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Story Mill Project-02-14, Bridger Template, N1Report-Bridger Update
AN APPRAISAL REPORT OF: Story Mill Project 75 Bridger View Dr., 980 E. Griffin Dr., 1869 Story Mill Rd., TBD E. Griffin, TBD Bryant St. and TBD. Bozeman, MT 59715 FILE NO.: C02051420 PREPARED FOR: Ms. Madeline Pope The Trust for Public Land 111 S. Grand Ave Suite 203 Bozeman, MT 59715 PREPARED ON: March 6, 2014 EFFECTIVE DATE OF VALUATION: February 24, 2014 PREPARED BY: Keith O'Reilly, MAI, MT-400 Bridger Appraisals, Inc. P.O. Box 11145 Bozeman, MT 59719 March 6, 2014 The Trust for Public Land 111 S. Grand Ave Suite 203 Bozeman, MT 59715 Re: Story Mill Project Bozeman, MT 59715 Dear Ms. Madeline Pope, In accordance with your request and authorization, I have viewed the referenced properties, also referred to as the appraised or subject properties in the following report, and have estimated their current Fee Simple values, “As Is” as of February 24, 2014. My professional opinion is based upon analysis of market data gathered for this purpose and upon the assumptions and limiting conditions stated on pages 6-8 of the following report. This is an Appraisal Report as defined by Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2(a). This format provides a summary of the appraisal process, subject and market data and valuation process. 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 properties, comparable properties, and analysis of all pertinent data. This appraisal is of 9 parcels of land, since some of the parcels are being valued together, I have separated the values into four tracts of land. For instance Tract 1 is a combination of Parcels 1 and 2, since it is highly probable they would be sold together. Tract 2 consists of Parcels 3, 4 and 5 since Parcels 3 & 5 is a section of land being acquired via a swap and plotted together with Parcel 4. Tract 3 is the M-1 (light industrial tract of land) referred to in the report as Parcel 6. Tract 4 is comprised of Parcels 7, 8 and 9 or a 8.5025acre tract of R-4 land. 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 February 24, 2014, is: ONE MILLION THREE HUNDRED FIFTEEN THOUSND DOLLARS ($1,315,000) TRACT 1 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 February 24, 2014, is: SEVEN HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($775,000) TRACT 2 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 February 24, 2014, is: FOUR HUNDRED FORTY FIVE THOUSAND DOLLARS ($445,000) TRACT 3 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 February 24, 2014, is: FOUR HUNDRED TWENTY FIVE THOUSAND DOLLARS ($425,000) TRACT 4 The sum of the five tracts of lands equals $2,960,000, which I believe to be “Market Value” as of the effective date of the appraisal. There is no market evidence supporting any bulk discount for the subject properties, simply because of the different Highest and Best Use for each individual tract. Quite frankly the subject tracts are not typical of tracts that would be plotted together when they could more easily be sold off as individual parcels. In addition the estimated exposure time is less than 12 months for each parcel. The concluded Highest and Best Use does not support plotting all the subject sites together for one development, thus, the sites were valued individually. The following report contains (72) 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. AIREIAL OF THE SUBJECT PROPERTY .................................................................................. 6 ASSUMPTIONS AND LIMITING CONDITIONS ...................................................................... 9 SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ............................................... 12 SCOPE OF THE APPRAISAL .................................................................................................... 14 PURPOSE AND INTENDED USE AND USER OF THE APPRAISAL ................................... 15 DEFINITION OF MARKET VALUE ......................................................................................... 15 PROPERTY RIGHTS APPRAISED ............................................................................................ 16 EXPOSURE TIME ....................................................................................................................... 17 VALUATION DATE ................................................................................................................... 17 IDENTIFICATION AND HISTORY OF THE SUBJECT .......................................................... 18 SITE DATA AND ANALYSIS.................................................................................................... 32 ZONING AND GOVERNMENT RESTRICTIONS ................................................................... 39 PHOTOGRAPHS OF THE SUBJECT ......................................................................................... 40 HIGHEST AND BEST USE ........................................................................................................ 44 THE APPRAISAL PROCESS ...................................................................................................... 46 SALES COMPARISON APPROACH ......................................................................................... 47 FINAL RECONCILIATION ........................................................................................................ 69 CERTIFICATION ........................................................................................................................ 71 ADDENDUM Additional Sales Special Warranty Deed--The Trust for Public Land properties Warranty Deed--Wake Up, Inc. properties Resume Current License Engagement Letter Bridger Appraisals Inc. © 6 Keith O’Reilly, MAI AERIAL OF THE SUBJECT PROPERTIES Tract 1 (Parcels 1 & 2) - 20.223 acres Tract 2 (Parcels 3, 4 & 5) including 3.94 acres acquired and the stated 16.522 acres as owned by The Trust for Public Land, total of 20.462 acres Tract 3 (Parcel 6), 5.177 acres--3.10 acres are useable Tract 4 (Parcels 7, 8 & 9) Total of 8.5025 acres Bridger Appraisals Inc. © 7 Keith O’Reilly, MAI Tract 1 Tract 2 Tract 3 Tract 4 Bridger Appraisals Inc. © 8 Keith O’Reilly, MAI Bridger Appraisals Inc. © 9 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 descriptions, as furnished, are correct; and that the titles to the properties are good and marketable. All existing liens and encumbrances, if any, have been disregarded. The properties are 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 properties described and that there are no encroachments or trespasses 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 predicted on the absence of any such conditions occurring. 5. It is assumed that the subject properties conform 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. © 10 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 properties. I have no knowledge of the existence of such materials on or in the properties. I am not qualified to detect such substances. The presence of potentially hazardous materials may affect the value of the properties. 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 properties. 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. © 11 Keith O’Reilly, MAI 4. Included as an integral part of this report are maps and photographs of the appraised properties and sales. The maps and photographs were prepared and taken by the appraisers or provided to the appraisers, and although they do not purport to represent survey accuracy, they are substantially correct and adequately serve as visual reference to the properties. 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 Appraiser’s 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 property is suitable for intended use. The appraiser makes no representations, guarantees or warranties. Bridger Appraisals Inc. © 12 Keith O’Reilly, MAI SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS Client: Madeline Pope, The Trust for Public Land Intended User: The Trust for Public Land Owner of Property: The Trust for Public Land (as to Tracts 1, 3, 4 and a portion of Tract 2) Wake Up, Inc. (as to a portion of Tract 2--property is to be acquired by The Trust for Public Land at the conclusion of the land swap as discussed within report) Date of Valuation: February 24, 2014 Date of Preparation: March 6, 2014 Rights Appraised: Fee Simple Legal Description: Retained in appraiser's work file. Location of Property: 75 Bridger View Dr., 980 E. Griffin Dr., 1869 Story Mill Rd., TBD E. Griffin, TBD Bryant St. and TBD., Bozeman, MT 59715 Improvements: There are no vertical improvements (buildings) that contribute to the market value. Zoning/Governmental: Mostly R-4 with the exception of one piece that is M-1. See zoning section of the report. Site Shape and Size: The sites are irregular in shape. They contain a total approximate acreage of 54.3645 acres or 2,368,117.6 square feet. Environmental: There are no known adverse environmental conditions on the subject sites. Please reference Limiting Conditions and Assumptions. Bridger Appraisals Inc. © 13 Keith O’Reilly, MAI Market Status: There has been more real estate activity in the last 12 to 18 months than in the preceding years. The real estate market peaked in 2006 and then began to decline up until about mid- 2011. The real estate market experienced significant gains in 2013. The residential market has strengthened considerably. The oversupply of residential building sites has been absorbed, in fact now there is more demand than supply for residential building sites. The overall commercial market has also improved. Commercial rental rates and values have been increasing. Estimated Exposure Time: 6-12 months Estimated exposure time is based on current sales of residential and commercial properties within the Bozeman area that are similar to the subject. The estimated exposure time is predicated on the final opinion of value. The estimated exposure time is for each tract being appraised of which there are four. Bridger Appraisals Inc. © 14 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 sites and considered pertinent characteristics of the site in comparison to current market standards. I have analyzed the subject neighborhood and competing markets for current sales data. The cost approach and the income approaches to value are not applicable to the subject properties. Local commercial real estate agents and brokers were consulted with to confirm sales and lease information. The offices and brokers include Mike McKenna (McKenna Realty), Dick Stefani (Bozeman Broker Group), Steve Olson (NAI Landmark Reality), Chris Pope (NAI Landmark Reality), Mike Elliot (Grub & Ellis), Kasey Hart (NAI Landmark Reality) and Tom Starner and Kevin Black (Gene Cook Real Estate). In addition I have reviewed engineering work and spoke with Cordell Pool of Stahly Engineering. I have relied on the conversation and maps provided by Stahly Engineering in considering in factors regarding water and sewer or gas line easements. I interviewed the owner/proposed owner of the subject properties, and I viewed the subject sites on February 24, 2014. 