HomeMy WebLinkAboutCity Hall/Bridger Appraisals A SUMMARY REPORT
OF A COMPLETE APPRAISAL OF:
City Hall
411 E Main St
Bozeman,MT 59715
PREPARED FOR:
Mr.Ron Brey
City of Bozeman
411 E Main St
Bozeman,MT 59715
PREPARED ON:
January 30,2006
EFFECTIVE DATE OF'VALUATION:
January 11,2006
PREPARED BY:
Keith O'Reilly,MAI
General Certified Appraiser
Brider Appraisals,Inc.
PO BOX 11145
Bozeman,Montana 59719
AND:
Jerry Gossel,#106
General Certified Appraiser
Appraisal Services
67 W Kagy Blvd
Bozeman, Montana 59715
BRIDGER
APPRAISALS'
0 R-hy. MAI
January 30, 2006
City of Bozeman
411 E Main St
Bozeman MT, 59715
Re: City Hall
Bozeman,MT, 59715
Dear Mr.Brey:
In accordance with your request and authorization,we have inspected the referenced property, also referred to as the
appraised or subject property in the following report, and have estimated its current Fee Simple value, "As Is"as of
January 11, 2006.
Our professional opinion is based upon analysis of market data gathered for this purpose and upon the assumptions
and limiting conditions stated on pages 6-8 of the following report.
This is 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.
The information contained in this report is specific to the needs of the client and for the intended use as stated in this
report. The appraiser is not responsible for unauthorized use of this report.
The opinions stated in the accompanying report are based on our inspection of the appraised property, comparable
properties,and analysis of all pertinent data.
II(W,587 7742
13". I1.
........ M.-T 597117
As a result of our investigation and analysis,it is our opinion that the Market Value of the Fee Simple
Interest,"As Is",in the subject property,as of January 11,2006,is:
ONE MILLION FOUR HUNDRED THOUSAND DOLLARS
($1,400,000)
The following report contains (64)pages plus an addendum that provides the data and analysis to support the stated
value estimates.
Respectfully submitted,
Keith Q'Reilly, AI..W.._
General Certified Appraiser#400
State of Montana
Gen Certified Appraiser' 106
°-State"6-fNi'lntana
TABLE OF CONTENTS
ITEM: PAGE NO.
PHOTOGRAPH O9THE SUBJECT PROPERTY...............--............. ----- ......................... —..... ......... —5
ASSUMPTIONS AND LIMITING CONDITIONS............. ... ... ................. ....................................... ........ ... ....6
SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS............— ........... _ ......................................
---9
SCOPE OF THE APPRAISAL ----....................... ........................
---------------------_—Il
PURPOSE AND INTENDED USE AND USER UF THE APPRAISAL....................... —........................ ..............J2
DEFINITION OF MARKET VALUE................ ........ — ..............................................._----- ..................... l2
PROPERTY RIGHTS APPIU\ GED—.............. -- ........................................ ............ ------_-------l3
EXPOSURETIME.... ........—........... .................. ......... ...................... .......................................................... .........l4
VALUATIONDATE........... ................. ...................... ............................--- ...................... ...............................14
IDENTIFICATION AND HISTORY 0F THE SUBJECT,............ — ..................... —.................... .......................l5
REGIONAL, CITY,AND NEIGHBORHOOD ANALYSIS.... — ........... ................................................ _..........lQ
TAXES AND ASSESSMENT ANALYSlS—......— ................... _....... ....... .............................................. ... —...25
SITEDATA AND ANALyBIS— .............................. .......................................... ......... ................... ......... _ ....26
ZONING AND GOVERNMENT RESTRICTI0NS— ........... .......... ............... ......... ........................ ...— ....... ....39
DESCRIPTION 0F IMPROVEMENTS..... ................ — ................ .......................................................................30
HIGHESTAND BEST USE................. ..........................._-- ......................................................... .....................3l
THEAPPRAISAL PRUCES8 .................... ............... ....... ............................... .......... ......._ ..........................34
COSTAPPROACH........... ...................................... ................................................... .............................................35
SALES COMPARISON APPROACH............--- ............. _............... ....... ... ................................ .......... ....40
INCOMEV&LU&Il(lN—.......................... .........-- .......................................... ............................ .....................51
FINAL ........ ...................----...................... ........................... ............................................6l
CERTIFICATION....... .................................... ............. ............ ........ .......... .......................''...........'���...,^
ADDENDUM
Resume
PHOTOGRAPH OF THE SUBJECT PROPERTY
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View of the subject property looking from southwest to northeast.
Photo taken on January 11,2006 by Keith O'Reilly,MAI.
BridgerApprausals Inc., c' 5
Keith O'kedl�,A4AI
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report, the letter of transmittal,and certification are subject to the following assumptions and limiting
conditions; and also,any special qualifying conditions that may be contained elsewhere in the report are
incorporated by reference.
Assumptions
1. That the legal description,as furnished, is correct; and that the title to the property is good and marketable.All
existing liens and encumbrances,if any,have been disregarded.The property is appraised as though free and
clear of other burdens,under responsible ownership and competent management.
1 That the land dimensions taken from available maps,plats,and/or surveys are correct.It has been assumed that
those boundaries that are apparent are correct.
3. It is assumed that the use of the land and improvements is confined within the boundaries or property lines of
the property described and that there is no encroachment or trespass unless noted in the report.
4. That no adverse water table or soil conditions exist, and no representation regarding such conditions is made in
this report unless specifically stated; and,that the value estimated is predicted on the absence of any such
conditions occurring,
5. It is assumed that the subject property conforms to all applicable zoning and use regulations and restrictions
unless nonconformity has been identified,described and considered in the appraisal report,
6. Those opinions, estimates, data and statistics supplied by others in the course of this study,are correct;the
assumption has been made that the sources are reliable,but no responsibility has been inferred for their
accuracy.
7. This report does not contemplate any court action,nor does it obligate the appraiser to give any testimony or
make any appearance in court,before commission,arbitrator or any other individual,body or agency. If court
action or appearance later becomes necessary in the interest of the client,the terms of the additional service
shall be negotiated at that time.
6
8. Unless otherwise stated in this report,the appraiser did not observe the existence of hazardous material,which
may or may not be present on the property.I have no knowledge of the existence of such materials on or in the
property.I am not qualified to detect such substances.The presence of potentially hazardous materials may
affect the value of the property. This extends to any leaks from underground fuel storage tanks, and
identification of Asbestos containing materials.The value estimate is predicated on the assumption that there is
no such material on or in the property.No responsibility is assumed for any such conditions or for any expertise
or engineering knowledge required to discover them.The client is urged to retain an expert in this field,if
desired.Any such environmental risk discovered at a later date may require a revised estimate of value that may
or may not be simply a reduction of the value by the estimated cost to cure the environmental condition.
Properties known to have environmental risk may also carry a stigma in the market place that may or may not
affect the value.If future soil tests should reveal the existence of any such soil conditions or hazardous waste,I
reserve the right to review and adjust this appraisal accordingly.
Limiting Conditions
1. The appraiser is not responsible for any matter legal in character,nor is any opinion rendered as to title,which
is assumed to be marketable.
2. The value reflected in the analysis applies only to the program of utilization considered in this report. The use of
the value in conjunction with any other appraisal or under other influences invalidates the conclusions
developed.
3. This analysis and estimate of value is made for the exclusive use and benefit of the clients to whom it is
addressed;and,possession of this report or a copy, does not carry with it the right of publication,nor may it be
used for any purpose other than that intended without the previous consent of the appraisers.In any event only
the entire report may be used and no part shall be taken or used out of context.
4. Included as an integral part of this report are maps and photographs of the appraised properties and sales.The
Wraps and photographs were prepared and taken by the appraisers, and although they do not purport to represent
survey accuracy,they are substantially correct and adequately serve as visual reference to the property.
5. Disclosure of the contents of this report is governed by the By-Laws and Regulations of the Appraisal Institute.
Neither all nor any part of the contents of this report(especially any conclusions of value,the identity of the
appraisers or the firm with which they are connected) shall be disseminated to the public through advertising
media,public relations,news media, sales media,or any other public means of communication without the prior
written consent and approval of the authors..
7
O'R��dk' M t
6. The forecasts,projections,or operating estimates contained herein are based on current market conditions,
anticipated short-term supply and demand factors,and a continued stable economy. These forecasts are,
therefore, subject to changes with future conditions.
7. The Americans with Disabilities Act(ADA)became effective January 26, 1992. The appraiser has not made a
specific compliance survey or analysis of the property to determine whether or not it is in conformity with the
various detailed requirements of ADA. It is possible that a compliance survey of the property and a detailed
analysis of the requirements of the ADA would reveal that the property is not in compliance with one or more
of the requirements of the act. If so,this fact could have a negative impact upon the value of the property.
Since the appraiser has no direct evidence relating to this issue,possible noncompliance with the requirements
of ADA was not considered in estimating the value of the subject property.
8
SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS
Client: Ron Brey,City of Bozeman
Owner of Property: City of Bozeman
Date of Valuation: January 11, 2006
Date of Preparation: January 30,0,2 00 6
Rights Appraised: Fee Simple
Legal Description: Rouse's 1 st Addition to Bozeman,Lots 10-14, Block F, Section 7
T2S R6E.
