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HomeMy WebLinkAboutEmpire Building Materials Warehouse property/Appraisal Services P APPRAISAL uwamuu oi �, omi � rv�mwuu i ,m�awow SERVICES_ irv��wmreMa ummwmm�rxxuaw�r�omuo�.�mnmim�mm��mmmuruu� P . 0 . B 0 X 1 0 7 6 s B O Z E M A N , MT 5 9 7 15 • ( 4 0 6 ) 5 8 7 - 5 0 4 4 COMPLETE APPRAISAL 0 SUMMARY REPORT of Empire Building Materials, Inc., a Commercial Office/Industrial Warehouse Property 608 E. Main St. Bozeman, Gallatin MT, 59715 As of February 21, 2005 Prepared For City of Bozeman, Empire Building Materials, Ponderosa Land Development, &Martel Construction Prepared by Ross Wenger, Licensed Residential Appraiser MT-753 and Jerry R. Gossel, Certified General Appraiser MT-106 Appraisal Services P.O. Box 1076 67A W. Nagy Blvd. Bozeman, NIT 59771 File 4: 06-094 APPRAISAL SERVICES .. . P.Q. Box 1076 406-587-5044 67A Kagy Blvd. 406-587-5481 Bozeman,MT 59771 rossw @montana.com February 27, 2005 City of Bozeman, Empire Building Materials, Ponderosa Land Development, & Martel Construction Re: Empire Building Materials, Inc. 608 E. Main St. Bozeman, Gallatin County MT, 59715 Dear City of Bozeman, Empire Building Materials, Ponderosa Land Development, & Martel Construction At your request,we have prepared an appraisal for the above referenced property. The purpose of this appraisal is to estimate the market value of the subject property's fee simple estate for business purposes. This appraisal is intended for the use of the client. This is a Complete Appraisal. All applicable research and valuation analyses have been applied. This is a Summary Report as defined by Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2(B). This format provides a summary of the appraisal process, subject and market data and valuation analyses. We certify that we have no present or contemplated future interest in the property beyond this estimate of value. Your attention is directed to the Limiting Conditions and Assumptions, located on page 8. Acceptance of this report constitutes an agreement with these conditions and assumptions. February 21, 2005 Page 2 In our opinion, the value of the subject property, as of February 21, 2005, was as follows: Subject Property "As Is" Premise, Fee Simple Estate Value Conclusion $2,400,000 Further, we estimate the market exposure period necessary for the subject to have achieved this value to be 6-12 months. Respectfully submitted, Appraisal Services "'''' 4a -er, Ross Wenger, T-753 erry, Gosse Licensed Residential Appraiser egrtified General A&raiser-- TABLE OF CONTENTS Summary of Important Facts and Conclusions..............................................................^.........^ ..... 5 AppraisalScope.............................................................................................................................. [JSP/19 Departures.,.~..---^^,'^_--_—.~...^~—.--^-------'--''~'~'~^^~'~^~'`~~—' 8 DepartureTable..............................................,............................................................................ 0 Limiting Conditions and Assumptions ^..^^.~--_--..~~'—~^---'~-^-'^^~--------'--^ g Purposeand Intended Use/User.................................................................................................... T0 Definitionof Market Value.........^................................................................................................. 10 PropertyRights Appraised............................................................. ...._-.~^,-.............................. l| RegionalMap............................................................................,^^^..^^-^^.'.^................................ 12 Market Area, Cify,Neighborhood, and Location Data................................................................. 13 PropertyDescription..................................................................................................................... lN Subject Photographs.... .............................................................................................................22 Zoning...........................................................................................................................................27 Assessmentand Taxes .............................. ................................................'..........^.......................27 Sale/Transfer History...................^^-...................................... ......................................................2g Highestand Best Use..................................................................................................^^_^-...... ...29 Valuation Methodology...---.—,._'....^^^-----...,^.,._--'—.',.._.^....^-^...^,._----_-.30 CostApproach ........................................................................... ..................................................3} LandValue....................................................................... ........................................................3} LandValue Conclusion.................... .................................................... ............^^,.^^^^_^^^~^^. 32 CostAnalysis.........................^................................................^.......................................... ...... 33 DepreciationAnalysis..........................................................^........^...........................................33 CostApproach Conclusion...............................................^.......................................................33 IncomeApproach......................................^...................................................................................35 1)/nec1 Capitalization Analysis......................................................_,.~...._.^^^~^_.^.^^^^. ............35 Potential Gross Income 0,G7 —.—,,~,,~.,,,,,_____^^^.______.____._____.__35 Incomeand Expense Statement.................................... ...........................................................42 IncomeApproach Conclusion...................................................................................................45 Final Reconciliation_~^^^___.,^,,.~.~,,,~,~____, ...........................................................46 ValueIndications..................................................... ................................................................46 ValueConclusion.................................. ...................................................................................48 CertificationStatement.................................................................................................................47 Addenda............................................ ...........................................................................................48 Appraisal Services 4 Summary of Important Facts and Conclusions GENERAL Subject: Empire Building Materials, Inc. 608 E. Main St. Bozeman, Gallatin County MT, 59715 Owner: Empire Building Materials, Inc 608 E. Main St. Bozeman, MT 59715 Tax Identification: RGH2546 Date of Report: February 27, 2005 Date of Value: February 21, 2005 Property Rights Appraised: Fee Simple Intended Use: Business Purposes Intended User(s): Client Appraisal Purpose: Market Value Taxes/Parcel: $8,333.03, $4,208.41, $380.57 Total Taxes: $12,922.01 ... P"ROPF TV Land Area: Parcel#1, 23,225 SF/.533 Acres Parcel #2, 31,654 SF/.727 Acres Parcel#3, 10,281 SF/.236 Acres Total: 1.50 Acres Usable: 1.50 Acres Improvements: Building Type: Commercial Office/Industrial Warehouse Year Built/Rehabbed: 1955/1977 Condition: Average Number of Stories: I Gross Building Area: 31,762 Net Leasable Area: 31,762 Number of Units: 4 Zoning: B-3 Highest and Best Use The highest and best use of the subject, as vacant, is for As Vacant: commercial retail/office development. Highest and Best Use The highest and best use of the subject is as improved. As Improved: u ][ rraaC artarr - Land Value: $1,057,000 Cost Approach: $2,490,000 Income Approach: $2,340,000 Appraisal Services 5 Reconciled Value Conclusion: Premise: "As Is" Estate: Fee Simple Value Conclusion: $2,400,000 Appraisal Services 6 Appraisal Scope According to the Uniform Standards of Professional Appraisal Practice, it is the appraisers responsibility to determine the appropriate scope of work. USPAP defines the scope of work as: The amount