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 properties as if vacant, and have applied the sales comparison approach valuation method. The result 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. Neither the cost approach nor the income approach to value are applicable to valuing the subject properties. This is an Appraisal Report as defined by Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2(a). This format provides a summary of the appraisal process, subject and market data and valuation process. 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. Bridger Appraisals Inc. © 15 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 Interests, “As Is” as of February 24, 2014 , 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 and Intended User, The Trust for Public Land, in selling the subject properties. The City of Bozeman is an additional intended user of the appraisal report. 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 1Source: Federal Register, vol. 55, August 22, 1990, also quoted in the Uniform Standards of Professional Appraisal Practice. The Dictionary of Real Estate Appraisal, 4th ed. (Chicago; Appraisal Institute, 2002), pp. 177-178. Bridger Appraisals Inc. © 16 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 are the Fee Simple Interests. 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: An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by contract terms contained within the lease.3 2 The Dictionary of Real Estate Appraisal, op. cit., p. 113. 3 The Dictionary of Real Estate Appraisal, op. cit., p. 161. Bridger Appraisals Inc. © 17 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 properties 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 properties, 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 properties. Due to the size of the Bozeman market, the best estimate for exposure time is derived from sales of similar type properties. Based upon the current market conditions, sales data within the report and current listings, I have estimated the exposure time for the subject properties to be 6-12 months. The exposure time is for each parcel of land independently. VALUATION DATE The effective date of the appraisal is February 24, 2014. This is the date of valuation and the date that the subject properties were personally viewed. Bridger Appraisals Inc. © 18 Keith O’Reilly, MAI IDENTIFICATION AND HISTORY OF THE SUBJECTS The legal description of the subject properties has been retained in the appraiser's work file. Sale History: Portions of the subject sites transferred on 12/28/2012 as part of a larger transaction. The current owner, The Trust for Public Land was the purchaser and American Bank was the seller; this was an REO sale. The total site size of this sale was approximately 61 acres and the sales price was undisclosed. Parcel 3 and Parcel 5 as identified within the appraisal report will be acquired by The Trust For Public Land at the conclusion of the planned land swap with Wake Up, Inc. Current Listing or Contract: The subject properties are not currently under contract for sale. However, The Trust for Public Land is intending to sell the properties to the City of Bozeman for open space park land. Bridger Appraisals Inc. © 19 Keith O’Reilly, MAI MONTANA REGIONAL AND CITY MAPS Subjects Bridger Appraisals Inc. © 20 Keith O’Reilly, MAI Bridger Appraisals Inc. © 21 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 properties compete 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 is a mountainous area that is located in the southwestern part of the state between Park and Madison Counties, north of the Montana-Wyoming border and Yellowstone National Park. In the past decade, Gallatin County has grown faster than any other county in the State of Montana and according to the 2010 Census 89,513 people called Gallatin County home. Gallatin County covers 2,500 square miles of mountainous lands varying in topography and climate. Additionally, nearly half of all of the land in Gallatin County is under public ownership by the Gallatin National Forest, State of Montana, Bureau of Land Management or the National Park Service. 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. Bozeman is the fourth largest city in Montana. In 2007, Gallatin County’s population surpassed that of Flathead County, making it the state’s third largest county. A report by Prospera Business Network that was released February 2010 declared Bozeman as the most expensive place to live in Montana. 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 the State of Montana: According to the U.S. Census Bureau, the City of Bozeman's population increased from 27,509 in 2000 to 37,280 as of April 1, 2010-- an increase of 9,771 people. This represents an increase in population of approximately 35.5% over a ten-year period, or an average rate of growth of about 3.55% per year. In contrast, the City of Bozeman’s average growth rate between 1980 and 1990 was about 0.41% 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. Bridger Appraisals Inc. © 22 Keith O’Reilly, MAI Gallatin County's population increased from 67,831 in 2000 to 89,513 in 2010 - an increase of 21,682 people. This represents an increase in population of approximately 32% over a ten-year period, or an average growth rate of 3.2% per year. The entire state of Montana grew by 9.7% to 989,415 residents as of April 1, 2010—adding 87,220 people over the last 10 years. Montana continues to be ranked 44th among the 50 states in population. Pop. Est. *Census Census Geography 2011 April 1, 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 April 1, 2000 Gallatin County 91,377 89,513 90,343 89,812 87,300 84,498 80,708 77,439 74,723 72,000 70,196 67,831 34.7% Belgrade 7,549 7,389 8,192 8,169 8,025 7,632 7,329 7,290 7,039 6,742 6,411 5,728 31.8% Bozeman 38,025 37,280 39,282 39,004 37,643 36,668 34,698 33,269 31,545 30,018 28,917 27,509 38.2% Manhattan 1,553 1,520 1,677 1,684 1,603 1,619 1,572 1,580 1,540 1,497 1,486 1,396 11.2% Three Forks 1,909 1,869 1,970 1,980 1,967 1,973 1,949 1,963 1,896 1,829 1,800 1,728 10.5% West Yellowstone 1,298 1,271 1,502 1,510 1,434 1,287 1,264 1,265 1,244 1,218 1,195 1,177 10.3% Balance Gallatin Cty 41,043 40,184 37,720 37,465 36,628 35,319 33,896 32,072 31,459 30,696 30,387 30,293 35.5% % Change 2000 and 2011 Population Estimates* Source: U.S. Census Bureau, Population Estimates Program and Census Information *Taken July 1 of respective year 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 was approximately 12,318.9 acres (19.25 square miles) in size resulting in a 91 percent increase in size over the past 19 years. In 2009 and 2010 the annexation rate was of 0.43 acres and 0.00 acres resepectfully. The Bozeman DPCD received three annexation applications in 2010; and at the end of 2010 all three remained under review. The City has a reserve of developable land within its current boundaries. The City has not updated the amount of land annexed in 2012 and 2013, but it would appear to be a nominal amount. Bridger Appraisals Inc. © 23 Keith O’Reilly, MAI 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 2.27 people, while the average household size for Gallatin County is 2.49 people. Just over half of Bozeman households are families compared to 63% countywide. 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 51.1% of Bozeman residents’ ages 25 and older have a college degree, compared to 39% for Gallatin County and 27.9% for the State of Montana. Bozeman and Gallatin County have transformed over the past decade from a primarily agricultural based community to a tourism related community. The drive to the Bozeman and Gallatin County area has been due to the high quality of life that this area offers. This quality of life is due to low crime rates, the offering of many cultural experiences and abundant outdoor activities. Having many outdoor activities is due to excellent snow skiing developments, world class fly fishing rivers and streams, miles of hiking trails and land for almost any other outdoor recreation that comes to mind. Economic Factors: Historically, Bozeman has been somewhat different than the rest of the State of Montana and the nation as a whole economically speaking. One of the primary reasons of this difference is the fact that there are not a large number of employers who employ a significant amount of the population. For example, other areas of Montana, like Missoula, are very dependent on the lumber industry and when the lumber industry slowed, Missoula felt the impact. In contrast, the primary employer in Bozeman is Montana State University. The economy of Bozeman and Gallatin County is both broad based and diverse, with 5,305 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 3,500 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 2013, the enrollment at MSU was 15,294 students which is at an all time high at MSU. 