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P - 0 B O X 1 076 - B OZEMAN , MT 59715 ° ( 406 ) 587 - 5044
COMPLETE APPRAISAL 0 SUMMARY REPORT
of
Soroptimist Park, a Vacant City Lot
324 E. Main St.
Bozeman, Gallatin
MT, 59715
As of
February 13, 2006
Prepared For
Mr. Ron Brey
City of Bozeman
411 E. Main St.
Bozeman
MT, 59715
Prepared by
Jerry R. Gossel
Certified General Appraiser
MT-106
Appraisal Services
P.O. Box 1076
Bozeman, MT 59771
and
Keith O'Reilly, MAI
Certified General Appraiser
MT-400
Bridger Appraisals, Inc.
P.O. Box 11145
Bozeman, MT 59719
APPRAISAL SERVICES
P.Q.Box 1076 406-587-5044
67A Kagy Blvd. 406-587-5481
February 13, 2006
Ron Brey
City of Bozeman.
411 E. Main St.
Bozeman
MT, 59715
Re: Soroptimist Park
324 E. Main St,
Bozeman, Gallatin
MT, 59715
Dear Mr. Brey :
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 6. Acceptance of this report constitutes an agreement with these conditions and
assumptions.
February 13, 2006
Page 2
In our opinion, the value of the subject property, as of February 13, 2006, was as follows:
Subject Property"As Is" Premise, Fee Simple Estate
Value Conclusion $450,000
Further, we estimate the market exposure period necessary for the subject to have achieved this
value to be 1-6 months.
Respectfully submitted,
L,.,--;;Jc-rry R. Go<sel, Keith O'Reilly, MA , NAT -400
TABLE OF CONTENTS
Summary of Important Facts and Conclusions.................................................................. ............5
AppraisalScope..............................................................................................^^^^^^^__-_.^.^'^^.-- b
Limiting Conditions and Assumptions —^,^.^^.^----.....--`.-^,,^^..,.-----.---._--^. 7
Purposeand Intended Use/User............................. ............................................^......^.................... X
T)ofiuiti0Oof Market Value........................................................^'-^..^-.^-^^._--------.—.^. 8
RegionalMap.................................................................................................................................. 9
Market Area, City, Neighborhood, and Location Data................................................................. }0
PropertyDescription....................................................................... _ ......................................... }5
SubiectPhotographs................. ................................................................................................ }7
Assessmentand Taxes ..................................................................................................................20
Zoning............................ ..............................................................................................................2{
Highestand Best Use................... ................................................................................................22
\/n]uo1ion Methodology.......^............................................. ..........................................................22
IncomeApproach........... —........................................ ................................................................24
Direct Capitalization Analysis,.,~.-----_^^^,----.^~—..-------.—,..^^^^.^.---..Z4
PotentialGross Income [pGD......................................^............................................................24
Incomeand Expense Statement................................................................................ ...............3l
IncomeApproach Conclusion................^.................................................................................. 34
CootApproach ..................... ........................................................................................................35
CostAnalysis........................................,~.................................................... _.^.^.^^,^..^^.^,^.^... 35
DepreciationAnalysis...................................................................~^^..........^...........................35
CostApproach Conclusion....................................................................................................... 35
FinalReconciliation......................................................... ........................................................... ]7
ValueIndications..................................................................... ^.. ............................ ............. 37
ValueConclusion............. ................................................ ....................................................... 37
CertificationStatement....................................................... .........................................................38
Addenda........................................................................................................................................3g
Appraisal Services 4
Summary of Important Facts and Conclusions
GENERAL
Subject: Soroptimist Park
324 E. Main St.
Bozeman, Gallatin
MT, 59715
Owner: City of Bozeman
Tax Identification: RGH51912
Date of Report: February 15, 2006
Date of Value: February 13, 2006
Property Rights Appraised: Fee Simple
Intended Use: Business
Intended User(s): Client
Appraisal Purpose: Market Value
2005 Taxable Market Value: $72,038.00
Taxes: Exempt/Loeal Government
PROPERTY
Land Area: Total: 0.22 acres or 9,700 SF
Usable: 0.22 acres or 9,700 SF
Improvements: None
Zoning: B-3, Central Business District
Highest and Best Use The highest and best use of the subject, as vacant, is for
As Vacant: retail/office development.
-VAXUE, '1ND,1C/AT10NS,,
Reconciled Value Conclusion: Premise: "As Is"
Estate: Fee Simple
Value Conclusion: $450,000
Income Approach: $3,870,000.00
Estimated Improvement
Cost of Construction: $3,420,000.44
Estimated Land Value: $450,000.00
Appraisal Services 5
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 improvements and site
were 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 Analyse
The appraiser estimated the land value through extraction.