and type of information researched and the analysis applied in an assignment. Scope of work includes, but is not limited to,the following: • the degree to which the property is inspected or identified; • the extent of research into physical or economic factors that could affect the property; • the extent of data research; and • the type and extent of analysis applied to arrive at opinions or conclusions. SCOPE OF WORK Appraisal Type: This is a Complete Appraisal. All applicable research and valuation analyses have been applied. Report Type: This is a Summary Report as defined by Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2(B). This format provides a summary of the appraisal process, subject and market data and valuation analyses. Inspection: A complete inspection of the site was made, and photographs were taken. Highest and Best Use Analysis: A complete analysis of highest and best use, both as vacant and as improved, was made. Market Area and Analysis of A complete analysis of market conditions was made. Market Conditions: Valuation Analyses Cost Approach: A complete cost approach was applied. Income Approach: A complete income approach was applied. Appraisal Services 7 USPAP Departures The Departure Rule of the Uniform Standards of Professional Appraisal Practice allows for appraisal development with less research and analysis than would typically be developed in a complete appraisal. Departure is designed to facilitate a more efficient appraisal development process when the appraisal problem does not require the comprehensive detail and diligence of a complete appraisal. While numerous rules govern the use of Departure,the main criteria are a credible result and appropriate detail for intended use of the appraisal. Departure Table Departures Table Analysis Departure Description USPAP Reference Sales Comparison Yes The sales comparison approach is applicable but not Standards Rule 1-4(a) Approach necessary for a credible appraisal and has not been developed. L....... Appraisal Services 8 Limiting Conditions and Assumptions Acceptance of and/or use of this report constitutes acceptance of the following limiting conditions and assumptions; these can only be modified by written documents executed by both parties. This appraisal is to be used only for the purpose stated herein. While distribution of this appraisal in its entirety is at the discretion of the client, individual sections shall not be distributed; this report is intended to be used in whole and not in part. No part of this appraisal, its value estimates or the identity of the firm or the appraiser(s) may be communicated to the public through advertising, public relations,media sales, or other media. All files, work papers and documents developed in connection with this assignment are the property of Appraisal Services, Information, estimates and opinions are verified where possible, but cannot be guaranteed. Plans provided are intended to assist the client in visualizing the property; no other use of these plans is intended or permitted. No hidden or unapparent conditions of the property, subsoil or structure, which would make the property more or less valuable, were discovered by the appraiser(s) or made known to the appraiser(s). No responsibility is assumed for such conditions or engineering necessary to discover them. Unless otherwise stated, this appraisal assumes there is no existence of hazardous materials or conditions, in any form, on or near the subject property. Unless stated herein, the property is assumed to be outside of areas where flood hazard insurance is mandatory. Maps used by public and private agencies to determine these areas are limited with respect to accuracy. Due diligence has been exercised in interpreting these maps, but no responsibility is assumed for misinterpretation. Good title, free of liens, encumbrances and special assessments is assumed. No responsibility is assumed for matters of a legal nature. Necessary licenses,permits, consents, legislative or administrative authority from any local, state or Federal government or private entity are assumed to be in place or reasonably obtainable. It is assumed there are no zoning violations, encroachments, easements or other restrictions which would affect the subject property, unless otherwise stated. The appraiser(s) are not required to give testimony in Court in connection with this appraisal. If the appraisers are subpoenaed pursuant to a court order, the client agrees to pay the appraiser(s) our regular per them rate plus expenses. Appraisals are based on the data available at the time the assignment is completed. Amendments/modifications to appraisals based on new information made available after the appraisal was completed will be made, as soon as reasonably possible, for an additional fee. Appraisal Services 9 Purpose and Intended Use/User The purpose of this appraisal is to develop an opinion of Market Value of the property of interest. The Intended Use of this appraisal is for business purposes, subject to the stated Scope of Work,purpose of the appraisal, reporting requirements of this appraisal report form, and Definition of Market Value. No additional Intended Users are identified by the appraisal. Definition of Market Value The definition of"Market Value", as defined by the Office of the Comptroller of Currency (OCC) under 12 CFR,Part 34, Subpart C-Appraisals, 34.42 Definitions,the Board of Governors of the Federal Reserve System (FRS) and the Federal Deposit Insurance Corporation in compliance with Title XI of FIRREA, as well as by the Uniform Standards of Appraisal Practice as promulgated by the Appraisal Foundation, is as follows. Market value means 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 the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby, 1. Buyer and seller are typically motivated; 2. Both parties are will informed or well advised,and 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; and 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. Appraisal Services 10 Property Rights Appraised Fee Simple: A fee simple interest is the most complete interest in real property. A fee simple interest is the absolute ownership unencumbered by any other interest or estate, subject only by limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. Leased Fee: A Leased Fee position is defined in the Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute, 2003),as: An ownership interest held by a landlord with the rights of use and occupancy conveyed by a lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. Although, specific details of leases vary, a leased fee generally provides the lessor with the following: • Rent to be paid by the lessee under stipulated terms • The right of repossession at the termination of the lease • Default provisions • The right of disposition, including the rights to sell, mortgage, of bequeath the property, subject to the lessee's rights, during the lease period Appraisal Services Regional Map ._�__�..._-� d OANIELS sIiERITaAN uNGOLiV' GLAT IER TOOlE NIlt LTATHEAO BLAME VALLEY � ROOSEVELT' µ POtNnERA�1 . 1-1 . PHILLIPS SACNnERS I�1KE' MON � MOUTEAU RTCHLANn MCCO E w. ... GARTTEIn ?.ca LEWIS G1SGM<nC PETdGUSPETETn. tS G�'tBSnN MISSOULA AND 1lPniIN _ LENIM PRAIM BASIN �,. ._.