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, RightNow (Oracle) Technologies and Wal-Mart. As the county’s employment base continues to diversify, the local economic health will be buffered from a downturn in any of the county’s key industries. Bridger Appraisals Inc. © 24 Keith O’Reilly, MAI Bridger Appraisals Inc. © 25 Keith O’Reilly, MAI Economic Development: The North 19th Avenue Corridor has evolved as a significant area of commercial real estate development in Bozeman. In 2007 the following retail stores and restaurants opened along North 19th Avenue: Sportsman’s Warehouse, IHOP, Lowe’s, Bed Bath & Beyond, Staples, REI. Safeway grocery chain (58,000sf) opened in 2011 and Kohls opened the 55,363sf department store at the end of 2010. At the Montana State University campus construction on the $10 million football stadium expansion has been finished. Other developments to Montana State University that had significant development in Bozeman included a new Molecular Biology Center ($458,000), a Health and Physical Education Center ($4.9 million), the Black Box Theater ($1.2 million), the Marsh Laboratory ($2.0 million), the biology building ($25 million), the Gaines Hall renovation ($28.5 million) and the newer USDA Ag Research Building and Teaching Facility ($36.5 million). MSU also received a $25 million dollar donation to construct a new building for the College of Business that began construction in the summer of 2013. Bridger Appraisals Inc. © 26 Keith O’Reilly, MAI Significant developments to the City of Bozeman over the past five years have included an addition to Fire Station No. 1 ($3.5 million), police station ($400,000), additions to the water/wastewater treatment plants ($32.2 million), additions to city hall ($3.0 million), the completion of the Downtown Parking Garage ($12 million), the construction of the Fire Station No. 3 and Gallatin County 911 Dispatch Center in Bozeman (approximately $7.1 million), a new water reclamation facility ($32 million), renovation of the old City of Bozeman Library into the new City Hall ($2 million), the construction of the Gallatin County Detention Center ($32 million) and both expansions of the landfill building located at the old landfill ($300,000) and of the vehicle maintenance building / Stream Line bus barn . Market Trends for Single Family Houses in the City Limits of Bozeman (Sales Price Range-$150K to $550K) Year # of Units Sold Avg. List Price Avg. Sales Price 2004 390 $253,334 $251,247 2005 453 $290,043 $287,423 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 The preceding data was supplied by the Southwest Montana MLS. The data shows that the market in Bozeman peaked sometime in late 2005 early 2006. The data is inclusive of single family residences within the City Limits of Bozeman that are on parcels less than one acre and had values between $150,000 and $550,000. The data clearly shows an average decline in value from the peak in 2006 through 2010 of 17%. The sales volume in 2010 was equal to the volume attained in 2007. The other interesting fact is the sales price to list price ration; at the height of the market in 2005 and 2006 sales were closing within about 2% of list price; in 2009 sales closed at approximately 5% of list price and in 2010 sales closed at approximately 4% of list price. 2013 turned out to be one of the most active years in real estate since the crash of the market at the end of 2006- beginning of 2007. In fact, residential building sites were in oversupply up until 2011, in 2013 there was a pent up demand for residential building sites. Bridger Appraisals Inc. © 27 Keith O’Reilly, MAI Tourism: Yellowstone National Park is a significant generator of visitation to Bozeman. Yellowstone visitation has gradually increased over the years, ranging from 2,752,346 visitors in 2001 to a record number of visitors in 2010 of 3.6 million. 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 its peak summer season. In addition, approximately 3,700 people work for concessionaires operating such services as lodging, foodservice, retail and transportation. The Big Sky resort area is located approximately 45 miles south of Bozeman. The area averages over 300 inches of annual snowfall, with skiing available November through April. In addition, Big Sky has evolved as more of a year- round destination over the past several years. Big Sky Resort was conceived and built by the late NBC newscaster, Chet Huntley. It first opened for skiing in 1974. In 1976, Michigan-based Boyne USA Resorts purchased the resort and has owned and managed it since then. Under the management of Boyne USA, Big Sky Resort continues to grow. In 1990, the resort invested $18 million in the Shoshone Condominium Hotel and the 46,000-square-foot Yellowstone Conference Center which can accommodate 950 people. In 1995, the Lone Peak Tram was built hoisting skiers to 11,150 feet and giving Big Sky one of the nation’s largest total vertical drops at 4,180 feet. Big Sky completed the single largest development since the resort’s inception in 2000 when the Summit at Big Sky, a luxury hotel condominium complex was constructed. The resort now offers 658 units, including guest rooms, suites, studios and condos. In 2001, Boyne USA announced a 10-year plan which will include $400 million in improvements to the Village and ski terrain at Big Sky. The ski terrain has grown from an original four ski lifts serving 18 runs to 21 lifts servings more than 150 ski runs. During the winter season, the resort offers winter activities such as snow shoeing and gives skiers/snowboards the opportunity to ski/board over 3,812 skiable acres and 150 runs. During the summer season the resort offers many outdoor activities such as mountain biking and horseback riding. Other activities in the Big Sky area include scenic lift rides, hiking, rock climbing, tennis, fly fishing and whitewater rafting. In addition, the scenic 18-hole, par 72 Golf Course at Big Sky was originally designed by Arnold Palmer and has a classic links style, winding along the banks of the West Fork of the Gallatin River. The golf course and entire area are populated with beavers, geese, deer, marmot, rainbow trout and moose. The golf course is also served by the Bunker Bar and Grill and a fully-equipped pro shop. Overall the Big Sky Resort hosts approximately 300,000 skiers per year. Another development near Big Sky is the Yellowstone Club, an exclusive vacation/residential development that has a $300,000 membership fee and a $34,000 annual fee. This development includes private skiing and golfing. In November of 2008, the Yellowstone Club filed for bankruptcy and in July 2010 was purchased by Cross Harbor Bridger Appraisals Inc. © 28 Keith O’Reilly, MAI Capital. Since bankruptcy, the Yellowstone Club has seen declines in property values of 25-30% and a decline in land value of 50%. However, the Yellowstone Club continues to lead the market in gross sale prices. Overall the Yellowstone Club appears to be seeing increasing values in 2013 and there is a considerable amount of residential construction taking place. Additional ski areas in Gallatin County include Moonlight Basin near Big Sky with an adjacent condo development, and Bridger Bowl, 15 miles to the north of Bozeman. Moonlight Basin recently exited bankruptcy proceedings. Also, the region’s excellent fishing and other outdoor activities generate many visitors to the area. Glacier National Park, located near the northwestern corner of the state also generates lodging demand in Bozeman due to Bozeman’s location between Glacier and Yellowstone National Parks. Other attractions in the Bozeman area include the Museum of the Rockies, Emerson Cultural Center, American Computer Museum (“Compuseum”) and the Pioneer Museum. The Bozeman Area Convention & Visitors Bureau has organized a Tournament Committee which brings to Bozeman ten to twelve amateur sporting events per year. These events are usually held at the facilities on the Montana State University campus or at the Special Events Center in Belgrade, located seven miles west Bozeman. The events typically fill numerous area hotel rooms. 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 doughnut. 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. In addition, the City adopted a “Big Box” ordinance to limit the size and number of big box retailers. Consequently, low supply and high demand have had a significant impact on real estate values. Bridger Appraisals Inc. © 29 Keith O’Reilly, MAI Subdivision Activity: Subdivision activity stalled in 2008, decreased in 2009 and slightly increased in 2010. In 2010, final plat applications for 136 lots were received (up from 10 in 2009) and preliminary plat applications for 14 lots were received (38 in 2008 and 9 in 2009). Since the beginning of 1996, approximately 6,139 new building lots have been created in the City. In 2010, the Department of Planning and Community Development processed 14 subdivision applications (15 in 2008 and 11 in 2009). Since the beginning of 1996, 659 subdivision applications have been pro- cessed. There has been little planning activity by local developers over the past several years due to poor market conditions, which has caused a pent up demand for residential building sites in 2013. 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 truly 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 80s and the average lows in the winter are in the mid- 20s to lower 30s. The average high and low monthly temperatures for December, January, and February are 34 degrees and 15 degrees, 33 degrees and 14 degrees, and 39 degrees and 18 degrees respectively. Springs tend to come late in the Gallatin Valley. One third of the annual precipitation of 19.29 inches falls during May and June. 