Location of Property: 411 E Main St Bozeman NIT 59715
Improvements: 6,577sf above grade office building located in the CBD
Highest and Best Use: Continue with the present office use until such time as it is
financially feasible to raze the improvements.
Present Use: The highest and best use of the subject property as if vacant is for the
construction of at least a two story retail building with parking
acceptable to the market.
Zoning/Governmental: B-3
Site Shape and Size: The subject site is Rectangular in shape and contains 20,625.00
acres.
Environmental: We have inspected the subject site and did not observe any
suspicious materials or any situation that would lead us to conclude
that there were any environmental contamination concerns nor were
any brought to our attention by the owner of the property or the
client. However, we are not experts in these matters, and recommend
Krdl!,:[ • 9
a professional evaluation if the reader of this report wants more
reliable information.
Market Status: There has been good demand for commercial building sites in the
Bozeman area. Presently there is a considerable amount of
commercial and retail construction in the subject neighborhood.
There has been a considerable amount of land with preliminary plat
approval for residential development.
Concluded value for each appraisal:
Site Value as Vacant: $780,000
Cost Approach: $1,480,000
Sales Comparison Approach: $1,370,000
Income Approach: $1,380,000
Concluded Market Value: $1,400,000
Estimated Exposure Time: 1-6 months
Estimated exposure time is based on current sales of
commercial properties within the Bozeman area that are similar to
the subject.The estimated exposure time is predicated on the final
opinion of value.
SCOPE OF THE APPRAISAL
The scope of work consists of the amount and type of information researched and analyzed in an assignment.
In preparing the appraisal, we have personally inspected the subject site and improvements and considered pertinent
characteristics of the site and improvements in comparison to current market standards. We have analyzed the
subject neighborhood and competing markets for current sales, cost and lease data.
Local commercial real estate agents and brokers were consulted with to confirm sales and lease information. The
offices and brokers include Mike McKenna(McKenna Realty),Dick Steffam(Bozeman Broker Group),Neil
Ainsworth(Gallatin Valley Real Estate),and Gene Cook(Gene Cook Real Estate).
We inspected the subject site on January 11,2006,
General and specific data were obtained through personal and telephone interviews with government officials,
property managers,developers,and other market participants.We have considered the highest and best use of the
property as if vacant and as improved, and have applied the cost approach,sales comparison approach and income
approach valuation methods.All three approaches to value have been considered for the subject property and the
Departure Rule of USPAP has not been invoked.The results indicated by these methods have been reviewed and
reconciled based on the reliability,relevance and reasonableness of the data,and the purpose and intended user of
the appraisal.
This is 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.
The information contained in this report is specific to the needs of the client and for the intended use as stated in this
report.
F9R ` �.Cui;�i,ar:31:,liiti. � 11
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PURPOSE AND INTENDED USE AND USER OF THE APPRAISAL
The purpose of this appraisal is to estimate a credible opinion of the Current Market Value of the subject property's
Fee Simple interest,"As Is"as of January 11,2006, in accordance with the Uniform Standards of Professional
Appraisal Practice(USPAP)and supplemented by the Appraisal Institute.The intended use of the appraisal is to
assist the Client, City of Bozeman„in Potentially Marketing the Subject Property.Insurable value has not been
estimated.
DEFINITION OF MARKET VALUE
Market value is defined as the most probable price,which a property should bring in a competitive and open market
under all conditions requisite to a fair sale, the buyer and seller, each acting prudently and knowledgeably, and
assuming the price is not affected by undue stimulus. implicit in this definition is consummation of a sale as of a
specified date and passing of title from seller to buyer under conditions whereby:.
I. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised,and each acting in what they consider their own best interest;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S..dollars or in temis of financial arrangements comparable thereto;
5, The price represents the normal consideration for the property sold unaffected by special or creative financing
or sales concessions granted by anyone associated with the sale.,
',Source: Federal Register,vol.55,August 22,19901,also quoted in the uniform Standards of Professional Appraisal Practice.
77te Dirtionaty of heal Estate Appraisal,3rd ed.(Chicago;Appraisal Institute,1993),pp.222-223.
11,,.. 12
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PROPERTY RIGHTS APPRAISED
Property rights are ownership interests in real estate and have value. It is important to know what property right(s)
or estate(s) are involved in the appraisal,because the estate identifies the rights being valued.The subject property
rights being appraised are the Fee Simple Interest,
Fee Simple:Absolute ownership unencumbered by any other interest or estate,subject only to the limitations
imposed by the governmental powers of taxation,eminent domain,police power and escheat.2
Leased Fee: An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to
others;usually consists of the right to receive rent and the right to repossession at the termination of the lease.3
2 llie Dictionary of Real Estate Appraisal,op.cit.,p.140.
The Dictionary of Real Estate Appraisal,op,cit.,p. 140.
13
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EXPOSURE TIME
Exposure time should not be confused with the marketing period.Exposure time precedes the effective date of the
appraisal, In other words,how long would the subject property be actively marketed prior to the effective date of the
appraisal to bring the estimated opinion of market value determined in the appraisal. Marketing time is the period
after the effective date of the appraisal. In other words,how long would it take to sell the subject property, at the
appraised market value,after the effective date of the appraisal. Typically in a stable market the marketing time and
exposure time should be relatively similar.
Current sales in the Bozeman market have been relied upon to estimate the exposure time of the subject property.
Due to the size of the Bozeman market the best estimate for exposure time is derived from sales of similar type
property. The Southwest Montana MLS tracks sales of commercial property;however,the data is limited and all
commercial properties are grouped as one.For example the data is not segregated into categories of office,
industrial,medical or retail property types.In addition it is not a requirement of the Southwest Montana MLS to
require its members to report commercial sales activity,it is a requirement for them to report residential activity.
Five current sales of commercial office space have been analyzed to estimate the exposure time for the subject
property. The five sales were all listed on the market less than twelve months. This data is very representative of
the current market and is specific to the commercial office real estate market in Bozeman.
Based upon the preceding data we have estimated the exposure time for the subject property to be 1-6 months.
VALUATION DATE
The effective date of the appraisal is January 11, 2006.This is the date of valuation and the date that the subject
property was personally inspected,
14
IDENTIFICATION AND HISTORY OF THE SUBJECT
The legal description of the subject property is:
Rouse's 1st Addition to Bozeman, Lots 1Q-14,Block F, Section 7 T2 S R6E.
Sale History:
The subject property has never sold or been transferred. The property is owned by the City of Bozeman. Reference
to the ownership is in Deed Book 147,Pg 148.
15
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REGIONAL, CITY, AND NEIGHBORHOOD ANALYSIS
The purpose of this section is to identify the pertinent social,economic,governmental and environmental factors
that affect property value and to analyze their impact on the appraised property's current market value. This
analysis begins with regional information and moves to relevant information about the city and the subject's
neighborhood.A Neighborhood is defined as a grouping of similar land uses. From an appraisal viewpoint,this is
the area where the subject property competes with other properties and where the most comparable market data is
obtained,
Bozeman,MT is located in Gallatin County,in an area more commonly referred to as the Gallatin Valley. Gallatin
County is the most populated and fastest growing county in southwest Montana. The county covers 2,500 square
miles of mountainous lands varying in topography and climate.Nearly half of all of the land in Gallatin County is
under public ownership by the Gallatin National Forest, State of Montana,Bureau of Land Management Or the
National Park Service.
The City of Bozeman is located approximately 140 miles to the west of Billings,MT and 65 miles to the north of
Yellowstone National Park. Bozeman is the fifth largest city and Gallatin County is the fifth largest county in
Montana.Bozeman is the County Seat of Gallatin County.
Social Factors:
Social influences that affect value include,but are no limited to,population characteristics such as growth,
population density, age distribution,household sizes,employment status,availability of education and the quality of
life.
Historic Population Trends -City of Bozeman,Gallatin County and the State of Montana
According to the U.S. Census Bureau,the City of Bozeman's population increased from 22,660 in 1990 to 27,509 in
2000-an increase of 4,849 people,This represents an increase in population of approximately 21 percent over a ten-
year period, or an average rate of growth of about 2.1 percent per year.In contrast,the City grew by only 1,015
people during the 1980s.Between 1980 and 1990,the City's population increased from 21,645 to 22,550-4,7
percent increase or an average rate of growth of about 0.47 percent per year,
Gallatin County's population increased from 50,463 in 1990 to 67,831 in 2000-an increase of 17,368 people.This
represents an increase in population of approximately 34 percent over a ten-year period,or an average growth rate of
3.4 percent per year.The entire state of Montana grew by 12.9 percent between 1990 and 2000 (799,065 in 1990 and
902,195 in 2000)with an average growth rate of approximately 1.29 percent per year.
