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HomeMy WebLinkAboutNorth Park Property Appraisal for the city of Bozeman 3-14 with AddendaAN AP P R AI SAL O F T H E 85.35 AC R E N O R T H P AR K P R O P E R T Y O WN E D B Y T H E C I T Y O F B O Z E M AN , M O N T AN A. D AT E O F VALU AT I O N F EB R U AR Y 28, 2014 F O R B R I T F O N T EN O T D I R EC T O R O F E C O N O M I C D EVELO P M E N T & C O M M U N I T Y R E LAT I O N S F O R T H E C I T Y O F B O Z EM AN , M O N T AN A B Y J . M I C H AEL J O K I , M AI , SR A H E LEN A, M O N T AN A J . M I C H AE L J O K I , M AI , SR A P.O. BOX 281 HELENA, MONTANA 59624 Phone (406) 442-2159 March 17, 2014 FAX (406) 442-6196 Brit Fontenot Director of Economic Development & Community Relations City of Bozeman 121 N. Rouse, 2nd Floor Bozeman, Montana 59771 RE:An appraisal of the 85.35 acre North Park Property located south and west of North 7th Avenue and Frontage Road in Bozeman, Montana. Dear Mr. Fontenot: Per your authorization I have made the necessary inspection and analysis to appraise the above referenced property. The attached report provides the essential data and detailed reasoning employed in estimating my final value estimate. The report contains 52 pages. I have appraised the property as a whole, owned in fee simple and unencumbered. I assume no responsibility for matters that are legal in nature nor do I render any opinion as to title. The property being appraised is the 85.35 acre North Park Property that lies at the north end of North 7th Avenue where it transitions into Frontage Road in Bozeman, Montana. An aerial photograph of this property is shown on page 4. The old farm buildings on this site provide no contributory value. The values reported are qualified by certain definitions, assumptions and limiting conditions, and certification which are set forth within the attached report. The analysis contained herein is a summary appraisal report. This appraisal report is intended to conform with the Uniform Standards of Professional Appraisal Practice. Based on my analysis, the “as is” market value of the subject property with access only from Red Wing Drive, as set forth, documented and qualified in the attached report under conditions prevailing on February 28, 2014 was: Ei g h t H u n d r e d F i f t y -T h r e e T h o u s a n d Fi v e H u n d r e d D o l l a rs $853,500* M E M B E R A P P R A IS A L I N S T I T U T E SU B J EC T P R O P E R T Y P H O T O GR AP H Aerial view of the North Park property. J. Michael Joki, MAI, SRA HELENA, MONTANA 4 SU M M AR Y O F I M P O R T AN T F AC T S AN D C O N C LU SI O N S PURPORTED OWNER:City of Bozeman LOCATION OF PROPERTY:The property is located on North 7th Avenue where it transitions into Frontage Road and east of Interstate 90 in Bozeman, Gallatin County, Montana. SITE SIZE:An irregular shaped parcel of land that is comprised of four tracts that total 85.35 acres. BUILDING IMPROVEMENTS:There are old farm buildings however they provide no contributory value to this property. PROPERTY RIGHTS APPRAISED:Fee Simple ZONING:M-2 (Manufacturing and Industrial District) PRESENT USE:Agricultural use HIGHEST AND BEST USE, ‘AS IS’:Continued agricultural use DATE OF VALUATION:February 28, 2014 “AS IS” MARKET VALUE ESTIMATE :$853,500 * “AS PROPOSED” MARKET VALUE ESTIMATE :$1,536,300 ** *Subject to the Extraordinary Assumptions and Limiting Condition on page 8. ** Subject to the Hypothetical Condition as shown on page 8. J. Michael Joki, MAI, SRA HELENA, MONTANA 5 ASSU M P T I O N S AN D LI M I T I N G C O N D I T I O N S This is to certify that the appraiser in submitting this statement and opinion of value of subject property acted in accordance with and was bound by the following principles, limiting conditions and assumptions. Unauthorized use of this report is set forth below. 1. No responsibility is assumed for matters that are legal in nature nor is any opinion rendered on title of property appraised. 2.Unless otherwise noted, the property has been appraised as though free and clear of all encumbrances. 3.Where the values of the land and the improvements are shown separately, the value of each is segregated only as an aid to better estimate the value which it lends to the whole parcel, rather than value of that particular item if it were by itself. 4.All maps, areas, plans, specifications, and other data furnished your appraiser were assumed to be correct. No survey of the property was made by this firm. Furthermore, all numerical references to linear measurements, area, volume or angular measurements should be assumed to be "more or less" (+/-) and are accurate to a degree consistent with their use for valuation purposes. 5.This appraisal considers only surface rights to the property with consideration of current zoning and land use controls. The estimate of highest and best use will form the basis for the value estimate. This appraisal does not consider mineral, gas, oil or other natural resource rights that may be inherent in the ownership of the property. 6.In this appraisal assignment any potentially hazardous material found on the land such as petroleum residue and/or existence of toxic waste or gases, which may or may not be present on the property, has not been considered. The appraiser is not qualified to detect such substances. A Phase I Environmental Assessment and Engineering Report pertaining to the subject property has been provided to me. I have relied on these documents as being accurate and will refer any interested party to obtain and read these documents if there are any questions regarding such potentially hazardous material. If such material or substance is present it could adversely effect the value of the subject property. 7.The appraiser is not a seismologist. This appraisal should not be relied upon as to whether a seismic problem exists, or does not actually exist on the property. The property which is the subject of this appraisal is within a geographic area where earthquakes and other seismic disturbances have previously occurred and where they may occur again. Except as specifically indicated in the report, no seismic or geologic studies have been provided to the appraiser concerning the geologic and/or seismic condition of the property. The appraiser assumes no responsibility for the possible affect on subject property on seismic activity and/or earthquakes. I have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed seismic requirements by the City or County. It is possible that a survey of the property could reveal that the property does not meet the required seismic requirements. If so, this fact could have a negative effect upon the value of the property. Since I have no direct evidence relating to this issue, I did not consider possible noncompliance requirements in estimating the value of the property. J. Michael Joki, MAI, SRA HELENA, MONTANA 6 8.All data contained in this report and in the appraiser's files, as obtained from other sources, upon which to any degree the opinions and conclusions were based, are considered reliable and believed to be true and correct. However, the appraiser does not assume responsibility for the accuracy of such items that were obtained from other parties. 9.There shall be no obligation to give testimony or attendance in court by reason of this appraisal with reference to the property in question unless arrangements have been previously made and at an additional fee. 10.Disclosure of the contents of this appraisal 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 the conclusions as to value, the identity of the appraiser, or the firm with which he is connected, or to the MAI and SRA designation, shall be disseminated to the public through advertising media, news media, public relations media, sales media, or any other public means of communication without the prior written consent of the appraiser. 11.J. Michael Joki, MAI, SRA, specifically does not authorize the out-of-context quoting from or partial reprinting of this appraisal report. 12.The liability of J. Michael Joki, MAI, SRA and employees is limited to the client and to the fee collected. Further, there is no accountability, obligations or liability to any third party. If this report is placed in the hands of anyone other than client, the client shall make such party aware of all limiting conditions and assumptions of the assignment and related discussions. The appraiser assumes no responsibility for any costs incurred to discover or correct any deficiencies of any type present in the property; physically, financially, or of a legal nature. 13.The fee for this appraisal report is for the service rendered and not for time spent on the physical report or for the physical report itself. 14.This appraisal report is prepared for the sole and exclusive use of the appraisers’ client the City of Bozeman, Montana. No other parties are authorized to rely upon this report without the express written consent of the appraiser. 15.This Summary Appraisal Report is intended to comply with the reporting requirements set forth under Standard Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal Report. As such, it presents only summary discussions of the data, reasoning, and analysis that were used in the appraisal process to develop the appraiser’s opinion of value. Supporting documentation concerning the data, reasoning and analysis is contained in the appraiser’s file. No third parties are authorized to rely upon this report without the express written consent of the appraiser. J. Michael Joki, MAI, SRA HELENA, MONTANA 7 EXT R AO R D I N AR Y ASSU M P T I O N & LI M I T I N G C O N D I T I O N An extraordinary assumption is an assumption that is directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions. Extraordinary assumptions assume as fact otherwise uncertain information about physical, legal or economic characteristics of the subject property, or about conditions external to the property, such as market conditions or trends or about the integrity of data used in an analysis. 