I. A complete income approach was applied.
2. A cost approach was applied to the improvements as stated in the highest and best use
analysis.
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.
Income Approach
Estimated Development Cost of Improvements
Estimated Land Value
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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 7
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
((ACC) under 12 CPR, 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 X1 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,
I, 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 8
Regional Map
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Bozeman
Appraisal Services 9
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 49.5x/®.
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%; 10-19, 15.2%; 20-29, 21.9%, 30-39%®;
40-49, 16.0%; and 60 & over, 11.4%. The age distribution for Bozeman in 1990 is as follows:
under 10, 11.4%; 10-19, 15.7%; 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%.
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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 modern 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 cast 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 1 I
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 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 area's largest employer 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 a per capita income of
$17,151. 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 apartment rental prices in Bozeman as of May 2005 were: 1 bedroom $300-$500; 2
bedrooms $500-$795; 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 12
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 Offices respectively advises the Bozeman City Commission,
Gallatin County Commission and Bozeman City/County Planning Boards 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,
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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, coot 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 14
Property Description
SITE
Information Sources: City of Bozeman, deed, assessment records, inspection
Total Site Size: 0.22 acres or 9,700 SF
Usable Site Size: 0.22 acres or 9,700 SF
Corner Lot: The site is a corner lot.
Visibility: Good
Shape: Rectangular
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Road Frontage/Access: 64.67 Feet with Good access. The average depth is 150 Feet .
Topography: Mostly level
Drainage: Appears Adequate
utilities, Electricity: Northwestern Energy
Sewer: City
Water: City
Natural Gas: Northwestern Energy
Adequacy: Average
Site Improvements: None
Appraisal Services 15
Landscaping: Average
Flood Zone: The subject is located in an area mapped by the Federal Emergency
Management Agency (FEMA). The subject is Not located in a flood
hazard zone.
FEMA Map Number: 30002800120
FEMA Map Date: July 15, 1988
FEMA Zone Classification: X
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.
Appraisal Services 16
Subject Photographs
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Front: 324 E. Main St,
Appraisal. Services 17
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Side: 324 E. Main St.
Appraisal Services 18
Street; 324 E. Main St.
Appraisal Services 19
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.
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.
Appraisal Services 20
• 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.
Assessor Parcel#: RGH51912
Year: 2005
Taxes: Exempt/Local Government
2005 Taxable Market Value: $72,038.00
Zoning
Zoning Classification:B-3
General Description: Central Business District
Conformance: The subject site is vacant
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
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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 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 and Rouse 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 the"core area".
Valuation Methodology
Two of the three basic approaches were used to arrive at an estimate of market value. They were:
• The Cost Approach
• The Income 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:
The appraiser estimated the land value through extraction.
4. A complete income approach was applied.
5. A cost approach was applied to the improvements as stated in the highest and best use
analysis.
Appraisal Services 22
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
Income Approach
Estimated Development Cost of Improvements
Estimated Land Value
Appraisal Services 23
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)
Market Rent
In order to determine if the subject's rents we have researched the following rental data.
Appraisal Services 24
COMPARABLE LEASE 1
Property Type: Retail-Commercial Lessor: Brigitte Tuller
Address: I East Main St.,Bozeman Lessee: Bridger Kitchens
Terms: NNN ConRrmed By: Ross Wenger
Term: 15 Yr Renewable every 5 Confirmed With: Shannon Lundgren/Bridger
Yrs Kitchens
SITE DATA
Location: Good Site Topography: Level
Parking: Adequate Zoning: B-3 Central Business District
Access: Good
Corner: Main&Tracy Electric: NorthWestern Energy
Water&Sewer: City Gas: NorthWestern Energy
IMPROVEMENT DATA
Gross Building Area(SF): 2200 Year Built: 100+Yrs.Remodel 2000
Lease Rate: $1 9.00/SF Condition: Good
IMAGES
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NOTES
Owner Pays T&1
@Value Software—www.atvalue.coin
Appraisal Services 25
Cols pARABLE LEAST;2
Property Type: Retail-Commercial Lessor: Mike Delaney
Address: 101 E.Main St.,Bozeman Lessee: Meridian
Terms: NNN Confirmed By: Keith O'Reilly,MAl
Term: 5 Yr. Confirmed With: Mike Delaney
SITE DATA
Location: Good Site Topography: Level
Parking: Adequate Zoning: B-3 Central Business
Access: Good District
Corner. Main&Black Electric: NorthW extern Energy
Water&Sewer: City Gas: NorthW estern Energy
IMPROVEMENT DATA
Gross Building Area(SF): 2600 Year Built: 100+
Lease Bate: $1 7,00/SF Condition: Good
IMAGES
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This is a true net lease with the tenant paying all expenses. The lease was renewed in April 2003 for 5 years,the new
lease was a 14.9%increase over the previous lease.