City, County and State Historic Population Trends: 1900-2000
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Bozeman 3,419 5,107 6,183 .8,855 8,665 11,325 13,361 18,670 21,645 22,660 27,509
Gallatin County 9,553 14.079 15,864 16,124 18,269 21,902 26,045 32,505 42,865 50,463 67,831
State of Montana 243,329 376,053 548 889 537,606 559,456 591,024 674,767 694,404 786,690 799,065 902,195
Recent Population Trends-City of Bozeman
It is estimated that the City's population grew by approximately 1,400 people(or 4.7 percent) in 2003, and the City's
population was approximately 31,600 at the end of 2003. By the end of 2004, it was estimated that the City's
population had grown by approximately another 2,000 people(or 6.3 percent)for a total of approximately 33,600
people.
Bozeman is characterized by a smaller portion of families and an average household size somewhat smaller than
Gallatin County as a whole.Bozeman has an average household size of 2.27 persons, while the average household
size for Gallatin County is 2.49 persons.Just over half of Bozeman households are families compared to 63%
countywide.Bozeman also exhibits a significantly lower homeownership rate than the county as a whole,primarily
due to the student body of Montana State University,
The population of Bozeman is considerably younger than Gallatin County as a whole,and even more so in
comparison to the State of Montana,again this shows the significant impact of Montana State University on
Bozeman and Gallatin County.The estimated median age for Bozeman and Gallatin County residences in 2000 was
30.4 years and 32.9 years respectively.The median age for Montana residences for this time period was 36.4 years.
The City of Bozeman has a significantly higher educational attainment level than Gallatin County or Montana in
general.Approximately 47%of Bozeman residents' ages 25 and older have a college degree,compared to 39%for
Gallatin County and 25010 for the State of Montana.Bozeman and Gallatin County have transformed over the past
decade from a primarily agricultural based community to a tourism related community. Quite frankly,what drives
most of the new residents to the Bozeman area and Gallatin County is the quality of life,including low crime rates.
Outdoor activities are abundant throughout Gallatin County.Activities include excellent snow skiing developments,
world class fly fishing rivers and streams, miles of hiking trails and almost any other outdoor recreation that comes
to mind.
„ L :�.�x�w, ,7:• ��,w:. I9
Economic Factors:
Historically Bozeman is somewhat different than the rest of the State of Montana and the Nation as a whole
economically. One of the primary reasons is the fact that there are not a large number of employers who employ a
significant number of the population.For example other areas of Montana like Missoula are very dependent on the
lumber industry,when the lumber industry slows,Missoula is more likely to feel the impact.The primary employer
in Bozeman is Montana State University.
The economy in Bozeman and Gallatin County are both broad based and diverse, with 3,400+business
establishments employing over 41,000 people.Major sectors of the economy in addition to Montana State
University include recreational,retail trade, agricultural services,manufacturing and natural resource based industry
including mining and forestry.
The largest single employer in the area is Montana State University that employees approximately 3,500 people.In
the spring of 2005 the student enrollment at MSU was 12,000. The student body has a significant effect on the local
economy.
Overall economic growth has been much stronger in Bozeman and Gallatin County than statewide; earnings
increased 116%over the 1989 to 1998 period but only 60%in all of Montana. Sectors in Gallatin County and
Bozeman showing the most substantial growth include agricultural services, construction,manufacturing, finance,
insurance,real estate and hotels and lodging.
Unemployment has been extremely low in both Gallatin County and Bozeman for several years,even as the size of
the labor force has increased. The total labor force increased by 31%from just fewer than 32,000 in 1992 to nearly
42,000 in 2000, while unemployment declined from 5.4%to 2.9%over the same time period.Employment rates
have not been as strong statewide;the labor force grew by 12%between 1992 and 2000,with unemployment
declining from 6.9%to 5,2%over the same time period.
Median household income for Gallatin County is$35,7 10, which is above the statewide median of$29,672 and
ranks the County sixth highest in the State.Nearly every sector of the economy is experiencing increased activity.
For the first six months of 2003,the South West Montana Multiple Listing Service reported that 430 residential
properties representing$92.6 million were sold in Bozeman and the surrounding areas,compared to 400 units and
585.3 million for the same period in 2002.From 2002 to 200) the average price for residential property increased by
5%to$174,703 while the median price was$162,000. Of the residential sales, 171 units were single-family houses
and 102 were condominiums or townhouses.
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The average price for a newly constructed single family home in the City Limits increased 17%to$211,121 with a
median price of$188,500.This is not to say all houses in the Bozeman City Limits have seen this increase. Several
new subdivision within the City Limits,primarily Sundance Springs and South Meadow,have skewed these
statistics due to the high priced homes in these developments.
Rent levels increased significantly over the past ten years;however, due to the increase in inventory rental rates have
stabilized and some have slightly declined for residential properties.
As shown in the table below,residential building permit activity in the City of Bozeman has been strong ever since
1991,and set another record in 2004 with 881 housing units permitted-an increase of 43.7 percent over 2003 when
613 new housing units were permitted.A break down of these permits by type is presented below.
Since 1990,single-household units have been the most popular housing type permitted at approximately 40 percent,
followed by multi-household units at almost 22 percent. Of the 881 housing units permitted in 2004,29.5%were for
single household residences; 7.9%for townhomes; 16.4%for duplexes; 5.1 %for triplexes; 13.6%for four-plexes;
26.7%for apartment buildings;and 0.8%for manufactured homes.
Residential Units Permitted by Type. 1990_2004
1990 1991 1992 1993 1994 1995 1996 19971998 1999 2000 2001 2002 2003 2004 Total Percent.
Single-household 50 101 404 139 130 1.00 113 98 135 155 158 229 259 215 260 2246 39.78
Townhouse 0 4 4 38 11 53 52 40 35 26 34 0 28 52 70 47 7.92
Duplex 2 20 32 50 38 24 46 48 40 56 23 51 37 108 144 719 1173
Tri-Plea 3_ I8 6 0 6 21 21 3 6 T-6 3 6 12 45 159 2.82
Four-flex 12 28 32 24 16 64 24 48 52 136 60 12 16 44 120 688 12.19
Multi-household 0 0 0 30 82 160 119 '8 60 116 73 71 132 146 235 1232 21.82
Manufactured home 0 0 0 0 0 I 1 7 51 7 0 20 25 36 7 155 2.75
Total 67 171 178 281 283 423 376 252 379 499 354 386 503 613 881 5646 100.00
Governmental Factors:
The City of Bozeman is a City Commission/City Manager form of government with and elected Municipal Judge.
These three entities form the legislative, executive and judicial branches of government.Five commissioners,
elected with no party affiliation,make up the City Commission. They are elected to four year, overlapping terms
and are part time officials.Terms are staggered,and elections are held every two years.The candidate who receives
the most votes in an election becomes the Mayor the last two years of their term.
The Bozeman Police Department consists of 40 sworn officers and six civilian employees. The Bozeman Fire
Department includes the Fire Chief,Deputy Chief/Training Officer,and Deputy Chief/Marshall,seven Captains
krld'�4'1 'e}?�i .al�.lo�w:. � 21
and 18 firefighters and support staff.There are two fire stations,one located on South 19th and one located on North
Rouse.Bath fire and police protection is considered good.
Gallatin County administers the zoning code for properties outside the city hnuts,but within the zoning doughmit.
In general,planning and zoning regulations in the area are considered stringent.The Gallatin County
Comprehensive Plan encourages development near existing cities and discourages those in more remote locations.
Bozeman's Planning Department enforces zoning regulation within the City Limits;in general the planning and
development process has become very burdensome to developers. Stringent planning regulations have made it
difficult to develop new subdivisions.In addition,the City adopted a`Big Box"ordinance to limit the size and
number of big box retailers. Consequently low supply and high demand have had a significant impact on real estate
values.The overall consensus is that the Bozeman City Commission has been anti-business and anti-growth.
The State of Montana assesses an ad valorem property tax to run public schools and other government agencies.
There is also a State levied income tax. The appraised property is affected similarly as other competitive properties
with respect to taxation. There is no sales tax in the State of Montana.
The City has continued to expand its boundaries over the past ten years. In addition to population growth the City
continues to grow in geographical size.In 1988,the City was approximately 5,840 acres in size.By the end of 2002,
the City was approximately 8,750 acres in size;this is a 51.8%increase.
In addition to population growth,the City of Bozeman continues to grow in geographic size.In order to
accommodate increasing population and business growth,new land for residential, commercial and industrial
development continues to be annexed to the City.In 1990,the City was approximately 6,210 acres(9.7 square
miles)in size.By the end of 2004,the City was approximately 10,375 acres(16.2 square miles)in size.This is a 67
percent increase in the size of the City in 15 years! The DPCD processed 16 annexation applications in 2004.
Annexation to the City of Bozeman(in Acres): 1990— 2004
1990 1991 1992 1993 1994
10.38 0.00 85.92 31.36 11.92
1995 1996 1997 1998 1999.
540.14 11.50 958.96 90.04 104.06
2000 2001 2002 2003 2004
632.09 794.06 2 21746 186.582 484,467
*Ito 1999,0.1239 acres were de-annexed from the City o_f Bo°eir an,
Nl I= i 22
Environmental Factors:
Environmental factors consist of both natural and man-made features that can influence property values. These
forces include but are not limited to climate,topography,natural barriers and transportation systems.