1.Currently the only legal access to the subject property is from Red Wing Drive which is an unimproved, unmaintained road that parallels the subject property along its northeast boundary. Red Wing Drive can be accessed from North 7th Avenue then it crosses over the adjacent property to the south of the subject property and then parallels the northeast boundary of the subject property to where it intersects Frontage road near the northwest corner of the subject property. To get from Frontage Road to Red Wing Drive requires travel over a set of railroad tracks that have no gate at this crossing. A copy of the document dated October 19, 1925 wherein Northern Pacific Railway Company provides access over the right of way to Gallatin County was provided to me by Brit Fontenot. This document is allowing the owner of the subject property access over the railroad tracks where Red Wing Drive meets Frontage Road and to the best of my knowledge Red Wing Drive currently provides the only legal access to the subject property. The “as is” market value estimate provided in this appraisal report is based upon the only legal access to the subject property coming from Red Wing Drive. If this information is found to be false it could change my conclusion to value in this appraisal report. H YP O T H E T I C AL C O N D I T I O N A hypothetical condition is a condition that is contrary to what exists but is supposed for the purpose of the analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the subject property, such as conditions or trends; or about the integrity of data used in an analysis. 1.The “as proposed” market value estimate in this appraisal report is subject to the subject property gaining legal access from Wheat Drive or Flora Lane to the south and over the adjoining land that is owned by DNRC (State of Montana). The map depicting the potential access from Wheat Drive or Flora Lane and my conclusion to the “as proposed” market value of the subject property is shown on page 48 of this appraisal report. Currently the subject property does not have legal access from Wheat Drive or Flora Lane and because this is contrary to what actually exists this is considered to be a hypothetical condition. However, this scenario is supposed for purposes of the “as proposed” market value estimate. J. Michael Joki, MAI, SRA HELENA, MONTANA 8 SC O P E O F T H E AP P R AI SAL A ll k n o w n , av a ilab le , re le v an t m ark et d ata c o n sid e red to hav e an im p a ct o n th e e stim a tio n o f m a rk e t v alu e o f the su b je ct p ro p e rty h a s b ee n co n s id e r ed . A s id en tified u n d er A ss u m p tio n s a n d L im itin g C o n d itio n s a n d a s e x p la in ed u n d er P rop erty R igh ts A p p r a is ed , th e title is a ss u m ed to b e fre e a n d clear o f lie n s an d en cu m b ra n c es . T h e S co p e o f W o rk d e fin e s an ap p rais er’s c o n clu sio n s a s to w h a t is d e em ed n ec es sary to p ro v id e a cre d ib le app ra isa l re p o r t. T h e clie n t is id e n tif ie d as th e C ity o f B o z em a n , M o n tan a . T h e in te n d ed u ser is th e clie n t, an d th e in te n d e d u se w ill b e to as sist th e clie n t in th e p oten tia l sale o f th e su b ject p rop erty. T h e m a rk e t v a lu e e stim ates p ro v id ed in this ap p raisal r epo rt are su b je ct to th e E x tr a o rd in a ry A s su m p tio n an d H y p o th etic a l C o n d itio n a s sh o w n o n p age 8 . O n F e b ru a ry 2 8 , 2 0 1 4 I m et B rit F o n te n o t a n d w e d isc u sse d a n u m b e r o f issu e s p e r tain in g to th e s u b je ct p rop erty an d h e also p ro v id e d m e a n u m b er of d o cu m e n ts p e r ta in in g to th e su b jec t p ro p e rty . M r . F o n ten o t ga v e m e p erm issio n to in sp ec t th e s u bjec t p ro p e r ty a n d th is is th e d a y a ll p h o to gra p h s o f th e su b ject p ro p erty w ere tak en . In fo rm a tio n p e rtain in g to th e su b jec t p ro p e rty w as o b ta in ed f ro m th e G a lla tin C ou n ty C o u rth ou se . T he n eig h b o rh o o d an d s u rro u n d in g co m p etitiv e m a rk e t a r eas w e r e re se a r ch ed to f in d co m p a r a b le la n d s a le s. R eal es tate age n ts, real estate ap p raise rs a n d d ev elo p e rs ac tiv e in th is m ark e t w ere in te rv iew e d in a n atte m p t to fin d re le v ant m ark et d a ta. M ark et d ata h a s b e e n c o n fir m e d b y p e rso n al c o n tac t w ith th e bu ye r, se ller o r real estate age n t in v o lv ed in th e tr a n s ac tio n . M a rk e t d a ta w a s o b ta in ed fro m th e fo llo w in g re so u rc es: •G allatin C o u n ty C le rk a n d R ec o rd ’s O ffic e •C ity o f B o ze m an P lan n in g D e p artm en t •C raig C a m pb ell, D N R C •C h ris L aity , G reat W e st E n gin e erin g •K eith O ’R e illy , M A I, A p p raise r •E d Ja ck so n , A p p rais er •M ik e M cK e n n a , R e a lto r •S co tt D e h len d o rf , D ev elo p er •P au l R u b rig h t, R e alto r •Ja so n L ee p , R ealto r •F o u r C o r n ers C o n stru c tio n , D e v e lo p e r •D av e O sterm a n , D e v e lo p e r •Ja so n B a sy e, R ealto r •B ill E lflan d , R e a lto r J. Michael Joki, MAI, SRA HELENA, MONTANA 9 •R a y A tte b e rry, R ealto r •M ik e W ilm er, R ealto r E x p o s u r e T i m e : Exposure time is defined by the Appraisal Standards Board of the Appraisal Foundation as follows: "The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of the sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market". Exposure time is typically based on historical data found in the market place. As shown on the comparable sale sheets in the addenda the days on market for these sales range from approximately 1 to 2 years. Market conditions in Bozeman are relatively strong which is expected to remain in the foreseeable future but I do not anticipate high demand for a property like the subject property. It is my opinion a reasonable exposure time for the subject property is 18 months. E f f e c t i v e D a t e : The effective date of this appraisal is February 28, 2014. This is the date of valuation and was the actual date of the property inspection. It is also the date all enclosed photographs of the subject property were taken. This appraisal report was completed on March 17, 2014. Market conditions have remained effectively unchanged between the effective date of appraisal and the completion date of the written report. M a r k e t i n g T i m e : Marketing time is defined as "the estimated time it takes an interest in real property to sell on the market subsequent to the date of appraisal". Exposure time has previously been estimated at 18 months. Marketing time differs from exposure time if at the date of appraisal market conditions are changing or are expected to change in the near future. However, in this case market conditions are expected to remain at least stable or show moderate growth, but I do not expect there would be high demand for the subject property. Therefore, marketing time is estimated at 18 months and the concluded estimate of market value is based upon that time period. J. Michael Joki, MAI, SRA HELENA, MONTANA 10 D E F I N I T I O N O F M AR K ET VALU E Market value, as used in this report is defined as follows: “The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self interest, and assuming that neither is under undue duress.”1 Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1.Buyer and seller are typically motivated; 2.Both parties are well informed or well advised, and acting in what they consider their own best interests; 3.A reasonable time is allowed for exposure in the open market; 4.Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 5.The price represents the normal consideration of the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with this sale. Additional discussion pertaining to exposure time can be seen on page 10 of this appraisal report. P U R P O SE O F T H E AP P R AI SAL The purpose of this appraisal report is to arrive at a supportable estimation of the market value. T he A pp rais a l of R ea l E s tate, 12 E dition , (A pp raisal In s titu te, 20 06 ), p . 2 2 .th1 J. Michael Joki, MAI, SRA HELENA, MONTANA 11 I N T E N D E D U SE O F T H E AP P R AI SAL AN D I N T EN D ED C LI E N T It is understood that the intended use of this appraisal report is to assist the City of Bozeman with the potential sale of the subject property. The user of this appraisal report is the City of Bozeman. P R O P ER T Y R I GH T S AP P R AI SED This appraisal is made with the understanding and assumption that present ownership of the subject property includes all rights that may be lawfully owned, and is therefore, title in fee simple as of February 28, 2014. A fee simple estate is subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat. I D E N T I F I C AT I O N O F P R O P E R T Y AN D LEGAL D E SC R I P T I O N The property which is the subject matter of this appraisal report consists of four tracts of land that total 85.35 acres and are located at the north end of North 7th Avenue where it transitions into Frontage Road in Bozeman, Gallatin County, Montana. The legal description of the land involved is as follows: "T ra c t 1 -A , T r a c t 2 -A , T rac t 3 -A and T rac t 4 -A o f C e rtific a te o f S u rve y N o . 2 1 5 3 , s itu a te d in th e N W ¼ o f S e ctio n 3 6, T ow n sh ip 1 S ou th , R a n g e 5 E a s t, P M M , G allatin C ou nty , M o n ta n a ." J. Michael Joki, MAI, SRA HELENA, MONTANA 12 P U R P O R T E D O WN E R An investigation was made at the Gallatin County Courthouse Clerk and Recorder's Office, State of Montana. Records within that Office indicate that the City of Bozeman is the current owner of record. This is shown on the two warranty deeds that recorded on July 29, 2003 in the addenda. SALES H I ST O R Y O F T H E P R O P ER T Y The City of Bozeman purchased the four tracts that comprise the subject property from the Mandeville family in 2003. Brit Fontenot reported to me that the City of Bozeman paid $3,000,000 for this property in 2003. As I understand it was the intent of the City of Bozeman to purchase this land for a transfer station site. Then the City tried to gain better legal access to the property and subdivide the property into multiple lots for development with light industrial uses. Craig Campbell with DNRC explained that access agreements with the City of Bozeman were reached that would have provided access to the subject property over their land that lies directly to the south. Apparently the access agreement was subject to several conditions being met however the access agreement expired and now the only legal access to the subject property is from Red Wing Drive. A preliminary plat showing the subject property subdivided into 22 light industrial lots was provided to me and a copy is included in the addenda. Chris Laity with Great West Engineering and Dustin Johnson with the City of Bozeman confirmed that approval of this subdivision was subject to legal access being obtained over the DNRC property to the south and among other conditions. It is my understanding the subject property still has its preliminary plat status however better access is still one of the main pending