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HomeMy WebLinkAbout20- Bridger Appraisals, Inc. - Appraisal Report AN APPRAISAL REPORT OF: Bozeman Fire Station 1 34 N Rouse Ave Bozeman, MT 59715 FILE NO.: C091620490 PREPARED FOR: Mr. Tony Gaddo Sanderson Stewart 1610 Ellis St, Suite 2B Bozeman, MT 59715 PREPARED ON: October 22, 2020 EFFECTIVE DATE OF VALUATION: October 14, 2020 PREPARED BY: Keith O'Reilly, MAI, MT-400 Bridger Appraisals, Inc. P.O. Box 11145 Bozeman, MT 59719 October 22, 2020 Sanderson Stewart 1610 Ellis St, Suite 2B Bozeman, MT 59715 Re: Bozeman Fire Station 1 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 October 14, 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. 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 October 14, 2020, is: TWO MILLION EIGHT HUNDRED THIRTY THOUSAND DOLLARS ($2,830,000) The following report contains 64 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 TABLE OF CONTENTS ITEM: PAGE NO. PHOTOGRAPHS 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 ................................................................... 38 DESCRIPTION OF IMPROVEMENTS ...................................................................................... 39 PHOTOGRAPHS OF THE SUBJECT ......................................................................................... 43 HIGHEST AND BEST USE ........................................................................................................ 50 THE APPRAISAL PROCESS ...................................................................................................... 52 SALES COMPARISON APPROACH ......................................................................................... 53 FINAL RECONCILIATION ........................................................................................................ 62 CERTIFICATION ........................................................................................................................ 64 ADDENDUM Deed Floodplain Documentation Water Rights Documentation Resume Current License Engagement Letter Bridger Appraisals Inc. © 5 Keith O’Reilly, MAI PHOTOGRAPHS OF THE SUBJECT PROPERTY View of the subject property looking from south to north. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. Street scene looking north towards Main Street along North Rouse Ave. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. Bridger Appraisals Inc. © 6 Keith O’Reilly, MAI Subject 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. 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. 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 Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraiser has not made a specific compliance survey or analysis of the property to determine whether or not it is in conformity with the various detailed requirements of ADA. It is possible that a compliance survey of the property and a detailed analysis of the requirements of the ADA would reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative impact upon the value of the property. Since the appraiser has no direct evidence relating to this issue, possible noncompliance with the requirements of ADA was not considered in estimating the value of the subject property. 8. 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. 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: City of Bozeman Date of Valuation: October 14, 2020 Date of Preparation: October 22, 2020 Rights Appraised: Fee Simple Legal Description: Lots 15, 16, 17, 18, and 19 in Block F of Rouse's First Addition, City of Bozeman, Gallatin County, MT. EXCEPTING Therefrom the portion transferred to Montana Department of Transportation for Highway Right of Way, further described in the Bargain and Sale Deed recorded as Document 2527031 on 10/07/2015 with the Gallatin County Clerk and Recorder. Location of Property: 34 N Rouse Ave, Bozeman, MT 59715 Improvements: 9,586sf Fire Station Highest and Best Use: Redevelop the subject site with a mixed use that conforms to the subject neighborhood. Present Use: Bozeman Fire Station 1 Zoning/Governmental: Downtown Business District (B-3) Site Shape and Size: The site is rectangular in shape. It contains 0.45 acres or 19,530 square feet. Environmental: There are no known adverse environmental conditions on the subject site. Please reference Limiting Conditions and Assumptions. 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 into 2020. The oversupply of residential building sites has been absorbed; in fact, now there is more demand than supply Bridger Appraisals Inc. © 11 Keith O’Reilly, MAI for residential building sites. The overall commercial market has also improved. Commercial rental rates and values have been increasing. Obviously, the world was exposed to COVID-19 and the effects to the Bozeman market began the week of March 16, 2020. Like the rest of the world, the effects to the local market are unknown at this time. This appraised value is based upon the stated and estimated exposure time of 1-6 months. Concluded value for each appraisal: Site Value as Vacant: $2,830,000 Cost Approach: Not Applicable Sales Comparison Approach: $2,830,000 Income Approach: Not Applicable Concluded Market Value: $2,830,000 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. 