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 wintertime. Due to the fairly temperate summers, cool air conditioning costs are less; however, heating bills can be high due to the cold winter months. Bozeman is located in Southwest Montana and has access going east and west on U.S. Interstate Highway 90. Access to the south towards Yellowstone National Park and Salt Lake City is via U.S. Highway 191. Interstate 90, Bridger Appraisals Inc. © 30 Keith O’Reilly, MAI State of Montana and Gallatin County maintained roads provide access throughout the region and commercial air, truck and rail (commercial service only) transportation are adequate. Gallatin Field near Belgrade (seven miles west of Bozeman) is the second busiest airport in the state and provides adequate service to the region. Conclusion: In general, the outlook for Bozeman and the surrounding communities is good. Bozeman’s economy is diverse and anchored by Montana State University. As far as 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 a under supply or residential real estate. In general the market overall real estate market in Bozeman was better in 2013 than it has over the last 6 years. Residential and commercial activity has increased significantly. Residential apartment occupancy is more or less at 100%. Commercial lease rates and property values have been increasing as well. In general the immediate subject neighborhood can more or less be described as the northeast quadrant of Bozeman. 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. State law requires the Department of Revenue to reappraise property periodically. The most recent reappraisal was completed on July 1, 2008. 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 County Taxes City Taxes RFH4491 (Tract 1-Parcel 1)$785,429 $40,244 $0 $825,673 $13,282.29 $138.38 RFH1930 (Tract 1-Parcel 2)$514,427 $0 $0 $514,427 $8,277.63 $276.76 RGH24465 (Tract 2-Parcel 3 and 5 - IOP) $191,593 $14,767 $19,574 $225,934 $3,638.87 $138.38 RGH3200 (Tract 2-Parcel 4-IOP)$518,821 $86,983 $0 $605,804 $9,746.89 $138.38 RGH3782 (Tract 3-Parcel 6)$547,392 $0 $0 $0 $8,808.11 $4,160.66 RGH9812 (Tract 4-Parcel 9)$250,511 $81,061 $0 $331,572 $5,337.90 $138.38 RGH31949 (Tract 4-Parcel 7)$156,404 $0 $0 $156,404 $2,521.59 $894.90 RGH24461 (Tract 4-Parcel 8)$128,628 $0 $0 $128,628 $2,074.68 $138.38 Totals $3,093,205 $223,055 $19,574 $2,788,442 $53,687.96 $4,990.94 Tract 2 Parcel 3-- Taxes overstate the future taxes for the this subject site since the taxes reported for these parcel includes land that will not be traded in the land swap for what is identified as Parcel 3. Based upon the total of the tax assessments, I have no reason to believe there would be any excessive tax burden on the subject properties. Bridger Appraisals Inc. © 32 Keith O’Reilly, MAI SITE DATA AND ANALYSIS Location: 75 Bridger View Dr., 980 E. Griffin Dr., 1869 Story Mill Rd., TBD E. Griffin, TBD Bryant St. and TBD., Bozeman, MT 59715 Dimensions: See Attached Plat Maps Land Area: Total of 54.3645 acres, (2,368,117.6sf) Shape: The subject sites are all irregular 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: 5.04. Portions of the subject properties are located in flood zones. FEMA Map Number: 30031C0809D. FEMA Map Date: September 2, 2011 Topography: The land is more or less level. Frontage: Parcel 1 fronts Bridger Drive while Parcel 4 fronts Story Mill Road. Visibility: Average Landscaping: The properties are more or less in a natural state and has not been developed. Site Utility: Average Street Access: Combination of Bridger Drive, Bryant Street, and Story Mill Road. Sewer and Water: Sewer: City sewer (see below) Water: City water (see below) Utilities: Northwestern Energy Curb/Gutter: None Sidewalk: None Streetlights: None 2013 Real Estate Taxes (County) and 2014 Real Estate Taxes (City): Total taxes are $53,687.96 (County) and $4,990.94 (City of Bozeman) Adverse Easements or Encroachments: No encroachments were disclosed, there are several utility easements, including an easement for a high pressure gas pipeline. Adjacent Uses and Site Comments: The subject properties are technically recorded as nine parcels. For the purpose of this appraisal several of the parcels have been combined, primarily due to the highest and best use and the high probability of a single buyer purchasing a combination of the sites. Parcels 1 and 2 are being values as “Tract 1” as it is highly likely that these two sites would be developed together. Parcel 1 was previously a mobile home park, while Parcel 2 has been primarily vacant. Both the sites are zoned R-4 which is for a residential high density district. These two sites are separated from the other parcels by Griffin Drive. The necessary infrastructure is in place to develop these sites. Although there is some wetland and set backs on Parcel Bridger Appraisals Inc. © 33 Keith O’Reilly, MAI 2, this site could be used for open park space for the development of Parcel 1 allowing for a more dwelling units. From the markets prospective it would not be advisable to sell Parcel 2 separately from Parcel 1. “Tract 2” is a combination of Tract 17 that is 16.522acres as owned by the Trust for Public Land (Parcel 4) and the parcel being acquired of 3.94 acres labeled as Parcel 3 and Parcel 5. This “Tract 2” is subject to final plat approval. The current owner has initiated a trade with an adjacent land owner to acquire the 3.94 acres of creek frontage. Prior to this land swap, Parcel 4 did not have any creek frontage. Parcel 4 has historically been used for residential use, the site is zoned R-4 for multi-family development. Of all the sites being appraised this property has the most wetlands that does prohibit developing the entire site. This site does have a high pressured gas line that crosses the property that cannot be constructed upon. In addition water and sewer would be difficult to access to this site, the engineer believes that since there is an existing well and septic that it is probable to have a replacement well and septic for a single family residence. This site is accessible via Griffin Drive. “Tract 3” is an M-1 zoned tract of land that has limited access. Like Tract 2 this property has set backs from the creek and wet lands. I have used engineer’s estimates that there is approximately 3.10 acres of buildable land of the 5.177 acre site. Water is to the adjoining site to the north and there is a sewer line accessing the subject site. However, it is my understanding that it is not certified or useable. The site has access limitations as a stand along site. Both owners to the north and south have constructed bridges to access their sites. The most probably purchaser of the subject site is either the land owner to the north or to the south. “Tract 4” is an R-4 site, the same high density zoning as Tracts 1 and 2. This site is accessed by Story Mill Road. The site does not have water or sewer, however, water appears to be available at the northern tip. Although sewer is not to the site, it is thought that eventually sewer will be available to this site. It is also thought that a septic system could be designed for at the least a single family residence for this site. The site does have creek frontage which enhances the appeal of the property. It is highly probable that this site could, in the future, be developed as a condominium site. Bridger Appraisals Inc. © 34 Keith O’Reilly, MAI SUBJECT PLAT MAP As-is Parcel sizes are as follows: Tract 1--Total of 20.223 acres Parcel 1---9.928 acres Parcel 2---10.295 acres Tract 2--Total of 20.462 acres Parcel 3---3.63 acres as proposed Parcel 4---16.522 acres as currently owned by The Trust for Public Land Parcel 5---0.31 acres Tract 3--Total of 5.177 acres Parcel 6---5.177 acres--useable land is 3.10 acres Tract 4--Total of 8.5025 acres **Acreage of the site was calculated from the surveys shown below Parcel 7---1.1135 acres Parcel 8---1.707 acres Parcel 9---5.682 acres Parcel 1 Parcel 2 Parcel 3 Parcel 4 Parcel 5 Parcel 9 Valued as Tract 1 Valued as Tract 2 Valued as Tract 3 Valued as Parcel 4 Valued as Tract 4 Parcel 6 Parcel 7 Parcel 8 Bridger Appraisals Inc. © 35 Keith O’Reilly, MAI Parcel 7 as shown by COS No. 1877B Parcels 8 and 9 as shown by COS No. 2547 Parcel 8 Parcel 9 Bridger Appraisals Inc. © 36 Keith O’Reilly, MAI Proposed Bridger Appraisals Inc. © 37 Keith O’Reilly, MAI FLOOD MAP Bridger Appraisals Inc. © 38 Keith O’Reilly, MAI Conclusion: Tract 1 has the most potential for being immediately developed with the R-4 zoning and the necessary infrastructure in place. Quite frankly this would be a highly sought after site in the current market. Tract 2 is one of the more challenging pieces being appraised, this site is currently involved in a land swap to acquire creek frontage along the East Gallatin, obviously creek frontage enhances the appeal of the site; however, this site also has a considerable amount of wetlands. At best Tract 2 is being valued as a single family home site. Tract 3 is an industrial site that has some challenges as far as the necessary infrastructure to be developed, however; in my opinion the probability and ability of one of the adjacent land owners to the north and south to acquire the site are good. Tract 4 is very similar to Tract 2, a worst case scenario is for a single family home site that takes advantage of creek frontage, a best case scenario is of the future development of a residential condo or townhome project. Bridger Appraisals Inc. © 39 Keith O’Reilly, MAI ZONING AND GOVERNMENT RESTRICTIONS The subject sites are zoned by the City of Bozeman . Tracts 1, 2 and 4 are zoned Residential- High Density District (R-4). Tract 3 is zoned Light Manufacturing (M-1). As described by the City of Bozeman zoning descriptions, the intent of the R-4 residential high density district is to provide for high-density residential development through a variety of housing types within the city with associated service functions. This will provide for a variety of compatible housing types to serve the varying needs of the community's residents. Although some office use is permitted, it shall remain as a secondary use to the residential development. Secondary status shall be as measured by percentage of total building area. The intent of the M-1 light manufacturing district is to provide for the community's needs for wholesale trade, storage and warehousing, trucking and transportation terminals, light manufacturing and similar activities. The district should be oriented to major transportation facilities yet arranged to minimize adverse effects on residential development, therefore, some type of screening may be necessary. Tract 1 Tract 2 Tract 3 Tract 4 Bridger Appraisals Inc. © 40 Keith O’Reilly, MAI PHOTOGRAPHS OF THE SUBJECTS View of Tract 1. Photo taken on February 24, 2014 by Keith O’Reilly, MAI. Street scene along Bridger Drive looking west in front of Tract 1. Photo taken on February 24, 2014 by Keith O’Reilly, MAI. Bridger Appraisals Inc. © 41 Keith O’Reilly, MAI Street scene looking east along Bridger Drive in front of Tract 1. Photo taken on February 24, 2014 by Keith O’Reilly, MAI. View of Tract 2 looking south from Griffin Drive. Photo taken on February 24, 2014 by Keith O’Reilly, MAI. Bridger Appraisals Inc. © 42 Keith O’Reilly, MAI View of creek that will be the eastern boundary of Tract 2. Photo taken on February 24, 2014 by Keith O’Reilly, MAI. View of Tract 4 looking west. Photo taken on February 24, 2014 by Keith O’Reilly, MAI. Bridger Appraisals Inc. © 43 Keith O’Reilly, MAI Story Mill Road looking north. Photo taken on February 24, 2014 by Keith O’Reilly, MAI. View of Tract 4 looking west. Photo taken on February 24, 2014 by Keith O’Reilly, MAI. Bridger Appraisals Inc. © 44 Keith O’Reilly, MAI HIGHEST AND BEST USE Highest and Best Use is defined in the fourth edition of The Dictionary of Real Estate Appraisal (Appraisal Institute, Chicago, 2002), as follows: The reasonably probable and legal use of vacant land or an improved property, which 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. 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. Highest and Best Use may be defined as the reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. 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)? 4Boyce, op. cit., p. 135. Bridger Appraisals Inc. © 45 Keith O’Reilly, MAI Conclusion Highest and Best Use As Vacant: The two primary factors that affect the subject sites the most are the legally permissible use, and the physically possible use. Currently the real estate market is doing well, values have been increasing and there is more activity and demand since 2013. The financially feasible aspect of the subject sites comes into play when contemplating costs to hook the city water and sewer services up to certain tracts. Tract 1 is more or less considered a turnkey site, the zoning is R-4 high density multi-family, currently this type of vacant land is highly sought after. The highest and best use for this site is for the development of a high density residential development. Tract 2 is also zoned R-4, but is limited physically due to the wet lands and water and sewer services. There is also a gas line easement, which should not affect the market value for a single family residence. My discussions with the engineers that worked on the site lead me to believe that a septic system could be developed for a single family residence. With the addition of the creek frontage the highest and best use has been determined to be a trophy home site for a single family residence. Tract 3 is zoned M-1 thus residential uses are excluded. There are some setbacks due to the creek frontage and wet lands. I have relied upon engineer estimates to conclude a useable site of approximately 3.10 acres. The site lacks some utilities and access; however, both adjacent properties have the necessary infrastructure to develop the subject site. The highest and best use of the subject site is to be acquired by the owner to the north or the south and be developed with conforming improvements. Tract 4 is zoned R-4 and again this site that is very similar to Tract 1. The infrastructure is likely to be available in the future; the worst case scenario is for a single family residence and the best case scenario is for multi- family home site (condo development) that takes advantage of the creek frontage. Bridger Appraisals Inc. © 46 Keith O’Reilly, MAI THE APPRAISAL PROCESS Typically, real estate can be valued by applying three approaches. Cost Approach: That approach in appraisal analysis that is based on the proposition that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility as the Subject property. It is particularly applicable when the property being appraised involves relatively new improvements that represent the Highest and Best Use of the land or when relatively unique or specialized improvements are located on the site and for which there exist no comparable properties on the market.5 Sales Comparison Approach: Traditionally, an appraisal procedure at which the market value estimate is predicated upon prices paid in actual market transactions and current listings; the former fixing the lower limit of value in a static or advancing market (price wise), and fixing the higher limit of value in a declining market; and the latter fixing the higher limit in any market. It is a process of analyzing sales of similar recently sold properties in order to derive an indication of the most probably sales price of the property being appraised. The reliability of this technique is dependent upon (a) the availability of comparable sales data, (b) the verification of the sales data, (c) the degree of comparability or extent of adjustment necessary for time differences and (d) the absence of non-typical conditions affecting the sale price.6 Income Approach: That procedure in appraisal analysis that converts anticipated benefits (dollar income or amenities) to be derived from the ownership of property into a value estimate. The Income Approach is widely applied in appraising income-producing properties. Anticipated future income and/or reversions are discounted to a present worth figure through the capitalization process.7 In essence, all 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. 5Boyce, op. cit., p. 67. 6Boyce, op. cit., p. 245,255. 7Boyce, op. cit., p. 143. Bridger Appraisals Inc. © 47 Keith O’Reilly, MAI 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: That approach in appraisal analysis which is based on the proposition that an informed purchaser would pay no more for a property than the cost to him acquiring an existing property with the same utility.6 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. 6Boyce, op. cit., p. 255. Bridger Appraisals Inc. © 48 Keith O’Reilly, MAI Units of Comparison-Property Valuation: The parcels being developed are either multi-family residential sites, single family residential sites, or a commercial light industrial site. The multi-family residential sites are larger, thus the appropriate unit of comparison is going to be the value per acre. The single family residential site is larger, thus the value per acre is the appropriate unit of comparison. The light industrial site is value on a per square footage basis, which is consistent with the local market. The preceding sales have been analyzed and compared with the subject properties. I have considered adjustments in the areas of: Property Rights Sold Financing Conditions of Sale Economic Trends (time) Location Physical Characteristics Bridger Appraisals Inc. © 49 Keith O’Reilly, MAI Tra Land Size Land Size Price #Address Sale Price Sale Date (SF)(Acres)Zoning Per Acre 1 Multi-Family Land Sale $800,000 Dec-13 535,788 12.30 R-3 and R-4 $65,040 Fowler Avenue Bozeman, Montana 2 Multi-Family Land Sale $525,000 Nov-13 187,308 4.73 Not Zoned $52,887 4949 Durston Rd Bozeman, Montana 3 Multi-Family Land Sale $225,000 Mar-13 97,257 2.20 R-4 $102,272 360 Enterprise Blvd Bozeman, Montana 4 Multi-Family Land Sale $700,000 Dec-13 388,555 8.90 CC&R's MF $78,475 Halo and Milky Way Bozeman, Montana 5 Multi-Family Land Sale $450,000 Oct-13 222,156 5.10 R-3 $88,235 Annie Street Bozeman, Montana $psf 1 M-2 Industrial Land $700,000 Aug-13 185,130 4.30 M-2 $3.30 133 Maus Lane Bozeman, Montana 2 M-1 Industrial Land $158,900 Oct-13 35,153 0.80 M-1 $4.52 TBD Gallatin Park Drive Bozeman, Montana 3 M-1 Industrial Land $275,000 Jan-13 70,567 1.62 M-1 $3.90 11 E. Griffin Drive Bozeman, Montana 4 M-1 Industrial Land $200,000 Nov-12 76,491 1.76 M-1 $2.61 TBD Maus Lane Bozeman, Montana 1 Vacant Residential Land $360,000 Aug-13 409,464 9.40 Residential $38,318 TBD Monforton School Rd Bozeman, Montana 2 Vacant Residential Land $760,000 Oct-12 1,650,924 37.90 Residentail $20,272 3030 Bridger Canyon Rd Bozeman, Montana 3 Vacant Residential Land $625,000 Jan-12 1,738,044 39.90 Residential $15,000 76857 Gallatin Rd Bozeman, Montana 4 Vacant Residential Land $801,000 Jul-11 20,624 21.10 Residential $30,882 9790 River Rd Bozeman, Montana Subject Property Tract 1 Estimated Market Value per Acre **********880,913.88 20.223 R-4 $65,000.00 Tract 2 Estimated Market Value per Acre **********891,324.72 20.462 R-4 $38,000.00 Tract 3 Estimated Market Value psf **********135,036 3.10 M-1 $3.30 Tract 4 Estimated Market Value per Acre **********370,368.9 8.5025 R-4 $50,000.00 MULTI-FAMILY RESIDENTIAL LAND COMPARABLES M-1 AND M-2 INDUSTRIAL LAND COMPARABLES SINGLE FAMILY HOME SITES WITH CREEK FRONTAGE Bridger Appraisals Inc. © 50 Keith O’Reilly, MAI ID 403 Verification Source