issues. Mike Elliott, Senior Vice President of the local CBRE Real Estate office, provided me a copy of the brochure that marketed the subject property for sale as a potential light industrial development. The North Park Conceptual Use Plan shows the subject property being developed in conjunction with the DNRC land to the south. A listing price per se is not shown in this document. Neither of the development scenarios came to fruition and as I understand the issue of gaining better access has been the biggest deterrent. Currently the subject property is leased to Bill Tatarka who farms the land and the DNRC land to the south. A copy of the agricultural lease is included in the addenda. Also in the addenda is the copy of the utility easement provided to me by Brit Fontenot that provides access to a J. Michael Joki, MAI, SRA HELENA, MONTANA 13 cell tower on the subject property. The cell tower is also subject to an annual lease agreement but a copy of the lease was not given to me. A copy of the Buy-Sell Agreement dated January 27, 2014 is included in the addenda. Micropolitan Enterprises, LLC and Powder River Company and/or assigns has offered $1,280,550 for the subject property. A copy of the Buy-Sell Agreement, Counter Offer and addendums to the buy-sell agreement are all included in the addenda. J. Michael Joki, MAI, SRA HELENA, MONTANA 14 R EGI O N AL M AP J. Michael Joki, MAI, SRA HELENA, MONTANA 15 R E GI O N AL AN D C I T Y AN ALYSI S Bozeman is the county seat of Gallatin County and is one of 56 counties in the State of Montana. Gallatin County is located in a mountainous area of Montana north of the Montana/Wyoming border and Yellowstone National Park. Bozeman primarily lies on the south side of Interstate 90 and is located approximately 140 miles west of Billings, Montana and 80 miles east of Butte, Montana. Gallatin County has grown faster than any other county in the State of Montana over the past decade according to the Census Bureau. Gallatin County includes almost 2,500 square miles of mountainous lands that offer a variety of topography and climate. Nearly half of Gallatin County is under public ownership by the Gallatin National Forest, State of Montana, Bureau of Land Management or the National Park Service. F o r c e s I n f l u e n c i n g P r o p e r t y Va l u e s The value of real estate is influenced by the interaction of four major forces. Social considerations, economic considerations, government and environmental considerations. The four forces are discussed as follows: S o c i a l C o n s i d e r a t i o n s Social forces are exerted largely by population characteristics, including population growth, density, and age distribution. According to the U. S. Census Bureau the population of the City of Bozeman increased from 27,509 in 2000 to 37,280 as of April, 2010 and increase of nearly 9,800 people. This represents an increase in population of approximately 35.5% over this 10 year period, or an average rate of growth of about 3.55%/year. From April, 2010 to April, 2012 the population increased from 37,280 to 38,695, an increase of nearly 1,415 people which equated to a growth of 3.8% over this time frame. Gallatin County’s population increased from 67,831 in 2000 to 89,513 in 2010 or approximately 21,700 people. This represents an increase in population of approximately 32% over a 10 year period or an average growth rate of 3.2%/year. Between April, 2010 and April, 2012 the population increased from 89,513 to 92,614 people or 3,101people which equates to a growth rate of about 3.5% over this time period. Comparatively, the State of Montana grew from 989,417 people in April 2010 to 1,005,140 people in 2012 or 15,724 people which equates to a growth rate of 1.6% over that time frame. In addition to population growth the City of Bozeman continues to see growth in its geographic size. In 1990 the City of Bozeman was approximately 6,420 acres (± 10 square miles) and by the end of 2009 it had expanded to 12,300 acres (±19.25 square miles) resulting in an increase of ±92% over this 19 year period. This growth was to accommodate the increasing population which required new land for residential, J. Michael Joki, MAI, SRA HELENA, MONTANA 16 commercial and industrial development. This growth significantly slowed in 2009 and 2010 which was being seen all throughout this region as the national economic recession took effect. Bozeman has a significantly lower home ownership rate than most other communities in the county primarily due to the student body of Montana State University. Bozeman also has a smaller average household size and a smaller portion of families than other areas of Gallatin County. Bozeman has an average household size of 2.27 people while the average household size for Gallatin County is 2.49 people. Just over half of the Bozeman households are families compared to ±63% countywide. The population of Bozeman is considerably younger than Gallatin County as a whole, and even more so, in comparison to the State of Montana. Again this emphasizes the significance of Montana State University being located in Bozeman. Bozeman and Gallatin County has transformed over the past decade from a primarily agricultural based community to a tourism related community. Bozeman and Gallatin County offers a high quality of life due to its low crime rate, offering of many cultural experiences, the presence of Montana State University and its education offerings. An abundance of outdoor activities that include excellent downhill snow skiing, world class fly fishing rivers, streams and access to numerous state and federally owned lands are all nearby. E c o n o m i c C o n s i d e r a t i o n s Bozeman, like many communities in Montana experienced significant growth in population and economy for a number of years. This area was affected by the national recession just like many other areas in the country however new growth and development has begun again and the outlook for Bozeman and the vicinity is quit positive based on a number of factors. C County seat of Gallatin County. C Wide range of skills in the labor force. C Home of Montana State University. •Well located in southwestern Montana. •Numerous recreational opportunities Bozeman is somewhat unique when compared to other communities in Montana because there are few employers who employ a large amount of the population. Missoula, Montana, as an example was very dependent on the lumber and timber industry and Butte, Montana had always relied heavily on the mining industry. When those industries slowed those communities were very heavily impacted. The primary employer in Bozeman is Montana State University. Other major sectors of the economy that provide employment are construction, local and state government, manufacturing, technology, agricultural and retail service. Montana State University currently employs about 3,500 people as permanent faculty/staff and they also employ over 2,000 students in part time work. In the fall of 2,013 the student enrollment at MSU was slightly over 15,000 J. Michael Joki, MAI, SRA HELENA, MONTANA 17 people which certainly has a significant affect on the local economy. Other major employers in Gallatin County include the State of Montana, Gallatin County, the City of Bozeman, Bozeman Deaconess Hospital, Right Now Technologies. With such a diverse employment base the local economy tends to be sheltered from a downturn in any of the Country’s key employment industries. In 2010 Bozeman was declared as the most expensive place to live in Montana based upon a report by Propera Business Network. This report stated that Bozeman’s 2009 cost of living was 4.4% above the national average. The other Montana cities that showed an overall cost of living above the national average were Missoula at 1.8% and Kalispell at 1.5%. Residential rent levels in Gallatin County have remained stable primarily due to the presence of Montana State University. Rents in this community will periodically show a slight decline however they tend to stabilize or even increase rather quickly due to the continued growth of Montana State University. Overall the economic growth has been much stronger in Bozeman and Gallatin County than what is being seen statewide. Historically the sectors in Bozeman and Gallatin County that show the most substantial growth are agricultural services, construction, manufacturing, finance, insurance, real estate and lodging. Currently the unemployment rate in Montana is 6.4% and Gallatin County recorded a slightly lower unemployment rate at 5.8%. Gallatin County’s labor force is currently estimated at 52,070 employees, the third largest labor force in Montana’s 56 counties. Over the past ±10 years residential building permit activity in the City of Bozeman was on the rise and reached its peak in 2005 and then began to decline over the next 5 years, and most significantly in 2008 and 2009. Residential building permits began to increase again in 2010 and have been on a steady incline. Bozeman has been experiencing new growth in several areas of town but no area has provided as much commercial real estate development at the 19th Avenue corridor. Recent stores and restaurants developed along 19th Avenue include Sportsman’s Warehouse, Lowes, IHOP, Bed Bath and Beyond, Staples, World Market and REI. Most recently a new Safeway grocery store (±58,000 SF) was completed in December, 2011 and a Kohls department store (±55,300 SF) was completed in October, 2011. The City of Bozeman facilities over the past 5 years have seen significant development and/or renovation which includes the fire stations, police station, waste water treatment facilities, the completion of a downtown parking garage, City of Bozeman Library, construction of the Gallatin County Detention Center, an expansion of the landfill building etc. Montana State University has also seen significant expansion and renovation which include a significant remodel of the football stadium, addition of the Molecular Biology Center, renovations to the Health and Physical Education Center, addition of the Black Box Theater, renovation of Gaines Hall etc. Tourism brings a significant number of visitors to the Bozeman area. Yellowstone National Park, the first national park in the United States, is located approximately 65 miles south of Bozeman. Big Sky Ski Resort is located approximately 45 miles south of Bozeman and has recently been listed as the seventh best J. Michael Joki, MAI, SRA HELENA, MONTANA 18 ski resort in the United States. This ski area averages over 300" of annual snowfall with skiing available November through April. The Yellowstone Club lies adjacent to