Bozeman's climate reflects its mountain valley location.Bozeman,Gallatin County and the entire State of Montana
truly have four seasons. Summers are pleasant and characterized by warm days, cool nights and an abundance of
sunshine.Hot weather and humid conditions are infrequent. Most summer have seven or fewer days were
temperatures exceed 90 degrees, There average high temperatures in the summer are in the 70s to 80s and the
average lows are in the mid 40s to low 50s.
The average monthly high and low temperatures for December,January,and February are 35 degrees and 16
degrees,31 degrees and 11 degrees, and 37 degrees and 17 degrees respectively. Springs tend to come late in the
Gallatin Valley with average temperatures in April,May and June of 53 degrees, 63 degrees and 72 degrees
respectively. One third of the annual precipitation of 18.61 inches falls during May and June. The average annual
mean snowfall in Bozeman is 72.1 inches and the average length of the growing season is 107 days.
The climate of the county varies according to elevation,but is generally characterized by relatively cold winters and
warm summers.
Typical operation costs that affect real estate are the inclusion of snow removal in the wintertime.Due to the mild
summers cool air condition costs are less;however,heating bills can be high due to the relatively cold winter
months,
Bozeman is located in Southwest Montana and has access going east and west on U.S. Interstate Highway 90,
Access to the south towards Yellowstone National Park and Salt Lake City is via U.S.Highway 191. Interstate 90,
State and County roads provide access throughout the region and commercial air,truck and rail(commercial service
only) transportation are adequate, Gallatin Field near Belgrade(ten miles west of Bozeman)is the second busiest
airport in the state and provides adequate service to the region.
Conclusion:
In general the outlook for Bozeman and surrounding communities is good.The area has seen significant growth over
the past ten years. Significant growth in the construction sector is expected to remain strong and building permits
have seen an upward trend.Current population trends continue in an upward direction and growth has been
sustained over the past decade.Bozeman's economy is diverse and anchored by Montana State University.As far as
the labor market, Bozeman has a young and very well educated work force. Bozeman's City government and
0
stringent planning department have curbed rapid expansion and caused increases in property values.
21ndgu[ hl(, 1" 23
1JIC101 0,Rel I[Y. \1 AB
The quality of life and outdoor activity will continue to be one of the driving factors for population growth in
Gallatin Valley. Current population trends continue in an upward direction and growth has been sustained over the
past decade. Commercial buildings like the subject should see stable demand and good marketability in the future.
\ppriff 11, . r,. 24
�r�.crRflI C'9"kc,III
TAXES AND ASSESSMENT ANALYSIS
The State of Montana,through the Department of Revenue, is responsible for valuing all taxable real and personal
property.Department of Revenue field offices accomplish this property valuation. State guidelines are followed to
ensure property is appraised in a fair and equitable manner.According to the Department of Revenue all three
approaches to value are considered in the appraisal process.
The amount of property tax paid is not determined solely by a property's value.The property's value is multiplied
by a tax rate,set by the Montana Legislature,to determine its taxable value.The taxable value is then multiplied by
the mill levy established by various taxing jurisdictions—city and county government,school districts and others-to
provide services in the property's area.
The following calculations are used to determine general property tax:.
Valve x Tax Rate=Taxable Value
Taxable Value x Mill Levy=General Property Tax
The property tax process begins with an appraisal of the property.State law requires the Department of Revenue to
reappraise property periodically.The most recent reappraisal was completed on December 31,2002.
Each year,the Department of Revenue field offices must certify the taxable value of all properties incorporated
within the boundaries of each existing tax jurisdiction or school district.This valuation is then submitted to the
taxing jurisdictions and the county commissioners.
The taxing jurisdictions then set mill levies based on these values and the budget required to provide the necessary
services.The levy is calculated by dividing the necessary budget by the taxable value, In addition to local levies,
there are statewide mi Us mandated by the Montana Legislature to provide school equalization and funding for the
university system.
No taxes are assessed on the subject property.
SITE DATA AND ANALYSIS
Location: 411 E Main St Bozeman MT 59715
Dimensions: See Attached flat Map
Land Area: 20,625.00 acres
Areas&Ratios: Gross Building Area: 6,577sf
Shape: Rectangular
Drainage: Adequate
Flood Zone: Census Tract: 7. Zone:X50. The subject Is Not located in flood hazard zone.
FEMA Map Number:. 300028 00120. FEMA Map Date: 07/15/88
Topography: Level
Frontage: 140'on Main St.
Visibility: Good
Landscaping: Typical for neighborhood
Site Utility: Average
Off-Site Improvements: Concrete Sidewalks,PD 1Improvements
Street Access: Average
Maintenance: Typical for neighborhood
Surface:
Sewer and Water: Sewer: City Sewer
Water: City Water
Utilities: Northwestern Energy
Curb/Gutter: Concrete
Sidewalk: Concrete
Streetlights: Gas
2005 Real Estate Taxes: N/A
Adverse Easements or None Noted
Encroachments:
Adjacent Uses: Commercial
SUBJECT PLAT !'SAP
ME NJ DEN HALL STREET
28q 28t 28, 281 28, :e 28, r. 2$' /e' rj + 28+ 28r
r K.
15 16 17 18 19 20 21 22 %2 24 [ 29
4
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75 M I'm c u°r°
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Subject
Lots 10-14 [
M
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1
24 1� ..12 11 10 9 8 7 6 3
9B�rrfl ..
28" 26r 28, 28" 281 28" 281 28*
MAI- N STREET
Hridgci Appraimis h1c. 27
K60i O'kcillY.iv'W
FLOOD MAP
earl d 5t
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E Oak,g1
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Hemlock St
kh'1J=7!0 er 51 u} E Junl per et
S&
ETa=A; k 31
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it�h�rr s1
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.� � w 0r :,1101 Bozeman
`t1 y 84
' o? E.$ �S � v5f
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trpCbst I m
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sit c,ri 1r� IQl, nSS � �
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G E h�ason�$t
Flood Zones 5FHA(Flood Zone), Out
Arem inendAW byOo r flooding Within 250 ft, of multiple flood zone?No
Ar9ae o ate ile ofthe 100 and 500 year flood. Community: 300028
plains Community Name: BOZEMAN,CITY Of
At"inundated by loo rflooding Zone;X50 Panel;300028 00120 panel Date; 07/15/1988
Area inundated byluu rfloodingwth TIPS Code: 30031 Census Tract; 0007.00
09100 ty hacard This Flood Reoort is for the sole beniflt of the Customer that ordered and paid
Floodway areas far the Report and is based on the broaerty infarrnatlon provided by the
customer,That customer's use of this resort is subiect to the terms agreed by
Ploodwayaremwth Veoctyhamrd that customer when accessino this Droduct,No third Darty is authorized to use
or rely on this report For anv ouroose,NEITHER FIRST AMERICAN FLOOD
Area ofundebarmined but poeeiolaflood DATA SERVICES NOR THE SELLER OF THIS REPORT MAKES ANY
hazard REPRESENTATIONS OR WARRANTIES TO ANY PARTY CONCERNING
Area not mapped on any publehetl FIRM THE CONTENT ACCURACY OR COMPLETENESS OF THIS REPORT
INCLUDING ANY WARRANTY OR MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE,Neither FAFDS nor the seller of this ReDo
shall have any liability to any third party for any use or misuse of this Report,
llrid,gcr Appraisals Ine. •K' 28
K,cilh O'Reilly.\MAl
Conclusion:
The subject site has many attributes that make it ideal to develop to its Highest and Best Use. The topography of the
site is level to slightly sloping for adequate drainage. All utilities are in place, NorthWestern Energy supplies
electricity and natural gas, There is good access via Main Street and Rouse Avenue. The site also has good visibility
from Main Street.The site size is typical of sites developed into commercial retail space.
ZONING AND GOVERNMENT RESTRICTIONS
._
t. xE.o.$T ' _ Q
E L M SY E LA.b+i E-S7
f� �+ P 1FN1lts-t
B-2
k AAAXXXX s41' Subject 19
JWE ST
R-4
B c .rrss ST
The subject site is zoned by the City of Bozeman as B-3.
The intent of the B-3 central business district is to provide a central area far the community's
business, government service and cultural activities.Uses within this district should be appropriate
to such a focal center with inappropriate uses being excluded,Room should be provided in appropriate
areas for logical and planned expansion of the present district.
1. It is the intent of this district to encourage high volume,pedestrian-oriented uses in ground
floor space in the "core area"ofBozeman°s central business district,i.e.,along main Street
from Grand to Rouse and to the alleys one-half block north and south from Main Street.
Lower volume pedestrian uses such as professional offices may locate on ground floor
space in the B-3 area outside the above defined core"
The subject improvements are legal and conforming.
Rridger A,ppr ii&i s Inc. c 29'
I,cq li O'CZed),x AI
DESCRIPTION OF IMPROVEMENTS
Since the intended user occupies the subject building and is more familiar with the improvements than the
appraisers,the report is not going to detail the improvements.
30
K c�d a ["cl 11 "1
HIGHEST AND BEST USE
Highest and best use is defined in the fourth edition of The Dictionary of Real Estate Appraisal(Appraisal Institute,
Chicago,2002),as follows:
The reasonably probable and legal use of vacant land or an improved property, which
is physically possible, appropriately supported, financially feasible, and that results in
the highest value. The four criteria the highest and best use must meet are legal
permissibility,physical possibility,financial feasibility,and maximum profitability.
