana 59771-0490 pat.patterson@northwestern.com City of Bozeman Attn: City Manager Bozeman City Hall PO Box 1230 Bozeman, Montana 59771-1230 WITH A COPY TO: WITH A COPY TO: NorthWestern Corporation Attn: John Tabaracci Corporate Counsel 208 N. Montana Ave. Suite 205 Helena, Montana, 59601 john.tabaracci@northwestern.com Bozeman City Attorney PO Box 1230 Bozeman, MT 59771-1230 City of Bozeman a self-governing municipality operating pursuant to its Charter and the laws of the State of Montana By:_________________________ Its: _________________________ Attest: ______________________ Its: _________________________ NorthWestern Corporation d/b/a NorthWestern Energy, a Delaware Corporation By:_________________________ Its: _________________________ 262 Page 14 of 21 Exhibit “A” - Illustration of the City Exchange Parcel 263 Page 15 of 21 Exhibit “B” Page 1 - Illustration of NorthWestern Exchange Parcels 264 Page 16 of 21 Exhibit “B” Page 2 - Illustration of NorthWestern Exchange Parcels 265 Page 17 of 21 Exhibit “C” - Form of Deed City Exchange Parcel After Recording, Return To: NorthWestern Energy Attn: Lands and Permitting 11 East Park Butte, MT 59701 WARRANTY DEED FOR VALUE RECEIVED, City of Bozeman, a self-governing municipality operating pursuant to its Charter and the laws of the State of Montana, of 121 N. Rouse Avenue, Bozeman, Montana 59715 (“Grantor”) does hereby grant, bargain, sell and convey unto, NorthWestern Corporation, a Delaware Corporation, d/b/a NorthWestern Energy of 11 East Park, Butte, Montana 59701 (“Grantee”), and to its successors and assigns, the following described premises in Gallatin County, Montana, to-wit: Remainder Tract 2 of Certificate of Survey No. ____, being a part of Northeast Annexation Tract 33, situated in the SW¼ of Section 31, T1S, R6E, PMM in the City of Bozeman, Gallatin County, Montana Together with an easement for ingress and egress over Remainder Tract 1 of Certificate of Survey No. ____, in the location and of the dimensions as depicted in Certificate of Survey No. ___ to and between Remainder Tract 2 of Certificate of Survey No. ____ and Tract 37 Northeast Annexation; provided the easement shall be for the benefit of the Grantee, its successors or assigns. The easement shall not be for use by the general public or any other person or entity; however, the Grantor may continue to use the easement area for purposes related to its Storage Yard Property, provided such use does not unreasonably interfere with Grantee’s use of the easement. In the event Grantee transfers ownership of Remainder Tract 2 of Certificate of Survey No. ____ without transferring its ownership of Tract 37 Northeast Annexation to the same party this easement shall terminate. If the easement does not terminate as described above, the uses authorized by the easement shall be limited to those uses substantially similar to Grantee’s use or the easement shall terminate. Notwithstanding the above, in the event the easement does transfer to Grantee’s assigns or successors, the easement shall not be for ingress and egress for the public and may not be used for non-industrial commercial or residential purposes. But reserving onto the Grantor an easement for an existing sewer line and future telecommunications facilities, 30 feet in width and located at the southerly end of Remainder Tract 2 of Certificate of Survey No. ____, for the benefit of the Grantor, its successors or assigns. The existing sewer line shall remain the sole property of the Grantor. 266 Page 18 of 21 [Note this description may change to reflect the survey for the City Exchange Parcel] TO HAVE AND TO HOLD the said premises together with its appurtenances unto the Grantee, and its successors and assigns forever, SUBJECT TO THE FOLLOWING: 1. Reservations and exceptions in patents from the United States or the State of Montana; 2. Existing easements and rights-of-way of record; 3. All building, use, zoning, sanitary, and environmental restrictions; and 4. All prior conveyances, leases or transfers of any interest in minerals, including oil, gas, and all other hydrocarbons and minerals. Grantor further covenants and warrants that Grantor is now seized in fee simple absolute of said premises; that Grantor has full power to convey the same; that the premises is free from all encumbrances except those set forth above; that Grantee shall enjoy the quiet and peaceful possession thereof without any disturbance; that Grantor will, on demand, execute and deliver to Grantee, at the expense of Grantor, any further assurance of the same that may be reasonably required; and, with the exceptions set forth above, Grantor agrees to defend all right, title, and interest in the premises against any person lawfully claiming the same. DATED this _____ day of ___________, 20___ 267 Page 19 of 21 City of Bozeman a self-governing municipality operating pursuant to its Charter and the laws of the State of Montana By:_________________________ Its: _________________________ Attest: ______________________ Its: _________________________ STATE OF MONTANA ) : ss County of Gallatin ) This instrument was acknowledged before me on the _____ day of _______________, 20__ by __________ as ___________ and __________ as ___________ of the City of Bozeman, a self-governing municipality operating pursuant to its Charter and the laws of the State of Montana. ______________________________ Notary Seal 268 Page 20 of 21 Exhibit “D” – Form of Deed NorthWestern Exchange Parcels After Recording Return To: City of Bozeman 121 North Rouse Avenue Bozeman, Montana 59715 WARRANTY DEED FOR VALUE RECEIVED, NorthWestern Corporation, a Delaware Corporation, d/b/a NorthWestern Energy of 11 East Park, Butte, Montana 59701 (“Grantor”) does hereby grant, bargain, sell and convey unto, City of Bozeman, a self-governing municipality operating pursuant to its Charter and the laws of the State of Montana, of 121 N. Rouse Avenue, Bozeman, Montana 59715 (“Grantee”), and to its successors and assigns, the following described premises in Gallatin County, Montana, to-wit: Lot 2B of the Amended Plat of Lot 2, Minor Subdivision No. 154, located in the Southwest Quarter, of Section 31, Township 1 South, Range 6 East, Gallatin County, Montana; Tract 4 of the Amended Certificate of Survey No. 157A, situated in the SW¼ of Section 31, T1S, R6E, PMM in the City of Bozeman, Gallatin County, Montana; Together with all road improvements, including but not limited to all road base, asphalt paving, striping, curbs, gutters for the road connecting Manley Road to the Glen Lake Rotary Park, f/k/a East Gallatin Recreation Area; But reserving onto the Grantor an easement for existing natural gas and electric lines, located on the subject property, for the benefit of the Grantor, its successors or assigns. These existing natural gas and electric lines shall remain the sole property of the Grantor. [Note this description may change to reflect the survey for the City Exchange Parcel] TO HAVE AND TO HOLD the said premises together with its appurtenances unto the Grantee, and its successors and assigns forever, SUBJECT TO THE FOLLOWING: 1. Reservations and exceptions in patents from the United States or the State of Montana; 2. Existing easements and rights-of-way of record; 3. All building, use, zoning, sanitary, and environmental restrictions; and 4. All prior conveyances, leases or transfers of any interest in minerals, including oil, gas, and all other hydrocarbons and minerals. 269 Page 21 of 21 Grantor further covenants and warrants that Grantor is now seized in fee simple absolute of said premises; that Grantor has full power to convey the same; that the premises is free from all encumbrances except those set forth above; that Grantee shall enjoy the quiet and peaceful possession thereof without any disturbance; that Grantor will, on demand, execute and deliver to Grantee, at the expense of Grantor, any further assurance of the same that may be reasonably required; and, with the exceptions set forth above, Grantor agrees to defend all right, title, and interest in the premises against any person lawfully claiming the same. DATED this _____ day of ___________, 20___ NorthWestern Corporation A Delaware Corporation d/b/a NorthWestern Energy By:_________________________ Its: _________________________ STATE OF MONTANA ) : ss County of Silver Bow ) This instrument was acknowledged before me on the _____ day of _______________, 20__ by __________ as ___________ of NorthWestern Corporation, a Delaware Corporation, d/b/a NorthWestern Energy. ______________________________ Notary Seal 270 AN APPRAISAL REPORT OF: Vacant Land Parcel Located at 2125 North Rouse Ave Bozeman, MT 59715 FILE NO.: C032520125 PREPARED FOR: Mr. Tony Gaddo Sanderson Stewart 106 East Babcock Street Bozeman, MT 59715 PREPARED ON: March 27, 2020 EFFECTIVE DATE OF VALUATION: March 25, 2020 PREPARED BY: Keith O'Reilly, MAI, MT-400 Bridger Appraisals, Inc. P.O. Box 11145 Bozeman, MT 59719 271 March 27, 2020 Sanderson Stewart 106 East Babcock Street Bozeman, MT 59715 Re: Vacant Land Parcel Bozeman, MT 59715 Dear Mr. Tony Gaddo, In accordance with your request and authorization, I have viewed the referenced property, also referred to as the appraised or subject property in the following report, and have estimated its current Fee Simple value, “As Is” as of March 25, 2020. My professional opinion is based upon analysis of market data gathered for this purpose and upon the assumptions and limiting conditions stated on pages 7-9 of the following report. This is an Appraisal Report as defined by Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2. This format provides a summary of the appraisal process, subject and market data and valuation analyses. The information contained in this report is specific to the needs of the client and for the intended use as stated in this report. The appraiser is not responsible for unauthorized use of this report. The opinions stated in the accompanying report are based on my viewing of the appraised property, comparable properties, and analysis of all pertinent data. The City of Bozeman is also an intended user of this report. 