Big Sky Ski Resort and is an exclusive vacation/residential development that includes both private skiing and golfing. This exclusive, private development had filed for bankruptcy in 2008 and in 2010 was purchased by Cross Harbor Capital and for several years saw significant decline in sales and values. However the private development has begun to rebound again as sales are starting to climb again. Other ski resorts in Gallatin County include Moonlight Basin which is also adjacent to Big Sky and Bridger Bowl which lies approximately 15 miles to the north of Bozeman. E n v i r o n m e n t a l C o n s i d e r a t i o n s Environmental and physical forces, both natural and man made, can influence property values. These forces include climatic conditions, topography and natural barriers, and transportation systems. Bozeman’s climate clearly reflects its mountain valley location. Bozeman truly has four seasons with its short summers being pleasant which are typically characterized by warm to hot days and cool nights. The average high temperature in the summer is in the upper 80°’s and the average low in the winter is the mid to lower 30°’s. Spring tends to come late in the Gallatin Valley as a of its annual precipitation ±19" falls during May and June. The average annual snowfall in Bozeman is ±72" and the average length of the growing season is about 107 days. The climate of the county varies according to elevation but is generally characterized by relatively cold winters and warm summers. Snow removal is a common operating cost that will affect real estate in the winter months. In contrast air conditioning costs are less during the fairly temperate summer months however heating bills can be quite high during the cold winter months. Bozeman is located on the south side of Interstate 90. Access to the south towards Yellowstone Park is via U.S. Highway 91. There are numerous other state highways and Gallatin County maintained roads that provide access throughout this region. Commercial air service, truck and rail transportation are considered to be adequate. Gallatin Field which is located in the adjacent community of Belgrade is the second busiest airport in the state and provides air service for this area. G o v e r n m e n t a l C o n s i d e r a t i o n s The City of Bozeman is a City Commission/City Manager form of government with an elected municipal judge. There are five commissioners elected with no party affiliation and are elected to a four year term which are overlapping. The City Commissioner elections are held every two years and the terms of the commissioners are staggered and the candidate who receives the most votes in an election becomes the mayor the last two years of their term. The City of Bozeman has approximately 40 police officers and the fire department has approximately J. Michael Joki, MAI, SRA HELENA, MONTANA 19 18 firefighters plus the Fire Chief, Deputy Chief/Marshall, and seven captains. There are three fire stations in the City of Bozeman and overall the fire and police protection services are considered to be good. The Department of Planning and Community Development processes applications for new development in the city limits. This department enforces the zoning regulations within the city limits of Bozeman. Gallatin County administers all zoning for properties outside the city limits and within the “zoning donut”. The Gallatin County Comprehensive Plan encourages development near the existing city limits and/or services and discourages development in more remote locations. In general the planning and zoning regulations in this area are considered stringent. C o n c l u s i o n Bozeman and Gallatin County has population and overall growth trends that are continuing upward. This area offers a wide variety of outdoor recreational opportunities, cultural resources, tourism, and coupled with the presence of Montana State University this area is poised for continued growth. Bozeman has a young and very well educated work force and coupled with its diverse economy the general outlook for Bozeman, Belgrade and the surrounding small communities is good. J. Michael Joki, MAI, SRA HELENA, MONTANA 20 N EI GH B O R H O O D D AT A AN D T R EN D S The subject property is located at the northern edge of the Bozeman city limits and lies between Interstate 90 and North 7th Avenue where it transitions into Frontage Road. The subject property is annexed into the city limits and zoned M-2 and is one of the largest industrial zoned vacant sites in the City of Bozeman. This site is adjacent to Frontage Road and North 7th Avenue which is one of the main transportation routes between Bozeman and Belgrade and for those who live in the valley north of Frontage Road. North 19th Avenue lies just to the west and across Interstate 90. There are I-90 interchanges at North 7th Avenue and North 19th Avenue which are both in proximity to the subject property. A new interchange is currently being constructed several miles to the west in front of the Bozeman-Yellowstone International Airport. The railroad tracks that pass through Belgrade parallel Interstate 90 to approximately North 19th Avenue and then lie between the subject property and Frontage Road, and then pass beneath North 7th Avenue and continue on through the northeastern edge of Bozeman. Reportedly there are approximately 25 trains a day passing the subject property. This rail line offers rail spur possibilities for those light industrial and manufacturing properties in this neighborhood. To the north/northwest of the subject property there are a number of residential subdivisions and the Riverside County Club. To the west and across Interstate 90 is North 19th Avenue which is heavily developed with commercial properties including restaurants, banks, retailers and is the location of most big box stores in Bozeman. Directly to the south of the subject property is 190 acres of land owned by DNRC (State of Montana) that are currently unimproved and there is a mix of light industrial and commercial properties continuing south into Bozeman. J. Michael Joki, MAI, SRA HELENA, MONTANA 21 The subject property in conjunction with the 190 acres of land owned by DNRC was a conceptual master plan being marketed for development with a mix of light industrial, office, retail and hotel buildings. This conceptual plan never “took hold” in the market and neither piece of land, the subject property nor the State owned land, have ever been developed. From this neighborhood other areas of Bozeman can easily be accessed. North 19th Avenue has turned into the main north/south corridor through Bozeman and leads directly to the western edge of the Montana State University Campus. North 7th Avenue also provides north/south travel through Bozeman and nearly all of the main east/west thoroughfare streets pass through North 19th Avenue and North 7th Avenue. Many of the long time farm and ranch operations that were located between Bozeman and Belgrade have been developed into residential subdivisions. There is still farmland in this area however it is being developed into residential developments as demand for this property type continues to grow and I expect commercial development will also continue to grow where land is available along North 19th Avenue or along West Main Street and towards the Four Corners area. City water and sewer services are readily available to those properties in the Bozeman city limits. Natural gas and electricity is provided throughout the neighborhood by Northwestern Energy. In this neighborhood I expect demand for commercial properties will remain good. There are other clusters of light industrial property to the southeast of the subject property that historically have been slow to develop. There are other areas around the fringe of Bozeman and areas closer to Belgrade and Four Corners that are more conducive to light industrial development because land prices are cheaper. Land values near the subject property have reached a level that make the financial feasibility of light industrial development challenging in this area. Overall I expect market conditions to continue to get stronger in the Bozeman/Belgrade market and this neighborhood is well situated to receive some of the new growth that is expected in this community. J. Michael Joki, MAI, SRA HELENA, MONTANA 22 P LO T P LAN J. Michael Joki, MAI, SRA HELENA, MONTANA 23 P R O P E R T Y D ESC R I P T I O N S i t e Size:As shown on the facing page the subject property is comprised of four tracts of land. Tract 1-A is 22.22 acres, Tract 2-A is 10.01 acres, Tract 3-A is 24.76 acres, and Tract 4-A is 28.36 acres. These total 85.35 acres. Shape:Irregular. Topography:Most of this land is level. There are areas that are elevated slightly above Red Wing Drive. Near the center of the site and just east of the building improvements Mandeville Creek, a seasonal creek, passes through the center of the subject property in a north/south direction and has created an area of high ground water and/or a wetland area. I confirmed the general location of the creek/wetland area with Brit Fontenot because at the time of my site inspection the subject property was very heavily snow covered. Soil Conditions:I was provided a copy of the Phase I Environmental Assessment and Engineering Report that was completed for either the City of Bozeman or the State of Montana. It was concluded in these documents that no significant impacts were found that would adversely affect the subject property. I have relied on these documents as being accurate and they are considered in my final market value estimates. Easements:No title policy was provided to your appraiser. A title policy should be used for the final determination of easements and encroachments. As shown on the facing page the Yellowstone Pipeline Company gas easement passes through the center of the site generally in an east/west direction. Access:Currently access to the subject site is from Red Wing Drive that parallels the north/northeast boundary of the subject property and lies between the subject property and the railroad right of way. Red Wing Drive is an unimproved and unmaintained road that can be accessed from North 7th J. Michael Joki, MAI, SRA HELENA, MONTANA 24 Avenue or from Frontage Road near the subject’s NWC. Neither intersection of Red Wing Drive has a traffic light. The access off of Frontage Road requires travel over the railroad tracks /railroad right of way and this is not a gated crossing. A copy of the October 19, 1925 document wherein Northern Pacific Railway Company is granting Gallatin County, Montana access over this crossing was provided to me