@Value Software—www.atvalue.corn
Appraisal Services. 26
COMPARABLE LEASE 3
Property Type:. Retail-Commercial Lessor: The 777 Main Bldg
Address: 777 E.Main St.,Bozeman Lessee: Rocky Mountain
Roasting Co.
Terms: NNN Confirmed By: Keith O'Reilly,MAI
Term: 10 Yr. Confirmed With: Mike Delane
SITE DATA
Location: Good Site Topography: Level
Parking: Adequate Zoning: B-2 Central Business
Access: Good District
Corner: No Electric: NorthWestern Energy
Water&Sewer: City Gas: North Western Energy
IMPROVEMENT DATA
Gross Building Area(SF): 2792 Year Built: 2001
Lease Rate: $17.00+2%Gross Sales Condition: Good
IMAGES
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NOTES
This is a true NNN lease with the tenant paying all expenses. Lease began in 2002 with a CPl%increase.
@Value Software—www.atvaluie.com
Appraisal Services 27
COMPARABLE LEASE 4
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: B-3 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
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@Value Software—www.atvalue.com
Appraisal Services 28
Comparable Rents Map
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Appraisal Services 29
Comparable Rent Adjustment Grid
:Analyst:Ross Wenger Subject Comparable I Comparable 2 Comparable 3 Comparable 4
Avant Courier Meridian Roasting Co. Blackwood Building
Address 1 East Main St 101 E.Main St. 777 E.Main St 402 E.Main St.#202
city MT MT MT MT
Lease Rate $19,00 $17.50 $17.00 $1700
Lessee Name Bridger Kitchens Meridian-Audi Rock Mountain D.A.Davidson
Lessor Name Brigitte Tuller De!a�e &Co The 777 Main Bldg Locab
Conditions of Lease]
%Adjustment 0.00✓ 0.00% 0.00% 0.00%
Economic Trends 2/1312006 1/0/1900 110(1900 1/0/1900 110/1900
%Adjustment 0.00% 0% 0% 0% 0%
Adjusted Rent $19.00 $17.50 $17.00 $17.00
Location Good Good Good Good Good
Comparison
%Ad'ustment 0.0% 0.0% 0.0% 0.0%
$Adlustment $0.00 $0.00 $0.00 $0'00
Gross Building Area 18000 2200 2600 2792 2665 1
%tkjdustrnent� 0.0% 0.0% 0.0% 0.0%
$
Adjustment l $0.00 $0.00 $0.00 MOO
Final Adjusted Rent $19.00 $17.60 $17.00 $17.00
Net Adjustments $0.00 $0.00 $0.00 $0.00
Range&Average Low:$17.00,High:$19.00,Average:$17.63
Reconciled Rent $18.00
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$18 per square foot for commercial retail and $17
per square foot for commercial office.
Income Projection
Income Projection
Property Name Soroptimist Park Analyst Jerry R.Gossel
Property Address 324 E.Main St. Finn Appraisal Services
MT,59715 Date 2/13/2006
Size Number Income Market Contract Rent %of
Tenant (SF) of Units Type Rent Rent Applied Income Total
I 1st Floor Retail 9,000 1 $/SFNear $18,00 Market $162,000 51,4%
2 2nd Floor Office 9,000 1 $/SFNear $17.00 Market $153,000 48.6%
Totals 18,000 2 Potential Gross Income $315,000
Vacancy&Collection Loss 10%
Effective Gross Income $305,550
Other Income $0
Total Effective Gross Income $306,550
Effective Gross Income Per SF $16.98----1
Appraisal Services 30
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%.
Income and Expense Statement
Income Summary and Expense Projection
Income Amount % of Total
Effective Gross Income: Section 1 $305,550 100%
Total Effective Gross Income Per SF: $16.98
Expense Type %or$ Amount Per SF
Management %of EGI 5.00% $15,278 $0.85
Total Expenses: $15,278 $0.86
Expense Ratio: 5%
Not Operating Income: $290,273
Net Operating Income Per SF: $16.13
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.
NOI—. Sale Price = Capitalization Rate
For example, if a property sells for $500,000, and has a stabilized NOI of$50,000,the indicated
capitalization rate is 10%.
Market Extracted Rates
The table below details capitalization rates extracted from the market.