272 As a result of my investigation and analysis, it is my opinion that the Current Market Value of the Fee Simple Interest, “As Is”, in the subject property, as of March 25, 2020, is: SEVEN HUNDRED THIRTY FIVE THOUSAND DOLLARS ($735,000) The following report contains 49 pages plus an addendum that provides the data and analysis to support the stated value estimates. Respectfully submitted, Keith O'Reilly, MAI General Certified Appraiser #400 State of Montana 273 TABLE OF CONTENTS ITEM: PAGE NO. PHOTOGRAPH OF THE SUBJECT PROPERTY ....................................................................... 5 ASSUMPTIONS AND LIMITING CONDITIONS ...................................................................... 7 SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ............................................... 10 SCOPE OF THE APPRAISAL .................................................................................................... 12 PURPOSE AND INTENDED USE AND USER OF THE APPRAISAL ................................... 13 DEFINITION OF MARKET VALUE ......................................................................................... 13 PROPERTY RIGHTS APPRAISED ............................................................................................ 14 EXPOSURE TIME ....................................................................................................................... 15 VALUATION DATE ................................................................................................................... 15 IDENTIFICATION AND HISTORY OF THE SUBJECT .......................................................... 16 SITE DATA AND ANALYSIS.................................................................................................... 32 ZONING AND GOVERNMENT RESTRICTIONS ................................................................... 36 PHOTOGRAPHS OF THE SUBJECT ......................................................................................... 37 HIGHEST AND BEST USE ........................................................................................................ 39 THE APPRAISAL PROCESS ...................................................................................................... 40 SALES COMPARISON APPROACH ......................................................................................... 41 FINAL RECONCILIATION ........................................................................................................ 48 CERTIFICATION ........................................................................................................................ 49 ADDENDUM Deed Resume Current License Engagement Letter 274 Bridger Appraisals Inc. © 5 Keith O’Reilly, MAI PHOTOGRAPH OF THE SUBJECT PROPERTY View of the subject property looking from southeast to northwest. Photo taken on March 25, 2020 by Keith O’Reilly, MAI. Street scene looking south to north along North Rouse Avenue. Photo taken on March 25, 2020 by Keith O’Reilly, MAI. 275 Bridger Appraisals Inc. © 6 Keith O’Reilly, MAI Subject Site 276 Bridger Appraisals Inc. © 7 Keith O’Reilly, MAI ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report, the letter of transmittal, and certification are subject to the following assumptions and limiting conditions; and also, any special qualifying conditions that may be contained elsewhere in the report are incorporated by reference. Assumptions 1. That the legal description, as furnished, is correct; and that the title to the property is good and marketable. All existing liens and encumbrances, if any, have been disregarded. The property is appraised as though free and clear of other burdens, under responsible ownership and competent management. 2. That the land dimensions taken from available maps, plats, and/or surveys are correct. It has been assumed that those boundaries that are apparent are correct. 3. It is assumed that the use of the land and improvements is confined within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. 4. That no adverse water table or soil conditions exist, and no representation regarding such conditions is made in this report unless specifically stated; and, that the value estimated is predicated on the absence of any such conditions occurring. 5. It is assumed that the subject property conforms to all applicable zoning and use regulations and restrictions unless nonconformity has been identified, described and considered in the appraisal report. 6. Those opinions, estimates, data and statistics supplied by others in the course of this study, are correct; the assumption has been made that the sources are reliable, but no responsibility has been inferred for their accuracy. 277 Bridger Appraisals Inc. © 8 Keith O’Reilly, MAI 7. This report does not contemplate any court action, nor does it obligate the appraiser to give any testimony or make any appearance in court, before commission, arbitrator or any other individual, body or agency. If court action or appearance later becomes necessary in the interest of the client, the terms of the additional service shall be negotiated at that time. 8. Unless otherwise stated in this report, the appraiser did not observe the existence of hazardous material, which may or may not be present on the property. I have no knowledge of the existence of such materials on or in the property. I am not qualified to detect such substances. The presence of potentially hazardous materials may affect the value of the property. This extends to any leaks from underground fuel storage tanks, and identification of Asbestos containing materials. The value estimate is predicated on the assumption that there is no such material on or in the property. No responsibility is assumed for any such conditions or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. Any such environmental risk discovered at a later date may require a revised estimate of value that may or may not be simply a reduction of the value by the estimated cost to cure the environmental condition. Properties known to have environmental risk may also carry a stigma in the market place that may or may not affect the value. If future soil tests should reveal the existence of any such soil conditions or hazardous waste, I reserve the right to review and adjust this appraisal accordingly. Limiting Conditions: 1. The appraiser is not responsible for any matter legal in character, nor is any opinion rendered as to title, which is assumed to be marketable. 2. The value reflected in the analysis applies only to the program of utilization considered in this report. The use of the value in conjunction with any other appraisal or under other influences invalidates the conclusions developed. 3. This analysis and estimate of value is made for the exclusive use and benefit of the clients to whom it is addressed; and, possession of this report or a copy, does not carry with it the right of publication, nor may it be used for any purpose other than that intended without the previous consent of the appraisers. In any event, only the entire report may be used and no part shall be taken or used out of context. 278 Bridger Appraisals Inc. © 9 Keith O’Reilly, MAI 4. Included as an integral part of this report are maps and photographs of the appraised property and sales. The maps and photographs were prepared and taken by the appraisers, and although they do not purport to represent survey accuracy, they are substantially correct and adequately serve as visual reference to the property. 5. Disclosure of the contents of this report is governed by the By-Laws and Regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially any conclusions of value, the identity of the appraisers or the firm with which they are connected) shall be disseminated to the public through advertising media, public relations, news media, sales media, or any other public means of communication without the prior written consent and approval of the authors. 6. The forecasts, projections, or operating estimates contained herein are based on current market conditions, anticipated short-term supply and demand factors, and a continued stable economy. These forecasts are, therefore, subject to changes with future conditions. 7. The appraisers’ conclusion of value is based upon the assumption that there are no hidden or unapparent conditions of the properties that might impact upon build ability. The appraiser recommends due diligence be conducted through local building departments or municipality to investigate build ability and whether the properties are suitable for their intended use. The appraiser makes no representations, guarantees or warranties. 279 Bridger Appraisals Inc. © 10 Keith O’Reilly, MAI SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS Client: Tony Gaddo, Sanderson Stewart Intended User: Sanderson Stewart and City of Bozeman Owner of Property: The City of Bozeman Date of Valuation: March 25, 2020 Date of Preparation: March 27, 2020 Rights Appraised: Fee Simple Legal Description: The proposed Parcel B, a portion of Remainder Tract 33, containing 5.64 acres, situated in Tract 33 of the Northeast Annexation to the City of Bozeman, Gallatin County, MT. *See rendering Location of Property: 2125 North Rouse Ave, Bozeman, MT 59715 Improvements: None Highest and Best Use: Develop approximately 1 acre with a light industrial storage warehouse and use the remainder of the site for yard storage. Present Use: Vacant land Zoning/Governmental: Public Lands and Institutions District (PLI) Site Shape and Size: The site is irregularly shaped. . After subtracting the land area affected by current or proposed public road easements, the site contains 5.64 acres or 245,678.4 square feet. Environmental: There are no known adverse environmental conditions on the subject site. Please reference Limiting Conditions and Assumptions. 280 Bridger Appraisals Inc. © 11 Keith O’Reilly, MAI Market Status: The real estate market experienced significant gains in 2013, following the “Great Recession” of 2007 to 2012. This upward trend continued through 2018 and through 2019. The oversupply of residential building sites has been absorbed; in fact, now there is more demand than supply for residential building sites. The overall commercial market has also improved. Commercial rental rates and values have been increasing. Obviously, the COVID-19 started to effect Bozeman the week of March 16th, 2020. At the present time, there is not enough market data to analyze the effect on the real estate market. Estimated Exposure Time: 1-6 months Estimated exposure time is based on current sales of commercial properties within the Bozeman area that are similar to the subject. The estimated exposure time is predicated on the final opinion of value. 