by Brit Fontenot. As explained to me by Mr. Fontenot and as shown in this document access over the railroad tracks/railroad right of way can be denied by the railway company with six months notice. It appears this intersection as well as the intersection at North 7th Avenue would both need a significant amount of improvement before a multi-lot development could be built at this location. The City of Bozeman has had negotiations with DNRC (State of Montana) about accessing the subject property through their land via Wheat Drive or Flora Lane to the south. However these negotiations are not finalized as of the writing of this appraisal report and therefore these access points are not considered in the “as is” valuation estimate. However these access points are considered in the “as proposed” valuation estimate discussed later in this appraisal report. Utilities:Natural gas and electrical service are provided throughout this area by Northwestern Energy. In the addenda there is an aerial photograph showing the location of city water and sewer service on the subject property. On this photograph there is a blue line crossing through the eastern ¼ of the subject property in a north/south direction. I spoke with Dustin Johnson, PE from the City of Bozeman Planning Department and he explained this line depicts the location of the city water and sewer services. The sewer line is a transmission main only and can only serve land to the east of the sewer line so the western 75% of the subject property currently has no sewer service. City water lines are in the same location and could serve one building on this property however a second feed would be required to serve the remainder of the site if this property is ever developed into multiple lots. J. Michael Joki, MAI, SRA HELENA, MONTANA 25 Functional Adequacy:Currently the subject site is being leased to a local farmer who grows wheat on this property. Reportedly the access, topography and size (when coupled with the adjoining land to the south) serves well for this purpose. In terms of future development there are several challenges. As previously discussed access to this site is going to have to be greatly enhanced before development could occur, the Yellowstone Pipeline Company gas easement crosses through the site in an east/west direction and Mandeville Creek will create limitations when it comes time to develop this property. Also, this property has proximity to Interstate 90 but only its very SWC has interstate frontage. Nuisances or Hazards:To the south of the subject property is undeveloped land owned by the State of Montana. To the north/northeast is the railroad right of way with Frontage Road beyond. The very SWC of the subject property is adjacent to Interstate 90 and the North 19th Avenue corridor is beyond and to the west. These uses are typical to this mixed use commercial and light industrial area that is at the northern fringe of the Bozeman city limits. S i t e I m p r o v e m e n t s There is some old field fencing on site and several old farm buildings just on the south side of Red Wing Drive. These improvements were given no value when the City of Bozeman purchased this property in 2003 and currently see very little use and appear to be almost fully depreciated. The fencing and old farm buildings have been given no value in this appraisal report. J. Michael Joki, MAI, SRA HELENA, MONTANA 26 SU B J E C T P R O P E R T Y P H O T O GR AP H S Looking northwest on Red Wing Drive. Subject property is to the left and the railroad right of way is to the right. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. Photograph taken from the south property boundary and looking west across the subject property. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. J. Michael Joki, MAI, SRA HELENA, MONTANA 27 SU B J E C T P R O P E R T Y P H O T O GR AP H S Photograph taken from the south boundary and looking north over the subject property. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. Photograph taken from near the north boundary and near the center of the site and looking west across the subject property. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. J. Michael Joki, MAI, SRA HELENA, MONTANA 28 SU B J E C T P R O P E R T Y P H O T O GR AP H S Photograph taken from the SEC of the subject property and looking northwest over the subject property. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. Photograph taken from the North 19th Avenue off ramp from Interstate 90 and looking southeast at the subject property. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. J. Michael Joki, MAI, SRA HELENA, MONTANA 29 SU B J E C T P R O P E R T Y P H O T O GR AP H S Photograph shows where Red Wing Drive meets North 7th Avenue. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. Looking south on North 7th Avenue from near the intersection of Red Wing Drive. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. J. Michael Joki, MAI, SRA HELENA, MONTANA 30 SU B J E C T P R O P E R T Y P H O T O GR AP H S Photograph shows Red Wing Drive as it leads north towards the subject property. The railroad underpass/North 7th Avenue overpass is shown on the right. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. Photograph shows the intersection of Red Wing Drive and Frontage Road near the NWC of the subject property. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. J. Michael Joki, MAI, SRA HELENA, MONTANA 31 SU B J E C T P R O P E R T Y P H O T O GR AP H S Looking west on Frontage Road and at the North 19th Avenue overpass. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. Railroad crossing. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. J. Michael Joki, MAI, SRA HELENA, MONTANA 32 SU B J E C T P R O P E R T Y P H O T O GR AP H S Looking east at the railroad tracks. The subject property is to the right and Frontage Road is to the left. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. Photograph shows the NWC of the subject site and the North 19th Avenue overpass in the distance. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. J. Michael Joki, MAI, SRA HELENA, MONTANA 33 SU B J E C T P R O P E R T Y P H O T O GR AP H S Old farm buildings on the subject property. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. Fire hydrant on the south side of Red Wing Drive. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. J. Michael Joki, MAI, SRA HELENA, MONTANA 34 SU B J E C T P R O P E R T Y P H O T O GR AP H S Metal post depicting the location of the Yellowstone Pipeline Company gas easement. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. Photograph shows the cell tower located adjacent to the south property boundary. Photograph taken February 28, 2014 by J. Michael Joki, MAI, SRA. J. Michael Joki, MAI, SRA HELENA, MONTANA 35 Z O N I N G The subject site is zoned M-2 (Manufacturing and Industrial District). This district’s intent is to provide land for the manufacturing and industrial needs and for the general benefits of the City of Bozeman. The typical uses in a M-2 zoning district are automobile sales and service, automobile repair, hotel or motel, laboratories, light manufacturing, manufacturing and industrial use, truck, bus and rail terminal facilities, trade schools, warehousing etc. As shown in the copy of the zoning ordinance in the addenda there are additional conditional uses and accessory uses allowed by this zoning ordinance. Also shown in the document are the lot coverage/floor area ratios, minimum lot width, set backs and minimal building height requirements. J. Michael Joki, MAI, SRA HELENA, MONTANA 36 H I GH E ST AN D B E ST U SE "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."2 The definition above applies to the highest and best use of vacant land or improved property. It is to be recognized that in cases where a site has existing improvements on it, the highest and best use may very well be determined to be different from the existing use. The existing use will continue, however, unless and until land value in its highest and best use exceeds the total value of the property in its existing use. Quite often in estimating the highest and best use of land, the appraiser is controlled by governmental regulations. These controls are generally zoning ordinances, parking requirements and building codes. Also, in the estimate of highest and best use, one must recognize the attitude of typical investors in the marketplace. Real estate will usually fall into certain definite development patterns, and their uses can be classified as: residential, agricultural, recreational, industrial, commercial and public use. In valuing the highest and best use of the land both as if vacant and improved, the following criteria must be met. 1) legally permissible, 2) physically possible, 3) financially feasible, and 4) maximally productive. L e g a l l y P e r m i s s i b l e The subject property is currently zoned M-2 (Manufacturing and Industrial District) and this zoning ordinance allows for a wide range of uses however this type of land is primarily intended for development with light industrial, industrial and manufacturing uses. Several of the use classifications previously discussed can be eliminated from consideration. Residential and recreational use are not allowed by this zoning ordinance and therefore they can be eliminated from consideration. When the City of Bozeman purchased this property in 2003 the intended use was for a transfer station site. For various reasons this site is no longer needed for this use, nor for any other public agency use, and therefore public use can also be eliminated from consideration. Some forms of commercial use are a legally permissible use in the M-2 zoning however there is land in Bozeman that has better access and is better located for commercial development with typical retail or office use and therefore this use can also be reasonably eliminated from consideration. T h e A p p ra is a l o f R e a l E sta te, 1 2 E d itio n , (A p p ra isa l I n stitu te , 2 0 0 6 ), p . 