Comparable Property Capitalization Rates
Address ci!y Sale Price Date NOI 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 02/19103 $140,800 8,1%
1122 E.Main St. Bozeman $450,000 09/01105 $27,450 61%
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:
I. 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.
Appraisal Services 31
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:
RmxM =rate
RE X (1-M) =rate
=Cap Rate (PI-0)
Debt Coverage Ratio Analysis
This technique develops a capitalization rate based on typical mortgage terms. There are four
variables necessary for this method:
1. The loan-to-value ratio (M)
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= R,,
or: DCR x M x Rm =&
We have researched mortgage rates and terms typical of the subject market segment for the
Bozeman area. The table below details the Band of Investment and Debt Coverage Ratio
Analyses calculations.
Appraisal Services 3,2
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
0.100372808 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 Analysis
Debt Coverage Ratio x Loan to Value Ratio x Mortgage Constant
1.10 x 70.0% x 0.10037 0.07729
Debt Coverage Ratio 2apitalization Rate = 7.73%
Capitalization Rate Summary and Conclusion
Capitalization Rate Reconciliation
Indicator Capitalization Rate
Comparable Properties 6.1% -8.6%
Band of Investment 9.13%
Debt C2y2ra2e Ratio 7.73%
Reconciled Capitalization Rate 7.50%
Capitalization to Value
Income Capitalization
Per Unit Per SF
Potential Gross Income $315,000 $315,000 $17.50
Vacancy&Collection Loss (3.0%) $9,450 $9,450 $0.53
Effective Gross Income $305,550 $306,550 $16.98
Expenses(5.0%) $15,278 $15,278 $0.85
Net Operating Income $290,273 $290,273 $16.13
Capitalization Rate 7.50% 7.50% 7.50%
Indicated Value $3,870,300 $3,870,300 $215.02
Rounded $3,870,000 $3,870,000 $215.00
Appraisal Services 33
Income Approach Conclusion
Based on the analysis detailed above, we have reconciled to an income approach value of
$3,870,000 , as of February 13, 2006, subject to the Limiting Conditions and Assumptions of this
appraisal.
Appraisal Services 34
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 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
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 Service along with local contractors and suppliers.
Off-street parking was calculated from the City of Bozeman's Unified Development Ordinance.
The Unified Development Ordinance contains the standards and procedures for all subdivisions
and land development within Bozeman, including parking requirements.
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. The subject would be considered new
construction,thus no physical depreciation was taken.
Cost Approach Conclusion
Based on the analysis detailed on the following page, we have reconciled to a cost approach
value of$3,420,000, as of February 13, 2006, subject to the Limiting Conditions and
Assumptions of this appraisal.
Appraisal Services 35
Building Improvements 7 1 Cost Section 1 of 1
Item Unit Type Cast Quanti Total
Building Improvements Sq. Ft. $145.00 18,000 $2,610,000
$2,610,000
Per SF GBA $145.00
Site Improvements
Item Unit Type Cost Quantity Total
$0
$0
$2,610,000
Per SF GBA $145.00
Soft Costs
Item Percent Type Total
Engineering ................................. 5.0% % Building Cost $130,500
Architectural ................................. 10.0%u % Building Cost $261,000
Permits&Legal .................................................................................... $0
Leasin .................................. $0
$391,500
Contingency @ 2.0% $52,200
Entrepreneurial Profit 10.0%m $261,000
$3,314,700'
Per SF GBA $184.15
Cost Allocation
TotalBuilding Costs ............................. .............................. ............ ........... $3,314,700
Total Site Costs .................................................... $0
Depreciation
Component Effective Age Life Percent Amount
Physical Depreciation: Building 0 70 0% $0
Physical Depreciation: Site 0 1 0% $0
Functional Obsolescence Building .................. .......... .................... 0%Q $0
External Obsolescence Building .................. ......... .................... 0% $0
$0
$3,314,700
Per SF GBA $184.15
Land Value
LandValue .................................................................................... $0
Off Site Parkin ...................................................................... ............. $105,000
$3,419,700
$3,420,000
Per SF GBA $190.00
@Value SoClwwe—wwwatvalue.com
Appraisal Services _ 36
Final Reconciliation
The process of reconciliation involves the analysis of each approach to value.
The appraiser estimated the land value through extraction,
7. A complete income approach was applied.
8. A cost approach was applied to the improvements as stated in the highest and best use
analysis.
9. 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
Income Approach
Estimated Development Cost of Improvements
Estimated Land Value
Value Indications
Income Approach $3,870,000
Estimated Development Cost of Improvements -$3,4202000
Estimated Land Value $450,000
Value Conclusion
Based on the data and analyses developed in this appraisal, we have reconciled to the following
value conclusions, as of February 13, 2006, subject to the Limiting Conditions and Assumptions
of this appraisal.
Reconciled Value Conclusion Premise: "As Is"
Estate. Fee Simple
Value Conclusion: $450,000
Appraisal Services 37
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 38
Addenda
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 1985 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
Appraisal Services 39
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