�._.. POWELL � 1A HER T MUSSEL. GRANITE BROAD- WHEAT _fA.L TOH CUSTER RAVALL JEfEER• ROSEBUD SON SWEET_ YELLOWSTONE GA N GRASS STILL PK WATER . MADISON —T BIG HORN PRI�� Bozeman Appraisal Services 1 Market Area, City, Neighborhood, and Location Data The four forces that influence value in a market are social, economic, governmental, and environmental. This analysis identifies the characteristics that influence value trends in the past and that may affect values in the future. Bozeman, the county seat, is located in the southwest portion of the state in Gallatin County. The county area is 2,510 square miles. Billings, the state's largest city, is located 150 miles to the east; Butte is located approximately 80 miles to the west. Helena, the capitol, is located 90 miles to the north. Gallatin County is one of the fastest growing areas in the state. Social Influences In the market area analysis, the social characteristics that influence property values include: population density, which is important in central business districts and high-rise residential neighborhoods; skill levels or employment categories, which are important in industrial or high- technology districts; age levels, which is important in residential neighborhoods; house-hold size; employment status, including types of unemployment; extent of crime; extent of litter; quality and availability of educational, medical, social, recreational, cultural, and commercial services; and presence of community organizations. According to the Census and Economic Information Center, Montana Department of Commerce, the population of Montana in 2003 was 917,621. According to the 2000 Census,the population of Gallatin County was 67,831 residents, and Bozeman was 27,509 residents. Woods and Poole Economics estimated the population of Gallatin County in 2004 at 75,637, which make it the fastest growing county in Montana. According to the Economic Information Center the population of Bozeman in 2003 was 30,753. The census figures include some students as heads of household and fluctuations in university enrollment may affect the population data. Gallatin County has a well-educated work force. Of the county adult population over 25 years of age, 41% have college degrees; in Bozeman, that number increases to 49.5%. Gallatin County has experienced steady population growth in recent decades. More than 90% of the population lives in Bozeman or within 30 minutes of Bozeman. The age distribution for Gallatin County in 2000 is as follows: under 10, 11.7%; 1019, 15.2%; 20-29, 21.9%, 30-39%; 4049, 16.0%; and 60 & over, 11.4%. The age distribution for Bozeman in 1990 is as follows: under 10, 11.4%; 10-19, 153%; 20-29, 31.2%; 30-39, 16%; 40-49, 9.3%; and 60 & over, 11.4%. The average persons per household in Gallatin County for 2000 were 2.46 and for 1990 were 2.50. The average persons per household in Bozeman for 1990 were 2.27. According to the Montana Employment & Labor Trends Quarterly; the civilian labor force of Gallatin County in December of 2000 was 43,401,the number of employed workers was 42,114, and the number of unemployed was 1,287, with an unemployment rate of 3.0%. The civilian labor force in December of 2001 was 44,329, the number of employed workers was 42,937, and the number of unemployed was 1,053, with an unemployment rate of 1.2%. Appraisal Services 13 The historical unemployment rates are as follows: Year Montana% Gallatin County% 2004 3.84 2.39 2003 4.4 2.5 2002 4.6 2.7 2001 4.6 2.5 2000 4.9 2.7 1999 5.2 2.9 1998 5.6 3.0 1996 5.3 2.6 1994 5.1 2.3 1992 6.9 5.4 The Bozeman Police Division, with 43 law enforcement officers and 7 civilian employees, provides law enforcement protection to city residents and visitors. The department has a community policing philosophy and has implemented many positive programs over the past few years. In 2001,the number of crimes in Bozeman is as follows: homicide, 3; robbery, 7; assault, 12; burglary, 106; larceny, 1071, vehicle theft, 109; and rape, 24. Gallatin County has 32 schools in 16 school districts, offering educational programs from kindergarten through high school. Gallatin County's total enrollment of students, including private school numbers is 10,942. Montanan State University is one of two university systems within the state. During the 2005 fall semester, 12,300 students were enrolled at MSU-Bozeman. The university offers baccalaureate degrees in 50 fields, master's degrees in 40 fields and doctorates in 13 fields. Bozeman has a full range of medical professionals, several clinics,two urgent care clinics, a low- income clinic, and a modem short-term acute care hospital. There are approximately 100 doctors and 35 dentists, 114 practical and 377 registered nurses in the community. The number of increasing passenger boarding at Gallatin Field Airport is an indication of strength in the tourism and recreation in Gallatin County. Bozeman is a destination point to Yellowstone National Park, which continues to attract over 3 million visitors each year. The alpine skiing is excellent with Bridger Bowl located 15 miles north of town and Big Sky, a destination resort ski area, located 50 miles south of town. Both ski areas offer beginner to expert ski runs. There are numerous cross-country ski trails in the area. The area is known for its fishing on three rivers, the Gallatin,the Jefferson, and the Madison, which form the Missouri River. Access to the Yellowstone River in Park County is 25 miles east of Bozeman. There are 48 religious organizations in the Bozeman area representing a variety of affiliations and denominations. Bozeman has more than 70 motels/hotels with 1,400 rooms and more than 50 restaurants. Appraisal Services 14 Economic Influences Economic considerations relate to the financial capacity of a market area's occupants and their ability to rent or own property,to maintain it in an attractive and desirable condition, and to renovate it when needed. The economic characteristics include;mean and median household income, per capita income, income distribution, extent of owner occupancy, property rent levels and trends, property value levels and trends, vacancy rates for various types of property, and amount of development. The economy in Gallatin County and Bozeman is both broad based and diverse, with 3,400 establishments employing over 41,000 people. Major sectors of the economy, in addition to Montana State University, include recreation, retail trade, agriculture, services, manufacturing, and natural resource-based industry such as mining and forestry. Growing segments within these sectors are technology-based, and sports and recreation-based businesses that find university resources and an educated and recreational active labor force to be significant assets. The largest employer in the area is Montana State University, which employs approximately 3,500 personnel. Employment numbers indicate that retail trade employee's make-up 26% of the covered labor force, with government at 20%, and services at 25%. Manufacturing is the next largest segment, employing 9% of the covered labor force. In 1999 the median household income for Montana was $33,024 with aPer capita income of $1"7,151. The median household income for Bozeman was $32,156 with a per capita income of $16,104. Housing statistics for 2000 are as follows; Residential housing units in Montana 412,633, and for Bozeman 10,877. The persons per household in Montana were 2.45 and Bozeman was 2.26 with the homeownership rate in Montana of 69.1% and Bozeman was 42.9%. Residential housing starts in Bozeman for single-family and multi family units were as follows: 1997, 309; 1998, 423; 1999, 546; 2000, 415; 2001, 422; 2002, 526; 2003, 612; 2004, 881. Source: City of Bozeman Planning Office. The average rental prices in Bozeman as of May 2005 for apartments were: 1 bedroom$300- $500; 2 bedrooms $5004795; 3 bedrooms $65041000. The average studio rental was $275- $400. The average house rental was: 2 bedrooms $600-$850 and 3 bedrooms $80041,200. Source: Peak Property Management. According to the City of Bozeman Building Division the new construction valuation, including both residential and commercial for Bozeman: 2000 $81.2 million 2001 $78.9 million 2002 $85.8 million 2003 $133.1 million 2004 $144.2 million Appraisal Services 15 Governmental Influences Governmental considerations relate to laws,regulations, and property taxes that affect properties in the market area and the administration and enforcement of zoning laws, building codes, and housing and sanitary codes. The governmental characteristics include; property tax burden relative to services provided compared with other areas in the community; special assessments; zoning, building, and housing codes; quality of public services, such as fire and police protection, schools, and other governmental services; and environmental regulations. In 1921, the city of Bozeman adopted a Commissioner-Manager form of government. The day- to-day operations of local government are administered by the City Manager. All department heads are responsible to the City Manager, who is in turn responsible to the City Commission. Five commissioners are elected at large for four-year overlapping terms. The City Judge, the only other elected official, is also elected at large for a four-year term. The city provides water and sewer services that is supported by