3 0 5 .th2 J. Michael Joki, MAI, SRA HELENA, MONTANA 37 This leaves agricultural and industrial use as the remaining uses. P h y s i c a l l y P o s s i b l e Historically this land has been in an agricultural use. In 2003 the City of Bozeman purchased this land with the intent to use as a transfer station site however it was determined this was not the best location or use of this property so it was being marketed as a potential light industrial development in conjunction with the DNRC (State of Montana) land to the south. The marketing efforts never found a developer or buyer for this project and this land has remained in an agricultural use ever since. The one issue that has hampered development of this site is its access. Where Red Wing Drive meets Frontage Road near the NWC of the subject site access is required over railroad tracks that are not a gated crossing and neither road (Red Wing or Frontage Road) is currently designed to stack cars when a train is passing by. This intersection as well as the one at North 7th Avenue and Red Wing Drive would require significant improvement to provide adequate access to the subject site for a multi-lot development. I confirmed with Craig Campbell from DNRC that access agreements were reached between the City of Bozeman and DNRC, that were subject to several conditions before final approval, however they have since expired. Craig Campbell also reported to me that officials from the City of Bozeman have recently inquired about renewing the access agreements over their land but nothing official has begun yet. As shown in the addenda I have provided a copy of the preliminary plat that shows subdivision of the subject property into 22 light industrial lots. Dustin Johnson with the City of Bozeman explained to me that this preliminary plat status was granted in 2008 and one condition of approval was gaining access to the subject property across the DNRC land to the south. Obviously this never happened and the lots were never developed. Essentially, the subject site does not have adequate access that will allow for a multi-lot development at this time. F i n a n c i a l l y F e a s i b l e Market conditions in Bozeman have been improving over the past 18 to 24 months in comparison to when the national and local recession was taking effect. The City of Bozeman is naturally expanding to the north and to the west and the subject property is in direct proximity to some of the most recent development along North 19th Avenue corridor which lies directly across Interstate 90. The financial feasibility of the conceptual North Park Development which included the subject property and the DNRC land to the south was never put to the test per se because a buyer and/or developer was not found. Even with preliminary plat status for a 22 light industrial lot subdivision in place development of the subject site J. Michael Joki, MAI, SRA HELENA, MONTANA 38 will never occur until adequate access can be provided. Until adequate access can be provided the legally permissible, physically possible and financially feasible use of this property is for continued agricultural use. Most likely development of the subject site would be expensive when considering extension of city services, development of roads and the cost of the City of Bozeman impact fees. A light industrial development at this location has the potential of a long holding/sell out period and I suspect the development expenses would be difficult to cover considering the price of a typical light industrial lot near this location. M a x i m a l l y P r o d u c t i v e The use that conforms with the requirements of the first three tests is for continued agricultural use until better access to this property can be provided. Once adequate access is provided then development to a higher and better use may occur. J. Michael Joki, MAI, SRA HELENA, MONTANA 39 P R O P E R T Y VALU AT I O N Sufficient data was found in the market to employ the Sales Comparison Approach to value. In the Sales Comparison Approach an indication of value is derived by comparing the relative utility and desirability of the subject property with the comparable properties recently sold. Basic to this approach is the principle of substitution which states that "when a property is replaceable in the market, its value tends to be set by the price required to acquire an equally desirable substitute property." In this appraisal report unimproved land is valued. Therefore the Cost and Income Approaches to value are not applicable. SI T E VALU AT I O N The method employed to value the site as if vacant and available for sale is the Sales Comparison Approach. An investigation of the market revealed several sales and listings indicative of what a well- informed buyer or seller would consider in forming an opinion of value. Five sales of vacant land were chosen as being most appropriate to compare against the subject land. Descriptive data and photographs of these sales are contained in the Addenda. Ad j u s t m e n t s All comparables differ somewhat from each other, and from the subject in various ways. The usual differences are for cash equivalency, market conditions, location, and a number of physical characteristics. Many of these factors, in varying degrees, are applicable in the appraisal of the subject property. When dissimilarities are found in comparable properties, they are adjusted for by adding to the comparable price when the dissimilar factor is inferior to the same factor found in the subject property. Likewise, a minus adjustment should be made when the comparable sale has a factor which is superior to that found in the subject property. The sale properties, then, are adjusted to the subject property. However, in the market it is often difficult and sometimes impossible to accurately isolate a given factor. In short, one very seldom finds sales which are identical in all respects but one, and thus is able to prove conclusively the value, or lack of it, for any one factor due to a difference in sale price. Often, there are plus and minus factors which offset each other. Thus, the use of professional subjective judgment, to J. Michael Joki, MAI, SRA HELENA, MONTANA 40 some degree, may be exercised. Nevertheless, the differences in values are real and adjustments based on as much fact as can be found, will be made. Then, the appraiser may call upon his experience to make professional subjective judgments. P r o p e r t y R i g h t s Each of the sales involve fee simple property rights. As a result, no property rights adjustments were warranted. F i n a n c i n g : All sales were cash to the seller or on terms considered cash equivalent, and no adjustments were required. C o n d i t i o n s o f S a l e : No non-market conditions motivating the buyer or seller involved in the transactions are known, therefore no adjustments are required. E x p e n d i t u r e s I m m e d i a t e l y Af t e r S a l e : None of the sales required expenditures immediately after sale, and therefore no adjustments are required. M a r k e t C o n d i t i o n s : A market conditions (time adjustment) is required to bring all comparables up to the effective date of the appraisal report. Bozeman was experiencing significant decline in market values when the local and national recession was in effect. Since 2011 real estate values have rebounded in this market and new projects are being developed again and demand for unimproved land is beginning to outweigh the supply. I will utilize five comparables in the following analysis with three sales closing in 2012, one in 2013 and one pending sale. In my opinion these comparables are all indicative of current market value. I cannot find enough conclusive market evidence, i.e. paired sales analysis, to extract a monthly rate of appreciation. Each of the developers, real estate agents and real estate appraisers I interviewed in this market were of the opinion that market conditions are currently strong in Bozeman and there is more demand than supply of vacant J. Michael Joki, MAI, SRA HELENA, MONTANA 41 land, and values will at least remain stable and most likely appreciate in the foreseeable future. Because all of the sales used in the following analysis closed within 16 months of the effective date of this report I have not adjusted any of the sales for market conditions. R e m a i n i n g Ad j u s t m e n t s : The remaining adjustments will be explained in a qualitative analysis which is an effective technique that recognizes the inefficiencies of a real estate market and the difficulty in expressing the adjustments with mathematical precision. The adjustments included in the qualitative analysis are location, size, access, topography, creek/wetland area, city services and zoning. The land sales adjustment grid can be seen on the following page. J. Michael Joki, MAI, SRA HELENA, MONTANA 42 LAN D SALE LO C AT I O N M AP J. Michael Joki, MAI, SRA HELENA, MONTANA 43 LAN D SALE AD J U ST M EN T GR I D SU B JE C T S A L E 1 S A L E 2 S A L E 3 S A L E 4 S A L E 5 Sale Price $800,000 $1,050,000 $1,345,000 $2,000,000 $1,046,500 Size (acre)85.35 54.28 78.06 53.77 79.87 155.00 Price/AC $14,738 $13,451 $25,014 $25,041 $6,752 Date of Sale 10/1/12 11/20/12 10/31/13 Pending Sale 12/27/12 Market Adjustment -0--0--0--0--0- Adjusted Price $800,000 $1,050,000 $1,345,000 $2,000,000 $1,046,500 Adjusted Price/AC $14,738 $13,451 $25,014 $25,041 $6,752 Location N. 7th/Frontage Rd., East of I-90 N. of East Baxter, west side of Davis Lane North side of Durston, East of Gooch Hill E. Valley Center Rd., South of I-90 SWC of Baxter Land and Flanders Mill Rd. E. Hulbert Rd., ½ mi. east of Jack Rabbit Rd. Comparability Slightly Inferior Slightly Inferior Superior Slightly Inferior Inferior Size (acre) 85.35 54.28 78.06 53.77 79.87 155.00 Comparability Similar Similar Similar Similar Inferior Access Poor Good Good Good Good Good Comparability Superior Superior Superior Superior Superior Topography Generally Level Level Level Level Level Level Comparability Similar Similar Similar Similar Similar Creek/Wetland Mandeville Creek, wetland area Baxter Creek, wetland area Baxter Creek, wetland area None None Hyalite Creek & Pond Comparability Inferior Inferior Superior Superior Slightly Superior City Services Available to eastern 25% of site City water and sewer City water and sewer City water City water and sewer None Comparability Similar Similar Slightly Inferior Similar Inferior Zoning M-2 R-3/R-4 SFR-Low Density R-3 Will annex into city at closing None Comparability Superior Similar Superior Inferior Inferior Overall Comparability Similar Similar to Slightly Inferior Superior Superior Inferior J. Michael Joki, MAI, SRA HELENA, MONTANA 44 S a l e s An a l y s i s The subject property is an 85.35 acre site that is located at the northern fringe of the Bozeman city limits where North 7th Avenue transitions into Frontage Road. The only access to the subject property is via Red Wing Drive which is an unimproved road along the north/northeast boundary and requires access over a railroad crossing. Even though the subject property has M-2 zoning the access has essentially limited this property to an agricultural use until the access can be improved. Mandeville Creek passes