Lloyd Mandeville- Broker Address Fowler Avenue Price $800,000 City Bozeman Price Per Acre $65,285.00 State MT Financing Cash to Seller Tax ID RGG41367 RGG33745 Property Rights Fee Simple County Gallatin Days on Market 401 Grantor First Baptist Church or Bozeman Recording Date 12/06/13 Grantee Gallatin Valley Land Trust Recording Number 2469674 Legal Description Acres 12.3 Topography Level Land SF 187,308 Zoning R-3 and R-4 Multi-Family Road Frontage Durston Rd Flood Zone None Dimensions Rectangular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Fowler Lane Price Per Land SF $1.50 Transaction Land Comparable 1 Site This was a 12.254 acre tract of land within the City Limits of Bozeman. The site was zoned R-3 and R-4. The site sits adjacent to City Park Land. The site was purchased by GVLT and then is being transfered to HAVEN, a non-profit and to the City Of Bozeman for park land. There was a cash back up offer in place for $800,000 for the entire site at the time of sale by a real estate developer. Comments Lengthy retained in appraisal file. Bridger Appraisals Inc. © 51 Keith O’Reilly, MAI ID 402 Verification Source Broker Maurie Magee Address 4949 Durston Rd Price $525,000 City Bozeman Price Per Acre $52,887.00 State MT Financing Trust Indenture Tax ID RGG7148 Property Rights Fee Simple County Gallatin Days on Market 70 Grantor Ethel Hoell Hanson Irrevocable Trust Recording Date 11/27/13 Grantee Vision Development, Inc.Recording Number 2469100 Legal Description Acres 4.7 Topography Level Land SF --Zoning Not Zoned Road Frontage --Flood Zone None Dimensions Rectangular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Durston Rd Price Per Land SF $1.21 Land Comparable 2 Site Transaction Comments This sale was of a 6.084 acre tract of land that had a house and shop utilizing 1.35 acres. The contributory value estimated by the selling Broker was $275,000. Thus the price paid for the development land of 4.727 acres was approximately $53,000per acre. The site is not annexed into the City. The purchaser is a developer that plans to subdivide into single family residences. Tract 2A COS No. 501, located in Gallatin County, MT Bridger Appraisals Inc. © 52 Keith O’Reilly, MAI ID 263 Verification Source Purchaser Address 360 Enterprise Blvd Price $225,000 City Bozeman Price Per Acre $100,896.00 State MT Financing Cash to Seller Tax ID RGG56609 Property Rights Fee Simple County Gallatin Days on Market Less than 10 Grantor Rocky Mountain Bank Recording Date 03/28/13 Grantee Keith & Deborah O'Reilly Recording Number 2444748 Legal Description Acres 2.2 Topography Level Land SF 97,257 Zoning Residential High Density (R4) Road Frontage Enterprise Boulevard Flood Zone None Dimensions --Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Enterprise Drive Price Per Land SF $2.31 Land Comparable 3 This site is a multi-family buildng site approved for approximately 27 two bedroom units. The paid price per unit is approximately $8,333. Site Comments Transaction Lot 1 in Block 2 Meadow Creek Subdivision Phase 1, Gallatin County, MT Bridger Appraisals Inc. © 53 Keith O’Reilly, MAI ID 405 Verification Source Purchaser- Jesse Chase Address Halo and Milky Way Drive Price $700,000 City Boe Price Per Acre $78,475.33 State MT Financing Cash to Seller Tax ID --Property Rights Fee Simple County Gallatin Days on Market 119 Grantor Galactic Pointe, LLC Recording Date 12/27/13 Grantee Chase Skogen Construction, Inc.Recording Number 2471257 Legal Description Acres 8.9 Topography Level Land SF 388,555 Zoning CC&R's- Residential- Multi- FamilyRoad Frontage --Flood Zone None Dimensions Irregular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Milky Way Price Per Land SF $1.80 Transaction Land Comparable 4 Site Comments This was the purchase of the rights to build 59 residential condominium units. Infrastructure was in for 22 units at the time of purchase, the remainder of the land was vacant. The sale price equates to $11,864 per buildable door. Lot 58 of the final plat of Galactic Park Sub- 59 buildable doors, Gallatin County, MT Bridger Appraisals Inc. © 54 Keith O’Reilly, MAI ID 377 Verification Source Broker- Trisha Easton Address Annie Street and Hanson Price $450,000 City Bozeman Price Per Acre $88,235.00 State MT Transaction Type Closed Tax ID --Financing Cash to Seller County Gallatin Days on Market 23 Grantor Cottage Partners II Recording Date 10/22/13 Grantee JBE, LLC Recording Number 2466270 Legal Description Acres 5.1 Topography Level Land SF --Zoning Residential Medium Density (R3) Road Frontage --Flood Zone None Dimensions Rectangular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Annie Street Price Per Land SF $2.02 Partially developed condominium project. Current site plan approved for 32 stand alone condominium units, 6 units already built and sold. Majority of infrastructure already complete. Under current site plan, 13 units could be built immediately without any additional infrastructure needed. The property was listed for sale at $495,000. The indicated value is $17,307per unit. Site Comments Transaction Land Comparable 5 Units 8 and 9 and Units 13-33 inclusive of the Cottage Park Land Condominiums situated on Tract 2B COS No. 501, City of Bozeman, Gallatin County, MT. Bridger Appraisals Inc. © 55 Keith O’Reilly, MAI Comparable Sale Adjustments Tract 1 consists of two parcels of land containing a combined 20.223acres. Some of the land does fall within a flood zone and there is some set back area from the creek on the sites. However, the site is a very desirable and developable tract of land. Currently R-4 is highly sought after as it allows for high density residential housing. It is likely some of the wetlands area could offset some open space requirements for developing the site. In addition aesthetically the creek frontage would seem to appeal to a residential development. With the exception of Sale 3 all the sales are relatively current. Sale 3 took place about the time the market was rebounding. Several offers have been made for this site, almost double what the original price was. This is a much smaller site that is more easily developed. All the necessary infrastructure is in place including some on site water and sewer. Sale 1 is the most current, the site was purchased by a non-profit and is currently in the process of being sold to the City of Bozeman for park land. However, this site had a cash backup offer in place from a local developer at $800,000. The hang up with this site in the past was the unknown off site improvement cost to Fowler Lane. The zoning is R-4 and R-3, the majority of which was R-4. This sale indicates a value of $65,000per acre. Sale 2 is a current sale of a smaller tract of land located north of Durston Road, but adjacent to a developed single family subdivision. The developer has plans to get the site annexed into the City of Bozeman and develop it at a more R-2 to R-3 density level. Due to the lack of off site infrastructure and the fact the site is not annexed into the City, the indicated value of $52,887 per acre would be below the value of the subject site. Sale 4 and Sale 5 are both sales of multi-family condominium development sites. These are slightly smaller sites at 8.9 and 5.1 acres. There was some on site infrastructure in place. In my opinion the location of Sale 4 is inferior to the subject tract as this comparable site is located in the Four Corners area. At a worst case scenario a deduction of $10,000per acre for each of these sales would reconcile to values of approximately $68,000per acre and $78,000per acre. Looking closer at Sale 2 and comparing it to Sales 4 and 5 a positive $10,000per acre adjustment would indicate a value of approximately $63,000per acre. Thus excluding Sale 3 the adjusted indicated values would be: Sale 1 $65,000per acre Sale 2 $63,000per acre Sale 4 $68,000per acre Sale 5 $78,000per acre Reconciled $65,000per acre I have reconciled to a value of $65,000 per acre for the 20.223 acres or $1,314,495 rounded to $1,315,000 Based on the above analysis, I have reconciled to a value for Tract 1 at $1,315,000, as of February 24, 2014, and subject to the Limiting Conditions and Assumptions of this appraisal. Bridger Appraisals Inc. © 56 Keith O’Reilly, MAI ID 401 Verification Source Broker-Jason Leep Address 133 Maus Lane Price $700,000 City Bozeman Price Per Acre $144,000.00 State MT Financing Cash to Seller Tax ID RFG7714 Property Rights Fee Simple County Gallatin Days on Market 1236 Grantor Powder River Company LLC Recording Date 08/02/13 Grantee KDFJ Inc.Recording Number 2458172 Legal Description Acres 4.3 Topography Level Land SF 185,130 Zoning Manufacturing & Industrial (M2) Road Frontage None Flood Zone None Dimensions Irregular Encumbrance or Easement None Utilities None Environmental Issues None Access Maus Lane Price Per Land SF $3.30 Land Comparable 6 Site Comments This is the sale of a 4.25 acre tract of land that has preliminary approval for annexation at a M-2 use. The site has no frontage. The improvements are minimal and will likely be razed. The property was used by a local plumbing contractor as a supply yard. Tract 20 Gordon Mandeville State School Sub. Gallatin County, MT Transaction Bridger Appraisals Inc. © 57 Keith O’Reilly, MAI ID 396 Verification Source Evan McCaw - Selling Broker Address TBD Gallatin Park Drive Price $158,900 City Bozeman Price Per Acre $196,902.00 State MT Financing Cash to Seller Tax ID RFG44046 Property Rights Fee Simple County Gallatin Days on Market 229 Grantor Jon H. Maxwell, et al Recording Date 10/15/13 Grantee Scot Spratt Recording Number 2465725 Legal Description Acres 0.8 Topography Level Land SF 35,153 Zoning Light Manufacturing (M1) Road Frontage Gallatin Park Drive Flood Zone None Dimensions Rectangular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Gallatin Park Drive Price Per Land SF $4.52 Land Comparable 7 Transaction