281 Bridger Appraisals Inc. © 12 Keith O’Reilly, MAI SCOPE OF THE APPRAISAL The scope of work consists of the amount and type of information researched and analyzed in an assignment. In preparing the appraisal, I have personally viewed the subject site and considered pertinent characteristics of the site in comparison to current market standards. I have analyzed the subject neighborhood and competing markets for current sales data. Local commercial real estate agents and brokers were consulted with to confirm sales information. The offices and brokers include Kasey Harte (NAI Landmark Realty), Ryan Springer (NAI Landmark Realty), Tom Starner (Gene Cook Real Estate) and Kevin Black (Gene Cook Real Estate). Tony J. Gaddo, P.E. of Sanderson Stewart provided platting and mapping along with useable area calculations. I viewed the subject on March 25, 2020. General and specific data was obtained through personal and telephone interviews with government officials, property managers, developers, and other market participants. I have considered the highest and best use of the property as vacant and have applied the sales comparison approach valuation method. The cost approach and the income approach are not applicable in valuing the subject site as vacant land. The results indicated by this method have been reviewed and reconciled based on the reliability, relevance and reasonableness of the data, and the purpose and intended user of the appraisal. This is an Appraisal Report as defined by Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2. This format provides a summary of the appraisal process, subject and market data and valuation analyses. The information contained in this report is specific to the needs of the client and for the intended use as stated in this report. 282 Bridger Appraisals Inc. © 13 Keith O’Reilly, MAI PURPOSE AND INTENDED USE AND USER OF THE APPRAISAL The purpose of this appraisal is to estimate a credible opinion of the Current Market Value of the subject property’s Fee Simple Interest, “As Is” as of March 25, 2020 , in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP) and supplemented by the Appraisal Institute. The intended use of the appraisal is to assist the Client, Sanderson Stewart, and Intended Users, Sanderson Stewart and City of Bozeman in determining the current market value of the subject property for a likely trade transaction. DEFINITION OF MARKET VALUE Market value is defined as the most probable price, which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is consummation of a sale as of a specified date and 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 each acting in what they consider their own best interest; 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; 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. 1 1[Source: Section 323.2 amended at 57 Fed. Reg. 9049, March 16, 1992; 59 Fed. Reg. 29501, June 7, 1994] 283 Bridger Appraisals Inc. © 14 Keith O’Reilly, MAI PROPERTY RIGHTS APPRAISED Property rights are ownership interests in real estate and have value. It is important to know what property right(s) or estate(s) are involved in the appraisal, because the estate identifies the rights being valued. The subject property rights being appraised is the Fee Simple Interest. Fee Simple: 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.2 Leased Fee: A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (i.e. a lease). 3 2 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute, 2010), p. 78. 3 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute, 2010), p. 111. 284 Bridger Appraisals Inc. © 15 Keith O’Reilly, MAI EXPOSURE TIME Exposure time should not be confused with the marketing period. Exposure time precedes the effective date of the appraisal. In other words, how long the subject property would be actively marketed prior to the effective date of the appraisal to bring the estimated opinion of market value determined in the appraisal. Marketing time is the period after the effective date of the appraisal. In other words, how long would it take to sell the subject property, at the appraised market value, after the effective date of the appraisal? Typically, in a stable market the marketing time and exposure time should be relatively similar. Current sales in the Bozeman market have been relied upon to estimate the exposure time of the subject property. Due to the size of the Bozeman market, the best estimate for exposure time is derived from sales of similar type property. Based upon the current market conditions, sales data within the report and current listings, I have estimated the exposure time for the subject property to be 1-6 months. VALUATION DATE The effective date of the appraisal is March 25, 2020. This is the date of valuation and the date that the subject property was personally viewed. 285 Bridger Appraisals Inc. © 16 Keith O’Reilly, MAI IDENTIFICATION AND HISTORY OF THE SUBJECT The legal description of the subject property is: The proposed Parcel B, a portion of Remainder Tract 33, containing 5.64 acres, situated in Tract 33 of the Northeast Annexation to the City of Bozeman, Gallatin County, MT. *See rendering Sale History: The subject property has not transferred in the previous three years. Current Listing or Contract: The subject property has not been listed as shown by the Big Sky Country MLS within the previous three years. The subject property is located next to the original City landfill. The City leased an acre of this property to the Humane Society of Gallatin Valley for the animal shelter and crematorium. This lease lasted until 2003. From 2003 to present, the site has been vacant. 286 Bridger Appraisals Inc. © 17 Keith O’Reilly, MAI MONTANA REGIONAL AND CITY MAPS Subject 287 Bridger Appraisals Inc. © 18 Keith O’Reilly, MAI 288 Bridger Appraisals Inc. © 19 Keith O’Reilly, MAI REGIONAL, CITY, AND NEIGHBORHOOD ANALYSIS The purpose of this section is to identify the pertinent social, economic, governmental and environmental factors that affect property value and to analyze their impact on the appraised property’s current market value. This analysis begins with regional information and moves to relevant information about the city and the Subject’s neighborhood. A neighborhood is defined as a grouping of similar land uses. From an appraisal viewpoint, this is the area where the subject property competes with other properties and where the most comparable market data is obtained. Bozeman, Montana is located in Gallatin County, in an area more commonly referred to as the Gallatin Valley. Gallatin County covers 2,632 square miles of mountainous lands varying in topography and climate which are located in the southwestern part of the state, more specifically between Park and Madison counties, north of the Montana-Wyoming border and Yellowstone National Park. Gallatin County is known for downhill skiing opportunities at Big Sky Resort, Moonlight Basin and Bridger Bowl. In addition to world-class skiing, Gallatin County plays host to a multitude of other outdoor activities, as half of the land in the county is under public ownership by the Gallatin National Forest, State of Montana, Bureau of Land Management or the National Park Service. In the past decade, Gallatin County has grown faster than any other county in the state of Montana, with the largest population increase in the state between the 2000 Census and the 2010 Census (32%). Gallatin County’s population surpassed that of Flathead County in 2011 to become the third largest in the state with an estimated population of 111,876 in 2019. Bozeman, the county seat for Gallatin County, is located approximately 140 miles to the west of Billings, Montana and 65 miles to the north of Yellowstone National Park. With an estimated population of 48,532 in July 2019, Bozeman has been the fourth largest city in Montana since 2004. Social Factors: Social influences that affect value include, but are not limited to, population characteristics such as growth, population density, age distribution, household sizes, employment status, availability of education and the quality of life. Historic and Recent Population Trends - City of Bozeman, Gallatin County and Montana: According to the U.S. Census Bureau, the City of Bozeman's population increased from 27,509 in 2000 to 37,280 in 2010, which indicates an approximate 35.5% overall increase or 3.55% annual increase over that ten-year period. In contrast, the City of Bozeman’s average growth rate between 1980 and 1990 was about 0.47% per year. In the past decade, Gallatin County and Bozeman have grown faster than any other county or city in the state according to U.S. Census Bureau data. Between 2010 and 2019, the City added approximately 11,252 new residents, which translates to a growth rate of over 1,125 new residents per year or an annual growth rate of about 3.00%. Gallatin County's population increased from 67,831 in 2000 to 89,513 in 2010 which indicates an increase of 21,682 people. This represents an increase in population of approximately 32% 289 Bridger Appraisals Inc. © 20 Keith O’Reilly, MAI over a ten-year period, or an average growth rate of 3.2% per year. The estimated population of Gallatin County in 2019 was 111,876 (25.0% increase from 2010). In 2018, Gallatin County earned the number one rank as the largest – gaining micropolitan area (numeric increase) for the second year in a row. The entire state of Montana grew by 9.7% to 989,415 residents between 2000 and 2010, adding 87,220 people over that ten-year period. The 2019 estimated population of Montana was 1,068,778, keeping Montana ranked 44th among the 50 states in population. In addition to population growth, the City of Bozeman continues to grow in geographic size. In order to accommodate the increasing population and business growth, new land for residential, commercial and industrial development has been annexed into the City. In 1990, the City was approximately 6,420 acres (10 square miles) in size. By the end of 2009, the City of Bozeman was approximately 12,319 acres (19.25 square miles) in size resulting in a 91 percent increase in size over a period of 19 years. From 2009 