user fees. Garbage collection and landfill operations costs are covered by an annual assessment of property-owners. Through its general taxing authority, the City of Bozeman also provides library, parks, cemetery, street, and tree maintenance services. The Bozeman City/County Planning Office advises the Bozeman City Commission, Gallatin County Commission and Bozeman City/County Planning Board on matters within the planning jurisdictional area. The staff reviews subdivision requests, annexation requests, Master Plan amendments, zone changes; conditional uses, and makes recommendations to the respective bodies. The staff is also responsible for carrying out long range, comprehensive planning programs. The Department administers the Bozeman area-zoning ordinance, which contains provisions for site review and planned unit-development. The planning staff administers all housing-programs and historic preservation. Environmental Influences Environmental considerations consist of any natural or man-made features that are contained in or affect the market area and its location, including: building size, type, density, and maintenance; topographical features (terrain and vegetation); open space; nuisances and hazards from nearby facilities; the adequacy of public utilities;the existence and upkeep of vacant lots; general maintenance; the attractiveness and safety of routes into an out of the area; effective ages of properties; changes in property use and land use patterns; microclimate characteristics (temperature, wind, humidity, snowfall, etc.); environmental liabilities (landslides, floods, etc.); and access to public transportation, schools, stores and services establishments, parks and recreational facilities, house of worship, and workplaces. The Gallatin Valley is surrounded by several mountain ranges and thousands of acres of national forest land, where trail systems and wilderness areas abound. Two of the entrances to Yellowstone Park, America's oldest and best-known park are within a 90-mile drive of Bozeman. Yellowstone National Park can be enjoyed year round and Glacier National Park is a short-days drive to the west. Appraisal Services 16 Bozeman is near ten national forests that accommodate a variety of outdoor recreational experiences. There are several areas that are designed to accommodate the needs of people with disabilities, families with small children, and senior citizens. Many organizations and Recreation Department use public lands and city/county facilities to conduct programs. The city of Bozeman supports 23 parks and recreation areas, 19 of which are owned by the city. The city maintains 17 public tennis courts with three public parks are converted to outdoor ice skating rinks in the winter. Bozeman's climate reflects its mountain valley location. Summers are pleasant, characterized by warm days, cool nights, and an abundance of sunshine. Hot weather and humid conditions are infrequent. Bozeman is located in one of the few regions in the country where the average summer climate is comfortable due to the moderate combined heat and humidity. The average high temperatures for the summers are in the 70's and 80's; the average low temperatures are in the mid 40's and low 50's. The autumn high daily temperature is 70 degrees until the middle of October then between 20 and 50 degrees in October and November. The average monthly high and low temperatures for December, January and February are 35 and 16, 31 and 11, and 37 and 17 degrees. The average temperatures for spring are between 53 and 72 degrees. The average snowfall for Bozeman is 73.1 inches. Appraisal Services 17 Property Description SITE Information Sources: Property owner, deed, assessment records, inspection Site Size: Parcel #1, 23,225 SF/.533 Acres Parcel##2, 31,654 SF/327 Acres Parcel #3, 10,281 SF/.236 Acres Total Site Size: 1.50 acres Usable Site Size; 1.50 acres Corner Lot: The site is a corner lot. Visibility: Good Shape: Irregular _ _...__....... __ A M M!FLAT off"LOr M AAV LOr 2A,BLOCK C C 5 8 OF 77-E AA0WW PLAT of A PORTACYIV OF BLOCK CC ROUSE'A m ro sommN s mia ci i and Appraisal Services 18 r F 0. L .............. Road Frontage/Access: Main St. and Wallace Ave. with Good access. Topography: Level Drainage: Appears Adequate Utilities: Electricity: NorthWestern Energy Sewer: City Water: City Natural Gas: NorthWestern Energy Adequacy: Good Site Improvements: Average Landscaping: Average Site Utility: Good Flood Zone: The subject is located in an area mapped by the Federal Emergency Management Agency (FEMA). The subject is not located in flood hazard zone. FEMA Map Number: 3000280012C FEMA Map Date: July 15a 1988 FEMA Zone Classification: X Appraisal Services 19 Easements: The appraiser viewed the site and reviewed the zoning map, subdivision plat, and deed. The appraiser did not observe any adverse easements affecting the marketability of the site. Encroachments: The appraiser did not observe any encroachments affecting the marketability of the site. IMPROVEMENTS Building Type: Commercial Office/Industrial Manufacturing & Warehouse Quality: Average/Average Year Built: 1955/Unknown Year Rehabbed: 1977/Unknown Condition: Average/Average Effective Age: 25/Unknown Remaining Useful Life: 45/Unknown Areas &Ratios: Gross Building Area: 27,389 Net Leasable Area: 27,389 Building Efficiency Ratio: 100% Units Description: Unit Type #of Units Description Unit Size Total SF I I Office 3,520 3,520 1 Storage 5,040 5,040 1 Industrial Manufacturing 2,718 2,718 1 Industrial Warehouse 20,484 20,484. Totals 4 31,7621 FoUNDATION,FRAmE &EXTERIOR Foundation: Concrete footings Frame: Masonry/Steel Exterior: Masonry/Metal Roof/Cover: Wood truss-Built-up/Metal Elevators: None Appraisal Services 20 INTERIOR Interior Finish: Drywall and Wood Trim/Metal Ceilings & Ceiling Gypsum board 10 Feet feet/Unknown Height: Floor Cover: Carpet/Concrete Doors: Wood/Metal MECHANICAL SYSTEMS Heating: Gas-fired ducted forced hot air/None Cooling: Central air conditioning/None Hot Water: Gas fired hot water heater/None Electrical: Normal/Normal Plumbing: Normal/Normal SITE IMPROVEMENTS Parking Type and Type: On-Site Gravel Number of Spaces: Spaces: 22 Condition: Fair-Average PRoPERTY ANALYSIS Functional Utility: Average Design& Appeal: Average Occupancy: Owner Occupied Appraisal Services 21 Subject Photographs I Subject. Front Appraise Services 22 Pr I r t� I Subject: Side from Wallace Appraisal Services 23 Subject: Main Street Appraisal Services 24 v i f�/%✓�i(r ��i,"`s � ," ,�� �/r d°/r 0 of�ar � j //�/��rl��, %/ ��i „ f ;f 911 f Iffi/'/'✓1/e ua� % �,r ` �... I Subject: Parcels 42 and 43 Appraisal Services 25 r f t dd �"7DlP�/J10J/ /IfIIIY f�N� l�Nd ilVrfhlu(� 444Srd1 hu° H,r� r / � rr r , aFk- r 1 / F Subject; Parcel#3 Appraisal Services 26 Zoning Zoning Classification:B-3 General Description: Central Business District Conformance: The subject legally conforms to the zoning compliance Zoning Change: Not Likely Source: Bozeman Zoning Regulations Lot Coverage/Floor Area: Entire lot, exclusive of required yards and parking, may be occupied by the principle and accessory units Lot Area: No minimum size Lot Width- No minimum width Yards: No minimum yards, except a 7 foot yard on Babcock and Mendenhall Streets Building Height: 55 Feet in the core area, 70 feet outside of the core area Assessment and Taxes The State of Montana, through the Department of Revenue, is responsible for valuing all taxable and real property. The Montana Department of Revenue is composed of six divisions: The Customer Service Division is designed to provide centralized and consistent customer service, revenue collection, and document processing for the department and for state agency partners. The Business and Income Taxes Division oversees audits and verifies compliance with Montana tax law for all taxes, and completes appraisals and assessments of industrial and centrally assessed property. The Property Assessment Division is responsible for the valuation and assessment of real and personal property throughout the state for property tax purposes. The division is comprised of a central office located in Helena and six regions. There is a local DOR office located in each county seat within the regional areas. The Resource Management Division provides service and support to the department by integrating Human