Highest and best use analysis is a three-step process. The first step involves the highest and best use of a site as
though vacant, The determination must be made to leave the site vacant or improve it. If the conclusion is to
improve the site,the second step is to determine the ideal improvement. The final step is a comparison between the
ideal improvement and the existing improvement. At this point, the determination must be made to maintain the
property in its present form or to modify the improvements to more closely conform to the ideal use.
Highest and best use may be defined as the reasonably probable and legal use of vacant land or improved property,
which is physically possible, appropriately supported,financially feasible,and that results in the highest value.4
1. Permissible Use.What uses are permitted by zoning and other legal restrictions?
1 Possible Use.To what use is the site physically adaptable?
3. Feasible Use,Which possible and permissible use will produce any net return to the owner of the site?
4. Maximally Productive. Among the feasible uses which use will produce the highest net return, (i.e.,the
highest present worth)?
4 The Appraisal of Real Estate 11 th Edition,Page 297,Appraisal Institute
31
".oO"U8".111N. M 41
The Blackwood Building located directly across the street from City Hall has a site size of 15,428sf and a building
size above grade of 13,201sf.Ratio is 86%of the site. There is a basement,however,City Hall already has a
basement as well.
The City Hall site is 20,625sf. So it is reasonable to construct a two story 17,647sfbuilding and allow for similar
parking ratios.
Rents for the a new building at City Hall should easily support$18.00psf on the main level and$17.00psf on the
second level.
Potential Gross Income 8,824sfx$18.00nnn or$158,832
Potential Gross Income 8,824sfx$17.00nnn or$150,008
$308,840 PGI
Vacancy and Collection Loss @3% $299,574
Management Expense @5% $284,596
Reasonable Overall Cap Rates 7%to 7.5% $4,065,658 (7%)
$3,794,613 (7.5%)
Indicated value psf for the proposed subject
Building would be based upon 7%cap $4,065,658/ 17,647sf—$230psf
Estimated cost of construction at$1.75 to
$200.00psfaveraged @$185.00 $3,264,695 +$150,000 demolition $3,414,695 or
193.50 sf
Therefore the rice that a developer would_Ray to make the development financially feasible would be the overall
value of$230.00 sf less development costs of$193.50 sf or a roximatel $37.00 sf x 17 647sf or$652,939. This
equates to$31.65 sf of the total land area"lus the lump sum adjustment for.12arking permits already aid. 25
parking permits at$5,000 each or$125,000.Total site value$777.939 or$37.71 ps f
64iia pim m,ol Inc. 32
E�e' 'l li i'"C�� I i•. �'('k l
Conclusion
Highest and Best Use As Improved
Continue with the present office use until such time as it is financially feasible to raze the improvements.
Highest and Best Use As Vacant
The highest and best use of the subject property as if vacant is for the construction of at least a two story retail
building with parking acceptable to the market.
h1c. 33
-,,dh() R,-W''M \1
THE APPRAISAL PROCESS
Typically,real estate can be valued by applying three approaches.
Cost Approach: That approach in appraisal analysis that is based on the proposition
that the informed purchaser would pay no more than the cost of
producing a substitute property with the same utility as the subject
property. It is particularly applicable when the property being
appraised involves relatively new improvements that represent the
highest and best use of the land or when relatively unique or
specialized improvements are located on the site and for which there
exist no comparable properties on the market?
Sales Comparison Approach: Traditionally, an appraisal procedure at which the market value
estimate is predicated upon prices paid in actual market transactions
and current listings; the former fixing the lower limit of value in a
static or advancing market(price wise), and fixing the higher limit of
value in a declining market; and the latter fixing the higher limit in
any market. It is a process of analyzing sales of similar recently sold
properties in order to derive an indication of the most probably sales
price of the property being appraised. The reliability of this technique
is dependent upon (a) the availability of comparable sales data, (b)
the verification of the sales data, (e) the degree of comparability or
extent of adjustment necessary for time differences and (d) the
absence of non-typical conditions affecting the sale price.'
Income Approach: That procedure in appraisal analysis that converts anticipated benefits
(dollar income or amenities) to be derived from the ownership of
property into a value estimate. The Income Approach is widely
applied in appraising income-producing properties. Anticipated
future income and/or reversions are discounted to a present worth
figure through the capitalization process!
In essence,all approaches to value(particularly when the purpose of
the appraisal is to establish market value)are market data approaches
since the data inputs are presumably market derived.'
5Boycc,on,cit.,pp.63,132,anti 160.
34
COST APPROACH
The Cost Approach is one of the three traditional approaches in valuing real property. This approach is based on the
proposition that an informed purchaser would pay no more than the cost of producing a substitute property with the
same utility. The approach represents an alternative course of action available to a purchaser considering the
acquisition of the subject property, i.e., instead of buying the subject property, what would it cost to build an
improvement offering the same utility?
Estimating Market Value for the subject property by use of the Cost Approach involves the following procedures:.
a. Estimating value of the site as if vacant and available to be put to its Highest and Best
Use.
b. Estimating Reproduction Cost New of the Improvements.
C. Subtracting the total depreciation, if any, from the reproduction cost new of the
improvements,which results in an estimate of the depreciated value of the improvements.
d. Adding site value to the depreciated value cost of the improvements. The sum of these
estimates represents a value indication of the subject property via the Cost Approach,
The following pages present data and analysis utilized in estimating the value of the subject property by the Cost
Approach.
Site Valuation:
See Highest and Best Use
35
Reproduction Cost New:
The next step in the Cost Approach to Value is estimating the Reproduction Cost New of the Improvements, as of
the date of valuation. Reproduction Cost New of the improvements is defined as:
The cost of construction at current prices of an exact duplicate or replica using
the same materials, construction standards, design, layout, and quality of
workmanship, embodying all the deficiencies, superadequacies, and
obsolescence of the subject building.'
Reproduction Cost New,then,involves the cost associated in reproducing the exact physical structure with all items
of functional and locational obsolescence built-in. The structure and the cost thereof together with accrued
depreciation(functional,locational,and physical)are analyzed, estimated and deducted in the next step of the Cost
Approach.
Reproduction Cost New is contrasted to replacement cost which involves the cost associated with replacing utility,
not the physical structure; therefore,the cost of functionally obsolete components would not be included,
Reproduction Cost New reflects all ingredients of cost to the most probable,typical purchaser. Specifically,they
include direct,or hard, costs and indirect, or soft, costs. Direct costs include labor,materials, equipment and
subcontractor's fees and charges. Indirect costs involve such items as contractor's overhead and profit; architectural,
engineering and legal fees;taxes and insurance during construction; construction financing cost,etc.
Reproduction Cost New of the subject is estimated using the Calculator Cost Method in the Marshall and Swift
Valuation Service.
Costs are classified by class and quality of construction. Buildings typical of a certain quality have many
characteristics in common. For example,a "Good Quality""building will usually have good quality roofing so
modifications for roof differences on a quality-classified building are seldom necessary.
Marshall Valuation Service, compiled and published by Marshall and Swift Publication Company of Los Angeles.,
California,was used as a source of cost data. Marshall Valuation Service is a cost data manual based on analysis of
the cost of new buildings on a national basis. The costs are updated quarterly via a current cost multiplier compiled
on a regional basis. The costs are further refined to a metropolitan area by use of a local multiplier. Therefore,
a Boyce,op.cit.,p.2055
b:w�th€!T"clPI,.M AI
current cost for the Western United States are modified by a Bozeman,Montana Area multiplier and reported on a
unit or component basis.
The Marshall Valuation Service has long been recognized as an authoritative source of cost data and has been used
extensively by the appraisal profession..
The RCN has been estimated using(1)the Marshall Swift Cost Manual,(2)analysis of other construction projects.
The following page contains the cost calculations by Marshall Swift Commercial Estimator.
tllr�til ��iai ti�l, Gna.. 37
Cost Analysis
Marshall&Swift Multipliers
Marshall&Swift Section: Please.Select
No.of Stories Multiplier: 1,000 Local Multiplier: 1.000
Height/Story Multiplier: 1.000 Current Cost Multiplier: 1.000
Perimiter Multiplier: 1.000 Combined Multi' liers: 1.000
Building Improvements Cost Section 1 of 1
Item Unit Type Cost Quantity m&s x Total
Main Level Sq. Ft. $145.46 6,577 1.000 $956,690
Basement Sq. Ft, $76.87 6,577 1.000 $505,574
1.000 $0
Total Building Improvement Costs $1,462,264
Per SF GBA. $222.33
Site Improvements
Item Unit Type Cost Qua!I!Lty Total
Landscaping Lump Sum $30,000 1 $30,000
Parking Lump Sum $15,000 1 $15,000
$0
$0
Total Site Improvement Costs $45,000
Subtotal: Building&Site Costs $1,507,264
Per SF GBA $229.17
Soft Costs
Item Percent Type Total
Engineering ....................... ......... 5.0% %Building Cost $73,113
Architectural .............................. %Building Cost $146,226
Permits&Legal ......................................................... ................................... $40,000
Leasing ................................................ $0
Total Soft Costs $259,340
Contingency@ 2.0% $30,145
Entre reneurial Profit 10.0% $150,726
Total Cost $1,947,476
Per SF GBA $296.10
Cost Allocation
Total Building Costs ................................ ............................................ $1,902,476
TotalSite Costs ............................................................................................ $45,000
Depreciation
Component effective Age Life Percent Amount
Physical.Depreciation:Building 0 1 62% $1,170,023
Physical Depreciation:Site 0 1 0% $0
Functional Obsolescence Building ................................................... 0% $0
External Obsolescence Building ........... ........................ .......... $0
Total Depreciation $1,170,023
Depreciated Value of Improvements $777,453
Per SF GBA $118.21
Land Value
Land Value ............................................. .............................................. $780,000
Other ....... ..............................................