to 2017, an additional 529.33 acres were annexed into the City, including 75 acres in 2017. The City has a reserve of developable land within its current boundaries Bozeman is characterized by a smaller portion of families and an average household size somewhat smaller than Gallatin County as a whole. Bozeman has an average household size of 2.24 people, while the average household size for Gallatin county is 2.40 people and countrywide is 2.63 people per household. Bozeman also exhibits a significantly lower homeownership rate than the county as a whole; primarily due to the student body of Montana State University. In general, the City of Bozeman has a significantly higher educational attainment level than Gallatin County or Montana. Approximately 56.7% of Bozeman residents ages 25 and older have a college degree, compared to 49.0% for Gallatin County and 31.2% for the State of Montana. Greatschools.net rated the majority of Bozeman public schools with 8 or higher out of a possible 10, using standardized test scores and national scoring to rate. Bozeman and Gallatin County have transformed over the past decade from a primarily agricultural-based community to a tourism related community and technology trade. The appeal of Bozeman and the Gallatin County area has been due to the high quality of life that this area offers. Low crime rates, cultural experiences and abundant outdoor activities add to the quality 290 Bridger Appraisals Inc. © 21 Keith O’Reilly, MAI of life for residents. World-class snow skiing, blue ribbon rivers and streams for fishing, and miles of protected trails and lands for hiking, biking and camping are some of the most commonly appreciated attributes of the area. Economic Factors: Economically speaking, Bozeman historically has been somewhat different than the rest of the State of Montana and the nation as a whole. One of the primary reasons for this difference is the circumstance that there are not a large number of employers who employ a significant amount of the population. For example, other areas of Montana such as Missoula are very dependent on the specific industries such as the lumber industry. When the lumber industry slowed, Missoula was severely affected by the impact. In contrast, the primary employer in Bozeman is Montana State University which is very stable. The economy of Bozeman and Gallatin County is both broad based and diverse, with over 5,000 establishments that employ over 42,000 people. Major sectors of the economy include industries in the areas of construction, government, manufacturing, technology, retail service and agriculture which all play significant roles. The largest single employer in the area is Montana State University (MSU) that employs over 3,800 people as permanent faculty/staff and graduate teaching/research assistants. MSU also employs over 2,000 students in part-time jobs. In the fall of 2019, the enrollment at MSU was 16,766 students. The student body of MSU has a significant effect on the local economy. Other significant employers in the county include the State of Montana, Gallatin County, the City of Bozeman, Bozeman Deaconess Hospital, Oracle Technologies, and Wal-Mart. As the county’s employment base continues to diversify, the local economic health is expected to be buffered from a downturn in any of the county’s key industries. If current trends continue even at a moderate pace, Gallatin County will grow by nearly 50,000 people from 2019 through 2045 with about half of the growth likely to occur in the City of Bozeman. 291 Bridger Appraisals Inc. © 22 Keith O’Reilly, MAI Economic Development: The North 19th Avenue corridor remains as a significant area of commercial real estate development in Bozeman. In 2011, the Safeway grocery chain (58,000 square feet) opened and as of 2019, Starbucks, Town Pump, Comfort Inn & Suites, TJ Maxx, U-Swirl, Cost Cutters, Chipotle Mexican Grill, Sleep Number, Auto Zone, CVS, My Place Hotel, and Taco Bell have been added to the North 19th Avenue area. Furthermore, Costco is in the process of completing an expansion of its existing facility at the northern end of the North 19th Avenue corridor. The Bozeman Gateway mixed-use development, located on West Main Street near College Street, has several newer buildings including a 55,363 square foot Kohls department store, Rosauers Supermarket, a newly relocated Arby’s store, numerous multi-tenant mixed-use buildings, numerous restaurants, and miscellaneous commercial buildings. The Bozeman Gateway mixed- use developments is projected to add numerous additional commercial and mixed-use buildings to the development in the near future. Further to the west on Huffine Lane, the Ferguson Farm commercial development has added multiple new restaurants, a brewery, and office space. A grocery store is planned for the development, as well as numerous other tenants to include a bank, coffee shops, retail, professional offices, and lodging. 292 Bridger Appraisals Inc. © 23 Keith O’Reilly, MAI At the Montana State University, campus construction finished the $10 million football stadium expansion and have already released plans for another expansion. Other developments to Montana State University included a new Molecular Biology Center, Health and Physical Education Center, Black Box Theater, Marsh Laboratory, biology building, Gaines Hall renovation, new USDA Research Building and Teaching Facility, Yellowstone Hall (dormitory), and the new College of Business building. The recently completed $12.5 million parking garage opened in January 2017 and the $70 million Norm Asbjornson Hall (110,000 square foot building) was completed in December of 2018. This will serve as offices for the engineering and honor’s college departments. Significant developments to the City of Bozeman over the past six years have included an addition to Fire Station No. 1, police station, additions to the water/wastewater treatment plants, additions to city hall, the completion of the Downtown Parking Garage, the construction of the Fire Station No. 3 and Gallatin County 911 Dispatch Center in Bozeman, a new water reclamation facility, renovation of the old City of Bozeman Library into the new City Hall, the construction of the Gallatin County Detention Center, and both expansions of the landfill building located at the old landfill and vehicle maintenance building / Stream Line bus barn. In addition to the previously listed developments, Bozeman Yellowstone International Airport recently completed a terminal expansion. This expansion cost $50 million, making it the largest terminal expansion in the history of Montana. The three-story expansion increased the airport size from 75,000 square feet to nearly 200,000 square feet of space which now allows for as many as 1.5 million passengers annually. A four level, 1,100-stall covered parking garage was completed at the airport in 2019. The parking garage cost approximately $28.6 million and is the largest parking garage in the state of Montana. According to statistics from the Bozeman Yellowstone National Airport, a record-breaking 1,573,860 passengers passed through the airport’s terminal in 2019. This is up 17.3% from 2018 and representing the tenth consecutive year of record-breaking passenger traffic. Annual passenger traffic has nearly doubled over the past 10 years and accounts for 30% of all airline passengers traveling to and from Montana. In 2016, the Bozeman voters approved a $125,000,000 bond to construct a second high school in the western portion of Bozeman. Construction has commenced and the new school is scheduled to be open in 2020. A portion of the bond money will also be used to renovate the existing high school. At completion, it is projected that there will be 2,400 high school students enrolled in Bozeman high schools. Market Trends for Single Family Houses in the City Limits of Bozeman Bozeman has consistently accounted for about half of the population and housing growth in Gallatin County, and the following projections assume that this trend will continue. Bozeman is also expected to continue to account for a large share of the retail, office, major employer, and hospital markets going forward. With Bozeman capturing approximately half of the countywide housing demand, the following projection estimates demand for 12,700 new housing units in Bozeman over the 2017 through 2045 time period. On an annual basis, construction is projected at approximately 450 units per year on average compared to 600 units per year over the past 10 years. 293 Bridger Appraisals Inc. © 24 Keith O’Reilly, MAI The annual appreciation rates over the past five years have been in the 10% to 12% per year ranges in and around Bozeman, Belgrade, Livingston, and Three Forks. Home prices are highest just outside Bozeman City Limits for homes with large acreage. Home prices in Downtown Bozeman begin at approximately $500,000 to $600,000 for a home that has not been updated and needs major maintenance and upkeep. New construction, often redevelopment, in the Downtown area can be priced over $1,000,000. 294 Bridger Appraisals Inc. © 25 Keith O’Reilly, MAI 295 Bridger Appraisals Inc. © 26 Keith O’Reilly, MAI Year # of Units Sold Avg. List Price Avg. Sales Price 2006 355 $326,242 $320,395 2007 311 $321,771 $313,226 2008 292 $311,222 $300,745 2009 284 $281,523 $268,673 2010 311 $276,464 $265,796 2011 336 $271,553 $261,625 2012 499 $296,218 $282,825 2013 473 $300,131 $295,616 2014 490 $318,164 $314,105 2015 495 $345,560 $341,250 2016 515 $370,000 $361,439 2017 496 $382,566 $379,172 2018 478 $415,233 $410,744 2019 349 $409,648 $405,474 The data in the preceding chart was supplied by the Big Sky Country MLS. The data is inclusive of single family residences within the City Limits of Bozeman that are on parcels less than one acre and had sale prices between $150,000 and $550,000. The data shows an approximate 17% decline in value from the peak of the market in 2006 through 2011. In 2012, the market began improving to its peak in 2018. In 2014-2019, average sales closed around 99% of list price. This is indicative of a recovered market that has surpassed the previous peak of the market from 2006. Residential building sites were in oversupply up until 2011 and in 2013 there was a pent up demand for residential building sites. In 2014-2019, residential land prices saw a significant increase in market value. 