This property was purchased by the adjacent landowner to the east for development of a mixed-use building with industrial space on the lower level and apartments on the upper level. The owner will also develop the adjacent lot to the east with a similar building. The property was listed at $175,000 at the time it went under contract. All utilities are available to the site. Comments Site Lot 10 in Block 1 of Gallatin Park Subdivision, located in the NE1/4 and SE1/4 of Section 36, Township 1 South, Range 5 East, P.M.M., City of Bozeman, Gallatin County, MT. Bridger Appraisals Inc. © 58 Keith O’Reilly, MAI ID 91 Verification Source SWMT MLS# 154991 Address 11 E. Griffin Dr.Price $275,000 City Bozeman Price Per Acre $169,753 State MT Financing Cash to Seller Tax ID RFH6901 Property Rights Fee Simple County Gallatin Days on Market 1305 Grantor Manley Commercial Partners LLC Recording Date 01/03/13 Grantee Silverbow, LLC Recording Number 2436816 Legal Description Acres 1.6 Topography Level Land SF 70,567 Zoning Light Manufacturing (M1) Road Frontage Manley Road Flood Zone None Dimensions --Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Manley Road Price Per Land SF $3.90 Land Comparable 8 Transaction Site This property was originally being sold as a 15 acre tract of ground. It was split into two tracts and this sale was for 1.62 acres, remaining acreage will be sold separately. Comments Lot 1B of Minor Sub 154A, located in SW¼ Sect. 31, T1S, R6E, Gallatin Co., MT. Bridger Appraisals Inc. © 59 Keith O’Reilly, MAI ID 245 Verification Source SWMT MLS# 186398 Address TBD Maus Ln.Price $200,000 City Bozeman Price Per Acre $113,895.00 State MT Financing Cash to Seller Tax ID RFG9364 Property Rights Fee Simple County Gallatin Days on Market 1512 Grantor Rocky Mountain Bank Recording Date 11/29/12 Grantee Keith L. Miller Recording Number 2433289 Legal Description Acres 1.8 Topography Level Land SF 76,491 Zoning Light Manufacturing (M1) Road Frontage --Flood Zone -- Dimensions Rectangular Encumbrance or Easement None Utilities To Site Environmental Issues None Access Maus Lane Price Per Land SF $2.61 This site is located north of Griffin Drive. The site has no frontage and slopes to the east. The site is zoned M-1. Improvements are to the site. There will be some addtional costs to develop the site like off-site curbing and sidewalks. This was a bank owned lot, the price reflects that the sale took place at the end of the down market. Land Comparable 9 Tract 28 of Gordon Mandeville State School Section Subdivision located in Sect. 26, T1S, R5E, MPM, City of Bozeman, Gallatin Co., MT. Comments Site Transaction Comparable Sale Adjustments Bridger Appraisals Inc. © 60 Keith O’Reilly, MAI Tract 3 consists of an M-1 zoned parcel of land. The site has some access issues from Bryant Street as the Bozeman Creek flows along the west property boundary. It appears that there is city water available from the north, but there is no sewer. A sewer line is to the subject site, but according to the engineers, this is not a functioning or certified sewer line. The positive to this site is that both the adjacent land owners to the north and to the south have access to the site and would be the most likely purchasers. Osterman’s mini-warehouse is completely built out to the north and is adjacent to the subject site, thus access would not be an issue. Barnard Construction Company owns the land to the south where they have been expanding their office campus. They also have direct access, in fact they are in the process of building a bridge across Bozeman Creek at the present time. Both of these parties would have the means to purchase and utilize the subject site. This tract does have set back issues on both the east and west boundaries. Engineers have estimated the usable acreage to be approximately 3.10 acres or approximately 135,036sf which I have used to value the site. Sale 1 is the most current sale of a larger tract of industrial land located within proximity to the subject. This site is zoned M-2 which is a very uncommon zoning in the Bozeman market, I have made no adjustment for the zoning difference. This site was previously used by a local plumbing contractor for yard storage. This site is not annexed into the City and does not have water or sewer, but both are available. This indicated value from this sale is $3.30psf. Sale 2 is a smaller tract of M-1 land. This sale is very current and this is a turnkey buildable site with all the necessary off site infrastructure in place. The indicted value of $4.52psf represents the upper end of the range of value for M-1 land in the Bozeman market at the present time. Sale 3 is a very similar sale. This property has not been developed since being purchased and it is believed that some additional offsite improvements are required. The site size is larger and the indicated land value is less per square foot than Sale 2. The sale is slightly older and it is possible that a positive adjustment for market conditions could be warranted. The indicated value from this sale is $3.90psf. Sale 4 is an older sale, which again supports and shows increasing market values. In addition this was a REO sale. There were little offsite improvements, however, the site was annexed into the City of Bozeman. The three most recent and similar sales indicate a range of value from $3.30psf for a larger tract of un-annexed land to $4.52psf for a smaller annexed and turnkey site. The average sales price of the three sales was $3.90psf. I have reconciled lower than the average sale price psf at $3.30psf which is supportable by Sale 1. The reconciled value takes into account the physical obstacles involved with developing the subject site, but also takes into account that land owners to the south and north would likely acquire the subject site if available. I have reconciled to a value of $3.30psf for 135,036sf or $445,618 rounded to $445,000, as of February 24, 2014, and subject to the Limiting Conditions and Assumptions of this appraisal. Bridger Appraisals Inc. © 61 Keith O’Reilly, MAI Bridger Appraisals Inc. © 62 Keith O’Reilly, MAI ID 406 Verification Source Taunya Fagan Address TBD Monforton School Rd Price $360,000 City Bozeman Price Per Acre $38,318.00 State MT Financing Cash to Seller Tax ID --Property Rights Fee Simple County Gallatin Days on Market 1 Grantor Kurt and Karen Thornburg Recording Date 08/09/13 Grantee William and Gale Bacon Recording Number 2458621 Legal Description Acres 9.4 Topography Level Land SF 187,308 Zoning CC&R's Road Frontage Durston Rd Flood Zone Partial Dimensions Irregular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access TBD Monforton School Rd.Price Per Land SF $0.88 Site Comments This is a vacant residential building site located west of Monforton School Rd. The property runs north and south and Middle Creek borders the western edge of the site. Land Comparable 1 Transaction Tract 2A1 of the Amended Sub Plat of Middle Creek Meadows Sub Phase No. 1. Plat G-41-C, Gallatin County, MT Bridger Appraisals Inc. © 63 Keith O’Reilly, MAI ID 369 Verification Source Broker- Sandy Ferraro Address 3030 Bridger Canyon Rd Price $760,000 City Bozeman Price Per Acre $20,272.00 State MT Financing Trust Indenture Tax ID RFH22032 Property Rights Fee Simple County Gallatin Days on Market 40 Grantor Carol A. Green Recording Date 10/22/12 Grantee Henry S. Burden Recording Number 2429770 Legal Description Acres 37.9 Topography Mostly Level Land SF 1,696,226 Zoning Residential Rural (RR) Road Frontage --Flood Zone None Dimensions Irregular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access Bridger Canyon Rd.Price Per Land SF -- Transaction TR B-1 Minor Sub 289 W2 Sec33 T1S R6E Site Comments There is a Log style home located on the property. Built in 1980 and remodeled in 1990, 3,470sf of which 2,270sf is livable area to include 2 bedrooms, 2 full bathrooms, 1 half bath and a family room. The home is one level with a basement. There is an open framed porch, a wood deck and an enclosed porch. There are also several pole buildings located on the property. This property has Bridger Creek crossing it, the creek frontage is a big ammenity to this site. Trophy building sites like this are typically further developed or renovated. Land Comparable 2 Bridger Appraisals Inc. © 64 Keith O’Reilly, MAI ID 370 Verification Source MLS, Dept. of Revenue, Public RecordsAddress76857 Gallatin Rd.Price $625,000 City Bozeman Price Per Acre $15,000.00 State MT Financing -- Tax ID RHR34799 Property Rights Fee Simple County Gallatin Days on Market 3 Grantor First Security Bank Recording Date 01/23/12 Grantee The Shawn C. Nelson 2009 Irrevocable Trust Recording Number 2406504 Legal Description Acres 39.9 Topography -- Land SF 1,735,866 Zoning -- Road Frontage --Flood Zone -- Dimensions Irregular Encumbrance or Easement -- Utilities NorthWestern Energy Environmental Issues None Access Gallatin Road Price Per Land SF -- Comments There is a mobile home located on the property. It is single wide, built in 1980 with 1,056sf of livable area. There are 2 bedrooms and 1 full bathroom. There is a framed enclosed porch and wood decks. A guest house is also located on the property along with pole buildings. Land Comparable 3 Transaction Tract 1 of COS 1321H located in the SW1/4 of Sec 2, T3S, R4E Gallatin Co. MT. Site Bridger Appraisals Inc. © 65 Keith O’Reilly, MAI ID 368 Verification Source Broker- Cory Vellinga Address 9790 River Rd.Price $801,000 City Bozeman Price Per Acre $30,882.00 State MT Financing Cash to Seller Tax ID RGF29543 Property Rights Fee Simple County Gallatin Days on Market 161 Grantor Tom Hougen Recording Date 07/26/11 Grantee Charles W. Peck, Trustee Recording Number 2393422 Legal Description Acres 21.1 Topography Level to Sloping Land SF 919,116 Zoning Residential Rural Road Frontage --Flood Zone No Dimensions Irregular Encumbrance or Easement