Cost Approach Value Indication $1,557,453
Rounded $1,560,000
Per SF GBA $237,19
(§Value Soriware ww^w.atvalue.GOm
Hr�El 38
Developer's Profit
This factor reflects the profit necessary for the developer to-undertake the management,responsibility and risks of
construction associated with the subject property. Current valuation theory states that the four components that
create value are land,labor,capital and coordination. Developer's profit as used in the Cost Approach reflects the
coordination component of value. Typically, developer's profit runs 10%to 20%: we have computed developer's
profit at 10%of construction costs,
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.
Physical Deterioration
This results from deterioration from aging and use.This type of depreciation may be curable or incurable.
Functional Obsolescence
This results from a lack of utility or desirability due to design or market perception of the improvements. This type
of depreciation may be curable or incurable.
External Obsolescence
This is due to circumstances outside the property itself,such as industry, demographic and economic conditions or
an undesirable proximate use. This type of depreciation is rarely curable.
Market data suggests that properties similar to the subject depreciate at a rate of approximately 1.5%per year.The
subject improvements are older and would require some serious renovation from a new purchaser.
Cost Approach Conclusion
Based on the analysis detailed on the following page, we have reconciled to a cost approach value of$1,480,000, as
of January 11,2006„subject to the Limiting Conditions and Assumptions of this appraisal,
39
"d \1
SALES COMPARISON APPROACH
The Sales Comparison Approach is one of the three traditional approaches to value. It is also referred to as the
Market Data or Market Comparison Approach. It is defined as follows:
"That approach in appraisal analysis which is based on the proposition that an informed purchaser
would pay no more for a property than the cost to him acquiring an existing property with the
same utility."7
Basic real estate appraisal principles involved in this approach are the principles of substitution, anticipation and
contribution. The 'principle ofsubstitution"is the underlying premise from the Sales Comparison Approach and its
definition is very similar to that of the approach itself. This principle fundamentally states that the value of a
property is influenced to a large extent by the prices being paid in the open market for similar properties offering the
same utility. It is irrational for somebody to pay an amount of money for a property that is greater than the price at
which an equally desirable substitute may be acquired, The market, which is made up of substitute properties, thus
represents alternatives for a prospective buyer and tends to set the range of values.
The 'principle of anticipation"states that prices paid for property is a reflection of the market's expectation of future
benefits that accrue from ownership, It follows, then, that if the property is old and nearing the end of its economic
life, or for another reason has a dismal future, the present worth of all future benefits would be considerably lower
than if the property was new and could generate benefits for a longer period of time. The value of real property,
therefore,can be considered the present worth of all future benefits that can be derived from its ownership,
The "principle of contribution"is the underlying rationale for the adjustment process in the Direct Sales Comparison
Approach. This principle views the sale price of real property as the sum of all value contributing characteristics.
The individual characteristics are measured by the effect their presence or absence has on the total sale price. Not
only is their mere presence important,but also the quantity and quality in which they exist.
There are other appraisal principles involved in Direct Sales Comparison, but the three mentioned are considered
most pertinent.
7 Boyce,op.cit.,p,79,
h1c,
40
IMPROVED SALE NQ. 1
f
f
>,a
Property'.Type: Retail-Commercial bate of Sale: Ukn
Location: 109-111 E Mendenhall Sale Price: $1,275,000
County: Gallatin
Grantor: Delaney&Company,Inc Financing: Conventional
Grantee: Ridge LLC Marketing Time: Less than 6 months
Recording Date: 09/14/05 Property Rights: Leased Fee
Recording Doc#: 2201991 Asking: Ukn
Confirmed With: Keith O'Reilly Phone Number: 582-2452
Confirmed By: Keith O'Reilly
Legal Description: Original Plat of Bozeman Lots 4&5&West 1/2 Lot 6 Blk H
SITE DATA
Site Size(Acres): 0.241 acres Site Topography: Level
Site Size(SF): 10,500sf Zoning: B-3 Central Business District
Dimensions: Rectangular Landscaping: Adequate
Frontage: 28' Parking: Surface Parking
Access: Good/Mendenhall Street Water: Municipal Water
Corner: No Utilities: NorthWestern Energy
Bridger Appraisak Inc, ;C ql
kelilh,O'Rcdly.MAI
IMPROVEMENT DATA
Gross Building Area(SF): 8,945sf Condition: Good
Year Built: 1992 Other Improvements:
PRICE PER SF:
SALE PRICE _ $1,275,000
OVERALL PRICE PSF(GBA) _ $142.54
NOTES
The subject property was built in 1940 and renovated in 1992.
Two leases are currently in place for the subject property.
Rocky Mountain Roasting Co has leased a portion of the subject property since 1992. As of May 12, 2004 Rocky
Mountain Roasting Co.signed a three year extension of their lease that terminates June 30, 2007.The current lease
rate is$1,800.00 per month, $21,600 annually.The actual lease states the square footage at 1,250sf that calculates to
$17.28psf.The actual square footage is 1,280sf that calculates to $16.87psf.This is a Triple Net(NNN)lease. NNN
leases have become the most common type of lease found in the Bozeman market;in fact it is now unusual to see a
gross lease. Rocky Mountain Roasting Co. is a locally owned and has been very successful with three other locations
throughout Bozeman.The space which they are currently leasing is there original location in Bozeman.
GVHF has a six year lease on the remainder of the subject improvements with a 3%annual increase.
3iwi . �tiriFr> i.ilr, Vida:. 42
IMPROVED SALE NO. 2
IN
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Property Type: Retail-Commercial Date of Sale: 05/18/05
Location: 2407 W Main St Sale Price: $1,150,000
County: Gallatin
Grantor: The Oakwood Partnership Financing: Cash to seller
Grantee: GL Investments Marketing Time: 197 Days
Recording Date: 07/13/05 Property Rights: Fee Simple
Recording Doc#: 2194181 Asking: 1,200,000
Confirmed With: Sue Frye Phone Number: 586-1321
Confirmed By: Keith O'Reilly
Legal Description: Unit 9 Oakwood Square Condos
SITE DATA
Site Size(Acres): Common Site Topography: Level
Site Size(SF): N/A Zoning: B-2
Dimensions: Common Landscaping: Good
Frontage: Main Street Parking: Surface Parking
Access: Main Street Water: Municipal
LCorner: Yes Utilities: NorthWestern Energy
P3 i tgcr'Appraisals Inc. <' 43
K,2ith 0"Reffly,i4 ,U
IMPROVEMENT DATA
Gross Building Area(SF): 7,876sf Condition: Good
Year Built: 1994 Other Improvements:
INCOME DATA
For the purpose of deriving a capitalization rate, a vacancy and collection loss of 5%is supported by the market and an
additional 5%for a management fee.
Value indicators:Cap Rate: Income/Sales price= .086 R,,
PRICE PER SF:
SALE PRICE _ $1,150,000
LESS EST.LAND VALUE _ $355,000
ESTIMATED VALUE OF IMPROVEMENTS= $795,000
PRICE PSF FOR IMPROVEMENTS(GBA) = $100.93
OVERALL PRICE PSF(GBA) = '$146.01
NOTES
Improvements were converted from a furniture sto�toan off ice building for a title company.
44
IMPROVED SALE NO. 3
� y
Properly Type: Retail-Commercial Date of Sale: 02/19103
Location: 1709 W College St Sale Price: $1,740,000
County: Gallatin
Grantor: Venture West,Inc. Financing: Cash to seller
Grantee: Gallatin County Marketing Time: 360 Days
Recording Date: 03/01/04 Property Rights: Fee Simple
Recording Doc#: 2142111 Asking: 1,960,000
Confirmed With: Gary Eberhard Phone Number: 586-6005
Confirmed By: Keith O'Reilly
Legal Description: Lot 2A College Park Professional Center
SITE DATA
Site Size(:Acres): 0.72 acres Site Topography: Level
Site Size(S1-0): 31,363sf Zoning: B-P
Dimensions: N/A Landscaping: Adequate
Frontage: None Parking: Surface Parking
Access: Paved/Good Water: City
Corner: No Utilities: All
Brid,oT-.Appraisils Inc,. � 45
KeWh URcolly,MAI
IMPROVEMENT DATA
Gross Building Area(SF): 12,776 sf Condition:
Year Built: 1991 Other Improvements:
INCOME DATA
The property was note leased at the time of sale.