296 Bridger Appraisals Inc. © 27 Keith O’Reilly, MAI Construction permits increased with the peak of the market in 2005 and 2006 and declined into 2012. Building started to increase in 2013. Construction in 2016, 2017, and into 2019 has been strong and the trend is expected to continue. In 2018, 310 new housing units were built, along with 102 new commercial units. The years 2014 to 2017 turned out to be the four most active years in real estate since the crash of the market at the end of 2006 and beginning of 2007. Residential building sites were in oversupply up until 2011, and in 2013 there was a pent-up demand for residential building sites. From 2014 to the present, residential land prices have seen a significant increase in market value. Tourism Yellowstone National Park is a significant generator of visitation to Bozeman. Yellowstone visitation has gradually increased over the years, ranging from 2,835,651 visitors in 2005 to a record number of visitors in 2016 of approximately 4,257,177. In 2018, 4,114,999 visitors entered the park, the third busiest year on record. Yellowstone was the first U.S. national park, and with 3,472 square miles of land is larger than Rhode Island and Delaware combined. It features an active volcano, more than 300 geysers, approximately 290 waterfalls and the 136- square mile Yellowstone Lake. Through the National Park Service, the park employs around 380 people year-round and 800 during peak summer season. In addition, approximately 3,700 people work for concessionaires operating such services as lodging, foodservice, retail and transportation. 297 Bridger Appraisals Inc. © 28 Keith O’Reilly, MAI The Big Sky Resort area is located approximately 45 miles south of Bozeman. Originally conceived and built by the late NBC newscaster Chet Huntley, Big Sky first opened for skiing in 1974. In 1976, Michigan-based Boyne USA Resorts purchased the resort and they continue to own and manage it to this day. Under the current management, Big Sky Resort continues to grow and provide year-round attractions for locals and tourists alike. The ski terrain has grown from an original four ski lifts that served 18 runs to now boasting 38 lifts that service more than 300 ski runs. In 2018, Big Sky Resort implemented the first eight-seat, high-speed chairlift in North America. This is on the heels of the 2016 installation of a six-seat chairlift with heated seats and bubble covers in the Lone Peak bowl. There are plans for a new six-seat chairlift that will replace the existing Swift Current lift and will be North America’s fastest six seat chairlift when it is complete in 2020. These improvements are part of the Big Sky 2025 vision plan. During the winter season, Big Sky Resort offers winter activities such as snow shoeing, ice climbing, zip lining, sleigh rides and a high-ropes suspension course. Skiers and snowboarders are able to enjoy over 5,850 skiable acres spanning across three mountains. Big Sky Resort has seen annual skier visits surpass 500,000 in recent years. In the summer months, there are over 13,600 private acres to enjoy activities such as horseback riding, mountain biking, hiking, rock climbing, tennis, fly fishing and whitewater rafting. In addition, there is an 18-hole, par 72 golf course. Another development in Big Sky is the exclusive Yellowstone Club. As the only private ski and resort in the world, the Yellowstone Club is home to some of the most spectacular real estate and skiing in the country. This residential and vacation development has a $400,000 membership fee and a $47,000 annual fee. Included in the development are 2,200 skiable acres, with over 60 runs. Pioneer Mountain has a peak elevation of 9,860 feet and an average annual snow fall of over 300 inches. The Yellowstone Club is also home to a private 18-hole mountain golf course. In 2012, Cross Harbor Capital, the owner of the Yellowstone Club, partnered with Boyne Resorts, owners of Big Sky Resort, to purchase Spanish Peaks, a 5,700-acre upscale golf community that was undergoing bankruptcy proceedings at the time of acquisition. In addition, Moonlight Basin, a ski and golf resort adjacent to Big Sky Resort, exited bankruptcy proceedings and was also purchased by Cross Harbor Capital Partners and Boyne Resorts in November of 2013. After the purchase, the ski operations of both Big Sky Resort and Moonlight Basin were then combined to form the largest ski operation in North America, which now includes more than 5,850 skiable acres, 4,350 vertical feet and 38 chairlifts. A very notable development that is proposed for Spanish Peaks in the near future is the Montage Big Sky hotel and condominium project. This ultra-luxury development is expected to cost $400 million and will include 150 guestrooms and suites, 39 residential condominiums, a restaurant, lobby bar and lounge, market, pub, recreation room, bowling alley, indoor lap pool, family swimming pool, fitness center, spa, ski lockers, event space, and an approximate gross building area of 520,000 square feet. Construction is currently underway and the development is expected to be complete in 2021. Additional attractions in and around Gallatin County include Bridger Bowl which is 15 miles north of Bozeman, and Yellowstone National Park, located near the southwestern corner of the state. Attractions in Bozeman include the Museum of the Rockies, the Emerson Cultural Center, and the historical Pioneer Museum. 298 Bridger Appraisals Inc. © 29 Keith O’Reilly, MAI Governmental Factors: The City of Bozeman is a City Commission/City Manager form of government with an elected Municipal Judge. These three entities form the legislative, executive and judicial branches of government. Five commissioners, elected with no party affiliation, make up the City Commission. They are elected to four- year, overlapping terms and are part time officials. Terms are staggered, and elections are held every two years. The candidate who receives the most votes in an election becomes the Mayor the last two years of their term. There are three fire stations, one located on South 19th Avenue, one located on North Rouse Avenue and one on Davis Lane. Both the fire and police protections are considered good. The State of Montana assesses an ad valorem property tax to run public schools and other government agencies. There is also a State levied income tax in Montana but there is no sales tax in the state. Zoning Activity: Gallatin County administers the zoning code for properties outside the city limits, but within the zoning donut. In general, planning and zoning regulations in the area are considered stringent. The Gallatin County Comprehensive Plan encourages development near existing cities and discourages those in more remote locations. Bozeman’s Planning Department enforces zoning regulation within the City Limits. Subdivision Activity: Subdivision activity began to increase in 2014 with the highest number of lots in the entitlement process in six years. In 2014, the Department of Community Development processed 58 subdivision applications and 32 subdivision exemption applications, which represented a 143% increase over 2013. Until 2013 there had been little planning activity by local developers due to market conditions, which caused a pent-up demand for residential building sites. As of 2020, there is more demand than supply for residential building sites. The Four Corners area west of the Bozeman city limits is expected to see significant growth in the near future with two large subdivisions receiving approval in late 2019. These two subdivisions are expected to create over 200 combined residential lots. Environmental Factors: Environmental factors consist of both natural and man-made features that can influence property values. These forces include but are not limited to climate, topography, natural barriers and transportation systems. Bozeman’s climate reflects its mountain valley location. Bozeman, Gallatin County and the entire State of Montana have four seasons. Summers are pleasant and characterized by warm to hot days, cool nights and an abundance of sunshine. Humid conditions are infrequent. The average high temperatures in the summer are in the upper 80’s and the average lows in the winter are in the mid- 20’s to lower 30’s. The average high and low monthly temperatures for December, January, and February are 34 degrees and 15 degrees, 33 degrees 299 Bridger Appraisals Inc. © 30 Keith O’Reilly, MAI and 14 degrees, and 39 degrees and 18 degrees, respectively. Springs tend to come late in the Gallatin Valley. The average annual mean snowfall in Bozeman is 72.1 inches and the average length of the growing season is 107 days. The climate of the county varies according to elevation, but it is generally characterized by relatively cold winters and warm summers. Typical operation costs that affect real estate are the inclusion of snow removal in the winter. Due to the fairly temperate summers, cool air conditioning costs are less; however, heating bills can be high due to the cold winter months. Conclusion In general, the outlook for Bozeman and the surrounding communities is good. Bozeman’s economy is diverse and anchored by Montana State University. With regards to the labor market, Bozeman has a young and very well-educated work force. The quality of life and outdoor activity will continue to be one of the driving factors for population growth in the Gallatin Valley. Gallatin County has a wide variety of excellent outdoor recreational opportunities. There are cultural and additional recreational resources in Bozeman due to the presence of MSU, and the tourism industry in southwestern Montana is poised for continued growth. Current population trends continue in an upward direction and growth has been sustained over the past decade. There are no local employers or industries that are in imminent danger of changing unemployment levels. As well, there are no perspective employers moving into the area that are going to create a demand for employees. I anticipate normal to steady growth, and no major change in population that would create an under supply for residential real estate. Residential and commercial activity has increased significantly. Residential apartment occupancy is nearly at 100%. Commercial lease rates and property values have been increasing as well. 