through the eastern a of this site which has created some low lying land or wetland area on the subject property. A city sewer transmission main serves the eastern 25% of the subject property but the western 75% currently has no sewer service. A city water main crosses through the subject property next to the sewer transmission main but could only serve a portion of the property and a second feed would be required to develop the entire property. The Yellowstone Pipeline Company gas line easement passes through the subject property in an east/west direction which also creates some limitations to the future development of this property. Comparable No. 1 is the sale of the 54.28 acre site that sold on October 1, 2012 at $800,000 or $14,738/Ac. This sale is located on the western fringe of the Bozeman city limits and is a slightly inferior location when compared to the subject property. Comparable No. 1 has good access from the west side of Davis Lane which is superior to the subject property. Baxter Creek crosses through this site and it was estimated that 24 of the 54 acres, or 44%, is not developable because of wetland issues. This site is zoned R-3 and R-4 which has higher demand and higher density development potential than the subject’s M-2 zoning. City water and sewer service are adjacent to this site. When compared to the subject property Comparable No. 1 has superior access from a city street and has superior zoning. However this sale has a slightly inferior location and there is more land affected by wetland issues which allows for less land to be developed. On an overall basis this comparable is considered to be similar to the subject property. Comparable No. 2 is the sale of 78.06 acre site that sold on November 20, 2012 for $1,050,000 or $13,451/Ac. This site is also located on the western fringe of the Bozeman city limits and as compared to the subject property is considered to be a slightly inferior location. Comparable No. 2 has good access from Durston Road which is a city street. Baxter Creek crosses through most of this property and because of the set back requirements from the creek challenges and potentially higher development costs will be realized when this site is developed. This site has a single family residential - low density zoning which is considered to be similar to the subject property. City water and sewer service are adjacent to this site. Comparable No. 2 has superior access when compared to the subject property but it has a slightly inferior location and there appears to be more water issues on this property. Overall this sale is considered to be similar or slightly inferior when compared to the subject property. J. Michael Joki, MAI, SRA HELENA, MONTANA 45 Comparable No. 3 is the sale of the 53.77 acre site that sold on October 31, 2013 at $1,345,000 or $25,015/acre. This sale is located at the intersection of East Valley Center Road and Westlake Road at the northwestern fringe of the Bozeman city limits. This location is just west of the Gallatin Center and the newer Costco store that is just west of North 19th Avenue and clearly has a superior location when compared to the subject property. Comparable No. 3 is accessed from a city street, has no high water or wetland issues and was zoned R-3 which is a higher demand, higher density development zoning than the subject’s M-2 zoning. Comparable No. 3 is superior to the subject property in almost all aspects. Comparable No. 4 is the pending sale of the 79.87 acre site at $2,000,000 or $25,041/acre. Comparable No. 4 is located at the western fringe of the Bozeman city limits which is considered to be a slightly inferior location when compared to subject property. Comparable No. 4 has good access, no high water or wetland issues, and city services are adjacent to this site. At closing this site will be annexed into the city limits and adopt a zoning that will allow public use. Overall this sale is superior to the subject property. Comparable No. 5 is the sale of the 155 acre site that sold on December 27, 2012 at $1,046,500 or $6,752/acre. This sale is located on the north side of East Hulbert Road and approximately ½ mile east of Jack Rabbit Lane which is an inferior location when compared to the subject property. Sale No. 5 has superior access and no known wetland issues, however this is a significantly larger site, there are no city services and this site is not zoned. Overall this sale is considered to be inferior when compared to the subject property. Comparables No. 1 through No. 4 have a number of similarities when compared to the subject property, i.e. size, topography, creek/wetland area, city services etc. however the one glaring difference is their superior access. Comparable Sale No. 1 and No. 2 on an overall basis are the most similar to the subject property but again they have better access that will allow for further development of these properties. These comparables sold at $14,738/acre and $13,451/acre respectively. Sale No. 5 is the sale of a larger parcel of land that has an inferior location when compared to the subject property and sold for $6,752/acre. Sale No. 5 is more indicative of agricultural prices in Gallatin Valley. Sales No. 3 and No. 4 are both clearly superior to the subject property for the reasons previously stated and both sold near $25,000/acre. Because of the existing access to the subject property it is my opinion having the subject property divided into four lots, as shown on the plat map on page 23, creates no additional value. The existing access allows for little more than an agricultural use on this property. It is my opinion the “as is” or current market value of the subject site is between the price per acre of comparables No. 1, No. 2 and No. 5. Giving consideration to the subject’s location at the north end of the Bozeman city limits, its proximity to city services J. Michael Joki, MAI, SRA HELENA, MONTANA 46 and its M-2 zoning I’m still of the opinion this property has a current market value that is more or less indicative of an agricultural use or $10,000/acre. $10,000 x 85.35 acres = $853,500 “AS P R O P O SED ” VALU E EST I M AT E I have been asked to provide an “as proposed” value estimate of the subject property as if there were adequate access to further develop this property to a higher and better use i.e. light industrial development. On the next page I have provided a map showing an aerial view of the subject property and this proposed access coming from either Wheat Drive or Flora Lane to the south and crossing through the adjoining DNRC (State of Montana) owned land. The proposed accesses are highlighted in red on the following map. J. Michael Joki, MAI, SRA HELENA, MONTANA 47 With this scenario access is gained to the subject property from Wheat Drive or Flora Lane. As shown on the map this is still a circuitous way to access the subject property. Access is still not gained from North 7th Avenue or Frontage Road which are the major traffic streets abutting the subject property, and there is still limited exposure to Interstate 90. In addition to the typical costs to develop this type of property there would be additional costs because of the long stretch of road that would be built between the subject property and Wheat Drive or Flora Lane, and as previously discussed the holding period for a development on this property could be long. A light industrial development at this location would have its challenges because of the development costs and the City of Bozeman impact fees, and light industrial lot prices in this area may not be high enough to make this type of development feasible at this location. I will analyze the same five sales used to estimate the “as is” market value of the subject property used earlier in this appraisal report. If there were better access to the subject property comparables sales No. 1 and No. 2 could be considered as slightly inferior to the subject property because of their location and they have more wetland issues. Comparable Sale No. 5 would clearly be inferior to the subject property because of its location, larger size, lack of city services and zoning. I am still of the opinion that Sale No. 3 and No. 4 are superior to the subject property because of their location, zoning or they have no wetland issues. Considering this market data it is my opinion a reasonable “as proposed” value estimate would be no lower than the price J. Michael Joki, MAI, SRA HELENA, MONTANA 48 per acre indicated by Sale No. 2 or $13,451/acre, and no higher than the price per acre indicated by Sale No. 4 or $25,041/acre. Giving slightly more emphasis to the lower end of the value range it is my opinion a reasonable market value estimate for the subject property is $18,000/acre as proposed. As previously explained there is a Buy-Sell Agreement in the addenda where the buyer has offered to pay $1,280,550 for this 85.35 acre site which equates to a value of $15,000/acre. As shown in the additional provisions section of this document this offer is contingent upon the City of Bozeman approving a preliminary plat and vehicular/pedestrian access being provided to this site. Essentially the buyers are willing to pay $15,000/acre assuming they can be granted adequate access that would allow preliminary plat approval for further development of this property. In my opinion the purchase price being offered in the Buy-Sell Agreement is slightly below the market value of the subject property if it had better access from Wheat Drive or Flora Lane. Considering this information it is my opinion the “as proposed” value estimate of the subject property is $18,000/acre. $18,000 x 85.35 = $1,536,300 J. Michael Joki, MAI, SRA HELENA, MONTANA 49 VALU E EST I M AT E AN D C E R T I F I C AT I O N The undersigned does hereby certify that, to the best of his knowledge and belief, except as otherwise noted in this appraisal report: 1.the statements of fact contained in this report are true and correct. 2.the reported analysis, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and/or those found in the letter of engagement or appraisal consultation contract authorizing this report and are my personal, impartial, and unbiased professional analysis, opinions, and conclusions. 3.I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. 4.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. 5.I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. 6.my engagement in this assignment was not contingent upon developing or reporting predetermined results. 7.