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 improvements and considered pertinent characteristics of the site and improvements 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. I viewed the interior and exterior of the subject on October 14, 2020. The scope of the inspection included observation of readily observable conditions and is not equivalent to a building inspection. The subject property was personally measured by the appraiser. The viewing did not include operating or testing of the electrical system, plumbing, or HVAC. 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 if vacant and as improved, and have applied the sales comparison approach valuation method. The income approach and the cost approach are not applicable to valuing the subject property. The improvements are older and suffer a considerable amount of depreciation, making the cost approach unreliable. The most probable purchaser is a real estate developer. The subject would not be purchased for a current income stream; thus, the income approach is not applicable. The results indicated by this method has 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. 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 October 14, 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 for possible sale purposes. There are no other intended users of this appraisal report. Insurable value has not been estimated. 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] 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. 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 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 October 14, 2020. This is the date of valuation and the date that the subject property was personally viewed. Bridger Appraisals Inc. © 16 Keith O’Reilly, MAI IDENTIFICATION AND HISTORY OF THE SUBJECT The legal description of the subject property is: Lots 15, 16, 17, 18, and 19 in Block F of Rouse's First Addition, City of Bozeman, Gallatin County, MT. EXCEPTING Therefrom the portion transferred to Montana Department of Transportation for Highway Right of Way, further described in the Bargain and Sale Deed recorded as Document 2527031 on 10/07/2015 with the Gallatin County Clerk and Recorder. 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. To the best knowledge of the appraiser, the subject property is not under contract as of the effective date of this report. The subject property has been occupied by the City of Bozeman Fire Department as Fire Station 1 for years. There are no other known uses of the subject property. Bridger Appraisals Inc. © 17 Keith O’Reilly, MAI MONTANA REGIONAL AND CITY MAPS Subject Bridger Appraisals Inc. © 18 Keith O’Reilly, MAI 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% 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 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. 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. Bridger Appraisals Inc. © 23 Keith O’Reilly, MAI At the Montana State University, campus construction finished the $10 million football stadium expansion and construction has begun on the Bobcat Athletic Complex, a 40,000sf facility housing locker rooms, team rooms, sports medicine, training and rehabilitation spaces for student athletes. The facility is expected to open in August 2021. 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 serves 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 Bridger Appraisals Inc. © 24 Keith O’Reilly, MAI at approximately 450 units per year on average compared to 600 units per year over the past 10 years. 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. Bridger Appraisals Inc. © 25 Keith O’Reilly, MAI 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. 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 2019, 4,020,288 visitors entered the park, the fourth 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. 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. 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 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. 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 RGH33774 $547,056 $0 $0 $547,056 $0.00 $279.36 Totals $547,056 $0 $0 $547,056 $0.00 $279.36 Shown above are the 2019 county and 2020 city tax assessments for the subject property. The subject property is classified as exempt in the county assessments and is not subject to any county taxes. If the property sold and this classification were to change, it is likely the assessment amount would increase significantly. Included within the 2020 city taxes was SILD #’s 388 and 361 for the lighting districts of Mendenhall St from Church Ave to 3rd Ave and Main St from North Ida Ave to North 4th Ave. Based upon the total of the tax assessments, I have no reason to believe there would be any excessive tax burden on the subject property. Bridger Appraisals Inc. © 32 Keith O’Reilly, MAI SITE DATA AND ANALYSIS Location: 34 N Rouse Ave, Bozeman, MT 59715 Dimensions: See Attached Plat Map Land Area: 0.45 acres, (19,530sf) Shape: The site is rectangular in shape. Drainage: The soil conditions observed at the subject appear to be typical of the region and adequate to support development. Flood Zone: Census Tract: 7.01. The Subject is located in flood hazard zone. As shown by the flood map provided, the entire site is in the 500-year floodplain. Additionally, a portion of the western edge of the subject site is in the 100-year floodplain. There is no market support to indicate any adverse marketability from being in the floodplain. FEMA Map Number: 30031C0816D. FEMA Map Date: September 2, 2011 Topography: The subject has level topography at grade. Frontage: Along North Rouse Ave and East Mendenhall St Visibility: Good Landscaping: The subject has minimal landscaping which is typical of properties located in the CBD of Bozeman. Site Utility: Good Street Access: Good Sewer and Water: Sewer: City of Bozeman Water: City of Bozeman Utilities: NorthWestern Energy, City of Bozeman Curb/Gutter: Concrete Sidewalk: Concrete Streetlights: Public Real Estate Taxes: $0.00 (County--2019) and $279.36 (City of Bozeman--2020) Adverse Easements or Encroachments: There are no known adverse encumbrances or easements. Please reference Limiting Conditions and Assumptions. Adjacent Uses and Site Comments: The subject property is located in downtown Bozeman, just north of Main St. The surrounding area contains a mix of commercial retail and office, with an elementary school located to the north. Conclusion: The subject site has many attributes that make it ideal to develop to its Highest and Best Use. The subject has level topography at grade. All utilities are in place, NorthWestern Energy supplies electricity and natural gas. There is good access and visibility from North Rouse Ave and East Mendenhall St. The site size is typical of sites developed into commercial office/residential and retail space. Sites very similar to the Subject in the subject area are currently being developed with commercial office/residential and retail space. 33 SUBJECT PLAT MAP Subject 34 Subject 35 Subject 36 FLOOD MAP Subject 37 Flood Plain Information: The Subject is located in flood hazard zone. As shown by the flood map provided, the entire site is in the 500-year floodplain. Additionally, a portion of the western edge of the subject site is in the 100-year floodplain. There is no market support to indicate any adverse marketability from being in the floodplain. Per the City’s guidelines, “New building construction may be approved within the FEMA 100-year Floodplain outside of the Floodway if the building is elevated 2 feet above the 100-Year Flood Elevation.” Additionally, per the City’s guidelines, “New construction and building improvements may occur in the 500-Year Floodplain without a City Floodplain Permit.” Please refer to the Comment Addendum for detailed information. A small portion of the subject site is in the 100-year floodplain. It appears to be the area along Rouse containing the sidewalks. There is currently a site located at 240 East Mendenhall that is a development site which appears to have more floodplain and floodway than the subject and this site is currently under contract. There is no market data to suggest a negative impact to the subject property. Subject 38 ZONING AND GOVERNMENT RESTRICTIONS The subject site is zoned by the City of Bozeman Planning Department as Downtown Business District (B-3). The intent of the downtown B-3 business district is to provide a central area for the community's business, government service and cultural activities with urban residential development as an essential supporting use. The subject improvements are legal and conforming. Subject 39 DESCRIPTION OF IMPROVEMENTS IMPROVEMENTS Building Type: Fire Station Building Class: The Subject is a Class- C building. Quality: Average Year Built: Believed to me approximately 1965 Condition: Average to Fair Remaining Useful Life: Less than 15 years Areas & Ratios: Gross Building Area: 9,586 sf FOUNDATION, FRAME & EXTERIOR Foundation: Poured concrete Frame: Concrete Block Exterior: Brick Roof/Cover: Trussed / Membrane. INTERIOR Ceilings & Ceiling Height: Acoustic ceiling panels/Painted drywall/Exposed / 18'. Floor Cover: Concrete/Vinyl/Carpet Doors: Wood/Steel MECHANICAL SYSTEMS Heating: FWA/HWBB/Hanging FA heat in garage Hot Water: Hot water heaters 40 Lighting: A mix of fluorescent and incandescent lighting. Electrical: NorthWestern Energy Plumbing: Copper and PVC Sprinkler: Fire Suppression System PROPERTY ANALYSIS Design & Appeal: The subject is an older building consistent with other buildings of this age in the downtown Bozeman area. The property contains office space on the main level with an attached garage while the upper level contains living quarters for the firefighters. The basement previously was used as a jail and is now used primarily for storage. Occupancy: Bozeman Fire Department Adjacent Uses: A mix of commercial retail, office, and residential development. 