300 Bridger Appraisals Inc. © 31 Keith O’Reilly, MAI TAXES AND ASSESSMENT ANALYSIS The State of Montana, through the Department of Revenue, is responsible for valuing all taxable real and personal property. Department of Revenue field offices accomplish this property valuation. State guidelines are followed to ensure property is appraised in a fair and equitable manner. According to the Department of Revenue, all three approaches to value are considered in the appraisal process. The amount of property tax paid is not determined solely by a property’s value. The property’s value is multiplied by a tax rate, set by the Montana Legislature, to determine its taxable value. The taxable value is then multiplied by the mill levy established by various taxing jurisdictions, city and county government, school districts and others, to provide services in the property’s area. The following calculations are used to determine general property tax: Value x Tax Rate = Taxable Value Taxable Value x Mill Levy = General Property Tax The property tax process begins with an appraisal of the property. As of 2015, state law requires the Department of Revenue to reappraise residential and commercial property every two years. The most recent reappraisal was completed on January 1, 2020. Each year, the Department of Revenue field offices must certify the taxable value of all properties incorporated within the boundaries of each existing tax jurisdiction or school district. This valuation is then submitted to the taxing jurisdictions and the county commissioners. The taxing jurisdictions then set mill levies based on these values and the budget required to provide the necessary services. The levy is calculated by dividing the necessary budget by the taxable value. In addition to local levies, there are statewide mills mandated by the Montana Legislature to provide school equalization and funding for the university system. Real Estate Assessment and Taxes Tax ID Land Improvements Other Total Assessment County Taxes City Taxes RFH70195 $980,896 $0 $0 $980,896 $0.00 $3,565.08 Totals $980,896 $0 $0 $980,896 $0.00 $3,565.08 Shown above are the 2020 city tax assessments for the subject property. The subject property currently has an exempt distinction with the Gallatin County Assessor’s Office; therefore, it is not subject to any county taxes. I expect this distinction to change if the subject property transfers to a different party and expect the property to be assessed county taxes. However, I have no reason to believe there would be any excessive tax burden on the subject property. 301 Bridger Appraisals Inc. © 32 Keith O’Reilly, MAI SITE DATA AND ANALYSIS Location: 2125 North Rouse Ave, Bozeman, MT 59715 Dimensions: See Attached Plat Map Land Area: 5.64 acres (245,678.4sf) usable Shape: The site is irregularly shaped. Drainage: The soil conditions observed at the subject appear to be typical of the region and adequate to support development. Flood Zone: Census Tract: 5.04. The Subject is located in flood hazard zone. FEMA Map Number: 30031C0808D. FEMA Map Date: September 2, 2011 Topography: The subject has mostly level topography at grade; however, the majority of the site is located in a flood hazard zone. Frontage: None Visibility: Average Landscaping: None- the subject is a vacant lot Site Utility: Fair Street Access: Fair Sewer and Water: Sewer Utilities: Available -NorthWestern Energy Curb/Gutter: None Sidewalk: None Streetlights: None Real Estate Taxes: $0.00 (County--2019) and $3,565.08 (City of Bozeman--2020) Adverse Easements or Encroachments: There is currently an existing public road easement located along with western edge of the subject property for North Rouse Ave. There is an additional proposed public road easement along the northern border of the subject site. The areas affected by these easements have not been included in the land area of the subject site. Adjacent Uses and Site Comments: The subject site is located in the north end of the City of Bozeman. East Gallatin Recreation area is located to the northwest of the subject. A mix of residential and commercial development surrounds the subject property on all other sides. 302 33 Conclusion: The current access to the City property is poor, requiring heavy equipment and trucks to drive through a residential neighborhood on a local street that dead ends at the City property. The road is narrow and substandard and not constructed for heavy traffic. In addition, trucks and equipment must enter and exit North Rouse Avenue less than 100’ from the Rouse Avenue/Griffin Drive intersection creating traffic conflicts at this intersection. These conflicts are anticipated to increase in the future as traffic volumes on Rouse Avenue and Griffin Drive increase. The subject property does not have water and sewer connections. If developed, an easement would be required to extend a water line across private property from Industrial Drive or an existing water line on North Rouse would require an over 250’ extension. A sewer line runs along the south end of the property but would need to be extended north to be utilized by the subject property. The subject property is located in a flood plain making development for residential or industrial purposes problematic. The overall utility of the subject site is limited. There appears to be potential for some possible warehouse storage improvement on approximately 1 acre of the site. 303 34 SUBJECT PLAT MAP Subject 304 35 FLOOD MAP Subject 305 36 ZONING AND GOVERNMENT RESTRICTIONS The subject site is zoned by the City of Bozeman as Public Lands and Institutions District (PLI). The intent of the PLI Public Lands and Institutions District is to provide for major public and quasi-public uses outside of other districts. Subject 306 37 PHOTOGRAPHS OF THE SUBJECT View of the subject property looking east to west. Photo taken on March 25, 2020 by Keith O’Reilly, MAI. View of the subject property looking north to south. Photo taken on March 25, 2020 by Keith O’Reilly, MAI. 307 38 Street view looking south to north along North Rouse Ave. Photo taken on March 25, 2020 by Keith O’Reilly, MAI. 308 39 HIGHEST AND BEST USE Highest and Best Use is defined in the fifth edition of The Dictionary of Real Estate Appraisal (Appraisal Institute, Chicago, 2010), as follows: The reasonably probable and legal use of vacant land or an improved property, that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the Highest and Best Use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. 4 1. Permissible Use. What uses are permitted by zoning and other legal restrictions? 2. Possible Use. To what use is the site physically adaptable? 3. Feasible Use. Which possible and permissible use will produce any net return to the owner of the site? 4. Maximally Productive. Among the feasible uses which use will produce the highest net return, (i.e., the highest present worth)? Highest and Best Use analysis is a three-step process. The first step involves the Highest and Best Use of a site as though vacant. The determination must be made to leave the site vacant or improve it. If the conclusion is to improve the site, the second step is to determine the ideal improvement. The final step is a comparison between the ideal improvement and the existing improvement. At this point, the determination must be made to maintain the property in its present form or to modify the improvements to more closely conform to the ideal use. Conclusion Highest and Best Use As Vacant: The highest and best use of the site would be to obtain a zoning change to M-1 light industrial, similar to the adjacent properties. The use of the site is limited to approximately 1 acre of development land, but there are significant costs to get the necessary water and sewer hook ups. Access to the site is poor and there is no major frontage. Currently, market conditions have been very strong and there is more demand than supply. 4 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute, 2010), p. 93. 309 40 THE APPRAISAL PROCESS Typically, real estate can be valued by applying three approaches. All of these approaches to value, (particularly when the purpose of the appraisal is to establish market value) are market data approaches since the data inputs are presumably market derived. Cost Approach: One of the approaches to value commonly applied in Market Value estimates and many other valuation situations. A comparative approach to the value of property or another asset that considers, as a substitute for the purchase of a given property, the possibility of constructing another property that is an equivalent to the original or one that could furnish equal utility with no undue cost resulting from delay. The Valuer's estimate is based on the reproduction or replacement cost of the subject property or asset, less total (accrued) depreciation. The cost approach establishes the value of a real property by estimating the cost of acquiring land and building a new property with equal utility or adapting an old property to the same use with no undue cost due to delay. An estimate of entrepreneurial incentive or developer's profit/loss is commonly added to land and construction costs. For older properties, the cost approach develops an estimate of depreciation including items of physical deterioration and functional obsolescence.5 Sales Comparison Approach: A comparative approach to value that considers the sales of similar or substitute properties and related market data and establishes a value estimate by processes involving comparison. In general, a property being valued (a subject property) is compared with sales of similar properties that have been transacted in the open market. Listings and offerings may also be considered. A general way of estimating a value indication for personal property or an ownership interest in personal property, using one or more methods that compare the subject to similar properties or to ownership interests in similar properties. This approach to the valuation of personal property is dependent upon the Valuer's market knowledge and experience as well as recorded data on comparable items. 