Market rent for the subj ect property is between$12.00 and $12.5 Opsf NNN.
12,776sf x$12.00=$153,312
12,776sf x$12.50=$159,700
Less a 5%vacancy and 5%management=$138,364 $144,129
Value indicators: Cap Rate: Income/Sales price= 0814 R,, .0848
PRICE PER SF:
SALE PRICE = $1,740,000
LESS EST.LAND VALUE = $485,488
ESTIMATED VALUE OF IMPROVEMENTS= $1,214,512
PRICE PSF FOR IMPROVEMENTS(GBA) = $95.06
OVERALL PRICE PsF(GBA) = $136.19
DEPRECIATION:
EST COST NEW OF IMPROVEMENTS = $1,405,360
SALES PRICE LESS EST SITE VALUE = 51,214,512
TOTAL DEPRECIATION = S190,848
PERCENT OF DEPRECIATION = 13%
IMPLIED DEPRECIATION PER YR = 1.04%
NOTES
The quality and quantity of market data to analyze this sale is very good. This is a large single tenant office building
that was used by and built for Hamilton stores. The improvements are good quality and well maintained. Gallatin
County is going to continue for office use. $40,000 of the original price is for FF&E.
fire. a 46
IMPROVED SALE NO. 4
Property Type: Office Date of Sale: 09/15/04
Location: 1705 W College St Sale Price: $600,000
County: Gallatin
Grantor: Claudia Simmons Financing: Cash to seller
Grantee: Dudley Development LLC Marketing Time:
Recording Date:. 01/07105 Property Rights: Fee Simple
Recording floc#: 2175276 Asking: Ukn
Confirmed With: Marty Bakken Phone Number: 585-9595
Confirmed By: Keith O'Reilly
Legal Description: Lot 3A College Professional Center
Site Data
Site Size(Acres): 0.176 acre Site Topography: Level
Site Size(SF): 7,666.56sf Zoning: R-O
Dimensions: 78x98.5 Landscaping: Good
Frontage: N/A Parking:. Adequate
Access: Paved/Good Water: City
Corner: Yes Utilities: All
Bridge] Appraisals k1c, -C 4
KJO)('telly.f IAI
Improvement Data
Gross Building Area(Sly): 4,661sf Condition:
Year Built: 1992 Other Improvements:
Income Data
The property was not leased at time of sale.
Price Per SF:
Sale Price = 5600,000
Less Est.Land Value = $210,000
Estimated Value of Improvements = $390,000
Price psf for Improvements(GBA) _ $83.67
Overall price psf(GBA) _ $128.72
Depreciation:
Est Cost New of Improvements = $466,100
Sales Price Less Est Site Value = 5390,000
Total Depreciation = 576,100
Percent of Depreciation = 16%
Implied Depreciation per yr = 1.14%
Notes
The quality and quantity of market data to analyze this sale is very good. These improvements were in good
condition at the time of sale.
48
LOCATION OF COMPARABLE SALES
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Units of Comparison-Property Valuation:
Since the subject property is a commercial office building,value is derived from the square footage of the
improvements. It is logical to use the square footage of the gross building area to derive a value from other
comparable sales.
The preceding sales have been analyzed and compared with the subject property. We have considered adjustments
in the areas of-
• Property Rights Sold • Economic Trends(time)
•Financing • Location
• Conditions of Sale •Physical Characteristics
Comparable Sale Adjustments
Sales Comparison Approach Conclusion
Based on the above analysis,we have reconciled to a value of$1,3 70,000,as of January 11,2006,and subject to the
Limiting Conditions and Assumptions of this appraisal,
50
INCOME VALUATION
In the income approach, property value is estimated by measuring the present worth of the future income stream.
The principle of anticipation is very important and serves as the underlying premise. The procedure in the Income
Approach is to estimate the present worth of the value of future anticipated benefits that are derived from ownership
of the real property. The reason is that ownership of property rights is entitled to the future benefits accruing from
the real estate. Anticipated future benefits have a direct effect on value.
The process involved in this approach is two-fold:
I. The various income and expense items are defined which results in the estimation of Net
Operating Income.
1 The Net Operating Income is then converted into a value estimate by direct capitalization.
The basic capitalization formula is: Value is equal to the Net Operating Income divided by the overall capitalization
rate.
The following pages present various data and analyses that are employed in estimating the value of the subject
property by the Income Approach,
Potential Gross Income(P+GI)
The first step in the income approach is the estimation of potential gross income. This income is the annual rent at
current market rates that the subject property is capable of producing. The potential gross income is largely
determined by what other similar properties are currently being rented for in the open market. To estimate the
market rental for the subject,a survey of comparable rentals in the area was conducted.
The following leases were analyzed to best estimate the market lease rates for the subject property.
Ak h— ^. 51
COMPARABLE LEASE NO. 1
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Lessor: Dave MacDonald/DMC Inc. Location: 193') N 22nd Ave
Lessee: Intermountain Mortgage County: Gallatin
Legal Description: Lot 12 Stoneridge Sub P1JD Phase 2
Confirmed By: Keith O'Reilly Terms: NNN
Confirmed With: Dave MacDonald Phone Number: 585-5500
Term: 5 yr Dimensions: Irregular
Improvements (SF): 3,247sf Topography: Level
Age of Improvements: 2003 Water: City
Corner: No Utilities: All
Zoning: -O Parking: Adequate
Access: Paved/Good Landscaping: Good
Lease Rate: S15.50psf
Conditions of Lease: This is a NTNN lease with the tenant paying all expenses. The original lease started in May
of 2003 when construction was completed. This is a five year lease that calls for 2%
annual increases. The tenant leases an additional 800sf of unfinished storage on the
second level for$8.00psfNNN.
Improvements: These improvements are new and suffer no physical depreciation. There is adequate
paved and striped parking and the landscaping is goad. The improvements are heated and
cooled with a forced air system that is typical of the Bozeman market.
B3 id,,Lr Appralsals Iatc,
COMPARABLE LEASE NO. 2
r'
Lessor: Mike Huempfner Location:. 354 Stadium Dr
Lessee: State Farm County: Gallatin
Confirmed By: Keith O'Reilly Terms: NNN
Confirmed With: Mike Huempfner Phone Number: 522-0439
Term: 5 yr Dimensions:. Irregular
Improvements(SL): 6,548sf Topography: Level
Age of Improvements: 2003 Water: City
Corner: Yes Utilities: All
Zoning: R-O Parking: Good
Access: Paved/Good Landscaping: Good
Lease Rate: $14.50psf
Conditions of Lease: This is a N-NN lease with the tenant paying all expenses, The Lessee paid for$250,000 in
Tl"s and equipment at the beginning of the lease. This is a five year lease with a five year
option. There is an annual increase based upon the CPI.
Improvements: This is newly constructed office building located in Stadium Center,close to Montana
State University. The building is of good construction. The site does not have significant
frontage.
Bridger Appi au:sra➢s hic. ,C 53
COMPARABLE LEASE NO, 3
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Lessor; N_S Enterprises Location: 4055 Valley Commons Dr
Lessee: Jacquie Rabbit Comer Quilts County: Gallatin
Confirmed By: Keith O'Reilly Terms: Net Lease
Confirmed With,: Pat Busby Phone Number: 585-9595
Term: 3 yr Dimensions: Rectangular
Improvements(SF): 1,678sf Topography: Level
Age of Improvements: 1998 Water: City
Corner: No Utilities: All
Zoning: B-P Parking: Good
Access: Paved/Good Landscaping: Good
Lease Rate: $14.53psf
Conditions of Lease: Pat Busby confirmed this Lease, The lease began in June of 2004 and is a 3 year lease,
This is a NNN lease where the tenants pay all expenses. There are no annual increases.
L!7rovements,
ffi-pdgcr Appraisals Inc. 54
COMPARABLE LEASE NO, 4
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Lessor: David Brelke Location: 20 W Main St.
Lessee: Harley Davidson County: Gallatin
Confirmed By: Keith O'Reilly Terms: NNN
Confirmed'With: Josh Phone Number: 406-388-7684
Term: 3 yr Dimensions: N/A
Improvements(SF): 3,000sf Topography: Level
Age of Improvements: 100- Water: City
Corner: No Utilities: A;;
Zoning: B-3 Parking: Good
Access: Paved/Good Landscaping: Good
Lease Rate: S16.00psf
Conditions of Lease: This is a true Net lease with the tenant paying all expenses. The lease began in 2005 and
is level for three years.
Improvements: These improvements were constructed in the early 1900s. For years the building was used
by Montana Motor Supply, Marley Davidson has completed a major renovation of the
improvements that are believe to be in excess of 8250,000.
Bi idgcr Appruisals Inc. ''= 55
KC1111 O'N e, 11lPy,NIA
COMPARABLE LEASE NQ. 5
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Lessor: Ann Milner Location: 238 E Main.St
Lessee: Barrel Mountaineering County: Gallatin
Confirmed By: Keith O'Reilly Terms: NNN
Confirmed With: Ann Milner Phone Number: 587-5559
Term: 5 yr Dimensions: N/A
Improvements(SF): 6,042sf Topography: Level
Age of Improvements: 100+ Water: City
Corner: No Utilities: All
Zoning: B-3 Parking: Good
Access: Paved/Good Landscaping: Good
Lease Rate: $13.40psf
Conditions of Lease: This is a true Net lease with the tenant paying all expenses. The lease renewed in April of
2004 for 5 years. The new lease was a 5%increase over the previous lease period.