41 SUBJECT DIAGRAM 42 Conclusion: The improvements are in average to fair condition and of average quality construction. Simply due to the age and location of the subject property, there is functional and external obsolescence present. 43 PHOTOGRAPHS OF THE SUBJECT Front and side view of the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. Side view of the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. 44 Rear view of the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. Sample view of office space in the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. 45 View of a conference room in the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. Sample view of the garage area in the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. 46 Sample view of the garage area in the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. View of the upper level apartment area in the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. 47 View of the upper level apartment area in the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. View of the upper level apartment area in the subject building. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. 48 Street scene looking south to north along North Rouse Ave. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. Street scene looking west to east along East Mendenhall St. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. 49 Street scene looking east to west along East Mendenhall St. Photo taken on October 14, 2020 by Keith O’Reilly, MAI. 50 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. 4 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute, 2010), p. 93. 51 Conclusion Highest and Best Use As Vacant: The subject property is zoned B-3 Downtown Business District. This is a commercial use that is specific to downtown Bozeman. Primary uses are commercial retail on the main level, with offices and residential apartments on the upper levels. CBD zoning caters primarily to local retailers, restaurants, bars, banks, and hotels. This is not an industrial or primarily residential neighborhood. There have been several recent and successful developments with residential condominiums on the upper levels. All the necessary infrastructure is in place to develop the subject site. The location of the site is in an area that has seen significant redevelopment over the past five years. The sales used in the appraisal all had improvements that will likely be razed or redeveloped. Highest and Best Use As Improved: The existing improvements still have some physical life remaining. Structurally, the improvements are sound, just dated. The highest and best use as improved would be to try and lease the space at a rate that covers holding costs until a plan can be developed to redevelop the subject site. Typically, in Bozeman, this is a 12- to 24-month process. 52 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 53 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. 54 ID 1543 Verification Source Buy-Sell Agreement Address 27 North Tracy Avenue Price $1,800,000 City Bozeman Price per Acre $8,066,667 State MT Financing Conventional Tax ID RGH3984 Property Rights Fee Simple County Gallatin Days on Market None Grantor Reida, Planalp, & Southside Property Recording Date 4/28/2020 Grantee 27 N Tracy, LLC Recording Number 2679847 Legal Description Acres 0.2 Topography Level Land SF 9,720 Zoning Central Business (B3) Road Frontage N. Tracy Ave. & W. Mendenhall St. Flood Zone None Dimensions Irregular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access N. Tracy Ave. & W. Mendenhall St. Price Per Land SF 185.19 Lengthy; retained in file This is a commercial property one block north of Main Street in the Central Business District of Bozeman. The property is improved with an office building that has approximately 5,060 square feet of first floor office space and approximately 3,444 square feet of finished basement space that is utilized for storage; however, the buyer intends to eventually redevelop the site and therefore this is a land sale. The buyer owns the adjacent Etha Hotel property that was in the process of being developed as of the date of the sale of this sale. The property was not openly marketed and the transaction was privately negotiated between the buyer and the seller. Transaction Site Comments Land Comparable 1 55 ID 1530 Verification Source Tom Starner - Broker Address 137 East Babcock Street Price $1,800,000 City Bozeman Price per Acre $8,430,968 State MT Financing Conventional Tax ID RGH2828 Property Rights Fee Simple County Gallatin Days on Market 307 Grantor Gallatin Laundry Co.Recording Date 10/18/2019 Grantee 137 E. Babcock, LLC Recording Number 2661744 Legal Description Acres 0.2 Topography Level Land SF 9,300 Zoning Central Business (B3) Road Frontage E. Babcock St. & S. Bozeman Ave. Flood Zone None Dimensions Rectangular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access E. Babcock St. & S. Bozeman Ave. Price Per Land SF 193.55 All of Lots 11 and 12 of Block "B" of the original townsite of Bozeman, Gallatin County, Montana. This is the sale of a property that was used by Gallatin Laundry Service for years. The property is located on the northwest