6 Income Approach: A comparative approach to value that considers income and expense data relating to the property being valued and estimates value through a capitalization process. Capitalization relates income (usually net income) and a defined value type by converting an income amount into a value estimate. This process may consider direct relationships (whereby an overall capitalization rate or all risks yield is applied to a single year's income), yield or discount rates (reflecting measures or return on investment) applied to a series of incomes over a projected period, or both. The income approach reflects the principles of substitution and anticipation. 7 5 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute, 2010), p. 250. 6 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute, 2010), p. 244. 7 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute, 2010), p. 256 310 41 SALES COMPARISON APPROACH The Sales Comparison Approach is one of the three traditional approaches to value. It is also referred to as the Market Data or Market Comparison Approach. It is defined as follows: The process of deriving a value indication for the subject property by comparing market information for similar properties with the property being appraised, identifying appropriate units of comparison, and making qualitative comparisons with or quantitative adjustments to the sale prices (or unit prices, as appropriate) of the comparable properties based on relevant, market-derived elements of comparison.8 Basic real estate appraisal principles involved in this approach are the principles of substitution, anticipation and contribution. The "principle of substitution" is the underlying premise from the Sales Comparison Approach and its definition is very similar to that of the approach itself. This principle fundamentally states that the value of a property is influenced to a large extent by the prices being paid in the open market for similar properties offering the same utility. It is irrational for somebody to pay an amount of money for a property that is greater than the price at which an equally desirable substitute may be acquired. The market, which is made up of substitute properties, thus represents alternatives for a prospective buyer and tends to set the range of values. The "principle of anticipation" states that prices paid for property is a reflection of the market's expectation of future benefits that accrue from ownership. It follows, then, that if the property is old and nearing the end of its economic life, or for another reason has a dismal future, the present worth of all future benefits would be considerably lower than if the property was new and could generate benefits for a longer period of time. The value of real property, therefore, can be considered the present worth of all future benefits that can be derived from its ownership. The "principle of contribution" is the underlying rationale for the adjustment process in the Direct Sales Comparison Approach. This principle views the sale price of real property as the sum of all value contributing characteristics. The individual characteristics are measured by the effect their presence or absence has on the total sale price. Not only is their mere presence important, but also the quantity and quality in which they exist. There are other appraisal principles involved in Direct Sales Comparison, but the three mentioned are considered most pertinent. 8 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute, 2010), p. 175. 311 42 ID 1270 Verification Source Broker - Lisa Collins Address TBD Ice Pond Rd Price $538,567 City Bozeman Price per Acre $129,463 State MT Financing Cash to Seller Tax ID RGH2585 Property Rights Fee Simple County Gallatin Days on Market Unk Grantor DLP, LLC Recording Date 12/10/2018 Grantee Old Mink Farm, LLC Recording Number 2633561 Legal Description Acres 4.2 Topography Mostly Level Land SF 181,209 Zoning Residential Suburban (RS) Road Frontage Ice Pond Rd Flood Zone A portion of the eastern Dimensions Irregular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Average Price Per Land SF $2.97 Land Comparable 1 Site Comments This is the sale of a 4.16 acre parcel south of downtown Bozeman in the City limits. The purchasers of this site also purchased the two adjacent parcels with plans to potentially develop the sites with residential improvements in the future. While this site is in the City limits of Bozeman, water and sewer are not to the site. Transaction Lot 3A of Certificate of Survey No. 236D, located in the NE1/4 of Section 18, T2S, R6E, P.M.M., City of Bozeman, Gallatin County, MT. 312 43 ID 1269 Verification Source Buyer's Agent - Lisa Address 1003 and 1017 S Church Price $377,000 City Bozeman Price per Acre $116,000 State MT Financing Cash to Seller Tax ID RGH4196, RGH2584 Property Rights Fee Simple County Gallatin Days on Market 10 Grantor The David Evans Recording Date 12/10/2018 Grantee Old Mink Farm LLC Recording Number 2633564 Legal Description Acres 3.3 Topography Mostly Level Land SF 141,570 Zoning Residential Suburban (RS) Road Frontage Church St Flood Zone AE Dimensions Irregular Encumbrance or Easement There is a 14,240 sf area Utilities Fair Environmental Issues None Access Good Price Per Land SF 2.66 Land Comparable 2 Comments Site Transaction This is the sale of two adjacent parcels of land south of Downtown Bozeman. The sites had a combined area of 3.58 acres, however 14,240sf of that area was unusable. The usable area totaled 3.25 acres. There were existing improvements, however, they were at the end of their economic life and contributed no value to the site. While the property is in the City limits of Bozeman, city water and sewer are not to the sites. There was, however, a private well and septic system in place. The majority of the site was in the flood plain and flood way and could not support development. The only feasible use for the combined sites would be for construction of a single family residence. Therefore, this is essentially the sale of a single family homesite within the City limits of Bozeman. Tract 1A and Tract 2A of C.O.S. No. 236D, located in the NE1/4 of Sec. 18, T2S, R6E, City of Bozeman, Gallatin County, MT. 313 44 ID 1350 Verification Source Seller Address 206 East Griffin Drive Price $1,500,000 City Bozeman Price per Acre $261,780 State MT Financing Cash to Seller Tax ID RGH5381 Property Rights Fee Simple County Gallatin Days on Market 2262 Grantor Charles & John Schlegel Recording Date 7/12/2018 Grantee HRDC of District IX, Inc.Recording Number 2619066 Legal Description Acres 5.7 Topography Level Land SF 249,599 Zoning Light Manufacturing (M1) Road Frontage Griffin Drive Flood Zone Unknown Dimensions Irregular Encumbrance or Easement Unknown Utilities NorthWestern Energy Environmental Issues Unknown Access Griffin Drive Price Per Land SF 6.01 Land Comparable 3 This is a relatively large M-1 zoned lot that is located along the southern side of Griffin Drive in the northeast part of the Bozeman city limits. While the property was marketed as a commercial redevelopment site given its frontage along Griffin Drive, the buyer is the HRDC which plans to redevelop the property with an affordable housing development. The property was improved with an older single-family home, shop, and outbuildings that were considered to contribute no value. The property was listed for sale with an asking price of $1,934,390 at the time it went under contract. Site Comments Transaction Tract 38 of Northeast Annexation to the City of Bozeman, Gallatin County, Montana. 314 45 Units of Comparison-Property Valuation: Since the subject property is a vacant parcel of land, value is derived from the square footage of the site. It is logical to use the square footage of the subject site to derive a value from other comparable sales. The preceding sales have been analyzed and compared with the subject property. I have considered adjustments in the areas of: y Property Rights Sold y Financing y Conditions of Sale y Economic Trends (time) y Location y Physical Characteristics On the following page is a sales comparison grid displaying the subject property, the comparables and the adjustments applied. 315 46 Address City State Date Price Land SF Land SF Unit Price Property Rights Fee Simple 0.0% Fee Simple 0.0% Fee Simple 0.0% Financing Cash to Seller 0.0%Cash to Seller 0.0%Cash to Seller 0.0% Conditions of Sale Arm's length 0.0%Arm's Length 0.0%Arm's Length 0.0% Expend. After Sale Market Trends Through 3/25/2020 6.0% Location % Adjustment $ Adjustment Acres % Adjustment $ Adjustment Topography % Adjustment $ Adjustment Shape % Adjustment $ Adjustment Utilities % Adjustment $ Adjustment Zoning % Adjustment $ Adjustment Net Adjustments Gross Adjustments $0.00 $0 12/10/20183/25/2020 12/10/2018 $377,000 $0.00 0% Conventional Fee Simple $0.00 $0.00 5.73 Level $0.00 $0.00 3.25 $0.00 0% $0.00$0.00 0% $6.64 0% $1,500,000 $0.00 Superior 0% Mostly Level $0.00 $0.00 Minimal 0% Minimal -50% 7.8% $2.87 Comp 3 $0.00 0% $0.00 Irregular 0% 0% 0% $0.00 Irregular 0% 7/12/2018 $0.00 Mostly Level Land Analysis Grid Comp 1 245,678 $0.00 $2.97 MT TBD Ice Pond Rd 1003 and 1017 S Church Ave Bozeman 141,570 Comp 2 $2.66 5.64 0% $0.00 Irregular Mostly Level 4.16 0% Irregular Residential Suburban (RS) Minimal Public Lands and Institutions District Residential Suburban (RS) $0.00 $0.00 0%0% Water & Sewer $0.00 -$3.32 0% Light Manufacturing (M1) 206 East Griffin Drive2125 North Rouse MT $6.01 Cash Bozeman Bozeman MTMT $6.01 249,599 Transaction Adjustments 181,209 Bozeman $538,567 10.4% Adjusted Land SF Unit Price $3.20 Average Average $2.66Adjusted Land SF Unit Price $2.97 7.8% Average 0% Adjusted Land SF Unit Price $3.32 7.8% $3.20 $2.87 -44.8%7.8% 7.8%65.7% 7.8% 316 47 Site Valuation: The procedure used in estimating site value is direct market comparison, which involves compiling data on recent sales of similar sites that are competitive with the subject property. After the sales are gathered, they are compared to the subject as to time, conditions of sale, location and physical characteristics and adjusted for dissimilarities. The adjusted sale price of the comparables is used to form an indication of the site value for the subject. Sales 1 are 2 are considered to be about as similar to the subject property as I could locate in the market. Both of these sites are affected by a creek and flood zone, the same as the subject. In addition, both of these sales lack public utilities. The indicated value from these two sales is $2.87psf to $3.20psf; I have reconciled in the middle of the indicated range. Sale 3 is closer in proximity, but is a site that offers significantly more utility, including access and public utilities. Quite frankly, Sale 3 is more representative a what the site could be worth with if it were entirely buildable and had adequate off-site improvements available. An exhaustive search for comparable sites was performed. The subject site lacks utility. The majority of the site is located in a flood plain, access is poor, and the necessary utilities are not to the site. The adjusted range of value is from $2.87psf to $3.32psf with an average adjusted value of $3.13psf. The final reconciled value is $3.00psf applied to the useable square footage. Sales Comparison Approach Conclusion Based on the above analysis, I have reconciled to a value of $735,000, as of March 25, 2020, and subject to the Limiting Conditions and Assumptions of this appraisal. 