Improvements: These improvements were constructed in the early 1900s and have been well updated and
maintained. The space is currently used for retail space. There is a basement area that is
leased for S 10.56ps£
BridgerAppraiszds hi c. (" 56
Kcilhf ,kcilly,':ti'AI
Location Neap of Comparable Sales
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Potential Gross Annual Income:
The potential gross income for the subject is based upon the preceding rental comparables and discussion with local
Realtors in the Bozeman market.We have reconciled at S13.00psf NNN for the main level and$6.00psf NNN for
the basement area for the subject improvements.
Operating Expenses:
Vacancy and Collection Loss:
Typical vacancy and collection loss is supported at 5.0%.
Management:
Typical property management fees range from 5%to 10%.
Deal Estate Taxes:NNN to tenant
Insurance:NNN to tenant
Net Operating Income:
Net Operating Income represents income to the property remaining after deducting all fixed and operating expenses
from the potential gross income,but before deducting financial charges such as depreciation or debt service.
Net Operating Income is the annual figure used in capitalizing income into a value indication. The appraiser
believes the Net Operating Income utilized for the subject property represents the criteria that market participants
would utilize in estimating a value for the subject by the Income Approach.
Direct Capitalization:
Direct capitalization is the conversion of anticipated net operating income into present value by dividing the income
by an appropriate rate that reflects the prevailing relationship of net operating income to selling price for comparable
properties being sold in the open market.
The appropriate rate is the overall rate(Ro)that reflects the return necessary on land and improvements to attract
investment capital. The capitalization rate is overall because it encompasses both the land and improvements,and
the interest or risk rate and building recapture rate. Income capitalization rates typically increase as investment risk
increases.
58
cithr O'F"'' 1''%,PJ
It is extremely important that the overall rate is applied in the same manner that it was derived.For example, it
would not be appropriate to obtain an overall rate from the sale of a property with a net lease and apply it to a
property with a gross lease. As well it would not be appropriate to derive a cap rate from a property that vacancy
was not accounted for and apply it to a property where vacancy is accounted for.
The general format for the income approach is:
Potential Gross Income
(Vacancy& Collection Loss)
Effective Gross Income
(Fixed and Variable Expenses)
Net Operating Income
Overall Capitalization Rate
Indication of Value
Current sales of commercial properties have been analyzed to establish a capitalization rate that is extracted from the
13ozemanMarket. Current Capitalization rates derived from the market were .070 to .086.
The reconciled cap rate is in the middle of the range at 8.0%.This rate takes into consideration the age and condition
of the improvements. Newer fully leased properties indicate an overall cap rate of approximately 7%.
! nu. F 59
Operating Income Statement
Income Projection
Property Name City Hall Analyst Keith O'Reilly
Property Address 411 E Main St Firm Bridger Appraisals, Inc.
MT,59715 Date 1111/2006
Size Number Income Market Contract Rent %of
Tenant LSF) of Units Type Rent Rent Applied Income Total
I Office Main Level 6,577 1 $ISF/Year $13.00 $0.00 Market $85,501 68.4%
2 Basement Level 6,577 1 $/SFfYear $6.00 $0.00 Market $39,462 31,6%
3 $0 0.0%
4 $0 0.0%
5 $0 0.0%
Totals 13,154 2 Potential Gross Income $124,963
Vacancy&Collection Loss 5,0%
Effective Gross Income $118,715
Other Income $0
Total Effective Gross Income $118,715
Effective Gross Income Per SF $18.05
Income Summary and Expense Projection
Income Amount %of Total
Effective Gross Income: Section 1 $118,715 100%
Total Effective Gross Income Per SF: $18.05
Expense Type %or$ Amount Per Unit
1 Management % of EGI 7.0% $8,310 $8,310
2 $0 $0
3 $0 $0
4 $0 $0
5 $0 $0
Total Expenses: $8,310 $8,310
Expense Ratio: 7%
Net Operating Income: $110,405
Net Operating Income Per SF: $16.79
Income Capitalization
Per Unit Per SF
Potential Gross Income $124,963 $124,963 $19,00
Vacancy& Collection Loss (5.0%) $6,248 $6,248 $0.95
Effective Gross Income $118,715 $118,715 $18.05
Expenses K,.O%) $8,310 $8,310 $1.26
Net Operating Income $110,405 $110,405 $16.79
Capitalization Rate 8.00% 8,00% 8.00%
Indicated Value $1,380,060 $1,380,060 $209.83
Rounded $1,380,000 $1,380,000 $209.82
60
FINAL RECONCILIATION
The process of reconciliation involves the analysis of each approach to value. The quality of data applied and the
significance of each approach 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
Cost Approach: $1,480,000
Land value: $780,000
Sales Comparison Approach: $1,370,000
Income Approach: $1,380,000
Income Approach
The available data for the income approach is,good.It is difficult to pinpoint an exact rental rate estimate per square
foot for the subject since there is not a lot of office space on the main level within the CBD, do to the fact it is not
typically allowed. $13.00psf is reasonable considering;the age and location of the subject property.The location is
good while the overall condition of the improvements is average at best and would likely require some considerable
TI's to entice a new tenant.The Overall Cap hate was applied in the same manner in which it was derived.The cap
rate utilized of 8%is reasonable and well supported with current market data.The quality and quantity of market
data for the income approach is good and the indication of market value is reasonable and reliable.
Cost Approach
The data for the cost approach to value is a little more subjective since there are no current sales of vacant land tracts
within the CBD.The land value was determined through a feasibility study in the Highest and Best Use Section of
the report.The last land sale that took place in the CBD was several years ago and the property can more commonly
be described as the land below the Jacob's Crossing Building.At that time the estimated sales price was between
$30.00 and$35.00psf. The reconciled value for this appraisal is,$37,00psf which quite frankly is believed to be on
the lower end of the range.Depreciation and cost are well supported with current market data.The estimated value
for the cost approach is the highest of the three values basically bee anse of the high value of the subject site due to
the location in the CBD.
61
Sales Comparison Approach
The data for the sales comparison approach supports the final estimated value.The lack of truly comparable sales is
limited because properties like the subject in the CBD do not transfer often. Sale two has been given the most
consideration due to the fact that it was purchased by a Title company which remodeled the entire building.
Certainly the subject property would have been an ideal property for that type of business. The sales comparison
approach is probably the weakest of the three approaches but gives good and reasonable approach to the final
estimated value.
Value Conclusions
The cost approach and the income approach have been given the most consideration in the final valuation process.
The highest and best use analysis does not support razing the current improvements on the site.There is still
economic life left in the subject improvements. The quality and quantity of market data is good and the indication
of value is reasonable and reliable.
Based on the data and analyses developed in this appraisal,we have reconciled to the following value conclusions,
as of January 11, 2006,subject to the Limiting Conditions and Assumptions of this appraisal,
Reconciled Value Conclusion: Premise: "As Is"
Estate:Fee Simple
Value Conclusion: $1,400,000
As a result of our investigation and analysis,it is our opinion that the Market Value of the Fee Simple
Interest,"As Is",in the subject property,as of January 11,2006,is:
ONE MILLION FOUR HUNDRED THOUSAND DOLLARS
($1,400,000)
App ,,,d,Inc- 62
CERTIFICATION
As a result of a request for an appraisal assignment of the property,identified as:
City Hall
411 E Main St
Bozeman MT 59715
We certify:
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 is my personal,unbiased professional analyses,opinions,and conclusions.
The appraisal assignment was not based on a requested minimum valuation, a specific valuation,or the approval of a
loan.
We have no present or prospective 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 accordance with the
standards and reporting requirements of and in conformity with the requirements of the Code of Professional Ethics
and the Standards of Professional Practice of the Appraisal Institute,and the Uniform Standards of Professional.
Appraisal Practice(USPAP)published and copyrighted by the Appraisal Foundation,
Keith O'Reilly and,ferry Gossel have made a personal inspection of the property that is the subject of this report.
No person other that the appraiser signing this report provided significant professional assistance to the persons
signing this report,
Further,the value reported is based upon cash in U.S. dollars or in terms of similar financial arrangements.
3rid..ai .1�7�aiA .i 4r3�, tt. 63
The reported analyses,opinions and conclusions were developed,and this report has been prepared in conformity
with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute,
The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly
authorized representatives.
As of the date of this report, 1, Keith O'Reilly,MAT,have completed the continuing education program of the
Appraisal Institute,
As a result of our investigation and analysis,it is our opinion that the Market Value of the Fee Simple
Interest, "As Is",in the subject property,as of January 11,2006,is:
ONE MILLION FOUR HUNDRED THOUSAND DOLLARS
($1,400,000)
Respectfully Submitted,
Keith O'Reilly,MAI
General Certified Appraiser#400
State of Montana
Jerry Gossel
General Certified Appraiser#106
State of Montana
Inc. < 64
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