corner of East Babcock Street and South Bozeman Avenue. The improvements were constructed in 1917 and has been used as a dry cleaning laundry service for years. The MLS listing did not provide any detail for the improvements and this is reportedly a land sale. The exterior may be used in redevelopment, but that is purely speculative. The building had the same 9,300 square foot size as the site. The property was originally listed for sale with an asking price of $2,200,000 in July of 2018 before going under contract for $1,800,000. The purchaser is a real estate developer. Comments Site Transaction Land Comparable 2 56 ID 1542 Verification Source Purchaser Address 106 East Babcock Street Price $4,600,000 City Bozeman Price per Acre $4,263,207 State MT Financing Cash to Seller Tax ID RGH1640 Property Rights Fee Simple County Gallatin Days on Market Unknown Grantor Glacier Bank Recording Date 9/19/2018 Grantee 106 E Babcock, LLC Recording Number 2626913 Legal Description Acres 1.1 Topography Level Land SF 47,011 Zoning Central Business (B3) Road Frontage Babcock, Black, & Bozeman Flood Zone None Dimensions Nearly Rectangular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Babcock, Black, & Bozeman Price Per Land SF 97.85 Land Comparable 3 This is a large commercial property in the downtown Bozeman area that was formerly owner-occupied by Big Sky Western Bank. It includes a bank building with an approximate first floor area of 14,341 square feet and a 13,971 square foot basement storage area as well as an undeveloped parking area. The property sold with a deed restriction that it cannot be utilized as a bank for the ten year period following the sale. While a majority of the value was thought to be in the land, the improvements have been remodeled for office and retail use. The property was not openly marketed on the MLS but was marketed by word of mouth. While the site is not located on Main Street, it is located one block south of it and is very well located in the core of the downtown Bozeman area. Site Comments Transaction Lengthy; retained in file 57 ID 1529 Verification Source Buy Sell Contract/Buyer Address 122 North Bozeman Price $1,450,000 City Bozeman Price per Acre $7,519,286 State MT Financing Cash to Seller Tax ID RGH1206 Property Rights Fee Simple County Gallatin Days on Market None Grantor Philip D. Sgamma Recording Date 11/14/2019 Grantee Merin Property Owner, Recording Number 2664523 Legal Description Acres 0.2 Topography Level Land SF 8,400 Zoning Central Business (B3) Road Frontage Lamme St. & Bozeman Flood Zone None Dimensions Rectangular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Lamme St. & Bozeman Price Per Land SF 172.62 The N1/2 of Lots 35,36,37 and 38, all in Block I of the Original Townsite of Bozeman, Gallatin County, Montana, according to the official plat thereof on file and of record in the office of the County Clerk and Recorder of Gallatin County, MT (Deed Reference;Book 112, Page 29). Site Transaction Land Comparable 4 Comments This is the sale of an 8,400 square foot site that will be developed with an adjacent 8,400 square foot site with the Merin residential condominium development. The purchaser bought the southern one-half of Lots 35,36,37 and 38 on March 16, 2017 for a price of $560,000. This is the sale of the northern one-half of Lots 35, 36, 27, and 38. There were different sellers for each parcel. Originally this property went under contract for $1,285,000 on June 22, 2018 but the closing was then extended several times until the closing on November 14, 2019 for $1,450,000. The closing took place one day before the price was to increase an additional $25,000. The entire site is now in the process of being developed into a mixed-use building with 29 residential condominiums and two small commercial condominiums. The combined sites now contain 16,800 square feet of land area and therefore the total acquistion cost for the site is $2,010,000 or approximately $119.64 per square foot of land area. This is the approximately the fifth major development that the purchaser has undertaken in the Central Business District of Bozeman. 58 ID 1299 Verification Source Buy-Sell Agreement Address 544 East Main Street Price $2,337,500 City Bozeman Price per Acre $4,332,461 State MT Financing Cash to Seller Tax ID RGH2484 Property Rights Fee Simple County Gallatin Days on Market None Grantor East Main Marketplace, Recording Date 7/27/2018 Grantee WAM DEV GROUP, LLC Recording Number 2620513 Legal Description Acres 0.5 Topography Level Land SF 23,502 Zoning Central Business (B3) Road Frontage E. Main St. & S. Wallace Flood Zone None Dimensions Rectangular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues See Comments Access E. Main St. & S. Wallace Price Per Land SF 99.46 Parcel 1: Lot 9A of the Amended Plat of Lots 8 and 9 in Block B of Rouse Addition to Bozeman, Gallatin County, Montana, according to the official plat thereof on file and of record in the office of the County Clerk and Recorder, Gallatin County, Montana. (Plat Reference: C-5-D). Parcel II: Lots 10,11,12,13 and 14 in Block B of Rouse's First