317 48 FINAL RECONCILIATION The process of reconciliation involves the analysis of each approach to value. The quality of data applied and the significance of each approach relating to market behavior and defensibility of each approach are considered and weighed. Finally, each is considered separately and comparatively with each other. Sales Comparison Approach An exhaustive search for comparable land sales was performed. The subject site lacks utility and would be a difficult property to develop. The reconciled value is bracketed by properties that are superior and inferior to the subject. Two of the comparable sales are considered extremely similar to the subject when comparing amenities. The final opinion of value was reconciled in the middle of the range. Value Conclusions The quality and quantity of market data is good, and the indication of value is reasonable and reliable. Based on the data and analyses developed in this appraisal, I have reconciled to the following value conclusions, as of March 25, 2020, subject to the Limiting Conditions and Assumptions of this appraisal. Reconciled Value Conclusion: Premise: “As Is” Estate: Fee Simple Value Conclusion: $735,000 As a result of my investigation and analysis, it is my opinion that the Current Market Value of the Fee Simple Interest, “As Is”, in the subject property, as of March 25, 2020, is: SEVEN HUNDRED THIRTY FIVE THOUSAND DOLLARS ($735,000) 318 49 CERTIFICATION As a result of a request for an appraisal assignment of the property, identified as: Vacant Land Parcel Located at 2125 North Rouse Ave Bozeman, MT 59715 I certify: 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, and unbiased professional analyses, opinions, and conclusions. 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. I have performed one prior appraisal of the subject of this report in the previous three years. This was for the current client and this was disclosed to the client prior to acceptance of this assignment. I have performed no other services regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. 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 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 Uniform Standards of Professional Appraisal Practice and the requirements of the Code of Professional Ethics and Standard of the Professional Appraisal Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to its duly authorized representatives. As of the date of this report, I, Keith O’Reilly, MAI, have completed the continuing education program of the Appraisal Institute. Keith O’Reilly, MAI has made a personal inspection of the property that is the subject of this report. No other person provided significant real property appraisal assistance to the person signing this certification. Respectfully Submitted, Keith O’Reilly, MAI General Certified Appraiser #400 State of Montana 319 Bridger Appraisals Inc. © Keith O’Reilly, MAI ADDENDUM 320 Bridger Appraisals Inc. © Keith O’Reilly, MAI 321 Bridger Appraisals Inc. © Keith O’Reilly, MAI 322 Bridger Appraisals Inc. © Keith O’Reilly, MAI 323 Bridger Appraisals Inc. © Keith O’Reilly, MAI 324 Bridger Appraisals Inc. © Keith O’Reilly, MAI 325 Bridger Appraisals Inc. © Keith O’Reilly, MAI 326 Bridger Appraisals Inc. © Keith O’Reilly, MAI 327 Bridger Appraisals Inc. © Keith O’Reilly, MAI 328 Bridger Appraisals Inc. © Keith O’Reilly, MAI 329 Bridger Appraisals Inc. © Keith O’Reilly, MAI 330 Bridger Appraisals Inc. © Keith O’Reilly, MAI 331 332 333 Security Title Company of Montana 600 South 19th Avenue   Bozeman, MT 59718   (406) 522‐5500 ALTA Buyer's Selement Statement File #: Prepared: Escrow Officer: G‐20‐23 06/28/2020 Carli Toresdahl Property Buyer Seller Lender Minor Subdivision No. 154, Lot 2  Bozeman, MT 59715  Northwestern Corporaon  Mergenthaler Family, LLC  Selement Date Disbursement Date 06/30/2020 06/30/2020 Northwestern Corporaon Selement Agent Descripon Buyer Debit Credit Primary Charges & Credits Sales Price of Property $237,402.00 Deposit $10,000.00 Government Recording and Transfer Charges Recording Fees $19.00 ‐‐‐Deed: $19.00 Title Charges Title ‐ Selement Fee to Security Title Company of Montana $350.00 Debit Credit Subtotals $237,771.00 $10,000.00 Due from Buyer $227,771.00 Totals $237,771.00 $237,771.00 Acknowledgement We/I have carefully reviewed the Selement Statement and find it to be a true and accurate statement of all receipts and disbursements made on my account or by me in this transacon and further cerfy that I have received a copy of the Selement Statement. We/I authorize Security Title Company of Montana to cause the funds to be disbursed in accordance with this statement. Date Date G‐20‐23  Printed on 06/28/2020 Produced by Security Title Company of Montana Using Qualia Page 1 of 1334 335 336 Date:7/2/20 Project #:17032.01 Phase I Improvements Item No. Quantity Unit Description Unit Price Subtotal 101 1 LS Mobilization and Insurance (10%) $17,646.38 = $17,646.38 102 1 LS Storm Water Management and Erosion Control $7,500.00 = $7,500.00 103 1 LS Traffic Control $1,200.00 = $1,200.00 104 297 LF Remove Existing Wood Fence $4.00 = $1,188.00 105 845 LF Remove Existing Chainlink Fence $7.00 = $5,915.00 106 1 EA Remove Existing Gate $500.00 = $500.00 107 124 LF 15-inch RCP Storm Drain Pipe $30.00 = $3,720.00 108 4 EA 15-inch F.E.T.S.$1,000.00 = $4,000.00 109 80 CF Rip Rap $10.00 = $800.00 110 576 CY Stipping, Stockpiling and Spreading Topsoil $15.00 = $8,640.00 111 624 CY Unclassified Excavation $7.00 = $4,368.00 112 407 CY On-Site Borrow $7.00 = $2,849.00 113 688 CY 6-inch Minus Pit Run Subbase Gravel (12-inch Thick) $11.00 = $7,568.00 114 172 CY 1-inch Minus Road Mix (3-inch Thick) $26.00 =$4,472.00 115 110 CY 1-1/2" Minus Base Course (9-inch Thick) $26.00 = $2,860.00 116 437 SY Asphalt Surface Course (2.5-inch Thick) for Path $15.00 = $6,555.00 117 1,831 SY Asphalt Surface Course (3-inch Thick) for Street $20.00 = $36,620.00 118 1,831 SY Geotextile Stabilization Fabric $5.00 = $9,155.00 119 645 LF Curb & Gutter $18.00 = $11,610.00 120 1,190 SF Stamped Concrete (4-inch Thick) $5.00 = $5,950.00 121 1 EA Traffic Sign $550.00 = $550.00 122 803 LF New Woven Wire Fence $25.00 = $20,075.00 123 1 EA New 20' Automated Gate $1,000.00 = $1,000.00 124 1 EA New Cardreader $1,000.00 = $1,000.00 125 3 EA New Safety Loop for Automated Gate $1,000.00 = $3,000.00 126 4 EA Luminaire Pole w/2' Arm & 19 $2,500.00 = $10,000.00 127 4 EA LED Luminaire $653.26 = $2,613.04 128 5 EA Pull Box- Composite Type 1 $498.57 = $2,492.85 129 575 LF 2" PVC Rigid Conduit $7.71 = $4,433.25 130 1,775 LF 1/C #6 AWG Copper Wire $0.99 = $1,757.25 131 360 LF 1/C #10 AWG Copper Wire $0.70 = $252.00 132 2.1 CY Foundation-Concrete $1,223.99 = $2,570.38 133 0.5 AC Seed Disturbed Areas (Dryland Seed Mix) $2,500.00 = $1,250.00 Subtotal Phase I Improvements = $194,110.15 Engineer's Opinion of Probable Cost for Northwestern Energy Public Access Road 32-Foot Wide Asphalt with Curb and Gutter and Paved Pathway 337 Phase II Improvements Item No. Quantity Unit Description Unit Price Subtotal 201 1 LS Mobilization and Insurance (10%) $14,464.20 = $14,464.20 202 1 LS Storm Water Management and Erosion Control $7,500.00 = $7,500.00 203 1 LS Traffic Control $1,200.00 = $1,200.00 204 2 EA Storm Drain Inlet $1,800.00 = $3,600.00 205 224 LF 12-inch RCP Storm Drain Pipe $40.00 = $8,960.00 206 30 LF 12-inch PVC Storm Drain Pipe $30.00 = $900.00 207 5 EA 12-inch F.E.T.S.$1,000.00 = $5,000.00 208 100 LF 18-inch RCP Storm Drain Pipe $60.00 = $6,000.00 209 4 EA 18-inch F.E.T.S.$1,200.00 = $4,800.00 210 200 CF Rip Rap $10.00 = $2,000.00 211 662 CY Stipping, Stockpiling and Spreading Topsoil $15.00 = $9,930.00 212 913 CY Unclassified Excavation $7.00 = $6,391.00 213 2,667 CY On-Site Borrow $7.00 = $18,669.00 214 995 CY 6-inch Minus Pit Run Subbase Gravel (12-inch Thick) $11.00 = $10,945.00 215 249 CY 1-inch Minus Roadmix (3-inch Thick) $26.00 $6,474.00 216 85 CY 1-1/2" Minus Road Base (9-inch Thick) $26.00 =$2,210.00 217 341 SY Asphalt Surface Course (2.5-inch Thick) for Path $15.00 = $5,115.00 218 986 SY Asphalt Surface Course (3-inch Thick) for Street $20.00 = $19,720.00 219 986 SY Geotextile Stabilization Fabric $5.00 = $4,930.00 220 586 LF Curb & Gutter $18.00 = $10,548.00 221 950 SF Stamped Concrete (4-inch Thick) $5.00 = $4,750.00 222 2 EA Dead-End Barricade $750.00 = $1,500.00 223 1 LS Paint Striping $1,000.00 = $1,000.00 224 1 LS Relocate Existing Barriers & Gate $500.00 = $500.00 225 1 EA New Rolling Gate $750.00 = $750.00 226 0.5 AC Seed Disturbed Areas (Dryland Seed Mix)$2,500.00 = $1,250.00 Subtotal Phase II Improvements = $159,106.20 = $353,216.35 Construction Contingency (15%) = $52,982.45 Total Price of Street Improvements = $406,198.80 Notes: Costs based on Sanderson Stewart City Review Plans dated 5/12/20 Mobilization and Insurance based on percentage of total schedule cost 10 % Contingency 15 % All items are complete and in place. Sanderson Stewart cannot warrant that any opinions of probable cost provided by Sanderson Stewart will not vary from actual costs incurred by the client. Sanderson Stewart has no control over the cost or availability of labor, equipment, materials, or over market conditions or the Contractor’s method of pricing. Sanderson Stewart makes no warranty, express or implied, that the bids or the negotiated cost of the work will not vary from Sanderson Stewart’s opinion of probable cost. Total Improvements (Phase I & Phase II) 338