Resources, Payroll and Benefits, Education and Training, Liquor Distribution, Accounting, Purchasing, and Facilities and Asset Management. The Information Technology Division provides service in the area of data support, applications support, technology support, and user assistance that enables the department to meet its business objectives. Appraisal Services 27 The Director's Office supports the agency's director and is composed of six work units. The basic function for each unit is: • Legal Services supervises the overall legal efforts of the department, which includes rules,policies, bankruptcy, disclosure officer and the Office of Dispute Resolution. • Tax, Policy& Research is responsible for the preparation of legislative fiscal notes that affect revenue,the analysis of legislative proposals affecting the department, and department economic data analysis. • Budget Analyst provides ongoing oversight of the department budget. • Communications manages the department's communication activities, including information dissemination,media relations, document editing, stakeholder relations, website maintenance, public involvement and special events. • Internal Quality Manager is responsible for providing management with information about the adequacy and the effectiveness of its system of internal controls and quality of its operations with established standards and management expectations. • Administrative Support assists all units in the Director's Office with administrative responsibilities including,preparing for legislative committees, editing correspondence and finalizing mass mailings. The property tax is determined by multiplying the property's value by a tax rate. The Montana Legislature sets the tax rate. The taxable value is then multiplied by the mill levy. The local tax jurisdictions, city and county government, school districts, and other public services influence the mill levy. The general property tax equation is: Value x Tax Rate= Taxable Value Taxable Value x Mill Levy= General Property Tax The Property Assessment Division is responsible for determining the value of real property throughout the state for property tax purposes. State Law requires the Department of Revenue's Property Assessment Division to reappraise property periodically. The tax information for each of the three parcels being appraised is as follows,respectively. Assessor Parcel fi: RGH2546, RGH26407, RGH2547 Year. 2005 Taxes: $8,333.03, $4,208.41, 380.57 'Total Taxes: $12,922.01 2003 Reappraisal Value: $464,675, $306,760, $40,578 Taxable Market Value: $343,687, $243,607, $23,172 Appraisal Services 28 Sale/Transfer History According to Public Records the subject has not transferred within the last three years. According to MLS the subject is not currently listed for sale. Highest and Best 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.I • Permissible Use. What uses are permitted by zoning and other legal restrictions? • Possible Use. To what use is the site physically adaptable? • Feasible Use. Which possible and permissible use will produce any net return to the owner of the site? • Maximally Productive. Among the feasible uses which use will produce the highest net return, (i.e.,the highest present worth)? Highest and Best Use As Vacant The highest and best use of the subject, as vacant, is for commercial retail/office development. The main level could be used for retail and the second level could be used for office. The intent of the B-3 Central Business District is to provide a central area for the community's business, government services, and cultural activities. The City of Bozeman defines the "core area" as the area between Grand Avenue and Rouse Avenue.and the alleys one-half block north and south from Main Street. The intent of the Central Business District's"core area" is to encourage high volume, pedestrian-orientated uses in ground floor space. A commercial retail/office building is considered to be the ideal improvement as it is located in adjacent to the"core area". The appraiser estimated the land value of each parcel through extraction. The appraiser used current market data, as supported in the appraiser's file. 1. A cost approach was applied, that a potential developer would pay for the potential improvements. The appraiser used an 85%®building to land ratio, estimated the cost of construction at$185 per SqFt, then added the estimated cost of demolition of the current structure, plus the cost to purchase required parking. 2. An income approach was applied, that a potential tenant would pay for the proposed improvements. The appraiser estimated an income stream of$16.00 per SqFt per year NNN. The income stream was then divided by a capitalization rate of 7.5%. Since the income stream in the highest and best use analysis is based on a commercial retail/office building a 7.5% capitalization was used. I The Appraisal of Real Estate 11th Edition, Page 297, Appraisal Institute Appraisal Services 29 3. Then the developers cost of the improvements was subtracted from the appraiser's estimation of value through the income approach to determine a land value that is considered to be financially feasible to a developer. Potential Income Approach Estimated,Development Cost of Proposed Improvements Estimated Land Value Highest and Best Use As Improved The highest and best use of the subject is as improved. Valuation Methodology Three basic approaches may be used to arrive at an estimate of market value. They are: • The Cost Approach • The Income Approach • The Sales Comparison Approach The appraisal process concludes with the Final Reconciliation of the values derived from the approaches applied for a single estimate of market value. Different properties require different means of analysis and lend themselves to one approach over the others. In this appraisal: 1. A complete cost approach was applied. 2. A complete income approach was applied. The sales comparison approach was applicable but not necessary for a credible appraisal and has not been developed. The reason the sales comparison was not used is due to the lack of comparable sales. Standards Rule 1-4 (a) Appraisal Services 30 Cost Approach The Cost Approach is based on the principle of substitution-that a prudent and rational person would pay no more for a property than the cost to construct a similar and competitive property, assuming no undue delay in the process. The applied process is as follows: • Estimate the land value • Estimate the replacement cost of the building and site improvements • Estimate the physical, functional and/or external depreciation accrued to the improvements • Sum the depreciated value of the improvements with the value of the land for an indication of value Land Value The appraiser estimated the land value of each parcel through extraction. The appraiser used current market data. 4. A cost approach was applied, that a potential developer would pay for the potential improvements. The appraiser used an 85%building to land ratio, estimated the cost of construction at $185 per SqFt,then added the estimated cost of demolition of the current structure,plus the cost to purchase required parking, 5. An income approach was applied,that a potential tenant would pay for the proposed improvements. The appraiser estimated an income stream of$16.00 per SqFt per year NNN. The income stream was then divided by capitalization rate of 7.5%. Since the income stream in the highest and best use analysis is based on a commercial retail/office building a 7.5% capitalization was used. 6. Then the developers cost of the improvements was subtracted from the appraiser's estimation of value through the income approach to determine a land value that is considered to be financially feasible to a developer. Potential Income Approach Estimated Development Cost of Proposed Improvements Estimated Land Value Appraisal Services 31 Parcel 1 Parcel 2 Parcel 3 Lot Size GBA Lot Size GBA Lot Size GBA 23098 31654 10281 Estimated Land Value Income Approach $8,376,875 $10,762,360 $3,495,540 Cast Approach $7,653,771 $10,545,923 $3,368,375 Lot GBA SgFt 23098 31654 10281 Indicated Land Value $713,104 $216,437 :1x127,156 Total Land Value $1,056,706 Land Value Conclusion Based on the above analysis, we have reconciled to a site value of$1,057,000 as of February 21, 2005, and subject to the Limiting Conditions and Assumptions of this appraisal. Appraisal Services 32 Cost Analysis The next step in the Cost Approach is to estimate the replacement cost of the buildings and site improvements. The replacement cost of the subject site and building improvements are based on Marshall & Swift Valuation Services, Local Area Contractors and Suppliers. Soft Costs Where appropriate, we have included the following soft costs: • Engineering • Architectural • Permits and Legal • Marketing & Leasing Commissions • Contingency • Developer's Profit Depreciation Analysis Depreciation may be defined as any loss of value from any cause. There are three general areas of depreciation: physical deterioration, functional obsolescence.and external obsolescence. Depreciation may be curable or incurable, the test being that money spent to cure the depreciation be gained in value. If the depreciation costs more to fix than will be gained in value, then the depreciation is considered incurable. Depreciation Accrued to The Subject Component Effective Age Life Percent Physical Depreciation: Building 25 70 36% Physical Depreciation- Site 0 1 0% Functional Obsolescence Building .......... ...... ........ ................. 0% External Obsolescence Building .......... .................. ... 0% Cost Approach Conclusion Based on the analysis detailed on the following page, we have reconciled to a cost approach value of$2,350,000, as of February 21, 2005, subject to the Limiting Conditions and Assumptions of this appraisal. Appraisal Services 33 Building Improvements :J F- Cost Section I of I Item Unit T Cost Quantity Total Commercial Office Sq. Ft, $185.00 3,520 $651,200 Storage Sq. Ft, $115.00 2,880 $331,200 2nd Floor Storage Sq. R $25.00 2,160 $54,000 Industrial Manufacturing Sq. FL $28,00 2,718 $76,104 Industrial Warehouse Sq. Ft. $28.00 20,484 $573,552 $1,686,056 Per SF GBA $53.08 Site Improvements Item Unit Type Cost Quantity Total Parking, Sidewalks Lump Sum $50,000.00 1 $50,000 $0 $50,000 $1,736,056 Per SF GBA $54.66 Soft Costs Item Percent Type Total Engineering 5.0% % Building Cost $84,303 Architectural .................... 10,0% % Building Cost $168,606 Permits&Legal ...... ............. ....... ....................... ........... $0 Leasing ...... ....... $0 $252,908 Contingency @ 2.0% $34,721 Entrepreneurial Profit 10.0% $173,606 $2,197,291 Per SF GBA $69A8 Cost Allocation Total Building Costs ... ....... ...............-............ ..................... $2,147,291 Total Site Costs ........... .............. ............ ....................... $50,000 Depreciation —1 Component Effective Age Life Percent Amount Physical Depreciation: Building 25 70 36% $766,890 Physical Depreciation:Site 0 1 0% $0 Functional Obsolescence Building ................................................... 0% $0 External Obsolescence Building ........................................... 0% $0 $766,890 $1,430,401 Per SF GBA $45.03 Land Value Land Value ....................... ................................................ $1,057,000 $2,487,401 $2,490,000 Per SF GBA $78.40 @Value SoRmire-wwwatvatuemm Appraisal Services 34 Income Approach The Income Approach to value is based on the present worth of the future rights to income. This type of analysis considers the property from an investor's point of view, the basic premise being that the amount and quality of the income stream are the basis for value of the property, Direct Capitalization Analysis The steps involved in capitalizing the subject's net operating income are as follows: Develop the subject's Potential Gross Income (PGI) through analysis of the subject's actual historic income and an analysis of competitive current market income rates. ➢ Estimate and deduct vacancy and collection losses to develop the Effective Gross Income (EGI). ➢ Develop and subtract operating expenses to derive the Net Operating Income (NOI). ➢ Develop the appropriate capitalization rate (R,,). Divide the net operating income by the capitalization rate for an estimate of value through the income approach. Potential Gross Income (PG1) Current Income The table below summarizes the subject's historic, current and owner's income budget. Income History and Budget Budget Owner's Appraiser's Year Ending Statement Account 2/1712006 Rent Commercial Office Base Rent $51,040 Rent lndustdalMarehouse Base Rent $151,973 Total lncome $203,013 Excluded Income: $0 Adjusted Income: $203,013 Appraisal Services 35 COMPARABLE LEASE 1 Property Type: Office Lessor: Jerry Locati Address: 402 E.Main St. Suite 202, Lessee: D.A. Davidson Bozeman Terms: NNN Confirmed By: Keith O'Reilly,MAI Term: SYr. Confirmed With: Jerry Locati SITE DATA Location: Good Site Topography: Level Parking: Adequate Zoning: B43 Central Business Access: Good District Corner: Main&Rouse Electric: Northwestern Energy Water&Sewer: City Gas: Northwestern Energy IMPROVEMENT DATA Gross Building.Area(SF): 2665 Year Built: 1994. Lease Rate: $17.00/SF Condition: Good IMAGES A.. h Y NOTES Cy)�Valuc Software—www.atvalue,com Appraisal Services 36 COMPARABLE LEASE 2 Property Type: Office Lessor: Mike Huemphner Address: 2054 Stadium Or., Lessee: State Farm Bozeman Terms: iVNN Confirmed By: Keith O'Reilly,MAI Term: 5 Yr, Confirmed With: Mike Huem Finer SITE DATA Location: Good Site Topography: Level Parking: Adequate Zoning: R-O Access: Good Corner: No Electric: Northwestern Energy Water&Sewer: City Gas: NorthWestern Energy Location: Good Site Topography: Level IMPROVEMENT DATA Gross Building Area(SF): 6548 Year Built: 2003 Lease Rate: $14.50 Condition: Good IMAGES r N N a�ud �w7+?l M Dyi lii�11U i �UI e NOTES @Value Softwareµwww.atvalue.com Appraisal Services 37 COMPARABLE LEASE 3 ;Property Type: Industrial Warehouse Lessor: McLaughlin Address: 94 Falcon Lane#3,Bozeman Lessee: Safetrek Terms: Gross Confirmed By: Ross Wenger Term: 3 Yr.Ending 04/01108 Confirmed With: Peak Property Management SITE DATA Location: Good Site Topography: Level Parking: Adequate Zoning: No Zoning Access: Good Corner: No Electric: NorthWestern Energy Water &Sewer: None Gas: NorthWestern Ener IMPROVEMENT DATA Gross Building Area(SF): 4480 Year Built: 1997 Lease Rate: $6.90 Condition: Avg-Good IMAGES rip �b1l+r NOTES @Value Software—www.atvalue.com Appraisal Services 38 COMPARABLE LEASE 4 Property Type: Industrial Warehouse Lessor: McLaughlin Address: 94 Falcon Lane#2,Bozeman Lessee: Yellowstone Club Terms: Gross Confirmed By: Ross Wenger Term: 2.5 Yr.Ending 09/30/08 Confirmed With: Peak Property Management SITE DATA Location: Good Site Topography: Level Parking: Adequate Zoning: No Zoning Access: Good Corner: No Electric: Northwestern Energy Water&Sewer: None Gas: Northwestern Ener IMPROVEMENT DATA Gross Building Area(SF): 3840 Year Built: 1997 Lease mate: $6.92/SF Condition: Avg-Good IMAGES i r NOTES @Value Software M-wwwAtvalue.com Appraisal Services 39 Market Rent In order to determine if the subject's rent is at, above or below market levels,we have researched the following rental data. Comparable Rents Map ,I- AIA%4 a IMI ' — �- %N CO.M rov 0 clwm e b W.0 aawu� , Man Z-"41,0111 14""1" 4) VV 131V gy `!f Ka Subject rA Golcknsleln Ln to rhl y. q l, It 2,006 PAOPQaoxl.Ins;0 2006 T*Ig.Allis Appraisal Services 40 Comparable Rent Adjustment Grid Analyst:Poass V*nger Subject ble 1 Comparable 2 Comparable 3 Comparable 4 Property Name Badlawod Bu ildng Stare Farm Vftehouse warehouse Address 402 E.Main St.4202 2054 Stadium Dr. 94 Falcon Lane#3 94 Falcon Lane#2 state MT Mr MT MT Lease Rate $1T00 $14.50 $5.90 $6.92 Lessee : DA Davidson State Farm Sane Trek Yellowstone Club Lessor LOMtl We Hurernphner Robert Md-augh in ftbeert Mdaughlin Conditions of NNN NNN Gross Gross %,4d-ustme 0.00% 0.00% -5.00% -5.00% EmnomicT 2/2112005 %miustme 0,00%0 0% 00/0 0% 0% AdjLOW Rent $17.00 $1450 $6.56 $6.57 Location Good Good Good Gard Good Comparison Aditastment U% 0.0% 0.0°/0 0.0°f° $Ad"usttinerrt $0,00 $0.00 $0.00 $0.00 Property Condition Avg-Good Good Good Avg-Good Av9-G-ood %Ad`ustlrrent -5.0% -5.0% 0.0% 0.00/0 $Adjustment] ($0..85) ($013) $0.00 $0.00 Gross Building Area 2665 6548 4480 3840 %Adjustn'ent U% 0.00/0 U% 0.0% $Adjustmentl $0.00 $0.00 $0.00 $0.00 Final Adjusted Rent $16.15 $18.78 $6.56 $5.57 Net Adjustments ($0.85) ($0.73) $0.00 $0.00 Market Rent Reconciliation The comparable rents were reconciled using the