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. This appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. J. Michael Joki, MAI, SRA HELENA, MONTANA 50 8.my analysis, opinions and conclusions were developed, and this report has been prepared, in conformity with The Uniform Standards of Professional Appraisal Practice and with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. 9.the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 10.as of the date of this report, I, J. Michael Joki, have completed the requirements of the continuing education program of the Appraisal Institute. 11.I have made a personal inspection of the properties that are the subject matter of this report. 12.no one provided significant real property appraisal assistance to the person signing this report. 13.I am currently licensed in the State of Montana (Certificate #152) as a Certified General Real Estate Appraiser, and hold the MAI and SRA designations conferred by the Appraisal Institute. Regarding the Competency Provision of USPAP I further attest that over the past 27 years I have had substantial approved education and experience in the appraisal of residential and commercial properties. Specifically I have appraised a variety of residential, industrial and commercial tracts of land in western Montana. Based on my analysis, the “as is” market value of the subject property with access only from Red Wing Drive, as set forth, documented and qualified in the attached report under conditions prevailing on February 28, 2014 was: Ei g h t H u n d re d F i f t y -T h r e e T h o u s a n d F i v e H u n d r e d D o l l a r s $853,500 * J. Michael Joki, MAI, SRA HELENA, MONTANA 51 AD D EN D A J. Michael Joki, MAI, SRA HELENA, MONTANA COMPARABLE LAND SALE NO. 1 JOKI & ASSOCIATES REAL ESTATE APPRAISERS PO Box 281, Helena, MT 59624, (406) 442-2159 Location: West side of Davis Lane and just north of East Baxter Lane in Bozeman, Montana. Site Data: 1. Size : 54.28 acres 2. Zoning: R-3/R-4 Photo Data: 1. Date: February 28, 2014 2. Taken From: Davis Lane 3. Facing: West 4. Taken By: J. Michael Joki, MAI, SRA 5. Comp: Boz 014 Current Use: Unimproved Legal Description: Lot 2A1 of COS No. 2202C, City of Bozeman, Gallatin County, Montana. Grantor: First Interstate Bank Grantee: Michael Tracy Recorded Sales Price: $800,000 Confirmed Sales Price: $800,000 Instrument: Warranty Deed Confirming Party & Phone No.: Broker - Jason Leap Recorded: October 1, 2012 (406) 556-5005 Recording Info.: 2427941 Confirmed By: J. Michael Joki, MAI, SRA Financing: Cash to the Seller Confirmation Date: March 13, 2014 Property Description: This 54.28 acre site is located on the west side of Davis Lane just north of East Baxter Lane and at the western fringe of the Bozeman city limits. This site is accessed from a city maintained street and is zoned with a combination of R-3 and R-4 multi-family residential zoning. A nearby lift station provides city sewer service to the edge of the property and city water lines are adjacent to the site. Approximately 24 of the 54.28 acres is undevelopable due to high ground water and/or wetlands which leaves approximately 30 acres for development. This property was bank owned however it was still on the market for over 750 days. Indication At Time Of Sale: $800,000 ÷ 54.28 acres = $14,738/acre COMPARABLE LAND SALE NO. 2 JOKI & ASSOCIATES REAL ESTATE APPRAISERS PO Box 281, Helena, MT 59624, (406) 442-2159 Location: 3662 Durston Road in Bozeman, Montana. This site is located on the north side of Durston Road and just east of Gooch Hill Road. Site Data: 1. Size : 78.06 acres 2. Zoning: SFR-Low Density Photo Data: 1. Date: February 28, 2014 2. Taken From: Durston Road 3. Facing: North 4. Taken By: J. Michael Joki, MAI, SRA 5. Comp: Boz 015 Current Use: Unimproved Legal Description: Lot 2 and Lot 3 of Minor Subdivision No. 201, City of Bozeman, Gallatin County, Montana. Grantor: Hinesley Family LTD Partnership Grantee: Four Corners Construction, LLC Recorded Sales Price: $1,050,000 Confirmed Sales Price: $1,050,000 Instrument: Trustees Deed Confirming Party & Phone No.: Grantee - John Rosa - Recorded: November 20, 2012 Four Corners Construction Recording Info.: 2432709 Confirmed By: Keith O’Reilly, MAI Financing: Cash to the Seller Property Description: This 78.06 acre site is located on the north side of Durston Road and at the western fringe of the Bozeman city limits. This site has good access from a city street, has level topography and was zoned Single Family Residential-Low Density. City sewer service is available from a nearby lift station and city water lines are adjacent to the site. Baxter Creek flows through the southern portion of Lot 3 and the northern portion of Lot 2 and has 70' watercourse setbacks and makes a portion of this site undevelopable. Indication At Time Of Sale: $1,050,000 ÷ 78.06 acres = $13,451/acre COMPARABLE LAND SALE NO. 3 JOKI & ASSOCIATES REAL ESTATE APPRAISERS PO Box 281, Helena, MT 59624, (406) 442-2159 Location: 4900 Westlake Road in Bozeman, Montana. This site is located at the intersection of East Valley Center Road and Westlake Road and on the south side of Interstate 90. Site Data: 1. Size : 53.77 acres 2. Zoning: R-3 Photo Data: 1. Date: November 21, 2013 2. Taken From: North 27th Avenue 3. Facing: West 4. Taken By: J. Michael Joki, MAI, SRA 5. Comp: Boz.008 Current Use: Unimproved Legal Description: Lot 2A of Minor Subdivision No. 221E, being the corrected plat of Lots 1 and 2 of Minor Subdivision No. 221, a tract of land located in the SW¼ of Section 26, Township 1 South, Range 5 East, Gallatin County, Montana. Grantor: Jerald E. Swenson Grantee: Valley Center, LLC Recorded Sales Price: $1,345,000 Confirmed Sales Price: $1,345,000 Instrument: Warranty Deed Confirming Party & Phone No.: Listing Agent - Jason Basye Recorded: October 31, 2013 (406) 587-7653 Recording Info.: 2467102 Confirmed By: J. Michael Joki, MAI, SRA Financing: Cash to the Seller Confirmation Date: November 22, 2013 Property Description: This 53.77 acre site is located on the south side of Valley Center Road and has good exposure to Interstate 90 which is directly to the north. This site is level at road grade with Westlake/Valley Center Road along the north boundary, and North 27th Avenue along the east boundary. This site has relatively level topography and has historically been in an agricultural use. This site is located on the northwestern fringe of the Bozeman city limits and sits just west of a large retail commercial development known as the Gallatin Center and a new Costco store. The listing agent confirmed the one issue that slowed the sale of this property was access to city sewer service. It is my understanding the buyer of this site will pay $50,000 towards a water and sewer analysis and will be required to install a sewer lift station. The buyer’s prorata cost of the sewer service is estimated at $150,000. Extension of the sewer service will be required to develop this site to its highest and best use which is for residential subdivision. City water service is available and the site was annexed into the city limits before the sale closed. This property was listed for sale at $1,450,000 and sold for $1,345,000 after being on the market for 463 days. Indication At Time Of Sale: $1,345,000 ÷ 53.77 acres = $25,014/acre COMPARABLE LAND SALE NO. 4 JOKI & ASSOCIATES REAL ESTATE APPRAISERS PO Box 281, Helena, MT 59624, (406) 442-2159 Location: SWC of Flanders Mill Road and East Baxter Lane in Bozeman, Montana Site Data: 1. Size : 79.87 acres 2. Zoning: See Comments Photo Data: 1. Date: February 28, 2014 2. Taken From: Baxter Lane 3. Facing: Southwest 4. Taken By: J. Michael Joki, MAI, SRA 5. Comp: Boz 016 Current Use: Unimproved Legal Description: Northern portion of Tract 1A as shown on Certificate of Survey No. 2554A, Gallatin County, Montana. Grantor: Vesta Anderson Grantee: Soccer Education Foundation, Inc. Sales Price: $2,000,000 Confirmed Sales Price: $2,000,000 Instrument: Pending Sale Confirming Party & Phone No.: Broker-Paul Rubright Recorded: Closing end of April, 2014 (406) 580-9163 Recording Info.: N/A Confirmed By: J. Michael Joki, MAI, SRA Financing: Cash to the Seller Confirmation Date: March 14, 2014 Property Description: This 79.87 acre site is located at the intersection of Flanders Mill Road and East Baxter Lane and at the western fringe of the Bozeman city limits. The broker confirmed this site lies adjacent to the Bozeman city limits and will be annexed into the city upon closing. City sewer and water mains lie adjacent to this site. Once the sale has closed and the site is annexed into the city limits it will adopt a city zoning ordinance that will allow public use as the intended use for this site is to be developed with a soccer facility. Reportedly there are no wetland or high water table issues on this land. The broker reported that this site has been marketed for sale for at least 2 years. Indication At Time Of Sale: $2,000,000 ÷ 79.87 acres = $25,041/acre. COMPARABLE LAND SALE NO. 5 JOKI & ASSOCIATES REAL ESTATE APPRAISERS PO Box 281, Helena, MT 59624, (406) 442-2159 Location: 1691 East Hulbert Road in Bozeman, Montana. Site Data: 1. Size : 155.00 acres 2. Zoning: None Photo Data: 1. Date: January 2, 2014 2. Taken From: East Hulbert Road 3. Facing: Northeast 4. Taken By: J. Michael Joki, MAI, SRA 5. Comp: Boz 011 Current Use: Farm Land Legal Description: Very lengthy - See attached Warranty Deed Grantor: F irst In tersta te B a n k , a M o n tana B ank in g C o rp. Grantee: Robin & Larinda Spaulding Recorded Sales Price: $1,046,500 Confirmed Sales Price: $1,046,500 Instrument: Joint Tenancy Warranty Deed Confirming Party & Phone No.: Listing Agent - Jerry Pape Recorded: December 27, 2012 (406) 579-3636 Recording Info.: 2436228 Confirmed By: J. Michael Joki, MAI, SRA Financing: Cash to the Seller Confirmation Date: January 6, 2014 Property Description: This 155 acre parcel is level at road grade and is currently functioning as farm land. This site is located on the north side of East Hulbert Road and approximately ½ mile east of Jack Rabbit Lane. This site has a pond and Hyalite Creek passes through this site. Reportedly there are numerous, very good water rights associated with this property. This property was sold in 2006 at the height of the market for approximately $35,000/Ac. with intention to be developed into a large residential subdivision. This property eventually went back to the lender and was most recently listed for sale at $2,100,000 and sold for $1,046,500 after 590 days on the market. This property was a portion of a much larger parcel of land for the intended subdivision from 2006 and this was the last piece of that parcel to sell. Indication At Time Of Sale: $1,046,500 ÷ 155 acres = $6,752/Ac.