Addition to the City of Bozeman, Montana, according to the official plat thereof on file and of record in the office of the County Clerk and Recorder, Gallatin County, Montana. Transaction This sale was a private transaction. A local architect/development firm purchased the property for redevelopment. This is a prime development site located on the southwest corner of East Main Street and South Wallace Avenue. The improvements had previously housed a local grocery store named "Heebs" for years which has since relocated. It is also known that this site is part of the CMC Asbestos Bozeman Superfund Site which was historically used by the Chicago, Milwaukee Co. to store asbestos ore for milling prior to be transported elsewhere. The subject site is located on the eastern fringe of the central business district where there has been a considerable amount of redevelopment. According to the purchaser there will be costs incurred of $650,000 for asbestos abatement. Comments Site Land Comparable 5 59 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. The preceding sales have been analyzed and compared with the subject property. I have considered adjustments in the areas of:  Property Rights Sold  Financing  Conditions of Sale  Economic Trends (time)  Location  Physical Characteristics On the following page is a sales comparison grid displaying the subject property, the comparables, and the adjustments applied. 60 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%Fee Simple 0.0%Fee Simple 0.0% Financing Conventional 0.0%Conventional 0.0%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%Arm's Length 0.0%Arm's Length 0.0% Expend. After Sale Market Trends Through 10/14/2020 10.0% Location % Adjustment $ Adjustment Land SF % Adjustment $ Adjustment Topography % Adjustment $ Adjustment Shape % Adjustment $ Adjustment Utilities % Adjustment $ Adjustment Zoning % Adjustment $ Adjustment Net Adjustments Gross Adjustments $157.06 41.9% $148.92 40.1%-23.1% 42.9%40.1% -23.6%-26.8% $135.48 $131.88Adjusted Land SF Unit Price $137.09 35.9% Adjusted Land SF Unit Price $193.54 Good Good $193.55Adjusted Land SF Unit Price $185.19 4.5% Good 0% $157.06 0%0% 9.1%21.8% 34 N Rouse Ave MT $97.85 Cash Bozeman Bozeman MTMT $97.85 47,011 Transaction Adjustments 9,720 Bozeman $1,800,000 Bozeman 106 East Babcock Street 122 North Bozeman Avenue NorthWestern Energy 0% $0.00 NorthWestern Energy 0% 0% Central Business (B3) $0.00$0.00 $0.00 0% Central Business (B3) $0.00 Central Business (B3) $0.00 0%0% Central Business (B3) NorthWestern Energy, City of B3 Central Business (B3) $0.00 19530.13 0% $0.00 Rectangular Level 9720.00 -30% Irregular Land Analysis Grid Comp 1 19,530 $0.00 $185.19 MT 27 North Tracy Avenue 137 East Babcock Street Bozeman 9,300 Comp 2 $193.55 Comp 4 Comp 5Comp 3 $0.00 0% $0.00 Rectangular 0% 0% 0% $0.00 Nearly Rectangular 0% 9/19/2018 $0.00 Level $0.00 0% $119.20 15% $4,600,000 MT $0.00 Good 0% Level $0.00 -$58.06 NorthWestern Energy 0% NorthWestern Energy 0% 9.9% $212.74 $0.00 11/14/2019 0% 7/27/2018 $2,987,500 544 East Main Street Bozeman $127.12 $0.00 MT 23.6% Level $0.00 $0.00 Rectangular Rectangular $0.00 NorthWestern Energy $127.12$172.62 0% $0.00 0% 23.6% 23.6% 0% 23502.00 $0.00 Level 47011.00 -$56.52 Level $0.00 $17.88 0% 9300.00 -$63.82 -30% $0.00 0% $172.62 8,400 Conventional Fee Simple $0.00 $1,450,000 $0.00 $0 10/18/201910/14/2020 4/28/2020 $1,800,000 $0.00 -30% $188.40 Good 0% $0.00$0.00 8400.00 Good $0.00 23,502 $0.00 Comparable Sale Adjustments All five of the comparable sales are redevelopment sites located in the CBD of Bozeman. All the sites had some form of improvements that were either razed or incorporated into a redevelopment project. The two major differences that were adjusted for were site size and date of sale. The overall market conditions are very strong and prices have been increasing fairly rapidly. Smaller sites take much less time and risk to develop and the market data indicates they are selling at a much higher price per square foot. All of the comparables are zoned B-3. Sale 1 is current and is located approximately four blocks to the west of the subject. Like the subject, this is a corner lot. The only major difference is the size and the fact that the location is closer to the center point of the CBD. There was an office building on the site that will be rented until the purchaser finalizes some plans to redevelop the site. This rental does help cover carrying costs. A negative adjustment is warranted for site size. Sale 2 is also relatively current within the past 12 months. Again, this is a corner site with warehouse type improvements. The purchaser is currently trying to lease the improvements; however, there will need to be significant TI’s completed to this building. For years, the property 61 was used as Gallatin Laundry and is more or less warehouse space. Again, this sale is smaller and warrants a downward adjustment for site size. Sale 3 is a major redevelopment site. This was the sale of the Big Sky Western Bank building. The property is being completely redeveloped into a 43,739sf building from a 28,312sf building. The