comparables above. The comparable leases were considered to be similar properties and were adjusted for their differences. In this market the unit of measurement for commercial office buildings is by the square foot. Based on the above analysis,we have reconciled a value of$14.50 per square foot for commercial office and :$6.90 per square foot for industrial warehouse. Triple Net leases are the most common leases in the Bozeman market area. Income Projection Income projection Property Name Empire Building Materials Analyst Ross Wenger Property Address 608 E. Main St. Firm Appraisal Services MT,59715 Date 2/2112005 Size Number Income Market Contract Rent %of Tenant SF of Units Type Rent Rent Applied Income Total 1 Commercial Office 3,520 1 $/SF/Year $14.50 Market $51,040 25.1% 2lndustrial/Warehouse 23,202 1 $/SFNear $6.55 Market $151,973 74.9% Totals 26,722 2 Potential Gross Income $203,013 Vacant &Collection Loss 3.0% Effective Gross Income $196,923 Other Income $0 Total Effective Gross Income $196,923 Effective Gross Income Per SF $7.19 Appraisal Services 41 Vacancy and Collection Loss Based on a review of the market conditions and the subject's operating history we have projected vacancy and collection loss at 3.0%. Current Expenses The table below summarizes the subject's historic, current and owner's expense budget. Expense History and Budget Budget Owner's Appraiser's Year Ending Statement Account 211712006 Management Management 5% $2,403 Total Expenses: $2,403 Excluded Expenses: $0 Adjusted Expenses: $2,403 $200,6 Income and Expense Statement Income Summary and Expense Projection Income Amount % of Total Effective Gross Income:Section 1 $196,923 100% Total Effective Gross Income Per SF: $7.19 Expense Type % or$ Amount Per Unit Mane2ement %of EGI 5.0% $9,846 $9,846 Total Expenses: $9,846 $9,846 Net Operating Income: $187,077 Net Operating Income Per SF: $6.83 Capitalization Rate The capitalization rate is the factor that coverts the stabilized net operating income (NOI) to a present value. It is the ratio of net income to value or sale price. N01= Sale Price = Capitalization Rate For example, if a property sells for$500,000, and has a stabilized NOT of$50,000, the indicated capitalization rate is 10%. Appraisal Services 42 Market Extracted Rates The table below details capitalization rates extracted from the market. Comparable Property Capitalization Rates Address ci!y Sale Price Date N01 Cap Rate 2407 W.Main St. Bozeman $1,150,000 05/18/05 $98,900 8,6% 1709 W.College St. Bozeman $1,740,000 02/19/03 $140,800 8.1% 1122 E. Main St. Bozeman $460,000 09101/05 $27,450 6.1% Band of Investment This technique utilizes lender and real estate investor investment criteria to develop, or synthesize a capitalization rate. There are four key inputs necessary for this method: 1. The loan-to-value ratio (M) 2. The mortgage interest rate (i) 3. The loan term (n) 4. The equity cap rate or equity dividend rate (RE) The mortgage variables are used to build the mortgage constant(Rm), which is the total amount of the payments made in one year, expressed as a percentage of the original loan amount. Payments x 12 /Original Loan Amount=Mortgage Constant (Rm) The equity cap rate is the annual return to the investor, expressed as a percent of the original amount invested. The annual return to the investor is also known as the equity dividend rate; it is the profit remaining after debt service and all other expenses. After Debt Service Profit/Equity Investment= Equity Cap Rate(RE) Note that the equity cap rate is not the same (usually,that is) as the equity yield rate. The equity yield rate reflects the total return to the investor over the life of the investment. Factors such as appreciation and mortgage pay down affect and-usually increase this return to a point higher than the equity dividend rate. In markets where substantial appreciation is expected, investors will often accept a low or even negative equity dividend rate, anticipating a compensating payoff when the property is eventually sold. In markets where little appreciation is expected, much more weight is given to the annual equity dividend. Formula: Rol xM =rate Rr x (I-M) =rate = Cap Rate (R.) Debt Coverage Ratio Analysis This technique develops a capitalization rate based on typical mortgage terms. There are four variables necessary for this method: I. The loan-to-value ratio (M) Appraisal Services 43 2. The mortgage interest rate (i) 3. The loan term (n) 4. The debt coverage ratio (DCR) Items I through 3 are discussed above under the Band of Investment section. In this method it is also used to develop the mortgage constant (Rm). The debt coverage ratio is the factor by which income exceeds debt on an annual basis. Formula: Debt Coverage Ratio x Loan to Value Ratio x Mortgage Constant= P,a or: DCRxMxRm=& We have researched mortgage rates and terrns typical of the subject market segment for the Bozeman area. The table below details the Band of Investment and Debt Coverage Ratio Analyses calculations. Capitalization Rate Calculations Capitalization Rate Variables Mortgage Interest Rate 8.00% Loan Term 20 Years Loan To Value Ratio 70% Debt Coverage Ratio 1.10 Equity Dividend Rate 7,00% Band of Investment Analysis Mortgage Constant Loan Ratio Contributions 0100372808 X 70.0% = 7.03% Equity Dividend Rate Equity Ratio 7.00% x 30% = 2.10% Band of Investment Capitalization Rate = 9.13% Debt Coverage Ratio Anainis Debt Coverage Ratio x Loan to Value Ratio x Mortgage Constant 1.10 x 70.0% x 0.10037 = 0.07729 r7- Debt Coverage Ratio q2Litalizatlon Rate = 7.73% Capitalization Rate Summary and Conclusion Capitalization Rate Reconciliation Indicator Capitalization Rate Comparable Properties 6A% -8.6% Band of Investment 9,13% Debt Coverage Ratio 7.73% Survey 1 0.00% Survey 2 0.00% Reconciled Capitalization Rate 8.00% Appraisal Services 44 Capitalization to Value Income Capitalization Per Unit Per SIF Potential Gross Income $203,013 $203,013 $7.41 Vacancy&Collection Loss (3.0%) $6,090 $6,090 $0.22 Effective Gross Income $196,923 $196,923 $7.19 Expenses(5,0%) $9,846 $9,846 $0.36 filet peratlng Income $187,077 $187,077 $6.83 Capitalization Rate 8.00% 8.00% 8.00% Indicated Value $2,338,457 $2,338,457 $85.38 Rounded $2,340,000 $2,340,000 $85.44 Income Approach Conclusion Based on the analysis detailed above, we have reconciled to an income approach value of $2,340,000 , as of February 21, 2005, subject to the Limiting Conditions and Assumptions of this appraisal. Appraisal Services 45 Final Reconciliation The process of reconciliation involves the analysis of each approach to value. The quality of data applied, the significance of each approach as it relates to market behavior and defensibility of each approach are considered and weighed. Finally, each is considered separately and comparatively with each other. Value Indications Land Value: $1,057,000 Cost Approach- $2,460,000 Mcome Approach: $2,340,000 Cost Approach The Cost Approach was considered the least reliable method of valuation. The appraiser used the extraction to estimate the land value, due to the lack of recent land sales. The building costs for the improvements were based on Marshall & Swift Valuation Services, local area suppliers and contractors' costs and are considered to be reliable cost data. The improvements are functional in design and do not have any functional depreciation. Income Approach The Income Capitalization Approach was considered the most reliable method of valuation due to the income producing characteristics of the comparable properties. Justification for market rents, operating expenses, average vacancies, and the comparable capitalization rates were adequately documented from the market. Value Conclusion Based on the data and analyses developed in this appraisal, we have reconciled to the following value conclusions, as of February 21, 2005, subject to the Limiting Conditions and Assumptions of this appraisal. Reconciled Value Conclusion Premise: "As Is" Estate: Fee Simple Value Conclusion: $2,400,000 Appraisal Services 46 Certification Statement We certify that,to the best of our knowledge and belief. • The statements of fact contained in this report are true and correct. • The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions and conclusions. • We have no present or contemplated future interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. • Our 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. • Our analyses, opinions, and conclusions were developed and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP). • We have made a personal inspection of the property that is the subject of this report. • No one provided significant professional assistance in the development of the conclusions contained in this report. • We certify sufficient competence to appraise this property through education and experience, in addition to the internal resources of the appraisal firm. • The value conclusion(s) and other opinions expressed herein are not based on a requested minimum value, a specific value or approval of a loan. Appraisal Services 47 Addenda Ross Wenger Licensed Residential #753 rossw@montana.com (v)406-587-60" Appraisal Services (f) 406-587-5481 P.O. Box 1076 (c)406-539-9564 Bozeman, Montana 59771 ............ ............... Education Appraisal Institute Basic Income Capitalization Appraisal Institute January 25-February 2, 2006 The Professional's Guide to the URAR June 30, 2005 15-Hour National USPAP Course Appraisal Institute April 26-27, 2004 Appraisal Principles Appraisal Institute April 12-17, 2004 Appraisal Procedures Appraisal Institute April 19-24, 2004 National Association of Independent Fee Appraisers IAA Residential Report Writing January 26-27, 2004 1.IN Principles of Residential Real Estate Appraising January 15-18, 2004 Montana State University, 2000-2003. Major: B.S. in Business Management: Course study; Management, Economics, Entrepreneurship and Small Business, Finance, Business Communications, and Accounting Work Experience Licensed Appraiser-Appraisal Services Sept 2005-Present. Bozeman, Montana. Working as a Licensed Appraiser. Residential appraisals. 3500+hours of valuation experience preparing appraisal reports using the cost approach, comparable sales approach, and income approaches to value. URAR, 2055, Condominium, Land, and 2-4 Family forms Appraiser in Training-Appraisal Services Aug 2004-Sept 2005. Bozeman, Montana. Worked as a Licensed Trainee with a Licensed Mentor. Residential appraisals. 3000 hours of valuation experience preparing appraisal reports using the cost approach, comparable sales approach, and income approaches to value. URAR, 2055, Condominium, Land, and 2-4 Family forms Appraisal Services 48 Appraiser in Training-Joel Peterson Appraisals,Inc., Jan 2003-June 2004. Bozeman, Montana. Residential appraisals. Prepared appraisal reports making internal and external inspections of properties for URAR, 2055, Condominium, Land, and 2-4 Family forms using property valuation of cost approach, comparable sales approach, and income approach Memberships Appraisal Institute Bozeman Area Appraisers National Association of Realtors@ Montana Association of Realtors@ Gallatin Association of Realtors@ References Kennedy American Mortgage Marie McSpadden, Mortgage Broker 1.632 West Main St. Bozeman, MT 59715 (406) 585-3737 US Bank Home Mortgage John Thom, Mortgage Broker 104 E. Main St. Bozeman,MT 59718 (406) 585-5238 Allied Home Mortgage Capital Corporation Denise Weidhaas, Branch Manager 2023 Stadium Drive, Suite 2-B Bozeman, MT 59715 (406) 585-5476 Appraisal Services 49 JERRY R. GOSSEL Appraisal Services 67A West Kagy Blvd. P.O. Box 1076 Bozeman, Montana 59771 Facsimile: (406) 587-5481 Telephone: (406) 587-5044 E-Mail:jgoss@avicom.net ............. ............. APPRAISAL EXPERIENCE Appraisal Services, Bozeman, Montana Owner 1.985 to Present Certified General Real Estate Appraiser- Certificate #106 Licensed in State of Montana January 1992 Small Business Administration, Helena, Montana Commercial 1986 to Present Veterans Administration, Fort Harrison, Montana Residential 1986 to Present US Bank Bozeman, Bozeman, Montana Residential and Commercial 1985 to Present Norwest Bank, Bozeman, Montana Residential and Commercial 1983 to Present First Security Bank, Bozeman, Montana Residential and Commercial 1983 to Present Trans America Relocation Service, Walnut Creek, California Residential 1983 to Present Home Equity Relocation, San Mateo, California Residential 1982 to Present Merrill Lynch Relocation Management, Inc., Bellevue, Washington Residential 1982 to Present Federal Housing Administration, Helena, Montana Residential 1977 to Present Federal National Mortgage Assn., Los Angeles, California Approved 1975 to Present Federal Home Loan Banking Board Approved 1975 to Present American Bank, Bozeman, Montana Residential and Commercial 1973 to Present Lender Services, Inc., Pittsburgh,Pennsylvania Residential 1993 to Present Mortgage Support Services, Mount Laurel, New Jersey Residential 1993 to Present Big Sky Western Bank, Big Sky, Montana Residential and Commercial 1993 to Present Appraisal Services 50 Countrywide, Billings, Montana Residential 1990 to Present First Federal Savings & Loan, Great Falls,Montana Broker 1973 to 1979 Small Business Administration, Rapid City, South Dakota Residential and Commercial 1972 to 1973 REAL ESTATE EXPERIENCE Real Estate Sales and Development Spring Creek Realty, Bozeman, Montana Co-Owner, Broker, Real Estate Sales and Developer1980 to 1985 Barker Realty, Bozeman, Montana Real Estate Salesperson and Developer 1976 to 1980 United Agencies, Bozeman, Montana Real Estate Salesperson 1973 to 1976 FORMAL EDUCATION Montana State-Bozeman, Bozeman, Montana. M.S. Candidate- Family Science/Child Development 2000 to Present Montana State - Bozeman, Bozeman, Montana B.S. - Health& Human Development- Family Science 1995 to 2000 Augustana College, Sioux Falls, South Dakota Major: Business Administration 1958 to 1962 PROFESSIONAL EDUCATION Residential Appraisal, Society of Real Estate Appraisers, Course 101 1974 Principals of Residential Real Estate Appraising January 1988 Professional Standards of Practice,N.A.I.F.A October 1990 Income Property Appraising Course#1,N.A.I.F.A November 1990 Income Property Appraising Course#2,N.A.I.F.A December 1990 Concepts, Terminology and Techniques October 1991 Partners in Success, PHH Network Services September 1993 Financing Course #93-30 December 1993 Professional Standards of Practice,N.A.I.F.A. January 1994 New URAR Appraisal Institute January 1994. Environmental Conditions, HUD March 1994 Limited Scope Appraisals,N.A.I.F.AJune 1994 1995 Outlook Seminar February 1995 Appraisal Services 51 Z9 mtAxiS jusigiddV 9LV -989 (900 51L.65 oueluOW 'uBLuOzOg EI-Z PlInS '-IAIICI UMIPPIS ZZOZ Iz)sT2uew q3upjg SUUlqp!QM OSTUofT uoijaiocLioj felldvo oft,5voW po!llv S33N3M3J31J up si ddb V -mozog luOM tSOld Isd- s-13 TJ -e�.i I!ouno:)uORM010-d ao�ojdtuj sQoiAjoS isill-ITInW Lmuiozog S-1011-n-djo piuoq umlozou sloll-eax JO uoile!oossv vu-Bluow ojvpjpupD sjosmiddV ooj luopuadopuljo uoTWioossV luuolluN SdIHSM38W3W tooZ Xieniqoj r 4!lIqul-I jisiujddV sloo-qoS jusveiddV smalsKS Ljr(j)joossi-XcW tooZ XjutuqoA VJTV'N ol7apdfl ooijouid Imoissojoi(Ijo spampupTS nuqjiufl ZOOZ,kj,en-iqaj -qojvoso�j olwouong puu ssouisnEljo nraing 4YURTUOW UT OUTISOAUI,, )loollno oiwouooq-vu-cluoW ZOOZ ZOOZ Xmnjqaj '"ITOUJd jusiujddV I-euotssajo.Tdjo spiepurIS UUOJ!Ufl sloapS jusreiddV swolsSS Bj-eC[loossrNoW IOOZ 9xuruqoj ssaullAk uodxF[ sL,.TQsTejddV a-ql OOOZh-enjqz),4 solqijjo apoD pu-e o3liorid I-esi-eiddv m'UOTSS0JO.IdJO SPJUPUBIS UUojlufl SjQsi-ejdd-v iuxn-a pue Sjl2vu-ew ULIBJJO Xploos ugoliowv gill OOOZ kmniqDj xeuituoS 31oollno oiuiouoz)H OOOZ qojuosow oiT.Uouooq PLm ssouisnq jo nswng 'u InossiW-uu-elu oW do fIIS.10ATUfl Oql 6661 JQqOIOO "V'A*I*v-N- siuowoimb3W juspuddV ClflH felluOPPo X Ofseg 6661 joqoloo .V.J.I.V.N- sluouoimboa Sui uoI,tied 8661 XmnlqojUOjjUZTjVjjdvD mooul I-esiujddV mvgiAg-d 01 U01TOnpOijUl sloolloS jesraiddV stualskS el-e(I Noossi- IoW L66TXj,enjqo3 soltllHjoopoD pun oollouidlesTLjddV .-euOlssgJOJdJOSP,'L'Pu-uIS sj;DsluiddV I-ein-d puu sj,,.)S-eLwW wired jo XloiooS u-eollouV oT4,t L661 Xiuruqoj xeuuuaS Noollno oituOUOOR L661 lqoxe,-:)so-aoiLuouoojpu-essouisngjonuoxnq 't,lnossiW -UUUIUOWJOXTISJOATU l QIJL 9661 joqLuoo,'.)Cf iuuiujoS looiqoS 0173ISFI lb';DN UOIJOW - OJOUUOD 5661 TP-mW *V'JTV*N's'SXIVu-V'017a(j la�JmW I S saaiAxaS juspliddV E8Zt-88E (907) t1L69'eut'TuoJ `apt'x2iag 901 xog Od waptsaid `uapurquQ aot 3PV-IiilO9 NUBU XaIIUA 516E-989 (900 S 1 L6S 'BuMuoW `uuuzazo ultw IsRg 80Z gaL,1raO aarug ueuuaz ajo 3mg xjtmaas Isif