None Utilities NorthWestern Energy Environmental Issues None Access River Road Price Per Land SF -- Site Comments This proprety is located just south of Norris Rd on River Rd. The site has frontage along the Gallatin River, the property is just west of Four Corners. According to the Broker, the house contributed little value, his estimate was maybe $150,000. The purchaser more or less renovated all the improvements. The property was originally listed for sale for $1,350,000. Land Comparable 4 Transaction Parcel B of COS 2235 located in the NW1/4 of Sect. 14, T2S, R4E, Gallatin Co., MT. Bridger Appraisals Inc. © 66 Keith O’Reilly, MAI Bridger Appraisals Inc. © 67 Keith O’Reilly, MAI Comparable Sale Adjustments Tract 2 consists of an R-4 zoned parcel of land. The reader needs to understand that the Tract 2 being appraised consists of the existing 16.522 acre parcel of land and the 3.94 acre parcel of land that borders the East Gallatin River and which is currently being swapped as previously mentioned. Thus the valuation for Tract 2 consists of 20.462 acres. The positive of this site is obviously as the frontage along the East Gallatin River that now more or less runs the entire length north and south along the eastern border. The drawbacks to this property is the amount of wetlands and flood zones. In addition this site lacks water and sewer at the present time which would restrict the allowable density. There is also a high pressure gas line intersecting the southern portion of the site that cannot be constructed upon. Due to the fact that there is a septic system on the site, which is likely not up to current standards; it is likely that a septic would be permitted for a single family residence. Thus my search for comparable sales has focused on larger tracts with river or creek frontage that have either a single family use or a recreational use. Obviously it is difficult to find this type of sale within the city limits of Bozeman because of the lack of creek and rivers. Sale 1 is current, a larger tract of land and has very similar creek frontage with Middle Creek bordering the western edge of the site. In addition this site would likely be limited to a single family residence due to the offsite infrastructure and zoning. In fact the adjacent properties lack conformity, similar to the subject neighborhood. The indicated value from this sale is $38,318per acre. Sale 2 is located just east of the subject property. This sale is older and a positive market condition of at least 10% would be warranted. Positive market conditions have been supported earlier in the report. This site has Bridger Creek frontage along the northeastern boundary. This is a much larger site when compared to Sales 1 and 4. The indicated value includes the value for the improvements upon the site. However, historically I have found market evidence that older improvements contribute little value to trophy home sites. Thus with a positive 10% adjustment for market conditions the indication of market value would be approximately $22,799 rounded to $23,000 per acre. Sale 3 is located in a far inferior location but has good sought after frontage along the Gallatin River. Like Sale 2 this is an older sale that would warrant a positive market condition adjustment of at least 10% indicating a value of $16,500 per acre. Sale 4 is an older sale as well, however, the location is more similar to the subject and the site size is also smaller than Sales 2 and 3. A 10% market condition adjustment would indicate a value of $33,970 rounded to $34,000. The reconciled values of Sales 1 and 4 which are more similar in size to the subject indicate values of $34,000 to $38,000 per acre. I have reconciled in line with Sale 1 since it is very current, is surrounded by similar type properties, and has extremely similar creek frontage. Bridger Appraisals Inc. © 68 Keith O’Reilly, MAI Based on the above analysis, I have reconciled to a value of $38,000per acre times 20.462acres or $777,556 rounded to $775,000 for Tract 2, as of February 24, 2014 and subject to the Limiting Conditions and Assumptions of this appraisal. Tract 4 has been valued using both sales for Tract 1 and Tract 2, Tract 4 is a property with the same zoning of R-4 but could possibly have a more dense use than Tract 2. Tract 4 is more representative of the current Sale 2 of 4.73 acres located on Durston Rd that sold for $52,887 per acre. I have reconciled in line with this sale (rounded to $50,000 per acre) because of the same risks involved and the uncertainty of development potential. Quite frankly in my opinion this is a worst case scenario for Tract 4. Tract 4 is comprised of a total site size of 8.5025 acres times $50,000 per acre is $425,125 or rounded to $425,000. Therefore, based on the above analysis, I have reconciled to a value for Tract 4 of $425,000, as of February 24, 2014, and subject to the Limiting Conditions and Assumptions of this appraisal. Bridger Appraisals Inc. © 69 Keith O’Reilly, MAI 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. Cost Approach The cost approach to value is not applicable to valuing vacant land similar to the subject sites. Sales Comparison Approach The most difficult task involved in appraising vacant speculative development sites like the subjects is determining costs that will be incurred in the future for development. The best available comparable sales were compiled and analyzed in comparison to the subject sites. Like the subject sites themselves, the comparables all have some intangible costs that take place after purchase and before development. Comparable properties with similar amenities and locations have been chosen to make the best possible estimates of value. None of the sales are absolutely identical to the subject sites. Narratively I have commented on market condition adjustments which lately have been on an upward trend. Luckily the majority of the sales are very current. The quality and quantity of data is very good and the indication of value is reasonable and reliable. In addition to the comparable sales utilized in the report. I have included a sale of what is more or less Tract 2 that took place in April of 2002 for a reported price of $41,764per acre and the sale of the adjacent property to the east that took place in January of 2004 for $53,230per acre. Both of these sales took place prior to some of the larger increases in value experienced in 2005 and 2006. Income Approach The income approach to value is not applicable to valuing vacant land similar to the subject properties. Bridger Appraisals Inc. © 70 Keith O’Reilly, MAI Value Conclusions The sales comparison approach to value is the only applicable approach to valuing the subject properties. 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 February 24, 2014, subject to the Limiting Conditions and Assumptions of this appraisal. Reconciled Value Conclusion: Premise: “As Is” Estate: Fee Simple 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 February 24, 2014, is: ONE MILLION THREE HUNDRED FIFTEEN THOUSND DOLLARS ($1,315,000) TRACT 1 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 February 24, 2014, is: SEVEN HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($775,000) TRACT 2 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 February 24, 2014, is: FOUR HUNDRED FORTY FIVE THOUSAND DOLLARS ($445,000) TRACT 3 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 February 24, 2014, is: FOUR HUNDRED TWENTY FIVE THOUSAND DOLLARS ($425,000) TRACT 4 Bridger Appraisals Inc. © 71 Keith O’Reilly, MAI CERTIFICATION As a result of a request for an appraisal assignment of the property, identified as: Story Mill Project 75 Bridger View Dr., 980 E. Griffin Dr., 1869 Story Mill Rd., TBD E. Griffin, TBD Bryant St. and TBD. 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 is my personal, unbiased professional analyses, opinions, and conclusions. The appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. I have no present or prospective interest in the properties that are the subjects of this report, and I have no personal interest or bias with respect to the parties involved. My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. My analyses, opinions, and conclusions were developed, and this report has been prepared, in accordance with the standards and reporting requirements of and in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute, and the Uniform Standards of Professional Appraisal Practice (USPAP), published and copyrighted by the Appraisal Foundation. Keith O'Reilly, MAI, has made a personal viewing of the properties that are the subjects of this report. No person, other than the appraiser signing this report, provided significant professional assistance to the persons signing this report. Further, the value reported is based upon cash in U.S. dollars or in terms of similar financial arrangements. The use of this report is subject to the requirements of the Appraisal Institute relating to review by 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. I have performed appraisal services regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. This was disclosed to the client prior to accepting this assignment. Bridger Appraisals Inc. © 72 Keith O’Reilly, MAI 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 February 24, 2014, is: ONE MILLION THREE HUNDRED FIFTEEN THOUSND DOLLARS ($1,315,000) TRACT 1 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 February 24, 2014, is: SEVEN HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($775,000) TRACT 2 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 February 24, 2014, is: FOUR HUNDRED FORTY FIVE THOUSAND DOLLARS ($445,000) TRACT 3 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 February 24, 2014, is: FOUR HUNDRED TWENTY FIVE THOUSAND DOLLARS ($425,000) TRACT 4 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