building contained a 13,971sf basement that the developer has repurposed into office space. The site is much larger, twice the size of the subject. The comparison between this sale and the sale of smaller square footage lots supports the site size adjustment. Sale 4 is located less than 2 blocks to the northwest of the subject. The location of this property is further from Main Street than any of the other sales. The property is being redeveloped with The Merin residential condominium development. The developer paid a premium to plot the second lot to the site. Again, this is a much smaller site that warranted a size adjustment. Sale 5 is considered a truly relevant sale. The overall site size is similar to the subject. An adjustment was warranted for positive market conditions. The purchaser is responsible for approximately $650,000 in additional costs for asbestos abatement. The overall location is considered slightly superior because of the Main Street frontage, although the site is further from the center point of the CBD than the subject. I have reconciled to an estimated market value of the subject property at $145.00psf of land square footage. The reconciled value is supportable an in the middle of the indicated range. Number of Comparables:5 % Δ 35% -19% -8% $172.62 -21% $172.62 $1,800,000.00 land sf High: $131.88 Average:$142.08 Land Value Ranges & Reconciled Value Low: $157.06 Unadjusted Adjusted $97.85 Two Million Eight Hundred Thirty Thousand Dollars Subject Size: $145.00 Reconciled Final Value: $2,831,868 19,530.13 Reconciled Value/Unit Value: Indicated Value: $2,830,000 $193.55 $155.26 Median:$137.09 Sales Comparison Approach Conclusion Based on the above analysis, I have reconciled to a value of $2,830,000, as of October 14, 2020, and subject to the Limiting Conditions and Assumptions of this appraisal. 62 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. Value Indications Land Value: $2,830,000 Cost Approach: Not Applicable Sales Comparison Approach: $2,830,000 Income Approach: Not Applicable Cost Approach The cost approach to value is not applicable to appraising the subject property and has not been formulated. Typically, the cost approach to value is more applicable to newer properties that suffer little or no depreciation. Had a cost approach to value been formulated, the final estimated value would be no more reliable. Sales Comparison Approach The sales comparison approach gives a good indication of value for the subject property. A comprehensive search for comparable sales was completed. I am not aware of any other sales similar to the subject that were not included in the report. The two main factors that affect the values of the comparable sales are positive market conditions and the size of the sites. The data obviously suggests that smaller lots sell for less per square foot. The subject is more similar to Sales 3 and 5, both of which are larger tracts of land, corner sites, zoned B-3, and had similar improvements on the site. Income Approach The subject property is not a typical income producing property. However, as a test of reasonableness, I have estimated the financially feasible rent based upon the estimated value. At a 6.5% cap rate, a NNN lease, and 5% management and 5% vacancy, the feasible rent would be approximately $18.38psf. This would be considered a fairly high rent for a tenant to take the entire building in its “as is” condition with no allowance for TI’s. This supports the highest and best use is to redevelop the subject site similar to what is taking place or will take place with all five of the comparable sales that are located within about four blocks of the subject. 63 Water Rights: There are two wells located in the basement of the subject improvements with water rights of 300gpm. The wells have been used by the City of Bozeman for years to force warm water into Bozeman Creek in the wintertime to mitigate ice jams. According to the City, they plan on relocating the wells with the existing water rights from the subject building. I do not believe this has any adverse effects on the reconciled value. None of the comparable properties sold with any type of water rights or wells. Value Conclusions The sales comparison approach is the only applicable approach to valuing the subject property. 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 October 14, 2020, subject to the Limiting Conditions and Assumptions of this appraisal. Reconciled Value Conclusion: Premise: “As Is” Estate: Fee Simple Value Conclusion: $2,830,000 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 October 14, 2020, is: TWO MILLION EIGHT HUNDRED THIRTY THOUSAND DOLLARS ($2,830,000) 64 CERTIFICATION As a result of a request for an appraisal assignment of the property, identified as: Bozeman Fire Station 1 34 N 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 no services, as an appraiser or in any other capacity, 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 Bridger Appraisals Inc. © Keith O’Reilly, MAI ADDENDUM Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI Bridger Appraisals Inc. © Keith O’Reilly, MAI